Putnam
Tax-Free
High Yield
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
7-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Risk-averse investors became more adventuresome in recent months and began
to retreat from the relative security of U.S. Treasury bonds. As prices on
these and other taxable bonds declined, their yields rose. The exodus
accelerated somewhat following Federal Reserve Board Chairman Alan
Greenspan's comments in July that tighter monetary policy might help stave
off inflation.
Since this shift in investor mood had a relatively mild impact on
tax-exempt bonds, the result was a slight widening in the yield spread
relative to taxable bonds. With the gap back around a more traditional 90%
- -- a modest retreat from earlier ratios of close to 100% -- municipal
bonds are now considered to be at fair value.
In this investment climate, Putnam Tax-Free High Yield Fund's manager,
Blake Anderson, continues to place heavy emphasis on maximizing current
income while maintaining a portfolio as free of volatility as possible.
Blake explains his strategies in the following review of your fund's
performance during the fiscal year that ended on July 31, 1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
September 15, 1999
Report from the Fund Manager
Blake E. Anderson
The municipal bond market has come under pressure in the past few months
- -- primarily because of rising interest rates. Low supply and slightly
higher demand provided more of a cushion for municipal bond prices,
compared to taxable bonds, but the result was a dampening of performance
over the 12 months ended July 31, 1999. However, our focus on higher
quality and on strong call protection enabled Putnam Tax-Free High Yield
Fund to keep producing attractive levels of tax-free income, the objective
of your fund.
Total return for 12 months ended 7/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------
2.25% -2.62% 1.81% -3.03% 1.35% 0.39% 2.01% -1.30%
- -------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* MUNICIPAL BOND PRICES LOWER BUT STILL ATTRACTIVE
The worldwide flight to quality that pushed down Treasury yields so
dramatically last fall reversed itself completely as the new year began.
In January, investors regained their appetite for higher-risk,
higher-reward investments and began to sell their Treasury holdings.
Municipal bonds sold off a bit too, although not to the same extent as
Treasuries. At the end of the 1999 fiscal year, they were considered to be
at fair value with yields roughly 90% of Treasury yields.
As interest rates climbed this year, municipal new-issue volume dropped,
with supply falling 25% compared to last year's levels. On the demand
side, cash flow into municipal bonds increased slightly, a by-product of a
volatile stock market and investors' needs to rebalance their portfolios.
The ensuing supply/demand relationship is positive for municipal bonds and
should strengthen their resistance to rising interest rates.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 25.6%
Transportation 14.3%
Utilities 13.2%
Housing 8.2%
Forest and
paper products 5.4%
Footnote reads:
*Based on net assets as of 7/31/99. Holdings will vary over time.
In January, the yield curve began to steepen, with long-term interest
rates going up faster than short-term rates. The curve then flattened out
in the second quarter, meaning there was little difference between short
and long rates. In this environment, the fund has maintained a bulleted
portfolio, concentrating its investments in intermediate bonds. This
middle-of-the-yield-curve strategy underperformed at first but is now
beginning to work well as the value in this maturity range becomes more
evident.
As the period drew to a close, yield spreads between higher- and
lower-grade municipal securities began to widen slightly. For the fund,
this provided an opportunity to renew our emphasis on higher-income
investments. Lower-rated securities are again beginning to compensate
investors with higher yields in exchange for additional risk, and we are
selectively adding them to the portfolio.
* CREDIT RESEARCH REMAINS A TOP PRIORITY
While interest-rate changes and adjustments in the yield curve certainly
influence our investment strategy, its foundation has always been
individual selection of securities and in-depth credit analysis. Generally
speaking, opportunity comes from choosing bonds correctly not from overall
sector performance or yield curve positioning. Security and credit
research becomes even more important when we invest in lower-rated
higher-yielding bonds. These can add tremendously to a fund's income
level, but they also mean greater credit risk and require the most
meticulous research efforts.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
B and under -- 23.9%
Ba/BB -- 17.4%
Baa/BBB -- 15.7%
VMIG1/A-1 -- 0.3%
Aaa/AAA -- 33.9%
Aa/AA -- 6.0%
A -- 2.8%
Footnote reads:
*As a percentage of market value as of 7/31/99. A bond rated Baa/BBB or
higher is considered investment grade. All ratings reflect Moody's 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.
Security selection remains our primary strategy for improving the fund's
income and total return. In selecting holdings in recent months, however,
we have identified three industry sectors in which we feel taking on a bit
more credit risk can have particularly rewarding results --
transportation, health care, and utilities.
"As the period drew to a close, yield spreads between higher- and lower-grade
municipal securities began to widen slightly. For the fund, this provided an
opportunity to renew our emphasis on higher-income investments."
-- Blake E. Anderson, fund manager
The economy's strength continues to provide solid underpinnings for the
transportation industry, especially airlines and airports, and many of
these issuers enjoy broad market diversification. Their bonds, in turn,
provide the fund with a generous flow of income.
In health care, despite concerns around year 2000 (Y2K) computer issues
and changing Medicare and Medicaid reimbursement policies, positive trends
toward cost containment and improved operating efficiency continue to
provide opportunities.
In the utilities sector, while deregulation and restructuring are still in
the early stages, diligent credit research has enabled us to identify some
attractively valued bonds from issuers with low cost structures, positive
business strategies, and adequate resources for recovering costs incurred
during the era of regulation.
* MUNICIPAL BONDS STILL OFFER VALUE
By most historical measures of fixed-income value and of inflation,
municipal bonds continue to offer an attractive rate of return. Real
interest rates for taxable fixed-income securities are relatively high,
given that inflation was 0% last year and is running at only 2% so far
this year.
With the economy continuing to exhibit strength and the Fed's vow to
preempt inflation, interest rates may move upward in the coming months.
Accordingly we remain cautious, focused on minimizing the portfolio's
volatility and enhancing the tax-exempt income stream.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 7/31/99, 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 from
federal income tax through investments primarily in high yield tax-exempt
securities.
TOTAL RETURN FOR PERIODS ENDED 7/31/99
Class A Class B Class C Class M
(inception dates) (9/20/93) (9/9/85) (2/1/99) (12/29/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- -------------------------------------------------------------------------------
1 year 2.25% -2.62% 1.81% -3.03% 1.35% 0.39% 2.01% -1.30%
- -------------------------------------------------------------------------------
5 years 33.97 27.62 30.06 28.07 28.54 28.54 31.75 27.45
Annual average 6.02 5.00 5.40 5.07 5.15 5.15 5.67 4.97
- -------------------------------------------------------------------------------
10 years 91.40 82.34 84.74 84.74 76.32 76.32 87.13 81.05
Annual average 6.71 6.19 6.33 6.33 5.84 5.84 6.47 6.12
- -------------------------------------------------------------------------------
Life of fund 193.03 179.04 182.83 182.83 161.78 161.78 186.49 177.24
Annual average 8.05 7.67 7.77 7.77 7.17 7.17 7.87 7.62
- -------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 7/31/99
Lehman
Brothers Municipal Consumer
Bond Index price index
- -------------------------------------------------------------------------------
1 year 2.88% 2.14%
- -------------------------------------------------------------------------------
5 years 38.27 12.33
Annual average 6.70 2.35
- -------------------------------------------------------------------------------
10 years 102.79 34.00
Annual average 7.33 2.97
- -------------------------------------------------------------------------------
Life of fund 212.87 54.35
Annual average 8.54 3.17
- -------------------------------------------------------------------------------
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-year and
life-of-fund 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. For
class C shares, returns for periods prior to their inception are derived
from the historical performance of class B shares, adjusted to reflect
both the CDSC currently applicable to class C shares, which is 1% for the
first year and is eliminated thereafter, and the higher operating expenses
applicable to class C 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/31/89
Lehman Brothers
Fund's class B Municipal Bond Consumer price
Date shares Index index
7/31/89 10,000 10,000 10,000
7/31/90 10,419 10,693 10,482
7/31/91 11,146 11,627 10,949
7/31/92 12,774 13,224 11,294
7/31/93 14,011 14,394 11,608
7/31/94 14,202 14,667 11,929
7/31/95 14,989 15,823 12,259
7/31/96 15,750 16,867 12,621
7/31/97 17,208 18,599 12,902
7/31/98 18,144 19,712 13,119
7/31/99 $18,474 $20,279 $13,400
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class C shares would have
been valued at $17,632 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class A and class M shares would
have been valued at $19,140 and $18,713 ($18,234 and $18,105 at public
offering price).
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 7/31/99
Class A Class B Class C Class M
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 6 12
- ----------------------------------------------------------------------------------------
Income $0.808538 $0.736325 $0.360296 $0.765117
- ----------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- ----------------------------------------------------------------------------------------
Total $0.808538 $0.736325 $0.360296 $0.765117
- ----------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ----------------------------------------------------------------------------------------
7/31/98 $14.61 $15.34 $14.62 -- $14.61 $15.10
- ----------------------------------------------------------------------------------------
2/1/99* -- -- -- $14.73 -- --
- ----------------------------------------------------------------------------------------
7/31/99 14.13 14.83 14.15 14.13 14.14 14.61
- ----------------------------------------------------------------------------------------
Current return (end of period)
- ----------------------------------------------------------------------------------------
Current dividend rate2 5.68% 5.41% 5.18% 4.86% 5.39% 5.22%
- ----------------------------------------------------------------------------------------
Taxable equivalent3 9.40 8.96 8.58 8.05 8.92 8.64
- ----------------------------------------------------------------------------------------
Current 30-day SEC yield4 5.10 4.85 4.60 4.16 4.79 4.63
- ----------------------------------------------------------------------------------------
Taxable equivalent3 8.44 8.03 7.62 6.89 7.93 7.67
- ----------------------------------------------------------------------------------------
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.
*Inception date of class C shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (9/20/93) (9/9/85) (2/1/99) (12/29/94)
NAV POP NAV CDSC NAV CDSC NAV POP
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 2.17% -2.68% 1.65% -3.18% 1.22% 0.26% 1.86% -1.43%
- --------------------------------------------------------------------------------
5 years 35.80 29.38 31.80 29.80 30.26 30.26 33.40 29.10
Annual average 6.31 5.29 5.68 5.36 5.43 5.43 5.93 5.24
- --------------------------------------------------------------------------------
10 years 92.53 83.37 85.88 85.88 77.38 77.38 88.13 82.01
Annual average 6.77 6.25 6.40 6.40 5.90 5.90 6.52 6.17
- --------------------------------------------------------------------------------
Life of fund 192.44 178.48 182.38 182.38 161.29 161.29 185.78 176.56
Annual average 8.09 7.70 7.81 7.81 7.21 7.21 7.91 7.65
- --------------------------------------------------------------------------------
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
performance calculation method.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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.
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New features will be added to the site regularly. So be sure to bookmark us
at http://www.putnaminv.com
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended July 31, 1999
To the Trustees and Shareholders of
Putnam Tax-Free High Yield Fund
(a series of Putnam Tax-Free Income Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (except for bond ratings), and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of Putnam Tax-Free High Yield Fund (the "fund") at July 31, 1999,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at July 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
July 31, 1999
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
FRB -- Floating Rate Bonds
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
PSFG -- Permanent School Fund Guaranteed
TRAN -- Tax Revenue Anticipation Notes
U.S. Govt. Coll. -- U.S. Government Collateralized
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.6%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Anniston, Indl. Dev. Rev. Bonds (Hoover Group Inc.),
8 1/2s, 9/1/10 B/P $ 5,487,500
3,500,000 Baldwin Cnty., Eastern Shore Hlth. Care Auth. Rev.
Bonds, 5 3/4s, 4/1/27 Baa3 3,425,625
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- 9,825,000
2,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 2,277,500
3,750,000 Jefferson Cnty., Swr. Rev. Bond (Rites-PA), Ser. 487-R
FRB, 8.2s, 2/1/38 (acquired 3/23/99,
cost $4,290,150) (RES) AAA 3,895,313
--------------
24,910,938
Alaska (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 AK Hsg. Fin. Auth. IFB, 8s, 12/1/19 (acquired 3/3/98,
cost $11,113,800) (RES) AAA/P 10,712,500
AK State Hsg. Fin. Corp. Rev. Bonds
3,265,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $3,473,960) (RES) AA/P 3,399,681
11,870,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97,
cost $12,018,375) (RES) Aaa 11,706,788
--------------
25,818,969
Arizona (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
$ 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 4,793,750
6,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 B1 5,872,500
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 3,815,313
2,300,000 Scottsdale, Indl. Dev. Auth. 1st Mtge. Rev. Bonds
(Westminster Village), Ser. A, 8s, 6/1/11 BB-/P 2,518,500
--------------
17,000,063
Arkansas (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
Northwest Regl. Apt. Auth. Rev. Bonds
14,500,000 7 5/8s, 2/1/27 BB-/P 16,656,875
3,000,000 7s, 2/1/10 BB-/P 3,225,000
--------------
19,881,875
California (10.6%)
- --------------------------------------------------------------------------------------------------------------------------
ABAG Fin. Auth. COP (American
Baptist Homes), Ser. A
7,000,000 5.85s, 10/1/27 BBB 7,043,750
3,000,000 5 3/4s, 10/1/17 BBB 3,018,750
Anaheim, Pub. Fin. Auth. Lease Rev. Bonds,
Ser. C, FSA
3,025,000 6s, 9/1/14 Aaa 3,308,594
3,000,000 6s, 9/1/13 Aaa 3,285,000
4,000,000 6s, 9/1/11 (SEG) Aaa 4,375,000
5,000,000 CA Poll. Control Fin. Auth. Rev. Bonds
(Laidlaw Environmental), Ser. A, 6.7s, 7/1/07 B/P 5,231,250
13,700,000 CA State G.O. Bonds, 6 1/2s, 2/1/08 AA- 15,481,000
6,500,000 CA Statewide Cmnty. Dev. Auth. COP
(The Internext Group), 5 3/8s, 4/1/30 BBB 5,980,000
2,800,000 Colton, Comnty. Fac. Dist. Special Tax Bonds
(MT. Vernon Corridor), 7 1/2s, 9/1/20 B/P 2,684,500
8,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B, 9 1/2s,
7/1/20 (acquired from 10/23/92 to 5/29/97,
cost $8,225,000) (RES) B-/P 8,000,000
7,500,000 Foothill/Eastern CA, Corridor Agcy. Toll Road
Rev. Bonds, 1/15/20 BBB- 4,228,125
Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev. Bonds
5,700,000 (Air Canada), 8 3/4s, 10/1/14 Ba3 6,448,125
5,070,000 (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 5,431,238
5,000,000 Los Angeles, Wastewater Syst. IFB, FGIC, 7.566s,
11/1/06 (acquired 11/8/93, cost $5,417,200) (RES) Aaa 5,493,750
Redondo Beach, Redev. Agcy. Multi-Fam. Hsg.
Rev. Bonds (Heritage Point)
3,115,000 Ser. B, 8 1/2s, 8/1/23 BBB/P 3,266,856
5,100,000 Ser. A, 6 1/2s, 9/1/23 BBB/P 5,310,375
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 Aaa 5,700,000
21,000,000 San Bernardino Cnty., IF COP (PA-100-Med.
Ctr. Fin.), MBIA, 6 1/2s, 8/1/28 (acquired 6/27/95,
cost $22,664,040) (RES) AAA/P 26,250,000
10,000,000 San Diego, Regl. Bldg. Auth. Lease COP, MBIA,
6.9s, 5/1/23 Aaa 10,300,000
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 10,000,000
10,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 9,750,000
9,650,000 Southern CA Pub. Pwr. Auth. IFB (Transmission),
8.773s, 7/1/12 Aa3 10,602,937
19,100,000 Vallejo, COP (Marine World Foundation), 7.2s, 2/1/26 BB+/P 20,819,000
10,500,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BBB- 11,103,750
Valley Hlth. Syst. Hosp. Rev. Bonds
1,500,000 6 1/2s, 5/15/25 BBB- 1,573,125
3,000,000 Ser. A, 6 1/2s, 5/15/15 BBB- 3,161,250
6,000,000 Ventura, Port. Dist. COP, 6 3/8s, 8/1/28 B/P 5,820,000
--------------
203,666,375
Colorado (6.0%)
- --------------------------------------------------------------------------------------------------------------------------
13,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy. Rev.
Bonds, Ser. E-470, 7s, 8/31/26 Aaa 15,015,000
CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.)
10,000,000 8 3/8s, 12/1/26 B/P 11,600,000
5,000,000 8.3s, 12/1/17 B/P 5,793,750
9,500,000 CO Hsg. Fin. Auth. Rev. Bonds, Ser. Ser. C-3, FHA
Insd., 5.7s, 10/1/21 AA+ 9,345,625
Denver, City & Cnty. Arpt. Rev. Bonds
17,925,000 Ser. A, 8 3/4s, 11/15/23 Baa1 19,650,281
6,475,000 Ser. A, 8 3/4s, 11/15/23, prerefunded Aaa 7,227,719
7,355,000 Ser. A, MBIA, 8 3/4s, 11/15/23 Aaa 8,191,631
2,645,000 Ser. A, MBIA, 8 3/4s, 11/15/23, prerefunded Aaa 2,952,481
11,650,000 Ser. A, MBIA, 8 1/2s, 11/15/23 Aaa 12,494,625
1,100,000 Ser. A, MBIA, 8 1/2s, 11/15/23, prerefunded Aaa 1,183,875
8,000,000 Ser. D, MBIA, 7 3/4s, 11/15/13 Aaa 9,980,000
3,915,000 Ser. A, 7 1/4s, 11/15/25 AAA 4,345,650
6,350,000 Douglas Cnty., School Distr. G.O. Bonds
(North Regl. 1, Douglas & Elebert Cntys.),
MBIA, 7s, 12/15/12 Aaa 7,532,688
--------------
115,313,325
Connecticut (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,275,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 7,161,344
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
4,944,567 Ser. A, 7 3/4s, 11/1/17 CCC/P 4,833,314
457,428 Ser. B, zero %, 3/1/21 CCC/P 86,911
5,500,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
9.09s, 6/10/30 Aaa 5,995,000
6,500,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 6,857,500
--------------
24,934,069
District of Columbia (3.9%)
- --------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds
17,000,000 Ser. A, 6 3/8s, 6/1/26 AAA 18,955,000
10,000,000 Ser. A, 6s, 6/1/26 BBB 10,350,000
7,220,000 Ser. B, MBIA, 6s, 6/1/12 Aaa 7,743,450
10,000,000 Ser. B, MBIA, 6s, 6/1/11 Aaa 10,687,500
DC Rev. Bonds (National Public Radio)
4,400,000 7.7s, 1/1/23 BB+/P 4,834,500
2,500,000 7 5/8s, 1/1/18 BB+/P 2,740,625
18,630,000 DC Rev. Bonds COP, 7.3s, 1/1/13 BBB- 20,399,850
--------------
75,710,925
Florida (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
9,260,000 Brevard Cnty., Hlth. Auth. Rev. Bonds (Courtenay
Springs Village), 7 3/4s, 11/15/24 AAA/P 10,834,200
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 6,041,175
24,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds (FL Crushed
Stone Co.), 8 1/2s, 12/1/14 B+/P 27,180,000
5,970,000 Hillsborough Cnty., Aviation Auth. Special Purpose
Fac. Rev. Bonds (U.S. Air Inc.), 8.6s, 1/15/22 B1 6,537,150
1,050,000 Jacksonville, Hlth. Fac. Auth. Rev. Bonds
(Mental Hlth. Ctr.), 9 1/8s, 10/15/19 B/P 1,067,903
3,895,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 3,797,625
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals Inc.), Ser. A
3,125,000 7 3/4s, 5/1/21 BB/P 3,398,437
2,880,000 7 1/2s, 5/1/15 BB/P 3,106,800
4,000,000 Volusia Cnty., Edl. Fac. Auth. Rev. Bonds
(Embry Riddle), Ser. B, AMBAC, 5 1/2s, 10/15/14 AAA/P 4,030,000
--------------
65,993,290
Georgia (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,100,000 Cobb Cnty., Dev. Auth. Indl. Dev. Rev. Bonds
(Boise Cascade Corp.), 7s, 9/1/14 Baa3 5,495,250
De Kalb Cnty., Hsg. Auth. Muni. Rev. Bonds
(Briarcliff Park Apts.),
8,000,000 Ser. B, 10s, 4/1/17 AAA 9,390,000
5,900,000 Ser. A, 7 1/2s, 4/1/17 AAA 6,490,000
9,500,000 Forsyth Cnty., Dev. Auth. Indl. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/05 B/P 10,758,750
6,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds
(GA Baptist Hlth. Care Syst.), 6 3/8s, 10/1/28 B/P 5,880,000
3,700,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 3 1/4s, 8/1/26 A-1 3,700,000
9,200,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds, Ser. B, FSA,
6 3/8s, 1/1/16 Aaa 10,223,500
Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.)
5,875,000 7 1/2s, 1/1/26 BB/P 6,168,750
13,820,000 7.4s, 1/1/16 BB/P 14,511,000
3,160,000 Savannah, Econ. Dev. Auth. Poll. Control Rev. Bonds
(Stone Container Corp.), 8 1/8s, 7/1/15 B/P 3,555,000
--------------
76,172,250
Hawaii (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
HI State G.O. Bonds
8,330,000 Ser. CM, FGIC, 6 1/2s, 12/1/16 Aaa 9,485,781
5,330,000 Ser. C, FGIC, 6 1/2s, 12/1/15 Aaa 6,069,538
5,000,000 Ser. C, FGIC, 6 1/2s, 12/1/14 Aaa 5,687,500
--------------
21,242,819
Illinois (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Gas Supply Rev. Bonds (Peoples Gas & Lt.),
Ser. A, 6 7/8s, 3/1/15 Aa3 5,387,500
2,035,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 2,192,713
3,000,000 East Chicago, Ind. Exempt Fac Rev. Bonds
(Ispat Inland, Inc.), 7s, 1/1/14 B1 2,947,500
4,053,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB/P 4,022,603
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 $4,777,700) (RES)
(In default) (NON) D/P 3,850,000
1,140,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 1,283,925
IL Dev. Fin. Auth. Rev. Bonds (Cmnty. Rehab.
Providers Fac.)
1,805,000 8 1/4s, 8/1/12 (acquired 8/4/92, cost $1,805,000) (RES) BB/P 1,744,081
2,450,000 Ser. A, 7 7/8s, 7/1/20 BB/P 2,897,125
4,670,000 Ser. A, 7 7/8s, 7/1/20, prerefunded AAA/P 5,510,600
3,065,000 Ser. A, 7 1/2s, 3/1/14 BB/P 3,459,619
735,000 Ser. A, 7 1/4s, 3/1/04 BB/P 784,612
IL Hlth. Fac. Auth. Rev. Bonds
5,860,000 (Victor C. Neumann Associates), 7 1/4s, 7/1/18 B/P 5,757,450
3,000,000 (Glen Oaks Med. Ctr.), Ser. B, 7s, 11/15/19 AAA 3,315,000
3,000,000 (Hinsdale Hosp.), Ser. A, 7s, 11/15/19 Baa1 3,315,000
5,000,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 AAA 5,912,500
5,170,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 Baa1 6,113,525
--------------
58,493,753
Indiana (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
East Chicago, Poll. Control Rev. Bonds
(Inland Steel Co.)
$12,000,000 7 1/8s, 6/1/07 B1 12,420,000
14,295,000 6.8s, 6/1/13 BB 14,366,475
8,200,000 IN State Dev. Fin. Auth. Rev. Bonds (USX Corp.),
5.6s, 12/1/32 Baa2 7,718,250
4,500,000 Plainfield Indl. Econ. Dev. Rev. Bonds
(Earl M. Jorgensen Co.), 8 1/2s, 9/1/04 B-/P 4,843,125
1,630,149 Westfield, Econ. Dev. Rev. Bonds (Westfield Village
Hlth. Care Ctr.), FHA Insd., 12s, 5/15/14 AAA/P 1,688,509
--------------
41,036,359
Iowa (1.6%)
- --------------------------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives)
22,000,000 9 1/4s, 7/1/25 BB/P 29,012,500
1,415,000 9.15s, 7/1/09 BB/P 1,784,669
210,000 Marion Cnty., 1st Mtge. Rev. Bonds
(AHF/Kentucky Iowa, Inc.), 10 1/4s, 1/1/20 B-/P 217,050
--------------
31,014,219
Kentucky (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
Jefferson Cnty., Hosp. IFB, MBIA
3,500,000 9.242s, 10/23/14 Aaa 3,933,125
1,500,000 6.436s, 10/23/14 Aaa 1,743,750
1,235,000 Lexington-Fayette Cnty., Urban Govt. 1st Mtge. Rev.
Bonds (AHF/Kentucky Iowa, Inc.), 10 1/4s, 1/1/20 B-/P 1,276,459
--------------
6,953,334
Louisiana (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,900,000 Beauregard, Parish Rev. Bonds (Boise
Cascade Corp.), 7 3/4s, 6/1/21 Baa3 3,081,250
8,050,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 8,356,222
7,000,000 LA Hlth. Ed. Auth. Rev. Bonds (Lambert House),
Ser. A, 6.2s, 1/1/28 B/P 6,763,750
2,000,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,202,500
20,500,000 Lake Charles, Harbor & Term. Dist. Port Fac. Rev.
Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 22,780,625
7,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 6,982,500
6,500,000 St. Charles Parish, Poll. Control Rev. Bonds
(LA Pwr. & Lt. Co.), 8s, 12/1/14 Baa3 6,752,590
St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum)
9,000,000 7 3/4s, 8/1/22 B-/P 9,697,500
19,000,000 7.7s, 12/1/14 Ba1 20,520,000
6,000,000 W. Feliciana, Parish Poll. Control Rev. Bonds
(Gulf States Util. Co.), 8s, 12/1/24 Ba1 6,176,280
--------------
93,313,217
Maryland (0.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B/P 2,784,375
Massachusetts (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,705,000 Agawam, Res. Recvy. Rev. Bonds (Springfield
Res. Recvy.), 8 1/2s, 12/1/08 BBB- 3,742,050
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 5,812,500
MA State Dev. Fin. Agcy. Rev. Bonds
4,210,000 (Alden Place), 6 3/4s, 7/1/30 B/P 4,067,913
6,110,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 5,903,788
9,665,000 MA State G.O. Bonds, Ser. 35, FRB 9.52s, 11/1/11
(acquired 8/13/98, cost $11,993,298) (RES) Aa3 11,211,400
MA State Hlth. & Edl. Fac. Auth. IFB
5,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s, 8/12/21 Aaa 5,600,000
5,600,000 (Boston U.), Ser. L, MBIA, 9.289s, 7/1/25 Aaa 6,160,000
2,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
8.46s, 10/1/31 Aaa 2,242,500
3,325,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 3,582,687
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 4,405,000
30,635,000 Ser. A, 9s, 7/1/15 BB-/P 33,660,206
MA State Indl. Fin. Agcy. Rev. Bonds
1,700,000 (Atlanticare Med. Ctr.), Ser. A, 10 1/8s, 11/1/14 B/P 1,760,554
5,700,000 (Atlanticare Med. Ctr.), Ser. B, 10 1/8s, 11/1/14 B/P 5,903,034
8,800,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 10,087,000
2,295,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,469,994
3,000,000 (Emerson College), 8 1/4s, 1/1/17 BBB-/P 3,326,250
5,000,000 (Evanswood Bethzatha Corp.), 8s, 1/15/27 B/P 5,218,750
3,500,000 (1st Mtge. Evanswood Bethzatha-A),
7 7/8s, 1/15/20 B/P 3,727,500
2,065,000 (Sr. Living Fac. Forge Hill), 7s, 4/1/17 B/P 2,026,281
5,000,000 MA State Special Oblig. Rev. Bonds, Ser. A,
5 3/8s, 6/1/11 AA 5,131,250
3,880,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB-/P 4,374,700
--------------
130,413,357
Michigan (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,495,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 (SEG) B+/P 2,555,778
19,940,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 23,429,500
4,100,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 5 1/2s, 5/1/21 A2 3,910,375
Garden City, Hosp. Fin. Auth. Rev. Bonds
3,000,000 (Garden City Hosp.), Ser. A, 5 3/4s, 9/1/17 BBB-/P 2,898,750
3,000,000 (Garden City Hosp. OB Group), Ser. A,
5 5/8s, 9/1/10 BBB-/P 2,921,250
3,435,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.), 8.3s, 9/1/02 Ba3 3,726,975
7,500,000 MI State Strategic Fund Ltd. Oblig. IFB, 9.496s,
9/1/25 (acquired 3/9/98, cost $9,018,750) (RES) Aaa 8,653,125
5,600,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 5,953,864
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 7,387,500
26,955,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 28,482,809
5,600,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 (acquired 12/31/98,
cost $5,825,760) (RES) B-/P 5,208,000
4,000,000 Wayne Charter Cnty., Special Arpt. Facs. Rev. Bonds
(Northwest Airlines), 6s, 12/1/29 BB+/P 3,960,000
--------------
99,087,926
Minnesota (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,850,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 3,058,364
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 BBB- 5,456,250
2,200,000 Minneapolis Rev. Bonds (Walker Methodist Sr. Svcs.),
Ser. A, 6s, 11/15/28 BBB/P 2,134,000
6,415,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 6,623,488
3,200,000 Shakopee Multi-Fam. Adj. Rate Rev. Bonds
(Riva Ridge Apts.), 8 1/2s, 12/1/08 B-/P 3,200,000
--------------
20,472,102
Montana (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
13,850,000 MT State Hlth. Fac. Auth. Hosp. Fac. IFB, AMBAC,
6.448s, 2/25/25 Aaa 12,949,750
Nebraska (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B/P 4,287,500
2,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.234s, 11/15/16 Aaa 2,250,000
12,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. D, GNMA Coll., 8.881s, 3/1/26 Aaa 12,447,875
--------------
18,985,375
New Hampshire (3.0%)
- --------------------------------------------------------------------------------------------------------------------------
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 2,902,006
2,325,000 (Franklin Regl. Hosp.), 8 3/4s, 9/1/19 BBB/P 2,518,463
9,000,000 (1st Mtge.- Rivermead Peterborough),
8 1/2s, 7/1/24 AAA 10,710,000
5,900,000 (Havenwood-Heritage Heights), 7.35s, 1/1/18 BB/P 6,445,750
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 AAA 2,831,250
4,100,000 (Lakes Region Hosp.), 5 3/4s, 1/1/08 A-/P 4,171,750
9,200,000 NH State Bus. Fin. Auth. Poll. Control & Solid Waste
Rev. Bonds (Crown Paper Co.), 7 3/4s, 1/1/22 B 9,027,500
12,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 BBB- 11,895,000
NH State Bus. Fin. Auth. Rev. Bonds
4,000,000 (Franklin Regl. Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 3,855,000
3,550,000 (Proctor Academy), Ser. A, 5.6s, 6/1/28 Baa2 3,416,875
--------------
57,773,594
New Jersey (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
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 5,475,000
5,250,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 5,125,313
NJ Econ. Dev. Auth. Rev. Bonds
7,000,000 (Winchester Gardens), Ser. A, 8 5/8s, 11/1/25 B/P 7,901,250
12,000,000 (Newark Arpt. Marriot Hotel), 7s, 10/1/14 BBB/P 13,185,000
4,780,000 NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
(St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 5,047,776
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I,
9.242s, 11/1/07 (acquired from 2/11/93 to
8/24/95, cost $4,143,120) (RES) A+ 4,360,000
10,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. B, MBIA, 6 1/2s, 6/15/10 Aaa 11,312,500
5,905,000 NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment), Ser. C, 6 7/8s, 6/15/08 Aa2 6,768,606
4,000,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds,
8.841s, 10/1/29 (acquired 10/28/94,
cost $3,785,680) (RES) Aaa 4,725,000
--------------
63,900,445
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 9,742,500
New York (9.0%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 Colonie, Indl. Dev. Agcy. Rev. Bonds (Cap.
Compost & Waste), Ser. A, 6 3/4s, 6/1/21 B/P 3,289,500
7,000,000 Erie Cnty., Indl. Dev. Life Care Cmnty. Rev. Bonds
(Episcopal Church Home), Ser. A, 6s, 2/1/28 B+/P 6,833,750
13,640,000 Metropolitan Trans. Auth. Fac. Rev. Bonds, Ser. A,
MBIA, 6 1/4s, 4/1/12 Aaa 15,123,350
Metropolitan Trans. Auth. Svcs. Contract
Fac. Rev. Bonds
4,000,000 (Commuter Fac.), Ser. O, 5 3/4s, 7/1/13 Baa1 4,195,000
8,250,000 (Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 Baa1 8,652,188
NY City, Indl. Dev. Agcy. Rev. Bonds
1,000,000 (Visy Paper Inc.), 7.95s, 1/1/28 B/P 1,086,250
9,000,000 (Paper Inc.), 7.8s, 1/1/16 B/P 9,753,750
4,000,000 (Field Hotel Assoc.), 6s, 11/1/28 B/P 3,895,000
1,800,000 NY City, Indl. Dev. Agcy. VRDN (American
Civil Liberties), 2.95s, 6/1/12 VMIG1 1,800,000
5,000,000 NY City, Muni. Assistance Corp. IFB, Ser. 337B, 8.2s,
7/1/08 (acquired 3/19/98, cost $6,225,100) (RES) AA 5,793,750
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 5,781,250
6,280,000 NY City, Rev. Bonds, 6s, 8/1/06 (acquired 9/12/97,
cost $7,384,526) (RES) BBB+ 7,261,250
10,750,000 NY State Dorm. Auth. IFB, MBIA, 7.45s, 7/1/13
(acquired 10/22/97, cost $12,362,500) (RES) AAA/P 11,999,688
7,200,000 NY State Dorm. Auth. Rev. Bonds (State Ed. Fac.),
Ser. A, FGIC, 5 7/8s, 5/15/11 AAA 7,713,000
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 9,980,000
5,000,000 NY State Energy Res. & Dev. Auth. Poll. Control
Rev. Bonds (Lilco Project), Ser. B, 5.15s, 3/1/16 A- 4,781,250
11,185,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $13,449,962) (RES) Aaa 13,100,431
12,590,000 NY State G.O. Bonds, 6s, 3/1/07 A2 13,628,675
5,500,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 6,132,500
9,750,000 NY State Pwr. Auth. Rev. Bonds, Ser. Z,
6 1/2s, 1/1/19 Aa2 10,456,875
7,000,000 NY State Urban Dev. Corp. Rev. Bonds,
7 1/2s, 4/1/20 Aaa 7,525,000
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B/P 5,093,750
7,000,000 Port Auth. NY & NJ Rev. Bonds (Delta Airlines, Inc.),
Ser. 1R, 6.95s, 6/1/08 Baa3 7,463,750
3,000,000 Port Auth. NY & NJ Rev. Bonds Cons., Ser. 78,
MBIA, 4 3/4s, 1/1/24 Aaa 2,681,250
--------------
174,021,207
North Carolina (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B
4,000,000 MBIA, 7s, 1/1/08 Aaa 4,580,000
14,940,000 MBIA, 6 1/8s, 1/1/09 Aaa 16,340,625
7,500,000 NC Muni. Pwr. Agcy. Rev. Bonds (No. 1,
Catawba Elec.), MBIA, 6s, 1/1/11 Aaa 8,165,625
--------------
29,086,250
Ohio (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,150,000 OH State Solid Waste Rev. Bonds, 8 1/2s,
8/1/22 (CSC Ltd.) B-/P 6,342,188
Oklahoma (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 OK Dev. Fin. Auth. Indl. Dev. Rev. Bonds
(Doane Products Co.), 6 1/4s, 7/15/23 B+/P 2,820,000
4,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest
Healthcare), Ser. A, 5 5/8s, 8/15/29 BBB+ 3,973,750
6,000,000 Ottawa Cnty., Fin. Auth. Indl. Rev. Bonds
(Doane Prods Co.), 7 1/4s, 6/1/17 B+/P 6,382,500
6,475,000 Tulsa, Indl. Auth. Rev. Bonds (U. of Tulsa), Ser. A,
MBIA, 6s, 10/1/11 Aaa 7,154,875
--------------
20,331,125
Oregon (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
15,000,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 14,700,000
Pennsylvania (5.6%)
- --------------------------------------------------------------------------------------------------------------------------
8,700,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(UPMC Hlth. Syst.), Ser. B, MBIA, 6s, 7/1/25 Aaa 9,417,750
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 B1 1,449,700
1,345,000 (Southwestern Arpt. Cargo Fac.), 8 3/4s, 2/15/09 BB+/P 1,369,412
5,035,000 (U.S. Air, Inc.) Ser. B, 8 1/2s, 3/1/21 B1 5,431,506
12,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds (Office & Pkg.),
Ser. A, 6s, 1/15/25 BB-/P 12,218,750
5,300,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds (United Hosp. Inc.), Ser. A,
8 3/8s, 11/1/11 AAA 5,468,063
5,370,000 PA Convention Ctr. Auth. Rev. Bonds, Ser. A, FSA,
6 3/4s, 9/1/19 Aaa 5,947,275
PA Econ. Dev. Fin. Auth. Qualified Res. Properties
Rev. Bonds
4,400,000 (RSI Properties/Buttler LLC), Ser. A, 8s, 9/1/27 CCC/P 4,174,500
3,500,000 (RSI Properties/Greensburg LLC), F439 Ser. B,
8s, 9/1/27 CCC/P 3,320,625
4,800,000 PA Hsg. Fin. Agcy. IFB, 8.059s, 4/1/25 AA+ 5,058,000
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
13,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 14,836,250
6,250,000 (Northampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 6,664,062
7,250,000 (Northampton Generating), Ser. A, 6.6s, 1/1/19 BBB- 7,603,438
8,900,000 PA State Higher Ed. Assistance Agcy. Student Loan,
Ser. A&B, 7 1/4s, 7/1/18 (acquired from 12/4/96
to 3/18/98, cost $9,098,120) (RES) (In default) (NON) CCC 2,937,000
2,500,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 8.405s, 9/1/26 Aaa 2,931,250
5,300,000 Philadelphia, Muni. Auth. Rev. Bonds Prerefunded,
Ser. C, 8 5/8s, 11/15/16 Aaa 5,922,750
4,760,000 Philadelphia, Wtr. & Wastewtr. Rev. Bonds, FGIC,
10s, 6/15/05 Aaa 5,979,750
Pottsville, Hosp. Auth. Rev. Bonds (Pottsville
Hosp. & Warne Clinic)
4,000,000 7s, 7/1/14 BB+/P 4,510,000
2,000,000 7 1/4s, 7/1/24 BB+/P 2,277,500
--------------
107,517,581
Puerto Rico (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of PR, IFB, MBIA, 8.91s, 7/1/08 AAA 4,380,000
3,305,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Z, MBIA, 6 1/4s, 7/1/12 Aaa 3,730,519
PR Elec. Pwr. Auth. Rev. Bonds
2,000,000 Ser. BB, MBIA, 6 1/4s, 7/1/10 Aaa 2,242,500
7,000,000 Ser. AA, MBIA, 6s, 7/1/12 Aaa 7,735,000
--------------
18,088,019
South Carolina (2.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Charleston Cnty., Indl. Rev. Bonds (Zeigler
Coal Holding), 6.95s, 8/10/28 B/P 10,100,000
12,610,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds (Stone
Container Corp.), 7 3/8s, 2/1/07 B+/P 13,319,312
10,355,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 11,015,131
5,000,000 Spartanburg Cnty., Hosp. Fac. IFB, FSA,
9.303s, 4/13/22 Aaa 5,756,250
--------------
40,190,693
Tennessee (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 McMinn Cnty., Indl. Dev. Brd. Poll. Control Rev.
Bonds (Newsprint Co.), 7 5/8s, 3/1/16 Baa1 7,912,500
Texas (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,350,000 Abilene, Health Fac. Dev. Corp. Rev. Bonds
(Sears Methodist Retirement), Ser. A,
5.9s, 11/15/25 BB+/P 5,129,313
5,000,000 Amarillo, Hlth. Fac. Corp. Rev. Bonds
(Sears Panhandle Retirement) Prerefunded,
Ser. B, 7 3/4s, 8/15/26 AAA 5,925,000
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
635,000 Ser. B, 10s, 3/1/19 CCC/P 95,250
3,765,000 Ser. A, 9 1/2s, 3/1/19 CCC/P 3,586,163
5,280,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 6,105,000
Dallas Cnty., G.O. Bonds (Flood Control Dist. No. 1)
10,000,000 stepped-coupon, zero %, (8.5s, 10/1/99), 4/1/16
(acquired 11/18/94, cost $6,706,000) (STP) (RES) BB-/P 11,400,000
500,000 zero %, 8/1/00 (acquired 3/10/99,
cost $442,880) (RES) BB-/P 457,205
6,655,000 Harris Cnty., Hlth. Facs. Dev. Rev. Bonds
(Christus Health), Ser. A, 5 3/4s, 7/1/14 AAA 6,804,738
15,000,000 Houston, City G.O. Bonds, Ser. C, 7s, 3/1/08 Aa3 17,172,300
10,000,000 Houston, Indpt. School Dist., Ltd. G. O. Bonds,
Ser. A, PSFG, 4 3/4s, 2/15/26 Aaa 8,825,000
3,000,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds (Mem. Hlth.
Syst. of East TX), 5.7s, 2/15/28 BBB 2,838,750
5,265,000 Round Rock, Hotel Occupancy Tax Rev. Bonds
(Convention Ctr. Complex), 5.85s, 12/1/24 BB/P 5,001,750
5,135,000 San Antonio Indept. School Dist. G.O. Bonds,
PSFG, 6s, 8/15/09 Aaa 5,532,962
8,000,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 9.967s, 7/2/24 AAA 9,380,000
--------------
88,253,431
Utah (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
MBIA, 6 1/4s, 2/15/23 Aaa 5,281,250
5,500,000 Tooele Cnty., Poll. Control Rev. Bonds (Laidlaw
Environmental), Ser. A, 7.55s, 7/1/27 B/P 6,001,875
--------------
11,283,125
Virginia (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB,
FGIC, 8.354s, 8/15/23 Aaa 5,107,500
2,000,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 8.988s, 8/23/27 Aaa 2,290,000
10,435,000 Hopewell, Indl. Dev. Rev. Bonds (Stone
Container Corp.), 8 1/4s, 6/1/16 B/P 11,387,194
9,010,000 Suffolk, Redev. & Hsg. Auth. Rev. Bonds
(Beach-Oxford Apts.), 6 1/4s, 10/1/33 B+/P 9,010,000
--------------
27,794,694
Washington (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Spokane Cnty., Indl. Dev. Corp. Solid Waste Disp.
Rev Bonds (Kiaser Alummin. & Chemical Corp.),
7.6s, 3/1/27 B-/P 3,793,125
2,600,000 WA State Hsg. Fin. Comm. Multi-Fam. Rev. Bonds
(Clare House Apts.), Ser. A, 5 3/4s, 7/1/30 Aa3 2,538,250
WA State Pub. Pwr. Supply Syst. Rev. Bonds
5,000,000 (Nuclear No. 3), Ser. C, MBIA, 7 1/2s, 7/1/08 Aaa 5,950,000
5,000,000 (Nuclear No. 3), Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,975,000
9,690,000 (Nuclear No. 2), Ser. A, FSA, 6s, 7/1/09 Aaa 10,513,650
5,500,000 Washington Cnty., Hsg. & Redev. Auth. Rev. Bonds
(Healtheast), 5 1/2s, 11/15/27 BBB 4,785,000
--------------
33,555,025
West Virginia (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Weirton, Poll. Control Rev. Bonds (Weirton
Steel Corp.), 8 5/8s, 11/1/14 B2 4,887,500
--------------
Total Municipal Bonds and Notes
(cost $1,825,688,186) $1,901,528,542
PREFERRED STOCKS (0.7%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 Charter Mac Equity 144A Ser. A, 6.625%, cum. pfd. (NON) $ 8,020,000
6,000,000 MuniMae TE Bond Subsidiary, LLC 144A Ser. A, 6.875%,
cum. pfd. 6,090,000
--------------
Total Preferred Stocks (cost $14,000,000) $ 14,110,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,839,688,186) (b) $1,915,638,542
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,927,806,737.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
July 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 July 31, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $1,839,688,186, resulting in gross unrealized appreciation and
depreciation of $104,945,565 and $28,995,209, respectively, or net unrealized appreciation of $75,950,356.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund
will begin receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
July 31, 1999 was $199,436,387 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 July 31, 1999.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration, normally to qualified
institutional buyers.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes in the
market interest rates, FRB's and VRDN's are the current interest rates at July 31, 1999.
The fund had the following industry group concentrations greater than 10% at July 31, 1999 (as a percentage of net
assets):
Health care 25.6%
Transportation 14.3
Utilities 13.2
The fund had the following insurance concentration greater than 10% at July 31, 1999 (as a percentage of net
assets):
MBIA 11.9%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at July 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond
Index (Long) $16,646,813 $17,061,374 Sep-99 $(414,561)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
July 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $1,839,688,186) (Note 1) $1,915,638,542
- -----------------------------------------------------------------------------------------------
Interest receivable 29,905,436
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,717,435
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 2,599,215
- -----------------------------------------------------------------------------------------------
Total assets 1,949,860,628
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 105,750
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 8,787,509
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 4,033,649
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 4,245,450
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,890,282
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 891,299
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 263,748
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 59,123
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,487
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 666,150
- -----------------------------------------------------------------------------------------------
Other accrued expenses 104,444
- -----------------------------------------------------------------------------------------------
Total liabilities 22,053,891
- -----------------------------------------------------------------------------------------------
Net assets $1,927,806,737
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,948,260,099
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 710,692
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (96,699,849)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 75,535,795
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,927,806,737
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,157,919,659 divided by 81,918,713 shares) $14.13
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $14.13)* $14.83
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($743,456,144 divided by 52,532,226 shares)** $14.15
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($2,738,010 divided by 193,802 shares)** $14.13
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($23,692,924 divided by 1,675,738 shares) $14.14
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $14.14)*** $14.61
- -----------------------------------------------------------------------------------------------
* 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
Year ended July 31, 1999
<S> <C>
Tax exempt interest income: $128,560,888
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 10,757,953
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,969,290
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 36,172
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 19,144
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,114,568
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 6,432,047
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 9,748
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 110,651
- -----------------------------------------------------------------------------------------------
Reports to shareholders 74,642
- -----------------------------------------------------------------------------------------------
Auditing 59,367
- -----------------------------------------------------------------------------------------------
Legal 15,222
- -----------------------------------------------------------------------------------------------
Postage 112,873
- -----------------------------------------------------------------------------------------------
Other 349,435
- -----------------------------------------------------------------------------------------------
Total expenses 22,061,112
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (182,977)
- -----------------------------------------------------------------------------------------------
Net expenses 21,878,135
- -----------------------------------------------------------------------------------------------
Net investment income 106,682,753
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 4,638,513
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,835,520)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (66,831,127)
- -----------------------------------------------------------------------------------------------
Net loss on investments (65,028,134)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 41,654,619
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended July 31
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 106,682,753 $ 104,808,064
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,802,993 (49,096,836)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (66,831,127) 56,405,435
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 41,654,619 112,116,663
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (58,872,974) (36,129,110)
- ---------------------------------------------------------------------------------------------------------------
Class B (46,390,286) (67,180,332)
- ---------------------------------------------------------------------------------------------------------------
Class C (47,801) --
- ---------------------------------------------------------------------------------------------------------------
Class M (1,163,341) (949,710)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (13,029,929) (71,360,253)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (77,849,712) (63,502,742)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 2,005,656,449 2,069,159,191
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $710,692 and $451,768, respectively) $1,927,806,737 $2,005,656,449
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.61 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .81 .80(c) .84 .90 .94
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.48) .06 .52 (.10) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .33 .86 1.36 .80 .84
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.81) (.81) (.85) (.89) (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.81) (.81) (.85) (.89) (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.13 $14.61 $14.56 $14.05 $14.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.25 6.08 9.97 5.76 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,157,920 $934,747 $625,602 $540,607 $474,984
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .87 .88 .85 .84 .87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.56 5.60 5.94 6.27 6.73
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.16 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.62 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .74 .73(c) .75 .80 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) .05 .51 (.09) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .27 .78 1.26 .71 .75
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.74) (.72) (.75) (.80) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.74) (.72) (.75) (.80) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.15 $14.62 $14.56 $14.05 $14.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.81 5.47 9.26 5.08 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $743,456 $1,052,827 $1,427,365 $1,421,448 $1,436,481
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) 1.37 1.53 1.50 1.50 1.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.03 4.95 5.30 5.62 6.10
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.16 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 1, 1999+
operating performance to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $14.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.58)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,738
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.16
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Dec. 29, 1994+
operating performance 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 .77 .78(c) .80 .84 .58
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) .05 .51 (.08) .70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .30 .83 1.31 .76 1.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.77) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.77) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.14 $14.61 $14.55 $14.04 $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.01 5.84 9.64 5.44 9.69*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,693 $18,082 $16,192 $9,984 $2,331
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.17 1.18 1.15 1.13 .71*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.27 5.30 5.63 5.87 3.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.16 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
July 31, 1999
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, class C and class M shares. The fund
began offering Class C shares on February 1, 1999. 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 C shares pay
a higher ongoing distribution fee than class B shares, and have a
one-year, 1.00% contingent deferred sales charge and do not convert to
class A shares. Class M shares are sold with a maximum front end sales
charge of 3.25% and pay an ongoing distribution fee that is higher than
class A shares but lower than class B and class C 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 that 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). Gains or losses on securities sold are determined on
the identified cost basis. 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 year ended July
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, unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At July 31, 1999, the fund had a capital loss carryover of approximately
$81,642,000 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
21,345,000 July 31, 2006
23,391,000 July 31, 2007
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. These differences include temporary and
permanent differences of defaulted bond interest, and unrealized gains and
losses on certain futures contracts. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended July 31, 1999, the fund reclassified
$50,573 to increase undistributed net investment income and $50,573 to
decrease paid-in-capital. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
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 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 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 July 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 year ended July 31, 1999, fund expenses were reduced by $182,977
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 $1,729
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.20%, 0.70%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended July 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $109,487 and $6,465 from the sale
of class A and class M shares, respectively and received $1,275,474 and
$1,886 in contingent deferred sales charges from redemptions of class B
and C shares, respectively. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the year ended July
31, 1999, Putnam Mutual Funds Corp., acting as underwriter received
$33,500 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended July 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $245,071,444 and
$239,849,396, respectively. There were no purchases and sales of U.S.
government obligations.
Note 4
Capital shares
At July 31, 1999 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 26,657,687 $387,542,411
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,079,752 30,232,335
- -----------------------------------------------------------------------------
28,737,439 417,774,746
Shares
repurchased (10,805,263) (156,947,516)
- -----------------------------------------------------------------------------
Net increase 17,932,176 $260,827,230
- -----------------------------------------------------------------------------
Year ended July 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 28,069,998 $409,772,052
- -----------------------------------------------------------------------------
Shares issued in
connection 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
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 8,229,439 $ 120,037,661
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,436,882 20,945,266
- -----------------------------------------------------------------------------
9,666,321 140,982,927
Shares
repurchased (29,142,932) (424,090,007)
- -----------------------------------------------------------------------------
Net decrease (19,476,611) $(283,107,080)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations) to
July 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 325,358 $4,723,411
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,596 22,886
- -----------------------------------------------------------------------------
326,954 4,746,297
Shares
repurchased (133,152) (1,923,313)
- -----------------------------------------------------------------------------
Net increase 193,802 $2,822,984
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 787,333 $11,482,697
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,082 698,515
- -----------------------------------------------------------------------------
835,415 12,181,212
Shares
repurchased (397,318) (5,754,275)
- -----------------------------------------------------------------------------
Net increase 438,097 $ 6,426,937
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 99.5% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
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
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
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
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
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
ASSET ALLOCATION 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
[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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN042-54558 036/679/851 9/99
