Putnam
Tax-Free
High Yield
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
1-31-00
[SCALE LOGO OMITTED]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
2000. In the following report, the fund manager discusses performance for
the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam
Tax-Free High Yield Fund that I will be signing. After more than 30 years
as Chairman of the Trustees and President of the Putnam Funds, the time
has come for me to step aside. In June, John Hill will become Chairman.
John is currently an independent Trustee and has served on the board for
the past 14 years. In addition, my son, George Putnam, III, will take on
the role of President. I am confident that the leadership of the funds
will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay in
close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
March 15, 2000
Report from the Fund Manager
Blake E. Anderson
Two of the bond market's worst enemies -- a strong economy and rising
interest rates -- played havoc with municipal bond prices over the past
six months. This hostile environment created high volatility and pushed
bond prices down, resulting in negative returns for most bond funds,
including Putnam Tax-Free High Yield Fund. But the story does not end
there. The turbulence also created unique opportunities that helped your
fund deliver high levels of tax-free monthly income while allowing us to
add more high-yield municipal bonds to the portfolio at unusually
attractive prices. We believe these new acquisitions will serve the fund
well when the bond market environment becomes more favorable.
Total return for 6 months ended 1/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------
-3.55% -8.10% -3.82% -8.51% -3.94% -4.88% -3.69% -6.79%
- ---------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* MUNICIPAL YIELDS HIGH RELATIVE TO TREASURY BONDS
Despite the recent negative performance, municipal bonds currently offer
an unusually high yield relative to those available in the taxable
Treasury market. Tax-exempt bonds have always had lower yields than
Treasuries because of their tax-advantaged status. But because of the high
quality and concern over a shrinking supply in the Treasury market, the
rush to Treasuries has pushed their prices up and moved their yields
lower. As a result, the yield difference between the taxable and the
tax-free bond markets has become exceptionally narrow, sometimes
vanishing, making the latter extremely attractive to investors.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 29.1%
Utilities 10.8%
Transportation 10.4%
Housing 9.1%
Forest and
paper products 6.0%
Footnote reads:
*Based on net assets as of 1/31/00. Holdings will vary over time.
Furthermore, higher interest rates last year discouraged municipalities
from issuing bonds or refunding outstanding bonds, a situation that
created a dearth. As we begin to see an increase in demand for this scant
supply, we expect that municipal bond prices could move higher later this
year.
* SHORTER MATURITIES, GOOD TIMING HELP PERFORMANCE
There are two key reasons why your fund came through a difficult year with
relatively few scars. First, the portfolio contained a lower percentage of
longer-term bonds than many of its peers. As you may know, when interest
rates are rising, longer-term bond prices, because of their implicit
higher risk, experience the steepest fall. Your fund's emphasis on bonds
with intermediate maturities in the 8- to 15-year range proved
advantageous and helped to protect the portfolio's value.
Second, as we continued to downgrade the overall credit quality of the
fund (to bring the fund's high-yield weighting closer to that of its
benchmark), our timing on the purchase of many new high-yield bonds was
efficient. For the most part, we held back when prices were too high and
bought when prices became cheaper. For the first time in a long while, we
believe credit risk is properly priced in this market, and once again we
are selectively buying lower-rated higher-yield credits.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
BBB/BAA -- 14.1%
BB/Ba -- 20.6%
B and under -- 26.1%
AAA/Aaa -- 30.9%
AA/Aa -- 4.4%
A -- 3.9%
Footnote reads:
* As a percentage of market values as of 1/31/00. A bond rated BBB/Baa 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.
* HEALTH CARE, TRANSPORTATION, UTILITIES OFFER VALUE
The hospital/health-care sector remains one of the largest in this fund.
This sector is still going through a transformation that began with the
Medicare Balanced Budget Act of 1997 and has negatively affected hospital
revenues ever since. The situation grew worse with the excess of hospitals
and empty beds, the growth of managed care, and the many unsuccessful
acquisitions that took place in the past few years. All these events have
led to poor earnings and higher risk in this sector. But higher risk, if
selectively taken, can mean higher yields and opportunity. This is where
Putnam's analysts add their value. Up until now, the fund has owned fewer
health-care bonds than its peers, but our analysts believe that there is
currently justification for a more optimistic outlook. In 1999, we
witnessed the first Balanced Budget Relief Act and are expecting another
relief act in 2000 that will help increase revenues among hospitals. Given
the brightening picture and the belief that the market is somewhere near
the bottom in terms of bad news, we plan to increase holdings cautiously
in the health-care sector.
"If you've taken advantage of the tremendous bull run of the equity market,
offsetting your portfolio with tax-free investments is a smart choice."
- -- CNNfn, February 2, 2000
Within the transportation sector, we favor the airlines because they have
done a good job of keeping seats full and fares high. Currently the fund
holds revenue bonds backed by Northwest Airlines, Air Canada, United
Airlines, and U.S. Airways, among others. Airport revenue bonds also
continue to supply the portfolio with a steady stream of tax-exempt
income, as evidenced by our longstanding investments in bonds issued by
the Northwest Regional Airport and Denver City & County Airport.
High fuel prices and deregulation have made it difficult to navigate the
utility sector. Furthermore, unattractive bond structures with short call
dates have deterred us from delving heavily into this sector. Of course
there has been opportunity in utility bonds, but in this sector we
generally favor insured bonds, for which the insurance guarantees the
principal and interest payments. North Carolina Eastern Municipal Power
Agency is an example of a revenue bond that is insured by MBIA (Municipal
Bond Insurance Agency).
* AFTER DIFFICULT PERIOD, LONG-TERM OUTLOOK IMPROVING
After rising significantly in 1999, interest rates continued to climb in
the new year's first month. Just as importantly, the yield curve has
become inverted; short-term interest rates are now higher than long-term
interest rates. Historically such an inversion has been associated with a
slowdown of economic growth and a decline in core inflation over time. In
the meantime, the markets remain nervous about inflation, especially with
prices of oil and other commodities rising sharply.
Inflationary concerns, accompanied by the expectation of further
tightening by the Federal Reserve Board, should help keep municipal bond
prices in a narrow range in the months ahead. However, once the Fed's
interest-rate increases have their intended effect of slowing the economic
pace, we believe that the municipal bond market will react positively and
yields will begin to trend lower. Meanwhile, we will continue to focus on
expanding the fund's high-yield allocation as long as we believe prices in
this sector offer suitable compensation for its higher risk level. If we
do not believe the pricing is right, then we will wait for better deals.
It is our opinion that as the economy eventually cools off, your fund will
be well positioned to offer strong performance.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 1/31/00, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 1/31/00
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>
6 months -3.55% -8.10% -3.82% -8.51% -3.94% -4.88% -3.69% -6.79%
- --------------------------------------------------------------------------------------------
1 year -4.90 -9.44 -5.27 -9.76 -5.51 -6.41 -5.05 -8.10
- --------------------------------------------------------------------------------------------
5 years 29.44 23.34 25.74 23.81 24.20 24.20 27.64 23.50
Annual average 5.30 4.28 4.69 4.36 4.43 4.43 5.00 4.31
- --------------------------------------------------------------------------------------------
10 years 82.73 73.98 75.87 75.87 68.43 68.43 78.39 72.56
Annual average 6.21 5.69 5.81 5.81 5.35 5.35 5.96 5.61
- --------------------------------------------------------------------------------------------
Life of fund 182.68 169.17 172.06 172.06 151.49 151.49 175.95 167.05
Annual average 7.49 7.12 7.20 7.20 6.62 6.62 7.31 7.06
- --------------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 1/31/00
Lehman Brothers Municipal Consumer
Bond Index price index
- ----------------------------------------------------------------------
6 months -1.96% 1.44%
- ----------------------------------------------------------------------
1 year -3.63 2.67
- ----------------------------------------------------------------------
5 years 35.23 12.28
Annual average 6.22 2.34
- ----------------------------------------------------------------------
10 years 94.87 32.73
Annual average 6.90 2.87
- ----------------------------------------------------------------------
Life of fund 206.74 56.57
Annual average 8.08 3.16
- ----------------------------------------------------------------------
Past performance is not indicative of future results. More recent returns
may be worth 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- and 5-year 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 1/31/00
Class A Class B Class C Class M
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 6 6 6 6
- ---------------------------------------------------------------------------------------
Income $0.404125 $0.365076 $0.348386 $0.383447
- ---------------------------------------------------------------------------------------
Capital gains1 -- -- -- --
- ---------------------------------------------------------------------------------------
Total $0.404125 $0.365076 $0.348386 $0.383447
- ---------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ---------------------------------------------------------------------------------------
7/31/99 $14.13 $14.83 $14.15 $14.13 $14.14 $14.61
- ---------------------------------------------------------------------------------------
1/31/00 13.23 13.89 13.25 13.23 13.24 13.68
- ---------------------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------------------
Current dividend rate2 6.14% 5.84% 5.52% 5.28% 5.82% 5.63%
- ---------------------------------------------------------------------------------------
Taxable equivalent3 10.16 9.67 9.14 8.74 9.63 9.32
- ---------------------------------------------------------------------------------------
Current 30-day SEC yield4 5.83 5.55 5.22 5.00 5.53 5.35
- ---------------------------------------------------------------------------------------
Taxable equivalent3 9.65 9.19 8.64 8.28 9.16 8.86
- ---------------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (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>
6 months -2.54% -7.19% -2.80% -7.54% -2.96% -3.90% -2.69% -5.87%
- ---------------------------------------------------------------------------------------------
1 year -2.93 -7.55 -3.43 -8.02 -3.88 -4.80 -3.28 -6.41
- ---------------------------------------------------------------------------------------------
5 years 34.33 27.93 30.37 28.37 28.77 28.77 32.08 27.81
Annual average 6.08 5.05 5.45 5.12 5.19 5.19 5.72 5.03
- ---------------------------------------------------------------------------------------------
10 years 83.64 74.93 76.83 76.83 69.17 69.17 79.20 73.41
Annual average 6.27 5.75 5.87 5.87 5.40 5.40 6.01 5.66
- ---------------------------------------------------------------------------------------------
Life of fund 185.03 171.42 174.46 174.46 153.57 153.57 178.11 169.14
Annual average 7.59 7.23 7.31 7.31 6.72 6.72 7.41 7.16
- ---------------------------------------------------------------------------------------------
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 assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index 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.
A guide to the financial statements
These sections of the report 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 are determined. All investment and noninvestment 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-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
January 31, 2000 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
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 Guarantee
TRAN -- Tax Revenue Anticipation Notes
U.S. Govt. Coll. -- U.S. Government Collateralized
MUNICIPAL BONDS AND NOTES (97.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C>
Alabama (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
$ 5,000,000 Anniston, Indl. Dev. Rev. Bonds (Hoover Group
Inc.), 8 1/2s, 9/1/10 B/P $ 5,256,250
3,500,000 Baldwin Cnty., Eastern Shore Hlth. Care Auth.
Rev. Bonds, 5 3/4s, 4/1/27 Baa3 2,743,125
10,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. Rev. Bonds,
5.7s, 5/1/19 BBB- 8,050,000
2,000,000 Jackson Cnty., Hlth. Care Auth. Hosp. TRAN,
7 7/8s, 5/1/19 BBB-/P 2,202,500
3,750,000 Jefferson Cnty., Swr. Rev. Bond (Rites-PA),
Ser. 487-R, FRB, 8.057s, 2/1/38
(acquired 3/23/99, cost $4,290,150) (RES) AAA 3,135,938
--------------
21,387,813
Alaska (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 AK Hsg. Fin. Auth. IFB, 8.3s, 12/1/19
(acquired 3/3/98, cost $11,113,800) (RES) AAA/P 9,387,500
AK State Hsg. Fin. Corp. Rev. Bonds
3,235,000 7.7s, 12/1/35 (acquired 10/22/97,
cost $3,439,132) (RES) AA/P 2,802,319
11,805,000 Ser. A, 5.55s, 6/1/34 (acquired 11/26/97,
cost $11,952,563) (RES) Aaa 10,506,450
--------------
22,696,269
Arizona (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,000,000 Phoenix, Indl. Dev. Auth. Arpt. Fac. Rev. Bonds
(America West Airlines), 6 1/4s, 6/1/19 B1 5,430,000
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 3,461,875
2,300,000 Scottsdale, Indl. Dev. Auth. 1st Mtge. Rev. Bonds
(Westminster Village), Ser. A, 8s, 6/1/11 BB-/P 2,366,125
--------------
11,258,000
Arkansas (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
Northwest Regl. Apt. Auth. Rev. Bonds
15,650,000 7 5/8s, 2/1/27 BB/P 15,865,188
3,000,000 7s, 2/1/10 BB/P 3,000,000
--------------
18,865,188
California (9.8%)
- --------------------------------------------------------------------------------------------------------------------------
ABAG Fin. Auth. COP (American Baptist Homes),
Ser. A
7,000,000 5.85s, 10/1/27 BBB- 5,766,250
3,000,000 5 3/4s, 10/1/17 BBB- 2,553,750
Anaheim, Pub. Fin. Auth. Lease Rev. Bonds,
Ser. C, FSA
3,025,000 6s, 9/1/14 Aaa 3,149,781
3,000,000 6s, 9/1/13 Aaa 3,172,500
5,000,000 CA Poll. Control Fin. Auth. Rev. Bonds
(Laidlaw Environmental), Ser. A, 6.7s, 7/1/07 B/P 4,962,500
2,685,000 Colton, Comnty. Fac. Dist. Special Tax Bonds
(MT. Vernon Corridor), 7 1/2s, 9/1/20 B/P 2,520,544
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 $8,255,000) (RES) B-/P 7,680,000
Los Angeles, Regl. Arpt. Impt. Corp. Lease Rev. Bonds
5,700,000 (Air Canada), 8 3/4s, 10/1/14 Ba3 6,220,125
5,070,000 (United Airlines, Inc.), 6 7/8s, 11/15/12 Baa3 5,260,125
5,000,000 Los Angeles, Wastewater Syst. IFB, FGIC, 5.294s,
11/1/06 (acquired 11/8/93, cost $5,417,200) (RES) Aaa 5,300,000
Redondo Beach, Redev. Agcy. Multi-Fam. Hsg.
Rev. Bonds (Heritage Point)
3,075,000 Ser. B, 8 1/2s, 8/1/23 BBB/P 3,086,531
5,050,000 Ser. A, 6 1/2s, 9/1/23 BBB/P 4,652,313
5,000,000 San Bernardino Cnty., COP (Med. Ctr. Fin.), Ser. A,
MBIA, 6 1/2s, 8/1/17 Aaa 5,393,750
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 25,068,750
10,000,000 San Diego, Regl. Bldg. Auth. Lease COP, MBIA,
6.9s, 5/1/23 Aaa 9,525,000
10,000,000 San Joaquin Hills, Trans. Corridor Agcy. Toll Road
Rev. Bonds, Ser. A, MBIA, 1/15/32 AAA 1,300,000
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 9,500,000
10,000,000 Santa Clara Cnty., Hsg. Auth. Rev. Bonds
(Blossom River Apts), Ser. A, 6 1/2s, 9/1/39 B+/P 8,825,000
9,650,000 Southern CA Pub. Pwr. Auth. IFB (Transmission),
7.255s, 7/1/12 Aa3 9,987,750
19,100,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB+/P 19,983,375
10,500,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 9,765,000
Valley Hlth. Syst. Hosp. Rev. Bonds
1,500,000 6 1/2s, 5/15/25 BBB- 1,327,500
3,000,000 Ser. A, 6 1/2s, 5/15/15 BBB- 2,748,750
6,000,000 Ventura, Port. Dist. COP, 6 3/8s, 8/1/28 B/P 5,250,000
--------------
162,999,294
Colorado (5.2%)
- --------------------------------------------------------------------------------------------------------------------------
13,000,000 Arapahoe Cnty., Cap. Impt. Trust Fund Hwy.
Rev. Bonds, Ser. E-470, 7s, 8/31/26 Aaa 14,543,750
CO Edl. Fac. Auth. Rev. Bonds (Ocean Journey, Inc.)
10,000,000 8 3/8s, 12/1/26 B+/P 11,012,500
5,000,000 8.3s, 12/1/17 B+/P 5,500,000
9,500,000 CO Hsg. Fin. Auth. Rev. Bonds, Ser. C-3,
FHA Insd., 5.7s, 10/1/21 AA+ 8,763,750
Denver, City & Cnty. Arpt. Rev. Bonds
17,925,000 Ser. A, 8 3/4s, 11/15/23 Baa1 19,157,344
6,475,000 Ser. A, 8 3/4s, 11/15/23, Prerefunded Aaa 7,033,469
8,000,000 Ser. D, MBIA, 7 3/4s, 11/15/13 Aaa 9,500,000
3,915,000 Ser. A, 7 1/4s, 11/15/25 AAA 4,237,988
6,350,000 Douglas Cnty., School Distr. G.O. Bonds
(North Regl. 1, Douglas & Elebert Cntys.),
MBIA, 7s, 12/15/12 Aaa 7,159,625
--------------
86,908,426
Connecticut (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
6,275,000 CT State Dev. Auth. Hlth. Care Rev. Bonds
(Alzheimers Resource Ctr.), Ser. A, 10s, 8/15/21 AAA/P 6,949,563
6,000,000 CT State Dev. Auth. Poll. Control Rev. Bonds
(Western MA), Ser. A, 5.85s, 9/1/28 Ba1 5,235,000
CT State Dev. Auth. Rev. Bonds (East Hills Woods)
4,944,567 Ser. A, 7 3/4s, 11/1/17 CCC/P 4,419,207
457,428 Ser. B, zero %, 3/1/21 CCC/P 70,901
5,500,000 CT State Hlth. & Edl. Fac. Auth. IFB (Yale U.),
7.924s, 6/10/30 Aaa 5,046,250
6,500,000 CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Edgehill), Ser. A, 6 7/8s, 7/1/27 BB-/P 6,012,500
--------------
27,733,421
District of Columbia (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
DC G.O. Bonds
17,000,000 Ser. A, 6 3/8s, 6/1/26 AAA 18,253,750
10,000,000 Ser. A, 6s, 6/1/26 BBB 9,287,500
7,220,000 Ser. B, MBIA, 6s, 6/1/12 Aaa 7,445,625
DC Rev. Bonds (National Public Radio)
4,400,000 7.7s, 1/1/23 BB+/P 4,653,000
2,500,000 7 5/8s, 1/1/18 BB+/P 2,640,625
18,630,000 DC Rev. Bonds COP, 7.3s, 1/1/13 BBB- 19,631,363
--------------
61,911,863
Florida (4.0%)
- --------------------------------------------------------------------------------------------------------------------------
9,260,000 Brevard Cnty., Hlth. Auth. Rev. Bonds
(Courtenay Springs Village), 7 3/4s, 11/15/24 AAA/P 10,510,100
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 5,698,000
24,000,000 Hernando Cnty., Indl. Dev. Rev. Bonds
(FL Crushed Stone Co.), 8 1/2s, 12/1/14 B+/P 25,920,000
5,970,000 Hillsborough Cnty., Aviation Auth. Special Purpose
Fac. Rev. Bonds (U.S. Air Inc.), 8.6s, 1/15/22 B 6,358,050
3,895,000 Palm Beach Cnty., Student Hsg. Rev. Bonds
(Palm Beach Cmnty. College), Ser. A, 8s, 3/1/23 B-/P 3,495,763
Sanford, Arpt. Auth. Indl. Dev. Rev. Bonds
(FL Terminals Inc.), Ser. A
3,125,000 7 3/4s, 5/1/21 BB/P 3,238,281
2,880,000 7 1/2s, 5/1/15 BB/P 2,970,000
4,000,000 St. Johns Cnty., FL Hlth. Care Indl. Dev. Auth.
Rev. Bonds (Glenmoor St. Johns Project),
Ser. A, 8s, 1/1/30 B+/P 3,855,000
4,000,000 Volusia Cnty., Edl. Fac. Auth. Rev. Bonds (Embry
Riddle), Ser. B, AMBAC, 5 1/2s, 10/15/14 AAA/P 3,870,000
--------------
65,915,194
Georgia (4.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,100,000 Cobb Cnty., Dev. Auth. Indl. Dev. Rev. Bonds
(Boise Cascade Corp.), 7s, 9/1/14 Baa3 5,182,875
8,000,000 Ser. B, 10s, 4/1/17 AAA/P 9,110,000
5,900,000 Ser. A, 7 1/2s, 4/1/17 AAA/P 6,349,875
9,500,000 Forsyth Cnty., Dev. Auth. Indl. Rev. Bonds
(Hoover Group Inc.), 8 1/2s, 12/1/05 B/P 10,248,125
6,000,000 Forsyth Cnty., Hosp. Auth. Rev. Bonds (GA Baptist
Hlth. Care Syst.), 6 3/8s, 10/1/28 B/P 4,972,500
9,200,000 GA Muni. Elec. Pwr. Auth. Rev. Bonds, Ser. B, FSA,
6 3/8s, 1/1/16 Aaa 9,637,000
Rockdale Cnty., Dev. Auth. Solid Waste Disp.
Rev. Bonds (Visay Paper Inc.)
5,875,000 7 1/2s, 1/1/26 BB/P 6,021,875
13,595,000 7.4s, 1/1/16 BB/P 13,934,875
3,160,000 Savannah, Econ. Dev. Auth. Poll. Control Rev. Bonds
(Stone Container Corp.), 8 1/8s, 7/1/15 B/P 3,361,450
--------------
68,818,575
Hawaii (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
HI State G.O. Bonds
8,330,000 Ser. CM, FGIC, 6 1/2s, 12/1/16 Aaa 8,819,388
5,330,000 Ser. C, FGIC, 6 1/2s, 12/1/15 Aaa 5,669,788
5,000,000 Ser. C, FGIC, 6 1/2s, 12/1/14 Aaa 5,331,250
--------------
19,820,426
Illinois (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Chicago, Board of Ed. G.O. Bonds (Chicago
Reform School), Ser. A, 5 1/4s, 12/1/22 AAA 4,368,750
5,000,000 Chicago, Gas Supply Rev. Bonds (Peoples Gas & Lt.),
Ser. A, 6 7/8s, 3/1/15 Aa3 5,268,750
2,035,000 Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
(United Air Lines, Inc.), Ser. 84A, 8.85s, 5/1/18 Baa2 2,133,168
3,000,000 East Chicago, Ind. Exempt Fac Rev. Bonds
(Ispat Inland, Inc.), 7s, 1/1/14 B1 2,733,750
4,053,000 Huntley, Special Tax Bonds, Ser. A., 6.45s, 3/1/28 BB/P 3,749,025
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)
(In default) (NON) (RES) D/P 3,850,000
1,140,000 (Mercy Hsg. Corp.), 7s, 8/1/24 Baa1 1,248,300
IL Dev. Fin. Auth. Rev. Bonds (Cmty. Rehab.
Providers Fac.)
1,805,000 8 1/4s, 8/1/12 (acquired 8/4/92,
cost $1,805,000) (RES) B/P 1,870,431
2,450,000 Ser. A, 7 7/8s, 7/1/20 B/P 2,789,938
4,670,000 Ser. A, 7 7/8s, 7/1/20, prerefunded AAA/P 5,335,475
3,065,000 Ser. A, 7 1/2s, 3/1/14 B/P 3,363,838
735,000 Ser. A, 7 1/4s, 3/1/04 B/P 767,156
IL Hlth. Fac. Auth. Rev. Bonds
5,860,000 (Victor C. Neumann Associates), 7 1/4s, 7/1/18 B/P 5,310,625
3,000,000 (Glen Oaks Med. Ctr.), Ser. B, 7s, 11/15/19 AAA 3,228,750
3,000,000 (Hinsdale Hosp.), Ser. A, 7s, 11/15/19 Baa1 3,228,750
5,000,000 (Glen Oaks Medical Ctr.), Ser. B, 6.95s, 11/15/13 AAA 5,812,500
5,170,000 (Hinsdale Hosp.), Ser. A, 6.95s, 11/15/13 Baa1 6,010,125
--------------
61,069,331
Indiana (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
East Chicago, Poll. Control Rev. Bonds
(Inland Steel Co.)
12,000,000 7 1/8s, 6/1/07 B1 11,805,000
14,295,000 6.8s, 6/1/13 BB 13,383,694
4,500,000 Plainfield Indl. Econ. Dev. Rev. Bonds
(Earl M. Jorgensen Co.), 8 1/2s, 9/1/04 B-/P 4,713,750
--------------
29,902,444
Iowa (1.7%)
- --------------------------------------------------------------------------------------------------------------------------
IA Fin. Auth. Hlth. Care Fac. Rev. Bonds
(Care Initiatives)
$22,000,000 9 1/4s, 7/1/25 BB/P 26,620,000
1,415,000 9.15s, 7/1/09 BB/P 1,657,319
210,000 Marion Cnty., 1st Mtge. Rev. Bonds (AHF/Kentucky
Iowa, Inc.), 10 1/4s, 1/1/20 B-/P 210,263
--------------
28,487,582
Kentucky (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
Jefferson Cnty., Hosp. IFB, MBIA
1,500,000 6.436s, 10/23/14 Aaa 1,678,125
3,500,000 6.436s, 10/23/14, Prerefunded Aaa 3,723,125
1,215,000 Lexington-Fayette Cnty., Urban Govt. 1st Mtge.
Rev. Bonds (AHF/Kentucky Iowa, Inc.),
10 1/4s, 1/1/20 B-/P 1,216,519
--------------
6,617,769
Louisiana (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
2,900,000 Beauregard, Parish Rev. Bonds (Boise
Cascade Corp.), 7 3/4s, 6/1/21 Baa3 2,994,250
8,050,000 Hodge, Combined Util. Rev. Bonds (Stone
Container Corp.), 9s, 3/1/10 B/P 8,224,122
7,000,000 LA Hlth. Ed. Auth. Rev. Bonds (Lambert House),
Ser. A, 6.2s, 1/1/28 B/P 5,696,250
5,335,000 LA Local Govt. Env. Facs.Comnty. Dev. Auth.
Rev. Bonds (St. James Place), Ser. A, 8s, 11/1/19 B-/P 5,074,919
2,000,000 LA Pub. Fac. Auth. 1st Mtge. Rev. Bonds
(St. James Place), 10s, 11/1/21 B-/P 2,210,000
20,500,000 Lake Charles, Harbor & Term. Dist. Port Fac.
Rev. Bonds (Trunkline Co.), 7 3/4s, 8/15/22 A3 22,063,125
7,000,000 Port of New Orleans, Indl. Dev. Rev. Bonds
(Continental Grain Co.), 7 1/2s, 7/1/13 CC 6,851,250
St. James Parish, Solid Waste Disp. Rev. Bonds
(Kaiser Aluminum)
9,000,000 7 3/4s, 8/1/22 B-/P 9,348,750
19,000,000 7.7s, 12/1/14 Ba1 20,116,250
--------------
82,578,916
Maryland (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 Denton, 1st Mtge. Rev. Bonds (Shore Nursing
Rehab. Ctr.), 9s, 4/1/20 B-/P 2,518,750
Massachusetts (6.6%)
- --------------------------------------------------------------------------------------------------------------------------
Atlas Boston Tax Exempt Rev. Bonds
3,170,000 Ser. 99-1, 7 1/4s, 1/1/35 B/P 3,063,013
6,000,000 Ser. 1, 6.65s, 1/1/35 BBB/P 5,790,000
MA State Dev. Fin. Agcy. Rev. Bonds
4,210,000 (Alden Place), 6 3/4s, 7/1/30 B/P 3,610,075
6,110,000 (Merrimack Place), 6 3/4s, 7/1/30 B/P 5,239,325
9,665,000 MA State G.O. Bonds, Ser. 25, 8.22s, 11/1/11
(acquired 8/13/98, cost $14,375,270) (RES) Aa3 10,522,769
MA State Hlth. & Edl. Fac. Auth. IFB
5,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.5405s, 8/12/21 Aaa 5,337,500
5,600,000 (Boston U.), Ser. L, MBIA, 7.914s, 7/1/25 Aaa 5,243,000
2,000,000 (Beth Israel-Deaconess Hosp.), AMBAC,
8.585s, 10/1/31 Aaa 2,120,000
3,325,000 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
(MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 3,516,188
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
4,000,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 4,280,000
30,635,000 Ser. A, 9s, 7/1/15 BB-/P 32,741,156
MA State Indl. Fin. Agcy. Rev. Bonds
8,800,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 9,812,000
2,255,000 (MA Tpk.), 9s, 10/1/20 AAA/P 2,360,895
3,000,000 (Emerson College), 8 1/4s, 1/1/17 BBB-/P 3,243,750
5,000,000 (Evanswood Bethzatha Corp.), 8s, 1/15/27 B-/P 4,700,000
3,500,000 (1st Mtge. Evanswood Bethzatha-A),
7 7/8s, 1/15/20 B-/P 3,290,000
2,065,000 (Sr. Living Fac. Forge Hill), 7s, 4/1/17 B/P 1,809,456
3,830,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB-/P 4,145,975
--------------
110,825,102
Michigan (5.5%)
- --------------------------------------------------------------------------------------------------------------------------
2,456,000 Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds
(Glacier Hills Inc.), 8 3/8s, 1/15/19 (SEG) B+/P 2,506,864
19,940,000 Detroit, Dev. Fin. Auth. Tax Increment Rev. Bonds,
Ser. A, 9 1/2s, 5/1/21 BBB+/P 22,606,975
4,100,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 5 1/2s, 5/1/21 A2 3,541,375
Garden Cty, Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.)
3,000,000 Ser. A, 5 3/4s, 9/1/17 BB/P 2,403,750
3,000,000 Ser. A, 5 5/8s, 9/1/10 BB/P 2,546,250
2,675,000 MI State Hosp. Fin. Auth. Rev. Bonds
(Garden City Hosp.), 8.3s, 9/1/02 Ba3 2,838,844
7,500,000 MI State Strategic Fund Ltd. Oblig. IFB 9.308s,
9/1/25 (acquired 3/9/98, cost $9,018,750) (RES) Aaa 7,678,125
5,600,000 MI State Strategic Fund Ltd. Oblig. Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 5,794,208
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 6,675,000
26,955,000 Midland Cnty., Econ. Dev. Corp. Rev. Bonds
(Poll. Ctrl.), Ser. B, 9 1/2s, 7/23/09 B+/P 27,835,889
5,600,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39
(acquired 12/31/98, cost $5,600,000) (RES) B-/P 4,186,000
4,000,000 Wayne Charter Cnty., Special Arpt. Facs. Rev. Bonds
(Northwest Airlines), 6s, 12/1/29 BB+ 3,440,000
--------------
92,053,280
Minnesota (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,810,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 3,014,512
5,000,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 5,000,000
2,200,000 Minneapolis Rev. Bonds (Walker Methodist
Sr. Svcs.), Ser. A, 6s, 11/15/28 BB-/P 1,743,500
5,870,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 5,892,013
3,200,000 Shakopee Multi-Fam. Adj. Rate Rev. Bonds
(Riva Ridge Apts.), 8 1/2s, 12/1/08 B-/P 3,200,000
--------------
18,850,025
Montana (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
13,850,000 MT State Hlth. Fac. Auth. Hosp. Fac. IFB, AMBAC,
6.709s, 2/25/25 Aaa 10,612,563
Nebraska (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Kearney, Indl. Dev. Rev. Bonds (Great Platte
River Road), 6 3/4s, 1/1/28 B-/P 3,912,500
2,000,000 NE Investment Fin. Auth. Hosp. IFB, MBIA,
9.183s, 11/15/16 Aaa 2,150,000
12,100,000 NE Investment Fin. Auth. Single Fam. Mtge. IFB,
Ser. D, GNMA Coll., 8.881s, 3/1/26 Aaa 11,177,375
--------------
17,239,875
New Hampshire (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 NH Bus. Fin. Auth. Rev. Bonds (Alice Peck Day
Hlth. Syst.), Ser. A, 7s, 10/1/29 BB+/P 2,137,500
NH Higher Ed. & Hlth. Fac. Auth. Rev. Bonds
2,285,000 (Franklin Regl. Hosp.), 8 3/4s, 9/1/19 BBB/P 2,412,572
9,000,000 (1st Mtge.- Rivermead Peterborough),
8 1/2s, 7/1/24 AAA 10,305,000
5,900,000 (Havenwood-Heritage Heights), 7.35s, 1/1/18 BB/P 5,966,375
3,000,000 (Rivermead at Peterborough), 5 3/4s, 7/1/28 BB/P 2,377,500
3,750,000 (Lakes Region Hosp.), 5 3/4s, 1/1/08 A-/P 3,496,875
9,200,000 NH State Bus. Fin. Auth. Poll. Control & Solid Waste
Rev. Bonds (Crown Paper Co.), 7 3/4s, 1/1/22 B 8,257,000
12,000,000 NH State Bus. Fin. Auth. Poll. Control Rev. Bonds
(Pub. Svc. Co.), Ser. D, 6s, 5/1/21 BBB- 10,785,000
NH State Bus. Fin. Auth. Rev. Bonds
4,000,000 (Franklin Regl. Hosp. Assn. PJ), Ser. A, 6.05s, 9/1/29 BBB/P 3,230,000
3,550,000 (Proctor Academy), Ser. A, 5.6s, 6/1/28 Baa2 3,057,438
--------------
52,025,260
New Jersey (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Camden Cnty., Impt. Auth. Rev. Bonds, 8.4s, 4/1/24
(acquired 4/12/94, cost $4,250,000) (RES) B/P 5,262,500
5,250,000 NJ Econ. Dev. Auth. Assisted Living Rev. Bonds
(Meridian Assisted Living), 6 3/4s, 8/1/30 B/P 4,495,313
NJ Econ. Dev. Auth. Rev. Bonds
7,000,000 (Winchester Gardens), Ser. A, 8 5/8s, 11/1/25 B/P 7,472,500
12,000,000 (Newark Arpt. Marriot Hotel), 7s, 10/1/14 BBB/P 12,120,000
6,000,000 NJ Econ. Dev. Auth. Special Fac. Rev. Bonds
(Continental Airlines, Inc.), 6 1/4s, 9/15/29 Ba2 5,280,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
4,780,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 4,931,908
4,000,000 (Trinitas Hosp. Oblig. Group), 7 1/2s, 7/1/30 BBB- 3,760,000
4,000,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I, 7.32s,
11/1/07 (acquired 2/11/93, cost $3,785,680) (RES) A+/P 4,150,000
5,000,000 NJ State Trans Auth. Rev. Bonds IFB, MBIA,
9.714s, 2010 AAA 5,906,250
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 4,205,000
--------------
57,583,471
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 Ba3 8,707,500
New York (8.5%)
- --------------------------------------------------------------------------------------------------------------------------
3,400,000 Colonie, Indl. Dev. Agcy. Rev. Bonds (Cap. Compost
& Waste), Ser. A, 6 3/4s, 6/1/21 B-/P 3,009,000
13,640,000 Metropolitan Trans. Auth. Fac. Rev. Bonds, Ser. A,
MBIA, 6 1/4s, 4/1/12 Aaa 14,526,600
Metropolitan Trans. Auth. Svcs. Contract Fac.
Rev. Bonds
4,000,000 (Commuter Fac.), Ser. O, 5 3/4s, 7/1/13 A- 3,990,000
8,250,000 (Trans. Fac.), Ser. O, 5 3/4s, 7/1/13 A- 8,229,375
12,500,000 NY City, G.O. Bonds, Ser. D, 5 1/4s, 8/1/21 A3 10,796,875
NY City, Indl. Dev. Agcy. Rev. Bonds
1,000,000 (Visy Paper Inc.), 7.95s, 1/1/28 B/P 1,031,250
9,000,000 (Paper Inc.), 7.8s, 1/1/16 B/P 9,258,750
4,000,000 (Field Hotel Assoc.), 6s, 11/1/28 B/P 3,340,000
5,000,000 NY City, Muni. Assistance Corp. IFB, Ser. 337B,
8.773s, 7/1/08 (acquired 3/1/98,
cost $6,169,900) (RES) AA/P 5,468,750
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/P 5,468,750
6,280,000 NY City, Rev. Bonds, 6s, 8/1/06 (acquired 9/12/97,
cost $7,384,526) (RES) AAA/P 6,853,050
10,750,000 NY State Dorm. Auth. IFB, MBIA, 8.037s, 7/1/13
(acquired 10/22/97, cost $15,191,120) (RES) AAA/P 11,005,313
2,800,000 NY State Dorm. Auth. Lease Rev. Bonds
(Court Facs.), 6s, 5/15/39 A3 2,649,500
8,000,000 NY State Energy Res. & Dev. Auth. Poll.
Control IFB, FGIC, 9.398s, 7/1/29
(acquired 12/19/94, cost $8,353,120) (RES) Aaa 9,130,000
5,000,000 NY State Energy Res. & Dev. Auth. Poll.
Control Rev. Bonds (Lilco Project),
Ser. B, 5.15s, 3/1/16 A- 4,362,500
11,185,000 NY State Env. Fac. Corp. Poll. Control Rev. Bonds
(PA 198), 7.95s, 6/15/10 (acquired 10/22/97,
cost $6,012,500) (RES) Aaa 12,359,425
5,500,000 NY State Med. Care Fac. Fin. Agcy. Rev. Bonds,
Ser. A, AMBAC, FHA Insd., 6 1/2s, 8/15/29 Aaa 5,960,625
7,000,000 NY State Urban Dev. Corp. Rev. Bonds,
7 1/2s, 4/1/20 B/P 7,385,000
5,000,000 Onondaga Cnty., Indl. Dev. Agcy. Rev. Bonds
(Solvay Paperboard LLC), 7s, 11/1/30 B 4,806,250
3,000,000 Port Auth. NY & NJ Rev. Bonds Cons., Ser. 78,
MBIA, 4 3/4s, 1/1/24 Aaa 2,407,500
3,500,000 Suffolk Cnty., Indl. Dev. Agcy. Rev. Bonds
(Southampton Hosp.), Ser. A, 7 1/4s, 1/1/30 B-/P 3,132,500
8,000,000 Suffolk Cnty., Indl. Dev. Agcy. Fac. Civic Fac.
Rev. Bonds (Southampton Hosp. Assn.), Ser. B,
7 5/8s, 1/1/30 B-/P 7,320,000
--------------
142,491,013
North Carolina (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, Ser. B,
MBIA, 7s, 1/1/08 Aaa 4,405,000
7,500,000 NC Muni. Pwr. Agcy. Rev. Bonds (No. 1,
Catawba Elec.), MBIA, 6s, 1/1/11 Aaa 7,800,000
--------------
12,205,000
Ohio (0.4%)
- --------------------------------------------------------------------------------------------------------------------------
6,150,000 OH State Solid Waste Rev. Bonds, 8 1/2s,
8/1/22 (CSC Ltd.) CCC/P 5,904,000
Oklahoma (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 OK Dev. Fin. Auth. Indl. Dev. Rev. Bonds
(Doane Products Co.), 6 1/4s, 7/15/23 BB-/P 2,535,000
4,250,000 OK Dev. Fin. Auth. Rev. Bonds (Hillcrest Healthcare),
Ser. A, 5 5/8s, 8/15/29 Baa2 3,049,375
6,000,000 Ottawa Cnty., Fin. Auth. Indl. Rev. Bonds
(Doane Prods Co.), 7 1/4s, 6/1/17 BB-/P 6,000,000
6,475,000 Tulsa, Indl. Auth. Rev. Bonds (U. of Tulsa), Ser. A,
MBIA, 6s, 10/1/11 Aaa 6,790,656
--------------
18,375,031
Oregon (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
14,900,000 Multnomah Cnty., Hosp. Fac. Auth. Rev. Bonds
(Terwilliger Plaza Project), 6 1/2s, 12/1/29 BB-/P 12,646,375
Pennsylvania (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
Rev. Bonds (U.S. Air, Inc.)
1,330,000 Ser. A, 8 7/8s, 3/1/21 B 1,406,475
5,035,000 Ser. B, 8 1/2s, 3/1/21 B 5,280,456
12,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 10,859,375
5,370,000 PA Convention Ctr. Auth. Rev. Bonds, Ser. A, FSA,
6 3/4s, 9/1/19 Aaa 5,786,175
PA Econ. Dev. Fin. Auth. Qualified Res. Properties
Rev. Bonds
3,500,000 (RSI Properties/Greensburg LLC), Ser. B,
8s, 9/1/27 CCC/P 2,800,000
4,400,000 (RSI Properties/Buttler LLC), Ser. A, 8s, 9/1/27 CCC/P 3,520,000
4,800,000 PA Hsg. Fin. Agcy. IFB, 8.059s, 4/1/25 AA+ 4,728,000
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
13,000,000 (Colver), Ser. E, 8.05s, 12/1/15 BB-/P 13,780,000
6,250,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 6,328,125
7,250,000 (Northampton Generating), Ser. A, 6.6s, 1/1/19 BBB- 6,941,875
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) (In default) (NON) (RES) Caa3 2,937,000
2,500,000 PA State Higher Ed. Assistance Agcy. Student Loan
IFB, AMBAC, 9.623s, 9/1/26 Aaa 2,781,250
5,300,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. C,
8 5/8s, 11/15/16 Aaa 5,763,750
4,760,000 Philadelphia, Wtr. & Wastewtr. Rev. Bonds, FGIC,
10s, 6/15/05 Aaa 5,801,250
4,000,000 Pottsville Hosp. Auth Rev. Bonds (Pottsville Hosp.
Warne Clinic), 7s, 7/1/14 BB/P 4,375,000
--------------
83,088,731
Puerto Rico (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of PR, IFB, MBIA, 7.784s, 7/1/08 AAA 4,180,000
3,305,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Z, MBIA, 6 1/4s, 7/1/12 Aaa 3,557,006
--------------
7,737,006
South Carolina (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
10,000,000 Charleston Cnty., Indl. Rev. Bonds (Zeigler
Coal Holding), 6.95s, 8/10/28 B-/P 8,425,000
11,150,000 Florence Cnty., Indl. Dev. Auth. Rev. Bonds (Stone
Container Corp.), 7 3/8s, 2/1/07 B/P 11,442,688
10,355,000 SC Jobs Econ. Dev. Auth. Rev. Bonds (St. Francis
Hosp.-Franciscan Sisters), 7s, 7/1/15 Baa1 11,157,513
5,000,000 Spartanburg Cnty., Hosp. Fac. IFB, FSA,
8.756s, 4/13/22 Aaa 5,556,250
--------------
36,581,451
Tennessee (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,500,000 McMinn Cnty., Indl. Dev. Brd. Poll. Control
Rev. Bonds (Newsprint Co.), 7 5/8s, 3/1/16 Baa2 7,706,250
Texas (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
5,350,000 Abilene, Health Fac. Dev. Corp. Rev. Bonds (Sears
Methodist Retirement), Ser. A, 5.9s, 11/15/25 BB+/P 4,259,938
5,000,000 Amarillo, Hlth. Fac. Corp. Rev. Bonds (Sears
Panhandle Retirement), Ser. B, 7 3/4s, 8/15/26 AAA 5,725,000
Bell Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Heartway Corp.)
635,000 Ser. B, 10s, 3/1/19 CCC/P 794
3,765,000 Ser. A, 9 1/2s, 3/1/19 CCC/P 3,388,500
5,280,000 Cherokee Cnty., Hlth. Fac. Dev. Corp. Rev. Bonds
(Nancy Travis Memorial Hosp.), 10s, 5/15/13 B/P 5,907,000
Dallas Cnty., G.O. Bonds (Flood Control Dist. (SEG)1)
10,000,000 stepped-coupon, (8.5s, 10/1/99), 4/1/16
(acquired 11/18/94, cost $6,706,000) (RES) (STP) BB-/P 10,762,500
500,000 zero %, 8/1/00 (acquired 3/10/99,
cost $442,880) (RES) BB-/P 476,510
10,000,000 Dallas-Fort Worth Intl. Arpt. Fac. Impt. Corp.
Rev. Bonds (American Airlines), GTY AGMT,
6 3/8s, 5/1/35 Baa1 9,212,500
6,655,000 Harris Cnty., Hlth. Facs. Dev. Rev. Bonds
(Christus Health), Ser. A, 5 3/4s, 7/1/14 AAA 6,546,856
15,000,000 Houston, City G.O. Bonds, Ser. C, 7s, 3/1/08 Aa3 16,462,500
10,000,000 Houston, Indpt. School Dist., Ltd. G. O. Bonds,
Ser. A, PSFG, 4 3/4s, 2/15/26 Aaa 7,875,000
3,000,000 Lufkin, Hlth. Fac. Dev. Corp. Rev. Bonds
(Mem. Hlth. Syst. of East TX), 5.7s, 2/15/28 BBB- 2,298,750
5,265,000 Round Rock, Hotel Occupancy Tax Rev. Bonds
(Convention Ctr. Complex), 5.85s, 12/1/24 BB/P 4,514,738
8,000,000 TX State Hsg. & Cmnty. Affairs Home Mtge. IFB,
Ser. C, GNMA Coll, FNMA Coll, 9.612s, 7/2/24 AAA 8,550,000
--------------
85,980,586
Utah (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Salt Lake City, Hosp. Rev. Bonds (IHC Hosps. Inc.),
MBIA, 6 1/4s, 2/15/23 Aaa 5,025,000
5,500,000 Tooele Cnty., Poll. Control Rev. Bonds (Laidlaw
Environmental), Ser. A, 7.55s, 7/1/27 B/P 5,603,125
--------------
10,628,125
Virginia (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
4,500,000 Fredericksburg, Indl. Dev. Auth. Hosp. Fac. IFB, FGIC,
8.354s, 8/15/23 Aaa 4,989,375
2,000,000 Henrico Cnty., Indl. Dev. Auth. IFB (Bon Secours
Hlth. Syst.), FSA, 8.988s, 8/23/27 Aaa 1,910,000
10,435,000 Hopewell, Indl. Dev. Rev. Bonds (Stone Container
Corp.), 8 1/4s, 6/1/16 B/P 11,021,969
9,010,000 Suffolk, Redev. & Hsg. Auth. Rev. Bonds
(Beach-Oxford Apts.), 6 1/4s, 10/1/33 B+/P 7,962,588
--------------
25,883,932
Washington (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 Spokane Cnty., Indl. Dev. Corp. Solid Waste Disp.
Rev Bonds (Kiaser Alummin. & Chemical Corp.),
7.6s, 3/1/27 B-/P 3,574,375
2,600,000 WA State Hsg. Fin. Comm. Multi-Fam. Rev. Bonds
(Clare House Apts.), Ser. A, 5 3/4s, 7/1/30 Aa3 2,359,500
WA State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 3)
5,000,000 Ser. C, MBIA, 7 1/2s, 7/1/08 Aaa 5,681,250
5,000,000 Ser. B, MBIA, 7 1/8s, 7/1/16 Aaa 5,612,500
5,500,000 Washington Cnty., Hsg. & Redev. Auth. Rev. Bonds
(Healtheast), 5 1/2s, 11/15/27 BBB- 3,953,113
--------------
21,180,738
West Virginia (0.3%)
- --------------------------------------------------------------------------------------------------------------------------
5,000,000 Weirton, Poll. Control Rev. Bonds (Weirton
Steel Corp.), 8 5/8s, 11/1/14 B2 4,918,750
--------------
Total Municipal Bonds and Notes
(cost $1,654,638,046) $1,622,713,325
PREFERRED STOCKS (0.8%) (a)
NUMBER OF SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
8,000,000 Charter Mac Equity 144A Ser. A, 6.625%, cum. pfd. $ 7,740,000
6,000,000 MuniMae TE Bond Subsidiary, LLC 144A 6.875%, cum. pfd. 5,910,000
--------------
Total Preferred Stocks (cost $14,000,000) $ 13,650,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,668,638,046) (b) $1,636,363,325
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $1,670,249,437.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
January 31, 2000 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at January 31, 2000 Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $1,668,638,046, resulting in gross unrealized appreciation and
depreciation of $55,020,967 and $87,295,688, respectively, or net unrealized depreciation of $32,274,721.
(NON) Non-income-producing security.
(STP) The interest or dividend rate and date shown parenthetically represent the new interest or dividend rate to be paid
and the date the fund will begin receiving interest or dividend income at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held
at January 31, 2000 was $185,265,080 or 11.1% of net assets.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements for
futures contracts at January 31, 2000.
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, and FRB's are the current interest rates at January 31, 2000.
The fund had the following industry group concentrations greater than 10% at January 31, 2000 (as a percentage of
net assets):
Health care 29.1%
Utilities 10.8
Transportation 10.4
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at January 31, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond
Index (Long) $57,314,500 $58,661,891 Mar-00 $(1,347,391)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
January 31, 2000 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,668,638,046) (Note 1) $1,636,363,325
- -----------------------------------------------------------------------------------------------
Cash 12,466,330
- -----------------------------------------------------------------------------------------------
Interest receivable 27,519,220
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,317,824
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 1,642,642
- -----------------------------------------------------------------------------------------------
Total assets 1,680,309,341
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 375,250
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 3,565,416
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 4,587,215
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 795,151
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 77,658
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 36,007
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 4,326
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 568,582
- -----------------------------------------------------------------------------------------------
Other accrued expenses 50,299
- -----------------------------------------------------------------------------------------------
Total liabilities 10,059,904
- -----------------------------------------------------------------------------------------------
Net assets $1,670,249,437
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,809,586,207
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 545,259
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (106,259,917)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (33,622,112)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,670,249,437
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,126,674,876 divided by 85,138,455 shares) $13.23
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $13.23)* $13.89
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($521,013,732 divided by 39,309,075 shares)** $13.25
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,117,024 divided by 235,577 shares)** $13.23
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($19,443,805 divided by 1,469,087 shares) $13.24
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $13.24)*** $13.68
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more and on
group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended January 31, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $ 61,127,390
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,970,978
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 647,890
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 20,500
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,720
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,163,738
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,446,335
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 14,562
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 54,606
- -----------------------------------------------------------------------------------------------
Reports to shareholders 5,924
- -----------------------------------------------------------------------------------------------
Registration fees 3,824
- -----------------------------------------------------------------------------------------------
Auditing 36,948
- -----------------------------------------------------------------------------------------------
Legal 7,634
- -----------------------------------------------------------------------------------------------
Postage 54,967
- -----------------------------------------------------------------------------------------------
Other 485,163
- -----------------------------------------------------------------------------------------------
Total expenses 9,924,789
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (149,697)
- -----------------------------------------------------------------------------------------------
Net expenses 9,775,092
- -----------------------------------------------------------------------------------------------
Net investment income 51,352,298
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (7,871,049)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,689,019)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the period (109,157,907)
- -----------------------------------------------------------------------------------------------
Net loss on investments (118,717,975)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(67,365,677)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
January 31 July 31
2000* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 51,352,298 $ 106,682,753
- ---------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (9,560,068) 1,802,993
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (109,157,907) (66,831,127)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (67,365,677) 41,654,619
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (34,114,427) (58,872,974)
- ---------------------------------------------------------------------------------------------------------------
Class B (16,723,077) (46,390,286)
- ---------------------------------------------------------------------------------------------------------------
Class C (72,726) (47,801)
- ---------------------------------------------------------------------------------------------------------------
Class M (607,501) (1,163,341)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (138,673,892) (13,029,929)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (257,557,300) (77,849,712)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 1,927,806,737 2,005,656,449
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $545,259 and $710,692, respectively) $1,670,249,437 $1,927,806,737
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.13 $14.61 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40 .81 .80(c) .84 .90 .94
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.90) (.48) .06 .52 (.10) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.50) .33 .86 1.36 .80 .84
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.81) (.81) (.85) (.89) (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.81) (.81) (.85) (.89) (.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.23 $14.13 $14.61 $14.56 $14.05 $14.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.55)* 2.25 6.08 9.97 5.76 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,126,675 $1,157,920 $934,747 $625,602 $540,607 $474,984
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .45* .87 .88 .85 .84 .87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.95* 5.56 5.60 5.94 6.27 6.73
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.67* 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 average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share January 31
operating performance (Unaudited) Year ended July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.15 $14.62 $14.56 $14.05 $14.14 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .37 .74 .73(c) .75 .80 .85
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.90) (.47) .05 .51 (.09) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.53) .27 .78 1.26 .71 .75
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.74) (.72) (.75) (.80) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.37) (.74) (.72) (.75) (.80) (.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.25 $14.15 $14.62 $14.56 $14.05 $14.14
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.82)* 1.81 5.47 9.26 5.08 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $521,014 $743,456 $1,052,827 $1,427,365 $1,421,448 $1,436,481
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%) (b) .75* 1.37 1.53 1.50 1.50 1.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.64* 5.03 4.95 5.30 5.62 6.10
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.67* 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 average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Feb. 1, 1999+
operating performance (Unaudited) to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $14.13 $14.73
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .35 .36
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.90) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.55) (.24)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.23 $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.94)* 1.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,117 $2,738
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* .83*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.56* 2.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.67* 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 average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share January 31 Dec. 29, 1994+
operating performance (Unaudited) Year ended July 31 to July 31
- ------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.14 $14.61 $14.55 $14.04 $14.13 $13.43
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .38 .77 .78(c) .80 .84 .58
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.90) (.47) .05 .51 (.08) .70
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.52) .30 .83 1.31 .76 1.28
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.77) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.38) (.77) (.77) (.80) (.85) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.24 $14.14 $14.61 $14.55 $14.04 $14.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.69)* 2.01 5.84 9.64 5.44 9.69*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,444 $23,693 $18,082 $16,192 $9,984 $2,331
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .60* 1.17 1.18 1.15 1.13 .71*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.79* 5.27 5.30 5.63 5.87 3.98*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.67* 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 average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
January 31, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Tax-Free High Yield Fund (the "fund") is a series of Putnam
Tax-Free Income Trust (the "trust") which is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund pursues its objective of seeking
high current income exempt from federal income tax by investing primarily
in high-yielding, lower rated tax exempt securities constituting a
portfolio that Putnam Investment Management, Inc. ("Putnam Management")
the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc.,
believes does not involve undue risk to income or principal.
The fund offers class A, class B, class C and class M shares. Class A
shares are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing distribution
fee than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class C
shares are subject to the same fees and expenses as class B shares, except
that class C shares 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 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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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 six months
ended January 31, 2000, 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 shareholders Income dividends are
recorded daily by the fund and are distributed monthly. Capital gain
distributions, if any, are recorded on the ex-dividend date and paid at
least annually. The amount and character of income and gains to be
distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Reclassifications
are made to the fund's capital accounts to reflect income and gains available
for distribution (or available capital loss carryovers) under income tax
regulations.
G) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
H) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. The premium in excess of the call
price, if any, is amortized to the call date; thereafter, the remaining
excess premium is amortized to maturity. Discounts on zero coupon bonds,
original issue discount 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.
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 Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended January 31, 2000, fund expenses were reduced by
$149,697 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 $844 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
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%, 0.80%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively. Prior to September 14, 1999, the Trustees had
approved payment by the fund at an annual rate of 0.70% of the average net
assets attributable to class B shares.
For the six months ended January 31, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $34,230 and $788 from
the sale of class A and class M shares, respectively, and received
$786,093 and $3,911 in contingent deferred sales charges from redemptions
of class B and C shares. A deferred sales charge of up to 1% is assessed
on certain redemptions of class A shares. For the six months ended January
31, 2000, Putnam Mutual Funds Corp., acting as underwriter received $7,824
on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended January 31, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $83,108,221 and $238,847,754, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At January 31, 2000 there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 13,297,251 $181,734,938
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,253,942 17,104,260
- -----------------------------------------------------------------------------
14,551,193 198,839,198
Shares
repurchased (11,331,451) (154,210,435)
- -----------------------------------------------------------------------------
Net increase 3,219,742 $ 44,628,763
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,478,721 $ 33,975,104
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 538,101 7,361,185
- -----------------------------------------------------------------------------
3,016,822 41,336,289
Shares
repurchased (16,239,973) (222,390,714)
- -----------------------------------------------------------------------------
Net decrease (13,223,151) $(181,054,425)
- -----------------------------------------------------------------------------
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)
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 64,716 $1,004,830
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,294 43,392
- -----------------------------------------------------------------------------
77,010 1,048,222
Shares
repurchased (35,235) (479,447)
- -----------------------------------------------------------------------------
Net increase 41,775 $ 568,775
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended January 31, 2000
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 82,588 $ 1,131,361
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 30,927 422,060
- -----------------------------------------------------------------------------
113,515 1,553,421
Shares
repurchased (320,166) (4,370,426)
- -----------------------------------------------------------------------------
Net decrease (206,651) $(2,817,005)
- -----------------------------------------------------------------------------
Year ended July 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 789,094 $11,482,697
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,082 698,515
- -----------------------------------------------------------------------------
837,176 12,181,212
Shares
repurchased (397,318) (5,754,275)
- -----------------------------------------------------------------------------
Net increase 439,858 $ 6,426,937
- -----------------------------------------------------------------------------
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
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
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
SA042-58958 036/500/679 3/00
