| UNITED STATES SECURITIES AND EXCHANGE COMMISSION | ||
| Washington, D.C. 20549 | ||
FORM N-CSR | ||
| CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES | ||
| Investment Company Act file number: | (811-04345) |
| Exact name of registrant as specified in charter: | Putnam Tax Free Income Trust |
| Address of principal executive offices: | One Post Office Square, Boston, Massachusetts 02109 |
| Name and address of agent for service: | Robert T. Burns, Vice President One Post Office Square Boston, Massachusetts 02109 |
| Copy to: | John W. Gerstmayr, Esq. Ropes & Gray LLP 800 Boylston Street Boston, Massachusetts 02199-3600 |
| Registrant’s telephone number, including area code: | (617) 292-1000 |
| Date of fiscal year end: | July 31, 2014 |
| Date of reporting period: | August 1, 2013 — January 31, 2014 |
Item 1. Report to Stockholders: |
| The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: | |||
Putnam
AMT-Free Municipal
Fund
Semiannual report
1 | 31 | 14
| Message from the Trustees | 1 | ||
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| About the fund | 2 | ||
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| Performance snapshot | 4 | ||
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| Interview with your fund’s portfolio manager | 5 | ||
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| Your fund’s performance | 12 | ||
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| Your fund’s expenses | 15 | ||
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| Terms and definitions | 17 | ||
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| Other information for shareholders | 18 | ||
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| Trustee approval of management contract | 19 | ||
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| Financial statements | 25 | ||
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| Shareholder meeting results | 52 | ||
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Consider these risks before investing: Capital gains, if any, are taxable for federal and, in most cases, state purposes. Income from federally tax-exempt funds may be subject to state and local taxes. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. The fund may invest significantly in particular segments of the tax-exempt debt market, making it more vulnerable to fluctuations in the values of the securities it holds than a fund that invests more broadly. Bond prices may fall or fail to rise over time for several reasons, including general financial market conditions and factors related to a specific issuer. You can lose money by investing in the fund.
Message from the Trustees
Dear Fellow Shareholder:
In early 2014, stock prices fluctuated while most bond markets advanced, reversing the trends that dominated the two asset classes during 2013. Although the economic recovery appears to remain intact and previous market forces may re-emerge, the shift in short-term trends reminds investors once again about the value of portfolio diversification.
In this environment, we believe Putnam’s commitment to active fundamental research and taking a proactive view about risk is well suited to uncovering attractive investment opportunities.
We are pleased to report that this focus continues to earn Putnam high marks among industry peers. In 2013 — and for the third time in five years — Barron’s ranked Putnam one of the top two mutual fund families based on total returns across asset classes.
Lastly, for guidance on today’s markets, we also believe that you are well served by consulting with your financial advisor, who can help you assess your individual needs, time horizon, and risk tolerance — crucial for guiding you toward your investment goals.
As always, thank you for investing with Putnam.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 5 and 12–14 for additional performance information. For a portion of the periods, the fund had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com.
* Performance for class A shares before their inception (9/20/93) is derived from the historical performance of class B shares.
† Returns for the six-month period are not annualized, but cumulative.
| 4 | AMT-Free Municipal Fund |
Interview with your fund’s portfolio manager
How did municipal bonds perform for the six months ended January 31, 2014?
Municipal bonds closed out the reporting period in positive territory despite considerable month-to-month volatility stemming from headline and interest-rate fears. In August 2013, municipal bonds struggled in the aftermath of the Federal Reserve’s late spring announcement that it was considering scaling back its stimulative bond-buying program given improving U.S. economic data. However, in September, the Fed surprised investors with its decision to hold off reducing its stimulus measures, and municipal bond prices climbed and interest rates declined somewhat. Municipal bonds continued this momentum into October when lawmakers agreed to extend the U.S. borrowing authority, avoiding a possible debt default. During this time, municipals outperformed Treasuries, despite continued outflows from the asset class.
Municipal bonds lost ground in November and December, as questions about future Fed monetary policy and negative headlines — most notably Detroit’s bankruptcy and Puerto Rico’s credit challenges — distracted investors from improving fundamentals in the broader market. Municipal bonds reversed course once again in January, posting a big gain of almost 2% for the month, as measured by the Barclays Municipal Bond Index. This strong month of returns was sparked by a rally in interest rates, as investors moved to a risk-off
This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 1/31/14. See pages 4 and 12–14 for additional fund performance information. Index descriptions can be found on page 17.
| AMT-Free Municipal Fund | 5 |
mode around fears surrounding weaker economic data and emerging market stress. Supply and demand dynamics were also a tailwind for municipal bonds during January. New issue supply was well below average during the month while demand for municipal bonds increased. Fund flows finally turned positive after months of outflows, and there was also a bid from direct retail investors after year-end tax selling. Against this multidimensional backdrop, Putnam AMT-Free Municipal Fund delivered positive performance for the six months ended January 31, 2014, but lagged its benchmark, the Barclays Municipal Bond Index, and the average return of its Lipper peer group.
How are you managing the risk posed by higher interest rates?
In the aftermath of the Fed’s decision in September 2013 to hold off setting a timetable for scaling back its bond-buying program, investors looked to its December meeting for further guidance in the wake of employment gains. At that meeting, the Fed announced that it would gradually end its bond-buying campaign in 2014, starting with the first reduction in January. The central bank also clarified that it would keep short-term interest rates at current levels [near zero] “well past the time when the unemployment rate declines below 6½ percent.” In contrast to the market’s May–June 2013 reaction to the Fed’s first hint of the eventual unwinding of the program, this time there was no sharp sell-off, but interest
Allocations are shown as a percentage of the fund’s net assets as of 1/31/14. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. Summary information may differ from the information in the portfolio schedule notes included in the financial statements due to the inclusion of derivative securities, any interest accruals, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
| 6 | AMT-Free Municipal Fund |
rates did gradually move higher throughout December. With further clarification of Fed monetary policy, especially its commitment to keep short-term interest rates low as long as “projected inflation continues to run below the committee’s 2 percent longer-run goal,” municipal bonds outperformed Treasuries during the final weeks of December and the month of January.
Looking ahead, we expect continued pressure on interest rates and yield spreads as investors adjust their expectations about Fed policy. However, we believe it is unlikely that rates are going to suddenly spike as they did in the spring of 2013. If yields rise more than economic fundamentals seem to warrant, we may view it as an opportunity to add what we believe are attractively valued securities to the fund. To prepare for somewhat higher rates, we modestly increased our cash level in the fund during the period and positioned the portfolio with a slightly shorter duration, or interest-rate sensitivity, than its Lipper peer group.
Periods of high volatility, although unpleasant for investors, may offer attractive buying opportunities. Tax-exempt yields, in our opinion, are more attractive now given this past summer’s sell-off. In fact, we have not seen yields at these higher levels since 2011. The municipal bond market is exceptionally diverse, comprising small issuers, complex
Credit qualities are shown as a percentage of the fund’s net assets as of 1/31/14. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds or derivatives not rated by Moody’s but rated by Standard & Poor’s (S&P) or, if unrated by S&P, by Fitch ratings, and then included in the closest equivalent Moody’s rating. Ratings may vary over time.
Credit quality includes bonds and represents only the fixed-income portion of the portfolio. Cash and net other assets, if any, represent the market value weights of cash, derivatives, short-term securities, and other unclassified assets in the portfolio. The fund itself has not been rated by an independent rating agency.
| AMT-Free Municipal Fund | 7 |
instruments, and an array of market participants with varying return objectives. We believe this market dynamic may present inefficiencies, which our active management and fundamental research will help to unlock.
What should tax-sensitive investors know about tax legislation as we enter 2014?
As part of the legislation to avert the so-called fiscal cliff of tax increases and spending cuts, provisions set by Congress to permanently extend the Bush-era tax cuts for most people took effect on January 1, 2013. However, while the existing tax rates were preserved for a majority of taxpayers, Congress added a top-marginal tax rate of 39.6% for top earners [$406,750 for single filers and $457,600 for couples filing jointly]. In addition, higher-income taxpayers [at thresholds of $254,200 for individuals and $305,050 for couples] could see their itemized deductions and personal exemptions become more limited and eventually be phased out, and could have to pay higher capital gains taxes — 20% for the highest income levels.
Wealthier Americans will also contend with two new taxes. The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act included two new taxes that were scheduled to take effect in January 2013 — a 0.9% increase in the Medicare payroll tax for workers earning more than $200,000 [$250,000 for married couples] and a new 3.8% surtax on net investment income.
Municipal bonds may be more attractive on a relative tax basis for taxpayers who find themselves subject to the 3.8% Medicare
This chart shows how the fund’s top weightings have changed over the past six months. Allocations are shown as a percentage of the fund’s net assets. Current period summary information may differ from the information in the portfolio schedule notes included in the financial statements due to the inclusion of derivative securities, any interest accruals, and the use of different classifications of securities for presentation purposes. Holdings and allocations may vary over time.
| 8 | AMT-Free Municipal Fund |
surtax and who may also be subject to the highest [39.6%] marginal rate. The tax equivalent yield, i.e., the yield an investor would require in a taxable bond investment to equal the yield of a comparable tax-free municipal bond, has increased for those taxpayers. Thus it is possible that municipal bonds will see additional demand — and further price support — as the 2014 tax-filing season brings a greater awareness of the impact of these higher taxes.
In addition, more than four million taxpayers filing in 2014 will be subject to the alternative minimum tax [AMT] and pay an average AMT tax bill of $6,500 [Source: Urban-Brookings Tax Policy Center, August 2013]. The AMT is a separate, parallel income tax system introduced in 1969 that disallows some popular tax breaks and certain itemized deductions to make sure wealthier taxpayers pay their share of taxes. Putnam AMT-Free Municipal Fund is actively managed to avoid bonds whose income would be subject to the AMT, thereby helping to reduce taxpayers’ tax burden.
Is the default rate in the municipal bond market still low by historic standards?
Yes. For 2013, bankruptcy filings only represented approximately 0.21% of the $3.7 trillion municipal bond market. Furthermore, we do not believe that the default rate will increase meaningfully in 2014.
In our opinion, the significance of defaults and downgrades is the headline risk that emerges from occasional isolated incidents. For example, Puerto Rico, a self-governing American territory, has been downgraded to junk status by the major ratings agencies. Puerto Rico’s debt is widely held because of its large issuance and exemption from federal and local taxes, and the considerable negative coverage of its strained economy led to a heavy sell-off. Concerns about the island’s weak economy and continued deficits are troubling, but Puerto Rico’s government has taken measures in an attempt to mend its credit profile, most notably by introducing proposals for pension reform and raising tax revenues. Puerto Rico recently announced that it is planning to issue G.O. [general obligation] bonds in the near future to refinance some existing debt — a move seen by many observers as critical for the country’s financial health. Despite these developments, we believe Puerto Rico’s credit is likely to remain pressured due to its struggling economy.
Also, the city of Detroit filed for Chapter 9 bankruptcy this past July and continues to dominate the municipal news. Although Detroit’s filing, the largest Chapter 9 filing in history, was a large headline event, we continue to believe that Chapter 9 filings remain isolated and don’t expect a large impact on the broader municipal bond market. At the same time, we continue to monitor the legal proceedings because they have the potential to set new precedents that can influence the market.
State fiscal conditions have improved, and many states projected budget surpluses for the current fiscal year. Credit quality at the state level has been quite high, with 30 of the 50 states holding either an Aaa or Aa1 rating from Moody’s, the two highest possible ratings. On balance, our outlook is for continued stabilization of states’ economies, given the improvement in employment, economic growth, and consumer confidence data — all of which have contributed to rising tax collections.
How did you position the portfolio during the period?
We identified what we considered to be improving fundamentals and still-attractive spreads in the market and sought to benefit from them. Revenue credits, which are typically issued by state and local governments to finance a specific revenue-generating project, have been an overweight position in the fund. We have also maintained an overweight exposure relative to the
| AMT-Free Municipal Fund | 9 |
benchmark to municipal bonds rated A and Baa by Moody’s. While we believed that the budget challenges faced by many municipalities were significant, we were confident that conditions would improve as long as the broader economy did not stall. Our overweight position in essential service revenue bonds was offset by the fund’s underweight positioning in local G.O. bonds — securities issued at the city or county level. In terms of sectors, relative to the fund’s Lipper universe, we favored higher education, utility, and health-care bonds.
Overall, this credit positioning helped the fund’s performance, but the fund’s exposure to Puerto Rico bonds was a detractor during the period. The fund’s shorter-duration interest-rate positioning also detracted from returns as interest rates moved lower, especially during the last month of the period.
What is your near-term outlook for the municipal bond market?
The past six months proved to be a volatile time for municipal bonds, with uncertainty about interest rates and the headline risk from a few isolated credit situations diverting investor attention away from the tax advantages of this asset class. While market conditions in the municipal market could face some volatility, we continue to believe that this asset class should be part of a diversified portfolio for long-term investors seeking income.
Despite the strong start in 2014, we still believe that there could be some volatility surrounding supply/demand factors and interest rates. Tax-exempt municipal fund outflows for 2013 topped $60 billion [Source: JPMorgan] — the most in 20 years — and put downward pressure on prices. Although we have seen fund flows and some direct retail buyers come into the market to help support prices, we think it is unlikely that we will see volatility subside until fund flows turn decidedly positive and rate volatility eases. The overall fundamental credit outlook of municipal bonds appears solid, in our opinion. With regard to tax policy, we think comprehensive tax reform is unlikely at this time with the 2014 elections just around the corner. Longer term, we believe federal deficits and pressures around entitlement programs could contribute to uncertainty around the potential for broader tax reform, which could affect the value of municipal bonds.
We will continue to position the portfolio for modest upticks in the overall interest-rate environment, avoiding the more interest-rate-sensitive sectors of the municipal bond market to make the most of less-than-favorable market conditions. Our efforts remain focused on the pursuit of steady income, the minimizing of volatility, and a competitive total return for the fund.
Thank you, Thalia, for bringing us up to date.
The views expressed in this report are exclusively those of Putnam Management and are subject to change. They are not meant as investment advice.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future. Current and future portfolio holdings are subject to risk.
Portfolio Manager Thalia Meehan holds a B.A. from Williams College. A CFA charterholder, Thalia joined Putnam in 1989 and has been in the investment industry since 1983.
In addition to Thalia, your fund’s portfolio managers are Paul M. Drury, CFA, and Susan A. McCormack, CFA.
| 10 | AMT-Free Municipal Fund |
IN THE NEWS
The U.S. federal deficit this year will dip to its lowest level since 2007, but the trend may be short-lived. The Congressional Budget Office (CBO) has projected that the U.S. deficit will fall to $514 billion by the end of the current fiscal year on September 30, 2014, down from $680 billion last fiscal year and the recent peak of $1.4 trillion in 2009. Government spending cuts, tax hikes, and the overall economic expansion all helped to lower the deficit, which has been the focus of intense political debate in Washington. However, in coming years as baby boomers age, spending will accelerate on such government programs as Medicare and Social Security, widening the deficit. Without more robust economic growth, spending for Social Security, Medicare (including offsetting receipts), Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through exchanges will rise from 9.7% of GDP in 2014 to 11.7% in 2024, the CBO estimates.
| AMT-Free Municipal Fund | 11 |
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended January 31, 2014, the end of the first half of its current fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance information as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represent past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at putnam.com or call Putnam at 1-800-225-1581. Class Y shares are not available to all investors. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 1/31/14
| Class A | Class B | Class C | Class M | Class Y | |||||
| (inception dates) | (9/20/93) | (9/9/85) | (7/26/99) | (6/1/95) | (1/2/08) | ||||
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| Before | After | Before | After | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | |
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| (life of fund) | 6.02% | 5.87% | 6.02% | 6.02% | 5.38% | 5.38% | 5.78% | 5.66% | 5.83% |
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| 10 years | 46.45 | 40.59 | 39.09 | 39.09 | 35.49 | 35.49 | 42.27 | 37.64 | 44.80 |
| Annual average | 3.89 | 3.47 | 3.35 | 3.35 | 3.08 | 3.08 | 3.59 | 3.25 | 3.77 |
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| 5 years | 28.91 | 23.76 | 24.87 | 22.87 | 24.08 | 24.08 | 27.14 | 23.01 | 30.49 |
| Annual average | 5.21 | 4.35 | 4.54 | 4.20 | 4.41 | 4.41 | 4.92 | 4.23 | 5.47 |
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| 3 years | 18.72 | 13.97 | 16.44 | 13.44 | 15.97 | 15.97 | 17.72 | 13.90 | 19.54 |
| Annual average | 5.89 | 4.46 | 5.20 | 4.29 | 5.06 | 5.06 | 5.59 | 4.43 | 6.13 |
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| 1 year | –2.26 | –6.17 | –2.92 | –7.62 | –3.00 | –3.94 | –2.51 | –5.68 | –2.03 |
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| 6 months | 2.72 | –1.39 | 2.33 | –2.67 | 2.32 | 1.32 | 2.58 | –0.76 | 2.84 |
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A and M shares reflect the deduction of the maximum 4.00% and 3.25% sales charge, respectively, levied at the time of purchase. Class B share returns after contingent deferred sales charge (CDSC) reflect the applicable CDSC, which is 5% in the first year, declining over time to 1% in the sixth year, and is eliminated thereafter. Class C share returns after CDSC reflect a 1% CDSC for the first year that is eliminated thereafter. Class Y shares have no initial sales charge or CDSC. Performance for class A, C, M, and Y shares before their inception is derived from the historical performance of class B shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
Class B share performance reflects conversion to class A shares after eight years.
| 12 | AMT-Free Municipal Fund |
Comparative index returns For periods ended 1/31/14
| Lipper General & Insured | ||
| Barclays Municipal | Municipal Debt Funds | |
| Bond Index | category average* | |
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| Annual average (life of fund) | 6.85% | 6.28% |
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| 10 years | 54.28 | 43.12 |
| Annual average | 4.43 | 3.63 |
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| 5 years | 30.96 | 35.08 |
| Annual average | 5.54 | 6.15 |
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| 3 years | 18.30 | 19.50 |
| Annual average | 5.76 | 6.10 |
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| 1 year | –1.07 | –2.59 |
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| 6 months | 2.99 | 2.94 |
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Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 1/31/14, there were 268, 256, 230, 210, 161, and 30 funds, respectively, in this Lipper category.
Fund performance as of most recent calendar quarter
Total return for periods ended 12/31/13
| Class A | Class B | Class C | Class M | Class Y | |||||
| (inception dates) | (9/20/93) | (9/9/85) | (7/26/99) | (6/1/95) | (1/2/08) | ||||
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| Before | After | Before | After | Net | |||||
| sales | sales | Before | After | Before | After | sales | sales | asset | |
| charge | charge | CDSC | CDSC | CDSC | CDSC | charge | charge | value | |
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| Annual average | |||||||||
| (life of fund) | 5.97% | 5.82% | 5.97% | 5.97% | 5.33% | 5.33% | 5.73% | 5.61% | 5.77% |
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| 10 years | 44.51 | 38.73 | 37.25 | 37.25 | 33.70 | 33.70 | 40.48 | 35.91 | 42.86 |
| Annual average | 3.75 | 3.33 | 3.22 | 3.22 | 2.95 | 2.95 | 3.46 | 3.12 | 3.63 |
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| 5 years | 30.63 | 25.41 | 26.53 | 24.53 | 25.65 | 25.65 | 28.93 | 24.74 | 32.23 |
| Annual average | 5.49 | 4.63 | 4.82 | 4.49 | 4.67 | 4.67 | 5.21 | 4.52 | 5.75 |
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| 3 years | 15.08 | 10.48 | 12.95 | 9.95 | 12.42 | 12.42 | 14.12 | 10.41 | 15.96 |
| Annual average | 4.79 | 3.38 | 4.14 | 3.21 | 3.98 | 3.98 | 4.50 | 3.36 | 5.06 |
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| 1 year | –3.55 | –7.41 | –4.21 | –8.85 | –4.35 | –5.28 | –3.80 | –6.93 | –3.33 |
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| 6 months | –0.54 | –4.51 | –0.85 | –5.73 | –0.99 | –1.97 | –0.67 | –3.90 | –0.42 |
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See the discussion following the Fund performance table on page 12 for information about the calculation of fund performance.
| AMT-Free Municipal Fund | 13 |
Fund price and distribution information For the six-month period ended 1/31/14
| Distributions | Class A | Class B | Class C | Class M | Class Y | ||
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| Number | 6 | 6 | 6 | 6 | 6 | ||
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| Income 1 | $0.285668 | $0.239912 | $0.228803 | $0.265776 | $0.302886 | ||
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| Capital gains 2 | — | — | — | — | — | ||
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| Total | $0.285668 | $0.239912 | $0.228803 | $0.265776 | $0.302886 | ||
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| Before | After | Net | Net | Before | After | Net | |
| sales | sales | asset | asset | sales | sales | asset | |
| Share value | charge | charge | value | value | charge | charge | value |
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| 7/31/13 | $14.74 | $15.35 | $14.76 | $14.78 | $14.78 | $15.28 | $14.75 |
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| 1/31/14 | 14.85 | 15.47 | 14.86 | 14.89 | 14.89 | 15.39 | 14.86 |
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| Before | After | Net | Net | Before | After | Net | |
| sales | sales | asset | asset | sales | sales | asset | |
| Current rate (end of period) | charge | charge | value | value | charge | charge | value |
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| Current dividend rate 3 | 3.77% | 3.62% | 3.15% | 3.00% | 3.50% | 3.38% | 4.00% |
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| Taxable equivalent 4 | 6.66 | 6.40 | 5.57 | 5.30 | 6.18 | 5.97 | 7.07 |
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| Current 30-day SEC yield 5 | N/A | 2.65 | 2.15 | 2.00 | N/A | 2.41 | 2.99 |
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| Taxable equivalent 4 | N/A | 4.68 | 3.80 | 3.53 | N/A | 4.26 | 5.28 |
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The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A and M shares, if applicable, do not take into account any sales charge levied at the time of purchase. After-sales-charge share value, current dividend rate, and current 30-day SEC yield, if applicable, are calculated assuming that the maximum sales charge (4.00% for class A shares and 3.25% for class M shares) was levied at the time of purchase. Final distribution information will appear on your year-end tax forms.
1 For some investors, investment income may be subject to the federal alternative minimum tax.
2 Capital gains, if any, are taxable for federal and, in most cases, state purposes.
3 Most recent distribution, including any return of capital and excluding capital gains, annualized and divided by share price before or after sales charge at period-end.
4 Assumes maximum 43.40% federal tax rate for 2014. Results for investors subject to lower tax rates would not be as advantageous.
5 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
| 14 | AMT-Free Municipal Fund |
Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the following information, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class Y | |
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| Total annual operating expenses for the fiscal | |||||
| year ended 7/31/13 | 0.76% | 1.38% | 1.53% | 1.03% | 0.53% |
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| Annualized expense ratio for the six-month | |||||
| period ended 1/31/14 | 0.78% | 1.40% | 1.55% | 1.05% | 0.55% |
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Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in the fund from August 1, 2013, to January 31, 2014. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | Class Y | |
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| Expenses paid per $1,000*† | $3.99 | $7.14 | $7.90 | $5.36 | $2.81 |
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| Ending value (after expenses) | $1,027.20 | $1,023.30 | $1,023.20 | $1,025.80 | $1,028.40 |
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* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 1/31/14. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
| AMT-Free Municipal Fund | 15 |
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended January 31, 2014, use the following calculation method. To find the value of your investment on August 1, 2013, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the following table shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| Class A | Class B | Class C | Class M | Class Y | |
|
| |||||
| Expenses paid per $1,000*† | $3.97 | $7.12 | $7.88 | $5.35 | $2.80 |
|
| |||||
| Ending value (after expenses) | $1,021.27 | $1,018.15 | $1,017.39 | $1,019.91 | $1,022.43 |
|
| |||||
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 1/31/14. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period; and then dividing that result by the number of days in the year.
| 16 | AMT-Free Municipal Fund |
Terms and definitions
Important terms
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.
Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 4.00% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally 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 over time 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.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC 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 CDSC.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Fixed-income terms
Current rate is the annual rate of return earned from dividends or interest of an investment. Current rate is expressed as a percentage of the price of a security, fund share, or principal investment.
Yield curve is a graph that plots the yields of bonds with equal credit quality against their differing maturity dates, ranging from shortest to longest. It is used as a benchmark for other debt, such as mortgage or bank lending rates.
Comparative indexes
Barclays Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.
Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
| AMT-Free Municipal Fund | 17 |
Other information for shareholders
Important notice regarding delivery of shareholder documents
In accordance with Securities and Exchange Commission (SEC) regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2013, are available in the Individual Investors section of putnam.com, and on the SEC’s website, www.sec.gov. If you have questions about finding forms on the SEC’s website, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s website or the operation of the Public Reference Room.
Trustee and employee fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of January 31, 2014, Putnam employees had approximately $433,000,000 and the Trustees had approximately $105,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
| 18 | AMT-Free Municipal Fund |
Trustee approval of management contract
Putnam Investment Management (“Putnam Management”) serves as investment manager to your fund under a management contract. In addition, Putnam Management’s affiliate, Putnam Investments Limited (“PIL”), provides services to your fund under a sub-management contract between Putnam Management and PIL. Putnam Management is majority owned (directly and indirectly) by Power Corporation of Canada, a diversified international management and holding company with interests in companies in the financial services, communications and other business sectors. Until his death on October 8, 2013, The Honourable Paul G. Desmarais, both directly and through holding companies, controlled a majority of the voting shares of Power Corporation of Canada. Upon his death, Mr. Desmarais’ voting control of shares of Power Corporation of Canada was transferred to The Desmarais Family Residuary Trust (the “Transfer”). As a technical matter, the Transfer may have constituted an “assignment” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”), causing your fund’s existing management and sub-management contracts to terminate automatically. On October 18, 2013, the Trustees, including all of the Trustees who are not “interested persons” (as this term is defined in the 1940 Act) of the Putnam funds (the “Independent Trustees”), approved interim management contracts between the Putnam funds and Putnam Management and the continuance of your fund’s sub-management contract to address this possibility and to avoid disruption of investment advisory and other services provided to the Putnam funds. At a subsequent meeting on November 22, 2013, the Trustees, including all of the Independent Trustees, approved new definitive management contracts between the Putnam funds and Putnam Management and determined to recommend their approval to the shareholders of the Putnam funds at a shareholder meeting called for February 27, 2014. The Trustees also approved new sub-management contracts, to be effective at the same time as the new definitive management contracts. The fund’s shareholders approved your fund’s new management contract at a special meeting on February 27, 2014.
In considering whether to approve your fund’s interim management contract and the continuance of your fund’s sub-management contract in October, and in considering whether to approve your fund’s new definitive management contract and its new sub-management contract in November, the Trustees took into account that they had recently approved the continuation (through June 30, 2014) of the fund’s previous management and sub-management contracts at their meeting in June 2013. The Trustees considered that the terms of the interim management contract and new definitive management contract were identical to those of the previous management contract, except for the effective dates and initial terms and for certain non-substantive changes. They also considered that the terms of the sub-management contract were identical to those of the previous sub-management contract, except for the effective dates and initial terms. In light of the substantial similarity between the proposed contracts and the previous versions of these contracts approved by the Trustees at their June 2013 meeting, the Trustees relied to a considerable extent on their review of these contracts in connection with their June meeting. In addition, the Trustees considered a number other factors relating to the Transfer, including, but not limited to, the following:
• Information about the operations of The Desmarais Family Residuary Trust, including that Paul Desmarais, Jr. and André Desmarais, Mr. Desmarais’ sons, were expected to exercise, jointly, voting control over the Power
| AMT-Free Municipal Fund | 19 |
Corporation of Canada shares controlled by The Desmarais Family Residuary Trust.
• That Paul Desmarais, Jr. and André Desmarais had been playing active managerial roles at Power Corporation of Canada, with responsibility for the oversight of Power Corporation of Canada’s subsidiaries, including Putnam Investments, since Power Corporation of Canada had acquired Putnam Investments in 2007, including serving as Directors of Putnam Investments, and that the Transfer would not affect their responsibilities as officers of Power Corporation of Canada.
• The intention expressed by representatives of Power Corporation of Canada and its subsidiaries, Power Financial Corporation and Great-West Lifeco, that there would be no change to the operations or management of Putnam Investments, to Putnam Management’s management of the funds or to investment, advisory and other services provided to the funds by Putnam Management and its affiliates as a result of the Transfer.
• Putnam Management’s assurances that, following the Transfer, Putnam Management would continue to provide the same level of services to each fund and that the Transfer will not have an adverse impact on the ability of Putnam Management and its affiliates to continue to provide high quality investment advisory and other services to the funds.
• Putnam Management’s assurances that there are no current plans to make any changes to the operations of the funds, existing management fees, expense limitations, distribution arrangements, or the quality of any services provided to the funds or their shareholders, as a result of the Transfer.
• The benefits that the funds have received and may potentially receive as a result of Putnam Management being a member of the Power Corporation of Canada group of companies, which promotes the stability of the Putnam organization.
• Putnam Investments’ commitment to bear a reasonable share of the expenses incurred by the Putnam Funds in connection with the Transfer.
General conclusions in connection with the Trustees’ June 2013 approval of the fund’s management and sub-management contracts
As noted above, in connection with their deliberations in October and November 2013, in addition to the factors described above, the Trustees considered their recent approval of your fund’s management and sub-management contracts in June 2013. The Board oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management and sub-management contracts. The Board, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Independent Trustees.
At the outset of the review process, members of the Board’s independent staff and independent legal counsel met with representatives of Putnam Management to review the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and to discuss possible changes in these materials that might be necessary or desirable for the coming year. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2013, the Contract
| 20 | AMT-Free Municipal Fund |
Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided. Throughout this process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for the Putnam funds and the Independent Trustees.
In May 2013, the Contract Committee met in executive session to discuss and consider its preliminary recommendations with respect to the continuance of the contracts. At the Trustees’ June 20, 2013 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its final recommendations. The Contract Committee then recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2013, subject to certain changes in the sub-management contract noted below. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
The Independent Trustees’ June 2013 approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, and the costs incurred by Putnam Management in providing services to the fund, and
• That the fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years. For example, with some minor exceptions, the current fee arrangements in the management contracts for the Putnam funds were implemented at the beginning of 2010 following extensive review and discussion by the Trustees, as well as approval by shareholders.
As noted above, the Trustees considered administrative revisions to your fund’s sub-management contract. Putnam Management recommended that the sub-management contract be revised to reduce the sub-management fee that Putnam Management pays to PIL with respect to the portion of the portfolios of certain funds, but not your fund, that may be allocated to PIL from time to time. The Independent Trustees’ approval of this recommendation was based on their conclusion that these changes would have no practical effect on Putnam Management’s continued responsibility for the management of these funds or the costs borne by fund
| AMT-Free Municipal Fund | 21 |
shareholders and would not result in any reduction in the nature and quality of services provided to the funds.
Management fee schedules and total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to shareholders.
In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment style, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund.
Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders and Putnam Management.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to ensure that expenses of the Putnam funds continue to meet competitive standards, the Trustees and Putnam Management have implemented certain expense limitations. These expense limitations were: (i) a contractual expense limitation applicable to all retail open-end funds of 32 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to all open-end funds of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, investor servicing fees, distribution fees, investment-related expenses, interest, taxes, brokerage commissions, extraordinary expenses and acquired fund fees and expenses). These expense limitations serve in particular to maintain competitive expense levels for funds with large numbers of small shareholder accounts and funds with relatively small net assets. Most funds, including your fund, had sufficiently low expenses that these expense limitations did not apply. Putnam Management’s support for these expense limitations was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts.
The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Lipper Inc. This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fee), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the first quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the second quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2012 (the first quintile representing the least expensive funds and the fifth quintile the most expensive funds). The fee and expense data reported by Lipper as of December 31, 2012 reflected the most recent fiscal year-end data available in Lipper’s database at that time.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services provided and the profits realized
| 22 | AMT-Free Municipal Fund |
by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place represented reasonable compensation for the services being provided and represented an appropriate sharing of such economies of scale as may exist in the management of the Putnam funds at that time.
The information examined by the Trustees as part of their annual contract review for the Putnam funds has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, and the like. This information included comparisons of those fees with fees charged to the funds, as well as an assessment of the differences in the services provided to these different types of clients. The Trustees observed that the differences in fee rates between institutional clients and mutual funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect historical competitive forces operating in separate markets. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its institutional clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the investment oversight committees of the Trustees, which meet on a regular basis with the funds’ portfolio teams and with the Chief Investment Officer and other senior members of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period.
The Trustees considered that 2012 was a year of strong competitive performance for many of the Putnam funds, with only a relatively small number of exceptions. They noted that this strong performance was exemplified by the fact that the Putnam funds were recognized by Barron’s as the best performing mutual fund complex for 2012 — the second time in four years that Putnam Management has achieved this distinction for the Putnam funds. They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2012 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken
| AMT-Free Municipal Fund | 23 |
to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these efforts and to evaluate whether additional actions to address areas of underperformance are warranted.
For purposes of evaluating investment performance, the Trustees generally focus on competitive industry rankings for the one-year, three-year, and five-year periods. For a number of Putnam funds with relatively unique investment mandates, the Trustees evaluated performance based on comparisons of their total returns with the returns of selected investment benchmarks or targeted returns. In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper Inc. peer group (Lipper General & Insured Municipal Debt Funds) for the one-year, three-year and five-year periods ended December 31, 2012 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):
| One-year period | 3rd | ||
|
|
|||
| Three-year period | 3rd | ||
|
|
|||
| Five-year period | 2nd | ||
|
|
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Over the one-year, three-year and five-year periods ended December 31, 2012, there were 252, 225 and 200 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)
Brokerage and soft-dollar allocations; investor servicing
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used primarily to acquire brokerage and research services that enhance Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. However, the Trustees noted that a portion of available soft dollars continues to be used to pay fund expenses. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.
Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of your fund’s management and sub-management contracts, the Trustees reviewed your fund’s investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”) and its distributor’s contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are reasonable in relation to the nature and quality of such services, the fees paid by competitive funds, and the costs incurred by PSERV and PRM, as applicable, in providing such services.
| 24 | AMT-Free Municipal Fund |
Financial statements
A guide to financial statements
These sections of the report, as well as the accompanying Notes, 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 non-investment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal period.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.
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 highlights table also includes the current reporting period.
| AMT-Free Municipal Fund | 25 |
The fund’s portfolio 1/31/14 (Unaudited)
| Key to holding’s abbreviations | |
| ABAG Association Of Bay Area Governments | G.O. Bonds General Obligation Bonds |
| AGM Assured Guaranty Municipal Corporation | GNMA Coll. Government National Mortgage |
| AMBAC AMBAC Indemnity Corporation | Association Collateralized |
| COP Certificates of Participation | NATL National Public Finance Guarantee Corp. |
| FGIC Financial Guaranty Insurance Company | PSFG Permanent School Fund Guaranteed |
| FHA Insd. Federal Housing Administration Insured | SGI Syncora Guarantee, Inc. |
| FHLMC Coll. Federal Home Loan Mortgage | VRDN Variable Rate Demand Notes, which are |
| Corporation Collateralized | floating-rate securities with long-term maturities |
| FNMA Coll. Federal National Mortgage | that carry coupons that reset and are payable upon |
| Association Collateralized | demand either daily, weekly or monthly. The rate |
| FRB Floating Rate Bonds: the rate shown is | shown is the current interest rate at the close of the |
| the current interest rate at the close of the | reporting period. |
| reporting period |
| MUNICIPAL BONDS AND NOTES (98.6%)* | Rating** | Principal amount | Value |
|
| |||
| Alabama (0.8%) | |||
| AL Hsg. Fin. Auth. Rev. Bonds (Single Fam. | |||
| Mtge.), Ser. G, GNMA Coll., FNMA Coll., FHLMC | |||
| Coll., 5 1/2s, 10/1/37 | Aaa | $390,000 | $395,429 |
|
| |||
| AL State Port Auth. Docks Fac. Rev. Bonds, | |||
| 6s, 10/1/40 | A– | 1,000,000 | 1,113,320 |
|
| |||
| Selma, Indl. Dev. Board Rev. Bonds | |||
| (Gulf Opportunity Zone Intl. Paper Co.), | |||
| Ser. A, 6 1/4s, 11/1/33 | BBB | 1,500,000 | 1,615,635 |
|
| |||
| 3,124,384 | |||
| Alaska (1.0%) | |||
| Anchorage, G.O. Bonds, Ser. D, | |||
| AMBAC, 5s, 8/1/25 | AAA | 3,420,000 | 3,736,282 |
|
| |||
| 3,736,282 | |||
| Arizona (6.0%) | |||
| AZ State Sports & Tourism Auth. Rev. Bonds | |||
| (Multi-Purpose Stadium Fac.), Ser. A, 5s, 7/1/30 | A1 | 2,000,000 | 2,122,440 |
|
| |||
| Coconino Cnty., Poll. Control Rev. Bonds (Tucson | |||
| Elec. Pwr. Co. — Navajo), Ser. A, 5 1/8s, 10/1/32 | Baa1 | 1,000,000 | 1,018,340 |
|
| |||
| El Mirage G.O. Bonds, AGM, 5s, 7/1/42 | AA– | 750,000 | 769,110 |
|
| |||
| Glendale, Indl. Dev. Auth. Rev. Bonds | |||
| (Midwestern U.), 5 1/8s, 5/15/40 | A– | 2,125,000 | 2,157,299 |
|
| |||
| Glendale, Wtr. & Swr. Rev. Bonds, 5s, 7/1/28 | AA | 1,000,000 | 1,092,390 |
|
| |||
| Navajo Cnty., Poll. Control Corp. Mandatory | |||
| Put Bonds (6/1/16) (AZ Pub. Svc. Co.), Ser. E, | |||
| 5 3/4s, 6/1/34 | A3 | 3,250,000 | 3,567,915 |
|
| |||
| Pinal Cnty., Elec. Rev. Bonds (Dist. No. 3), | |||
| 5 1/4s, 7/1/36 | A | 1,400,000 | 1,499,106 |
|
| |||
| Salt River Agricultural Impt. & Pwr. Dist. Rev. | |||
| Bonds, Ser. A, 5s, 12/1/30 | Aa1 | 3,000,000 | 3,326,880 |
|
| |||
| Salt Verde, Fin. Corp. Gas Rev. Bonds, | |||
| 5 1/2s, 12/1/29 | A– | 1,000,000 | 1,117,080 |
|
| |||
| 26 | AMT-Free Municipal Fund |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Arizona cont. | |||
| Scottsdale, Indl. Dev. Auth. Hosp. Rev. Bonds | |||
| (Scottsdale Hlth. Care), Ser. C, AGM, 5s, 9/1/35 | AA– | $2,000,000 | $2,068,940 |
|
| |||
| Tempe, Indl. Dev. Auth. Lease Rev. Bonds | |||
| (ASU Foundation), AMBAC, 5s, 7/1/28 | AA/P | 1,715,000 | 1,715,154 |
|
| |||
| U. Med. Ctr. Corp. AZ Hosp. Rev. Bonds, | |||
| 6 1/2s, 7/1/39 | Baa1 | 1,750,000 | 1,911,823 |
|
| |||
| 22,366,477 | |||
| California (15.9%) | |||
| ABAG Fin. Auth. for Nonprofit Corps. Rev. Bonds | |||
| (Episcopal Sr. Cmntys.) | |||
| 6 1/8s, 7/1/41 | BBB+/F | 500,000 | 528,100 |
| Ser. A, 5s, 7/1/32 | BBB+/F | 450,000 | 443,592 |
|
| |||
| Bay Area Toll Auth. of CA Rev. Bonds (Toll Bridge), | |||
| Ser. S-4, 5s, 4/1/33 | A1 | 800,000 | 856,352 |
|
| |||
| CA Hlth. Fac. Fin. Auth. Rev. Bonds | |||
| (Adventist Hlth. Syst.-West), Ser. A, | |||
| 5 3/4s, 9/1/39 | A | 1,000,000 | 1,086,080 |
| (Northern CA Retired Officers), 5s, 1/1/20 | A | 350,000 | 403,778 |
|
| |||
| CA Muni. Fin. Auth. Rev. Bonds | |||
| (U. of La Verne), Ser. A, 6 1/4s, 6/1/40 | Baa2 | 1,000,000 | 1,082,150 |
| (Biola U.), 5s, 10/1/38 | Baa1 | 1,000,000 | 1,002,210 |
|
| |||
| CA Muni. Fin. Auth. Sr. Living Rev. Bonds (Pilgrim | |||
| Place Claremont), Ser. A, 5 7/8s, 5/15/29 | A | 1,500,000 | 1,607,460 |
|
| |||
| CA State G.O. Bonds | |||
| 6 1/2s, 4/1/33 | A1 | 5,000,000 | 6,039,599 |
| 5s, 2/1/38 | A1 | 3,000,000 | 3,168,930 |
|
| |||
| CA State Pub. Wks. Board Rev. Bonds | |||
| (Riverside Campus), Ser. B, 6s, 4/1/25 | A2 | 3,000,000 | 3,507,990 |
| Ser. G-1, 5 1/4s, 10/1/23 | A2 | 3,000,000 | 3,451,260 |
|
| |||
| CA Statewide Cmnty. Dev. Auth. Rev. Bonds | |||
| (Sr. Living — Presbyterian Homes), | |||
| 6 5/8s, 11/15/24 | BBB– | 2,000,000 | 2,205,400 |
| (Sutter Hlth.), Ser. B, 5 1/4s, 11/15/48 | Aa3 | 1,550,000 | 1,559,889 |
| (St. Joseph), NATL, 5 1/8s, 7/1/24 | AA– | 2,000,000 | 2,196,640 |
|
| |||
| Chula Vista, Muni. Fin. Auth. Special Tax Bonds, | |||
| 5 1/2s, 9/1/30 | BBB+ | 800,000 | 850,752 |
|
| |||
| Golden State Tobacco Securitization Corp. Rev. | |||
| Bonds, Ser. A, AMBAC, zero %, 6/1/24 | A2 | 5,000,000 | 3,315,450 |
|
| |||
| Grossmont-Cuyamaca, Cmnty. College Dist. G.O. | |||
| Bonds (Election of 2002), Ser. B, FGIC, NATL, | |||
| zero %, 8/1/17 | Aa2 | 2,100,000 | 1,978,872 |
|
| |||
| Infrastructure & Econ. Dev. Bank Rev. Bonds | |||
| (J. David Gladstone Inst.), Ser. A, 5s, 10/1/31 | A– | 1,000,000 | 1,032,020 |
|
| |||
| Los Angeles, Dept. of Arpt. Rev. Bonds (Los | |||
| Angeles Intl. Arpt.) | |||
| Ser. A, 5s, 5/15/40 | AA | 1,000,000 | 1,046,490 |
| Ser. B, 5s, 5/15/33 | AA– | 500,000 | 531,630 |
|
| |||
| M-S-R Energy Auth. Rev. Bonds, Ser. A, | |||
| 6 1/2s, 11/1/39 | A– | 750,000 | 919,320 |
|
| |||
| AMT-Free Municipal Fund | 27 |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| California cont. | |||
| Merced, City School Dist. G.O. Bonds (Election | |||
| of 2003), NATL | |||
| zero %, 8/1/25 | A | $1,190,000 | $693,151 |
| zero %, 8/1/24 | A | 1,125,000 | 699,638 |
| zero %, 8/1/23 | A | 1,065,000 | 699,471 |
| zero %, 8/1/22 | A | 1,010,000 | 706,768 |
|
| |||
| Northern CA Pwr. Agcy. Rev. Bonds | |||
| (Hydroelec. Project No. 1), Ser. A | |||
| 5s, 7/1/31 | A+ | 500,000 | 535,375 |
| 5s, 7/1/30 | A+ | 500,000 | 538,705 |
|
| |||
| Oakland, Unified School Dist. Alameda Cnty., G.O. | |||
| Bonds (Election 2006), Ser. A, 6 1/2s, 8/1/24 | BBB/P | 2,500,000 | 2,836,875 |
|
| |||
| Orange Cnty., Trans. Auth Toll Road Rev. Bonds | |||
| (91 Express Lanes), 5s, 8/15/30 | A1 | 530,000 | 568,600 |
|
| |||
| Sacramento, City Fin. Auth. Tax Alloc. Bonds, | |||
| Ser. A, FGIC, NATL, zero %, 12/1/21 | A | 5,500,000 | 3,943,060 |
|
| |||
| Sacramento, Regl. Trans. Dist. Rev. Bonds | |||
| (Farebox), 5s, 3/1/27 | A2 | 500,000 | 533,095 |
|
| |||
| San Francisco, City & Cnty. Arpt. Comm. Rev. | |||
| Bonds (Intl. Arpt.), Ser. F, 5s, 5/1/40 | A1 | 1,250,000 | 1,282,213 |
|
| |||
| Santa Ana, Fin. Auth. Lease Rev. Bonds | |||
| (Police Admin. & Hldg. Fac.), Ser. A, NATL, | |||
| 6 1/4s, 7/1/17 | A | 3,680,000 | 4,088,295 |
|
| |||
| Tuolumne Wind Project Auth. Rev. Bonds | |||
| (Tuolumne Co.), Ser. A, 5 1/4s, 1/1/24 | A+ | 1,000,000 | 1,122,260 |
|
| |||
| Turlock, Irrigation Dist. Rev. Bonds, | |||
| Ser. A, 5s, 1/1/40 | A+ | 1,000,000 | 1,021,470 |
|
| |||
| Ventura Cnty., COP (Pub. Fin. Auth. III), | |||
| 5s, 8/15/20 | AA+ | 1,000,000 | 1,123,370 |
|
| |||
| Yucaipa Special Tax Bonds (Cmnty. Fac. Dist. | |||
| No. 98-1 Chapman Heights), 5 3/8s, 9/1/30 | BBB+ | 375,000 | 390,473 |
|
| |||
| 59,596,783 | |||
| Colorado (2.8%) | |||
| CO State Hlth. Fac. Auth. Rev. Bonds | |||
| (Valley View Assn.), 5 1/4s, 5/15/42 | BBB+ | 2,000,000 | 2,001,620 |
| (Covenant Retirement Cmnty.), Ser. A, | |||
| 5s, 12/1/33 | BBB– | 1,850,000 | 1,766,971 |
|
| |||
| Denver City & Cnty., Arpt. Rev. Bonds | |||
| (Sub. Syst.), Ser. B, 5 1/4s, 11/15/32 | A2 | 1,500,000 | 1,607,715 |
| Ser. B, 5s, 11/15/37 | A1 | 3,000,000 | 3,118,620 |
|
| |||
| E-470 CO Pub. Hwy. Auth. Rev. Bonds | |||
| Ser. C1, NATL, 5 1/2s, 9/1/24 | A | 1,000,000 | 1,042,010 |
| Ser. A, NATL, zero %, 9/1/34 | A | 3,525,000 | 1,076,465 |
|
| |||
| 10,613,401 | |||
| Delaware (1.2%) | |||
| DE State Hlth. Facs. Auth. VRDN (Christiana | |||
| Care), Ser. A, 0.05s, 10/1/38 | VMIG1 | 4,400,000 | 4,400,000 |
|
| |||
| 4,400,000 | |||
| 28 | AMT-Free Municipal Fund |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Florida (8.6%) | |||
| Brevard Cnty., Hlth. Care Fac. Auth. Rev. Bonds | |||
| (Health First, Inc.), 7s, 4/1/39 | A3 | $1,250,000 | $1,374,775 |
|
| |||
| Broward Cnty., Arpt. Syst. Rev. Bonds, Ser. O, | |||
| 5 3/8s, 10/1/29 | A1 | 1,000,000 | 1,092,720 |
|
| |||
| Double Branch Cmnty. Dev. Dist. Special Assmt. | |||
| Bonds, Ser. A-1, 4 1/4s, 5/1/34 | A– | 360,000 | 308,592 |
|
| |||
| FL State Board of Ed. G.O. Bonds (Capital Outlay | |||
| 2011), Ser. F, 5s, 6/1/30 | AAA | 2,520,000 | 2,781,022 |
|
| |||
| Hernando Cnty., Rev. Bonds (Criminal Justice | |||
| Complex Fin.), FGIC, NATL, 7.65s, 7/1/16 | A | 10,000,000 | 11,322,800 |
|
| |||
| Lee Cnty., Rev. Bonds, SGI, 5s, 10/1/25 | Aa2 | 2,000,000 | 2,167,360 |
|
| |||
| Marco Island, Util. Sys. Rev. Bonds, Ser. A, | |||
| 5s, 10/1/34 | Aa3 | 1,000,000 | 1,051,310 |
|
| |||
| Miami-Dade Cnty., Expressway Auth. Toll Syst. | |||
| Rev. Bonds, Ser. A, 5s, 7/1/40 | A3 | 1,000,000 | 1,024,720 |
|
| |||
| Orlando & Orange Cnty., Expressway Auth. Rev. | |||
| Bonds, AGM, 5s, 7/1/25 | AA– | 500,000 | 558,825 |
|
| |||
| Orlando Cmnty. Redev. Agcy. Tax Alloc. Bonds | |||
| (Republic Drive/Universal), 5s, 4/1/23 | A–/F | 1,630,000 | 1,761,248 |
|
| |||
| Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds | |||
| (Acts Retirement-Life Cmnty.), 5 1/2s, 11/15/33 | BBB+ | 3,000,000 | 3,052,320 |
|
| |||
| South Lake Hosp. Dist. Rev. Bonds (South Lake | |||
| Hosp.), Ser. A, 6s, 4/1/29 | Baa1 | 660,000 | 717,064 |
|
| |||
| Sumter Cnty., School Dist. Rev. Bonds (Multi-Dist. | |||
| Loan Program), AGM, 7.15s, 11/1/15 (Escrowed | |||
| to maturity) | AA– | 3,935,000 | 4,390,357 |
|
| |||
| Tampa-Hillsborough Cnty., Expressway Auth. Rev. | |||
| Bonds, Ser. A, 5s, 7/1/28 | A | 755,000 | 819,077 |
|
| |||
| 32,422,190 | |||
| Georgia (0.7%) | |||
| Atlanta, Wtr. & Waste Wtr. Rev. Bonds, Ser. A, | |||
| 6 1/4s, 11/1/39 | Aa3 | 1,500,000 | 1,714,365 |
|
| |||
| Fulton Cnty., Dev. Auth. Rev. Bonds (GA Tech | |||
| Athletic Assn.), Ser. A, 5s, 10/1/42 | A2 | 900,000 | 927,360 |
|
| |||
| 2,641,725 | |||
| Guam (0.3%) | |||
| Territory of GU, Rev. Bonds, Ser. A, | |||
| 5 3/8s, 12/1/24 | BBB+ | 1,000,000 | 1,040,680 |
|
| |||
| Territory of GU, Pwr. Auth. Rev. Bonds, Ser. A, | |||
| 5s, 10/1/30 | AA– | 200,000 | 208,842 |
|
| |||
| 1,249,522 | |||
| Hawaii (0.1%) | |||
| HI State Dept. Budget & Fin. Rev. Bonds (Kahala | |||
| Sr. Living Cmnty.), 5 1/4s, 11/15/37 | BBB–/F | 250,000 | 249,643 |
|
| |||
| 249,643 | |||
| Illinois (7.3%) | |||
| Chicago, G.O. Bonds, Ser. A, 5s, 1/1/33 | A+ | 2,000,000 | 2,008,980 |
|
| |||
| Chicago, Board of Ed. G.O. Bonds, Ser. A, NATL, | |||
| 5 1/4s, 12/1/19 | A+ | 1,500,000 | 1,504,650 |
|
| |||
| Chicago, O’Hare Intl. Arpt. Rev. Bonds | |||
| Ser. A, 5 3/4s, 1/1/39 | A2 | 700,000 | 750,127 |
| Ser. D, 5 1/4s, 1/1/33 | A2 | 1,000,000 | 1,051,490 |
| Ser. F, 5s, 1/1/40 | A2 | 1,045,000 | 1,052,388 |
|
| |||
| AMT-Free Municipal Fund | 29 |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Illinois cont. | |||
| Cicero, G.O. Bonds, Ser. A, SGI, 5 1/4s, 1/1/21 | A+/P | $2,250,000 | $2,289,150 |
|
| |||
| IL Fin. Auth. Rev. Bonds | |||
| (Rush U. Med. Ctr.), Ser. B, NATL, | |||
| 5 3/4s, 11/1/28 | A2 | 1,500,000 | 1,618,230 |
| (Elmhurst Memorial), Ser. A, 5 5/8s, 1/1/37 | Baa2 | 1,000,000 | 1,025,440 |
| (American Wtr. Cap. Corp.), 5 1/4s, 10/1/39 | A– | 1,575,000 | 1,584,072 |
|
| |||
| IL State G.O. Bonds | |||
| 5s, 3/1/34 | A3 | 1,000,000 | 1,011,220 |
| 5s, 8/1/21 | A3 | 1,000,000 | 1,128,960 |
|
| |||
| IL State Toll Hwy. Auth. Rev. Bonds, Ser. A-1, | |||
| AGM, 5s, 1/1/22 | Aa3 | 2,500,000 | 2,725,825 |
|
| |||
| Metro. Pier & Exposition Auth. Dedicated State | |||
| Tax Rev. Bonds (McCormick), Ser. A, NATL, | |||
| zero %, 12/15/22 | A | 5,500,000 | 3,818,704 |
|
| |||
| Regl. Trans. Auth. Rev. Bonds, Ser. A, | |||
| AMBAC, 8s, 6/1/17 | Aa3 | 5,000,000 | 5,896,200 |
|
| |||
| 27,465,436 | |||
| Indiana (2.3%) | |||
| IN Muni. Pwr. Agcy. Supply Syst. Rev. Bonds, | |||
| Ser. B, 5 3/4s, 1/1/29 | A1 | 1,000,000 | 1,135,290 |
|
| |||
| IN State Fin. Auth. Rev. Bonds (BHI Sr. Living), | |||
| 5 3/4s, 11/15/41 | BBB+/F | 1,000,000 | 1,009,880 |
|
| |||
| IN State Fin. Auth. VRDN, Ser. A-2, 0.06s, 2/1/37 | VMIG1 | 3,000,000 | 3,000,000 |
|
| |||
| IN State Hsg. Fin. Auth. Rev. Bonds (Single | |||
| Family Mtge.), Ser. A-1, GNMA Coll., FNMA Coll., | |||
| 4.1s, 7/1/15 | Aaa | 10,000 | 10,081 |
|
| |||
| Rockport, Poll. Control Mandatory Put Bonds | |||
| (6/2/14) (IN-MI Pwr. Co.) | |||
| Ser. A, 6 1/4s, 6/1/25 | Baa1 | 2,000,000 | 2,034,140 |
| Ser. B, 6 1/4s, 6/1/25 | Baa1 | 1,500,000 | 1,525,605 |
|
| |||
| 8,714,996 | |||
| Kansas (0.4%) | |||
| KS State Dev. Fin. Auth. Rev. Bonds (Lifespace | |||
| Cmnty’s. Inc.), Ser. S, 5s, 5/15/30 | A/F | 1,455,000 | 1,464,239 |
|
| |||
| 1,464,239 | |||
| Kentucky (0.6%) | |||
| KY Pub. Trans. Infrastructure Auth. Rev. Bonds | |||
| (1st Tier Downtown Crossing), Ser. A, 6s, 7/1/53 | Baa3 | 500,000 | 517,395 |
|
| |||
| Owen Cnty., Wtr. Wks. Syst. Rev. Bonds | |||
| (American Wtr. Co.) | |||
| Ser. A, 6 1/4s, 6/1/39 | A– | 800,000 | 842,720 |
| Ser. B, 5 5/8s, 9/1/39 | A– | 1,000,000 | 1,025,630 |
|
| |||
| 2,385,745 | |||
| Louisiana (1.1%) | |||
| LA Pub. Fac. Auth. Rev. Bonds (Entergy | |||
| LA LLC), 5s, 6/1/30 | A2 | 3,000,000 | 3,071,160 |
|
| |||
| Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. A, | |||
| 5s, 5/15/23 | A | 800,000 | 907,888 |
|
| |||
| 3,979,048 | |||
| Maryland (0.6%) | |||
| MD State Hlth. & Higher Edl. Fac. Auth. Rev. Bonds | |||
| (U. of MD Med. Syst.), AMBAC, 5 1/4s, 7/1/28 | A2 | 2,000,000 | 2,148,440 |
|
| |||
| 2,148,440 | |||
| 30 | AMT-Free Municipal Fund |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Massachusetts (4.1%) | |||
| MA Edl. Fin. Auth. Rev. Bonds, Ser. A, | |||
| 5 1/2s, 1/1/22 | AA | $1,000,000 | $1,109,780 |
|
| |||
| MA State Dept. Trans. Rev. Bonds (Metro Hwy. | |||
| Syst.), Ser. B, 5s, 1/1/37 | A+ | 1,000,000 | 1,036,650 |
|
| |||
| MA State Dev. Fin. Agcy. Rev. Bonds | |||
| (Sabis Intl.), Ser. A, 6.8s, 4/15/22 | BBB | 700,000 | 759,941 |
| (Emerson College), Ser. A, 5 1/2s, 1/1/30 | Baa1 | 2,000,000 | 2,122,840 |
| (Suffolk U.), 5 1/8s, 7/1/40 | Baa2 | 500,000 | 496,755 |
|
| |||
| MA State Dev. Fin. Agcy. Solid Waste Disp. | |||
| (Dominion Energy Brayton), Ser. 1, 5 3/4s, | |||
| 12/1/42 (Prerefunded 5/1/19) | BBB+ | 1,000,000 | 1,230,340 |
|
| |||
| MA State Hlth. & Edl. Fac. Auth. Rev. Bonds | |||
| (Suffolk U.), Ser. A, 6 1/4s, 7/1/30 | Baa2 | 2,000,000 | 2,169,180 |
| (Harvard U.), Ser. A, 5 1/2s, 11/15/36 | Aaa | 1,815,000 | 2,032,636 |
| (Northeastern U.), Ser. A, 5s, 10/1/35 | A2 | 1,650,000 | 1,713,245 |
|
| |||
| MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. 162, | |||
| FNMA Coll, FHLMC Coll., 2 3/4s, 12/1/41 | Aa2 | 870,000 | 890,941 |
|
| |||
| Metro. Boston, Trans. Pkg. Corp. Rev. Bonds, | |||
| 5 1/4s, 7/1/36 | A1 | 1,500,000 | 1,619,100 |
|
| |||
| 15,181,408 | |||
| Michigan (4.6%) | |||
| Detroit, Swr. Disp. Rev. Bonds, Ser. B, AGM, | |||
| 7 1/2s, 7/1/33 | AA– | 1,000,000 | 1,077,840 |
|
| |||
| Detroit, Wtr. Supply Syst. Rev. Bonds, Ser. B, | |||
| AGM, 6 1/4s, 7/1/36 | AA– | 1,575,000 | 1,617,651 |
|
| |||
| MI State Hosp. Fin. Auth. Rev. Bonds | |||
| Ser. A, 6 1/8s, 6/1/39 | A1 | 1,000,000 | 1,080,000 |
| (Henry Ford Hlth.), 5 1/4s, 11/15/24 | A2 | 1,000,000 | 1,078,290 |
|
| |||
| MI State Strategic Fund Ltd. Oblig. Rev. Bonds | |||
| (Detroit Edison Co.), AMBAC, 7s, 5/1/21 | Aa3 | 4,000,000 | 4,931,320 |
| (Dow Chemical), Ser. B-2, 6 1/4s, 6/1/14 | Baa2 | 1,000,000 | 1,016,170 |
|
| |||
| Midland Cnty., Bldg. Auth. Rev. Bonds, AGM, | |||
| 5s, 10/1/25 | Aa3 | 1,000,000 | 1,076,350 |
|
| |||
| Northern Michigan U. Rev. Bonds, Ser. A, AGM, | |||
| 5s, 12/1/27 | AA– | 1,775,000 | 1,878,660 |
|
| |||
| Western MI U. Rev. Bonds, AGM, 5s, 11/15/28 | AA– | 3,500,000 | 3,644,550 |
|
| |||
| 17,400,831 | |||
| Minnesota (1.4%) | |||
| Minneapolis & St. Paul, Metro. Arpt. Comm. Rev. | |||
| Bonds, Ser. B, 5s, 1/1/31 | A | 500,000 | 536,035 |
|
| |||
| Minneapolis, Rev. Bonds (National Marrow Donor | |||
| Program), 4 7/8s, 8/1/25 | BBB | 1,350,000 | 1,392,498 |
|
| |||
| Northfield, Hosp. Rev. Bonds, 5 3/8s, 11/1/26 | BBB– | 1,500,000 | 1,545,840 |
|
| |||
| St. Paul, Hsg. & Redev. Auth. Hlth. Care Fac. | |||
| Rev. Bonds (HealthPartners Oblig. Group), | |||
| 5 1/4s, 5/15/36 | A2 | 1,800,000 | 1,844,676 |
|
| |||
| 5,319,049 | |||
| AMT-Free Municipal Fund | 31 |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Mississippi (0.6%) | |||
| MS Bus. Fin. Corp. Gulf Opportunity Zone Rev. | |||
| Bonds, Ser. A, 5s, 5/1/37 | A3 | $1,750,000 | $1,800,190 |
|
| |||
| MS Home Corp. Rev. Bonds (Single Fam. Mtge.), | |||
| Ser. D-1, GNMA Coll, FNMA Coll, FHLMC Coll., | |||
| 6.1s, 6/1/38 | Aaa | 505,000 | 544,047 |
|
| |||
| 2,344,237 | |||
| Missouri (1.5%) | |||
| Cape Girardeau Cnty., Indl. Dev. Auth. Hlth. Care | |||
| Fac. Rev. Bonds (St. Francis Med. Ctr.), Ser. A, | |||
| 5 3/4s, 6/1/39 | A+ | 1,150,000 | 1,234,721 |
|
| |||
| MO State Dev. Fin. Board Infrastructure Fac. Rev. | |||
| Bonds (Independence, Elec. Syst. Dogwood), | |||
| Ser. A, 5s, 6/1/37 | A | 2,200,000 | 2,226,730 |
|
| |||
| MO State Hlth. & Edl. Fac. Auth. Rev. Bonds | |||
| (Washington U. (The)), Ser. A, 5 3/8s, 3/15/39 | Aaa | 2,000,000 | 2,166,260 |
|
| |||
| 5,627,711 | |||
| Nebraska (0.3%) | |||
| Central Plains, Energy Rev. Bonds (NE Gas | |||
| No. 3), 5s, 9/1/32 | A– | 1,000,000 | 1,015,990 |
|
| |||
| 1,015,990 | |||
| Nevada (0.8%) | |||
| Clark Cnty., Impt. Dist. Special Assmt. Bonds | |||
| (Mountains Edge Local No. 142), 5s, 8/1/20 | BBB– | 545,000 | 563,906 |
|
| |||
| Reno, Sales Tax VRDN (Reno Trans. Rail Access | |||
| Corridor (ReTRAC)), 0.05s, 6/1/42 | VMIG1 | 2,375,000 | 2,375,000 |
|
| |||
| 2,938,906 | |||
| New Jersey (0.6%) | |||
| NJ State Higher Ed. Assistance Auth. Rev. Bonds | |||
| (Student Loan), Ser. A, 5 5/8s, 6/1/30 | AA | 1,000,000 | 1,059,440 |
|
| |||
| NJ State Trans. Trust Fund Auth. Rev. Bonds | |||
| (Trans Syst.), Ser. B, 5 1/4s, 6/15/36 | A1 | 1,000,000 | 1,058,700 |
|
| |||
| 2,118,140 | |||
| New Mexico (0.2%) | |||
| Sante Fe, Retirement Fac. Rev. Bonds (El Castillo | |||
| Retirement Res.), 5s, 5/15/42 | BBB– | 900,000 | 775,926 |
|
| |||
| 775,926 | |||
| New York (5.6%) | |||
| Erie Cnty., Indl. Dev. Agcy. School Fac. Rev. Bonds | |||
| (City School Dist. Buffalo), Ser. A, AGM | |||
| 5 3/4s, 5/1/28 | Aa3 | 2,275,000 | 2,545,247 |
| 5 3/4s, 5/1/27 | Aa3 | 5,590,000 | 6,318,545 |
|
| |||
| Hudson Yards, Infrastructure Corp. Rev. Bonds, | |||
| Ser. A, 5 3/4s, 2/15/47 | A2 | 1,000,000 | 1,069,610 |
|
| |||
| Metro. Trans. Auth. Rev. Bonds, Ser. D, | |||
| 5s, 11/15/36 | A2 | 3,000,000 | 3,111,270 |
|
| |||
| NY City, G.O. Bonds, Ser. D-1, 5s, 10/1/36 | Aa2 | 1,400,000 | 1,483,888 |
|
| |||
| NY City, Muni. Wtr. & Swr. Fin. Auth. Rev. Bonds, | |||
| Ser. AA, 5s, 6/15/34 | AA+ | 1,000,000 | 1,070,410 |
|
| |||
| NY State Dorm Auth. Rev. Bonds, Ser. A, | |||
| 5s, 3/15/38 | AAA | 1,000,000 | 1,074,900 |
|
| |||
| NY State Dorm. Auth. Personal Income Tax Rev. | |||
| Bonds (Ed.), Ser. B, 5 3/4s, 3/15/36 | AAA | 2,000,000 | 2,276,020 |
|
| |||
| 32 | AMT-Free Municipal Fund |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| New York cont. | |||
| Port Auth. NY & NJ Special Oblig. Rev. Bonds | |||
| (JFK Intl. Air Term.), 6s, 12/1/42 | Baa3 | $900,000 | $976,833 |
|
| |||
| Syracuse, Indl. Dev. Agcy. School Fac. Rev. | |||
| Bonds (Syracuse City School Dist.), Ser. A, | |||
| AGM, 5s, 5/1/25 | Aa3 | 1,000,000 | 1,094,860 |
|
| |||
| 21,021,583 | |||
| North Carolina (0.6%) | |||
| NC Cap. Fin. Agcy. Edl. Fac. Rev. Bonds | |||
| (Meredith College), 6s, 6/1/31 | BBB | 500,000 | 526,515 |
|
| |||
| NC Eastern Muni. Pwr. Agcy. Syst. Rev. Bonds, | |||
| Ser. A, 5 1/2s, 1/1/26 | A– | 1,500,000 | 1,651,140 |
|
| |||
| 2,177,655 | |||
| Ohio (5.4%) | |||
| Buckeye, Tobacco Settlement Fin. Auth. Rev. | |||
| Bonds, Ser. A-2 | |||
| 5 3/4s, 6/1/34 | B3 | 500,000 | 389,115 |
| 5 3/8s, 6/1/24 | B3 | 4,195,000 | 3,599,688 |
|
| |||
| Hamilton Cnty., Sales Tax Rev. Bonds, Ser. A, | |||
| 5s, 12/1/32 | A2 | 2,000,000 | 2,098,820 |
|
| |||
| Lorain Cnty., Hosp. Rev. Bonds (Catholic), | |||
| Ser. C-2, AGM, 5s, 4/1/24 | AA– | 2,000,000 | 2,121,760 |
|
| |||
| Lucas Cnty., Hlth. Care Fac. Rev. Bonds (Sunset | |||
| Retirement Cmntys.), 5 1/2s, 8/15/30 | A–/F | 650,000 | 676,702 |
|
| |||
| OH Hsg. Fin. Agcy. Rev. Bonds (Single Fam. | |||
| Mtge.), Ser. 1, 5s, 11/1/28 | Aaa | 550,000 | 577,082 |
|
| |||
| OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds, | |||
| Ser. 85-A, FGIC, FHA Insd., U.S. Gov’t Coll., zero %, | |||
| 1/15/15 (Escrowed to maturity) | AAA/P | 5,000 | 4,616 |
|
| |||
| OH State Air Quality Dev. Auth. Rev. Bonds | |||
| (Valley Elec. Corp.), Ser. E, 5 5/8s, 10/1/19 | Baa3 | 750,000 | 822,225 |
|
| |||
| OH State Higher Edl. Fac. Rev. Bonds | |||
| (U. of Dayton), Ser. A, 5 5/8s, 12/1/41 | A2 | 1,000,000 | 1,067,810 |
|
| |||
| OH State Tpk. Comm. Rev. Bonds (Infrastructure), | |||
| Ser. A-1, 5 1/4s, 2/15/32 | A1 | 700,000 | 762,979 |
|
| |||
| Penta Career Ctr. COP | |||
| 5s, 4/1/20 | Aa3 | 1,095,000 | 1,234,262 |
| 5s, 4/1/19 | Aa3 | 2,470,000 | 2,792,409 |
|
| |||
| U. of Akron Rev. Bonds, Ser. B, AGM, | |||
| 5 1/4s, 1/1/26 | AA– | 3,375,000 | 3,674,902 |
|
| |||
| Warren Cnty., Hlth. Care Fac. Rev. Bonds | |||
| (Otterbein Homes Oblig. Group), Ser. A, | |||
| 5 3/4s, 7/1/33 | A | 500,000 | 523,635 |
|
| |||
| 20,346,005 | |||
| Oregon (0.3%) | |||
| Keizer, Special Assmt. Bonds (Keizer Station), | |||
| Ser. A, 5.2s, 6/1/31 | A1 | 490,000 | 496,007 |
|
| |||
| OR Hlth. Sciences U. Rev. Bonds, Ser. A, | |||
| 5 3/4s, 7/1/39 | A1 | 750,000 | 809,048 |
|
| |||
| 1,305,055 | |||
| AMT-Free Municipal Fund | 33 |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Pennsylvania (7.0%) | |||
| Allegheny Cnty., G.O. Bonds, Ser. C-72, | |||
| 5 1/4s, 12/1/32 | AA– | $670,000 | $712,230 |
|
| |||
| Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds | |||
| (U. of Pittsburgh Med.), 5 5/8s, 8/15/39 | Aa3 | 500,000 | 546,145 |
|
| |||
| Allentown, Neighborhood Impt. Zone Dev. Auth. | |||
| Rev. Bonds, Ser. A, 5s, 5/1/42 | Baa2 | 700,000 | 636,104 |
|
| |||
| Berks Cnty., Muni. Auth. Rev. Bonds (Reading | |||
| Hosp. & Med. Ctr.), Ser. A-3, 5 1/2s, 11/1/31 | AA | 3,000,000 | 3,307,710 |
|
| |||
| Dauphin Cnty., Gen. Auth. Hlth. Syst. Rev. Bonds | |||
| (Pinnacle Hlth. Syst.), Ser. A, 6s, 6/1/29 | A | 2,500,000 | 2,746,200 |
|
| |||
| Delaware River Port Auth. PA & NJ Rev. | |||
| Bonds, 5s, 1/1/30 | A | 3,000,000 | 3,271,470 |
|
| |||
| Monroe Cnty., Hosp. Auth. Rev. Bonds | |||
| (Pocono Med. Ctr.), 5s, 1/1/27 | A– | 950,000 | 974,206 |
|
| |||
| Montgomery Cnty., Indl. Dev. Auth. Retirement | |||
| Cmnty. Rev. Bonds (Acts Retirement-Life Cmnty.), | |||
| Ser. A-1, 5 1/4s, 11/15/16 | BBB+ | 1,100,000 | 1,212,739 |
|
| |||
| PA Econ. Dev. Fin. Auth. Wtr. Fac. Rev. Bonds | |||
| (American Wtr. Co.), 6.2s, 4/1/39 | A1 | 1,900,000 | 2,066,136 |
|
| |||
| PA State Higher Edl. Fac. Auth. Rev. Bonds | |||
| (Edinboro U. Foundation), 6s, 7/1/43 | Baa3 | 500,000 | 497,230 |
|
| |||
| PA State Higher Edl. Fac. Auth. Student Hsg. Rev. | |||
| Bonds (East Stroudsburg U.), 5s, 7/1/31 | Baa3 | 2,760,000 | 2,603,591 |
|
| |||
| Philadelphia, Gas Wks. Rev. Bonds, Ser. 9, | |||
| 5 1/4s, 8/1/40 | BBB+ | 1,400,000 | 1,417,640 |
|
| |||
| Philadelphia, Wtr. & Waste Wtr. Rev. Bonds, | |||
| 5s, 11/1/26 | A1 | 2,220,000 | 2,461,669 |
|
| |||
| Pittsburgh & Allegheny Cnty., Sports & Exhib. | |||
| Auth. Hotel Rev. Bonds, AGM, 5s, 2/1/35 | AA– | 1,225,000 | 1,256,360 |
|
| |||
| Pittsburgh, G.O. Bonds, Ser. B, 5s, 9/1/25 | A1 | 1,250,000 | 1,401,563 |
|
| |||
| Wilkes-Barre, Fin. Auth. Rev. Bonds | |||
| (U. of Scranton), 5s, 11/1/40 | A | 1,000,000 | 1,023,460 |
|
| |||
| 26,134,453 | |||
| Puerto Rico (0.5%) | |||
| Cmnwlth. of PR, Sales Tax Fin. Corp. Rev. | |||
| Bonds, Ser. C | |||
| 5 1/4s, 8/1/41 | A+ | 1,100,000 | 764,720 |
| 5s, 8/1/40 | AA– | 1,550,000 | 1,200,119 |
|
| |||
| 1,964,839 | |||
| South Carolina (0.9%) | |||
| SC State Pub. Svc. Auth. Rev. Bonds | |||
| (Santee Cooper), Ser. A, 5 3/4s, 12/1/43 | AA– | 3,000,000 | 3,314,940 |
|
| |||
| 3,314,940 | |||
| Tennessee (0.5%) | |||
| Johnson City, Hlth. & Edl. Fac. Board | |||
| Hosp. Rev. Bonds (Mountain States Hlth. | |||
| Alliance), 6s, 7/1/38 | Baa1 | 1,850,000 | 2,001,793 |
|
| |||
| 2,001,793 | |||
| Texas (7.6%) | |||
| Central TX Regl. Mobility Auth. Rev. Bonds (Sr. | |||
| Lien), Ser. A, 5s, 1/1/33 | Baa2 | 300,000 | 300,627 |
|
| |||
| Dallas Cnty., Util. & Reclamation Dist. G.O. Bonds, | |||
| Ser. B, AMBAC, 5 3/8s, 2/15/29 | A3 | 2,500,000 | 2,622,524 |
|
| |||
| 34 | AMT-Free Municipal Fund |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Texas cont. | |||
| Dallas, Indpt. School Dist. G.O. Bonds (School | |||
| Bldg.), PSFG, 6s, 2/15/27 | Aaa | $2,500,000 | $2,877,800 |
|
| |||
| Grand Parkway Trans. Corp. Rev. Bonds (Sub. Tier | |||
| Toll Syst.), Ser. B, 5s, 4/1/53 | AA+ | 900,000 | 907,488 |
|
| |||
| Harris Cnty., Cultural Ed. Fac. Fin. Corp. VRDN | |||
| (Texas Med. Ctr.), Ser. B-1, 0.05s, 9/1/31 | VMIG1 | 2,392,000 | 2,392,000 |
|
| |||
| La Joya, Indpt. School Dist. G.O. Bonds (School | |||
| Bldg.), PSFG, 5s, 2/15/30 (Prerefunded 2/15/18) | Aaa | 2,500,000 | 2,914,275 |
|
| |||
| Mansfield, Indpt. School Dist. G.O. Bonds, PSFG, | |||
| 5s, 2/15/27 (Prerefunded 2/15/15) | Aaa | 2,000,000 | 2,099,160 |
|
| |||
| Matagorda Cnty., Poll. Control Rev. Bonds | |||
| (Central Pwr. & Light Co.), Ser. A, 6.3s, 11/1/29 | Baa1 | 600,000 | 666,528 |
|
| |||
| North TX, Thruway Auth. Rev. Bonds (First Tier), | |||
| Ser. A, 6 1/4s, 1/1/24 | A2 | 3,500,000 | 4,112,920 |
|
| |||
| North TX, Tollway Auth. Rev. Bonds, Ser. A, NATL, | |||
| 5 1/8s, 1/1/28 | A2 | 1,500,000 | 1,611,450 |
|
| |||
| Pharr, San Juan — Alamo, Indpt. School Dist. G.O. | |||
| Bonds (School Bldg.), PSFG, 5s, 2/1/30 | Aaa | 2,000,000 | 2,179,960 |
|
| |||
| Tarrant Cnty., Cultural Ed. Fac. Fin. Corp. | |||
| Retirement Fac. Rev. Bonds (Buckner Retirement | |||
| Svcs., Inc.), 5 1/4s, 11/15/37 | A– | 1,000,000 | 993,200 |
|
| |||
| TX Muni. Gas Acquisition & Supply Corp. I Rev. | |||
| Bonds, Ser. A, 5 1/4s, 12/15/24 | A– | 1,000,000 | 1,104,550 |
|
| |||
| TX Private Activity Surface Trans. Corp. Rev. | |||
| Bonds (LBJ Infrastructure), 7s, 6/30/40 | Baa3 | 500,000 | 553,030 |
|
| |||
| TX State Muni. Gas Acquisition & Supply Corp. III | |||
| Rev. Bonds, 5s, 12/15/28 | A3 | 1,000,000 | 1,021,480 |
|
| |||
| TX State Trans. Comm. Tpk. Syst. Rev. Bonds | |||
| (1st Tier), Ser. A, 5s, 8/15/41 | A– | 2,150,000 | 2,152,924 |
|
| |||
| 28,509,916 | |||
| Utah (1.0%) | |||
| Murray City, Hosp. Rev. VRDN (IHC Hlth. Svcs., | |||
| Inc.), Ser. C, 0.05s, 5/15/36 | A-1+ | 3,935,000 | 3,935,000 |
|
| |||
| 3,935,000 | |||
| Virginia (0.5%) | |||
| Chesterfield Cnty., Econ. Dev. Auth. Poll. Control | |||
| Rev. Bonds (VA Elec. & Pwr.), Ser. A, 5s, 5/1/23 | A2 | 1,575,000 | 1,721,790 |
|
| |||
| 1,721,790 | |||
| Washington (3.1%) | |||
| WA State Higher Ed. Fac. Auth. Rev. Bonds | |||
| (Whitworth U.), 5 1/8s, 10/1/24 | Baa1 | 2,500,000 | 2,607,525 |
|
| |||
| WA State Hlth. Care Fac. Auth. Rev. Bonds | |||
| (WA Hlth. Svcs.), 7s, 7/1/39 | Baa3 | 1,000,000 | 1,097,120 |
| Ser. B, NATL, 5s, 2/15/27 | A | 1,085,000 | 1,096,154 |
|
| |||
| WA State Pub. Pwr. Supply Syst. Rev. Bonds | |||
| (Nuclear No. 3), Ser. B, NATL, 7 1/8s, 7/1/16 | Aa1 | 6,000,000 | 6,947,700 |
|
| |||
| 11,748,499 | |||
| West Virginia (0.1%) | |||
| WV State Econ. Dev. Auth. Solid Waste Disp. | |||
| Fac. FRB (Appalachian Pwr. Co.), Ser. A, | |||
| 5 3/8s, 12/1/38 | Baa1 | 500,000 | 521,245 |
|
| |||
| 521,245 | |||
| AMT-Free Municipal Fund | 35 |
| MUNICIPAL BONDS AND NOTES (98.6%)* cont. | Rating** | Principal amount | Value |
|
| |||
| Wisconsin (1.2%) | |||
| WI State Rev. Bonds, Ser. A, 6s, 5/1/27 | Aa3 | $2,000,000 | $2,296,080 |
|
| |||
| WI State Hlth. & Edl. Facs. Auth. Rev. Bonds | |||
| (Prohealth Care, Inc.), 6 5/8s, 2/15/39 | A1 | 1,250,000 | 1,381,325 |
| (Three Pillars Sr. Living), 5s, 8/15/33 | A–/F | 1,000,000 | 976,830 |
|
| |||
| 4,654,235 | |||
| Wyoming (0.5%) | |||
| Sweetwater Cnty., Poll. Control Rev. Bonds | |||
| (Idaho Power Co.), 5 1/4s, 7/15/26 | A1 | 1,800,000 | 1,903,518 |
|
| |||
| 1,903,518 | |||
| TOTAL INVESTMENTS | |||
|
| |||
| Total investments (cost $350,162,798) | $370,541,035 | ||
Notes to the fund’s portfolio
Unless noted otherwise, the notes to the fund’s portfolio are for the close of the fund’s reporting period, which ran from August 1, 2013 through January 31, 2014 (the reporting period). Within the following notes to the portfolio, references to “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures and references to “OTC”, if any, represent over-the-counter.
* Percentages indicated are based on net assets of $375,772,607.
** The Moody’s, Standard & Poor’s or Fitch ratings indicated are believed to be the most recent ratings available at the close of the reporting period 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 the close of the reporting period. Securities rated by Putnam are indicated by “/P.” Securities rated by Fitch are indicated by “/F.” The rating of an insured security represents what is believed to be the most recent rating of the insurer’s claims-paying ability available at the close of the reporting period, if higher than the rating of the direct issuer of the bond, and does not reflect any subsequent changes. Security ratings are defined in the Statement of Additional Information.
The rates shown on Mandatory Put Bonds are the current interest rates at the close of the reporting period.
The dates shown parenthetically on Mandatory Put Bonds represent the next mandatory put dates.
The dates shown parenthetically on prerefunded bonds represent the next prerefunding dates.
The dates shown on debt obligations are the original maturity dates.
The fund had the following sector concentrations greater than 10% at the close of the reporting period (as a percentage of net assets):
| Health care | 17.9% | ||||
| Utilities | 17.1 | ||||
| Local debt | 16.5 | ||||
| Transportation | 11.1 |
The fund had the following insurance concentration greater than 10% at the close of the reporting period (as a percentage of net assets):
| NATL | 12.0% |
| 36 | AMT-Free Municipal Fund |
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period:
| Valuation inputs | ||||||
|
| ||||||
| Investments in securities: | Level 1 | Level 2 | Level 3 | |||
|
| ||||||
| Municipal bonds and notes | $— | $370,541,035 | $— | |||
|
| ||||||
| Totals by level | $— | $370,541,035 | $— | |||
The accompanying notes are an integral part of these financial statements.
| AMT-Free Municipal Fund | 37 |
Statement of assets and liabilities 1/31/14 (Unaudited)
| ASSETS | |
|
| |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $350,162,798) | $370,541,035 |
|
| |
| Cash | 732,151 |
|
| |
| Interest and other receivables | 4,177,212 |
|
| |
| Receivable for shares of the fund sold | 733,181 |
|
| |
| Receivable for investments sold | 1,055,000 |
|
| |
| Total assets | 377,238,579 |
| LIABILITIES | |
|
| |
| Payable for shares of the fund repurchased | 754,634 |
|
| |
| Payable for compensation of Manager (Note 2) | 138,479 |
|
| |
| Payable for custodian fees (Note 2) | 4,768 |
|
| |
| Payable for investor servicing fees (Note 2) | 31,907 |
|
| |
| Payable for Trustee compensation and expenses (Note 2) | 134,763 |
|
| |
| Payable for administrative services (Note 2) | 671 |
|
| |
| Payable for distribution fees (Note 2) | 89,630 |
|
| |
| Distributions payable to shareholders | 243,101 |
|
| |
| Other accrued expenses | 68,019 |
|
| |
| Total liabilities | 1,465,972 |
| Net assets | $375,772,607 |
|
| |
| REPRESENTED BY | |
|
| |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $366,288,167 |
|
| |
| Distributions in excess of net investment income (Note 1) | (75,499) |
|
| |
| Accumulated net realized loss on investments (Note 1) | (10,818,298) |
|
| |
| Net unrealized appreciation of investments | 20,378,237 |
|
| |
| Total — Representing net assets applicable to capital shares outstanding | $375,772,607 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
|
| |
| Net asset value and redemption price per class A share | |
| ($319,016,712 divided by 21,483,453 shares) | $14.85 |
|
| |
| Offering price per class A share (100/96.00 of $14.85)* | $15.47 |
|
| |
| Net asset value and offering price per class B share ($3,184,632 divided by 214,238 shares)** | $14.86 |
|
| |
| Net asset value and offering price per class C share ($27,961,910 divided by 1,878,166 shares)** | $14.89 |
|
| |
| Net asset value and redemption price per class M share ($951,624 divided by 63,912 shares) | $14.89 |
|
| |
| Offering price per class M share (100/96.75 of $14.89)† | $15.39 |
|
| |
| Net asset value, offering price and redemption price per class Y share | |
| ($24,657,729 divided by 1,659,437 shares) | $14.86 |
|
| |
* On single retail sales of less than $100,000. On sales of $100,000 or more 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 the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
| 38 | AMT-Free Municipal Fund |
Statement of operations Six months ended 1/31/14 (Unaudited)
| INTEREST INCOME | $9,306,198 |
|
| |
| EXPENSES | |
|
| |
| Compensation of Manager (Note 2) | $868,214 |
|
| |
| Investor servicing fees (Note 2) | 99,123 |
|
| |
| Custodian fees (Note 2) | 5,172 |
|
| |
| Trustee compensation and expenses (Note 2) | 15,530 |
|
| |
| Distribution fees (Note 2) | 566,310 |
|
| |
| Administrative services (Note 2) | 6,351 |
|
| |
| Other | 96,248 |
|
| |
| Total expenses | 1,656,948 |
| Expense reduction (Note 2) | (280) |
|
| |
| Net expenses | 1,656,668 |
| Net investment income | 7,649,530 |
|
| |
| Net realized loss on investments (Notes 1 and 3) | (4,699,518) |
|
| |
| Net realized loss on swap contracts (Note 1) | (456,672) |
|
| |
| Net unrealized appreciation of investments and swap contracts during the period | 7,176,941 |
|
| |
| Net gain on investments | 2,020,751 |
| Net increase in net assets resulting from operations | $9,670,281 |
|
| |
The accompanying notes are an integral part of these financial statements.
| AMT-Free Municipal Fund | 39 |
Statement of changes in net assets
| DECREASE IN NET ASSETS | Six months ended 1/31/14* | Year ended 7/31/13 |
|
| ||
| Operations: | ||
| Net investment income | $7,649,530 | $17,435,039 |
|
| ||
| Net realized loss on investments | (5,156,190) | (278,717) |
|
| ||
| Net unrealized appreciation (depreciation) of investments | 7,176,941 | (31,903,391) |
|
| ||
| Net increase (decrease) in net assets resulting | ||
| from operations | 9,670,281 | (14,747,069) |
|
| ||
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Taxable net investment income | ||
|
| ||
| Class A | (92,603) | (15,299) |
|
| ||
| Class B | (1,001) | (146) |
|
| ||
| Class C | (9,423) | (1,534) |
|
| ||
| Class M | (294) | (34) |
|
| ||
| Class Y | (7,604) | (1,193) |
|
| ||
| From tax-exempt net investment income | ||
| Class A | (6,385,226) | (14,630,453) |
|
| ||
| Class B | (56,095) | (120,681) |
|
| ||
| Class C | (481,080) | (1,208,646) |
|
| ||
| Class M | (18,581) | (33,108) |
|
| ||
| Class Y | (545,595) | (1,290,973) |
|
| ||
| Decrease from capital share transactions (Note 4) | (55,396,427) | (13,597,954) |
|
| ||
| Total decrease in net assets | (53,323,648) | (45,647,090) |
| NET ASSETS | ||
|
| ||
| Beginning of period | 429,096,255 | 474,743,345 |
|
| ||
| End of period (including distributions in excess of net | ||
| investment income of $75,499 and $127,527, respectively) | $375,772,607 | $429,096,255 |
|
| ||
* Unaudited
The accompanying notes are an integral part of these financial statements.
| 40 | AMT-Free Municipal Fund |
| This page left blank intentionally. |
| AMT-Free Municipal Fund | 41 |
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||
|
| ||||||||||||||
| Ratio | Ratio of | |||||||||||||
| Net realized | of expenses | net investment | ||||||||||||
| Net asset value, | and unrealized | Total from | From | Total return | Net assets, | to average | income (loss) | Portfolio | ||||||
| beginning | Net investment | gain (loss) | investment | net investment | Total | Redemption | Non-recurring | Net asset value, | at net asset | end of period | net assets | to average | turnover | |
| Period ended | of period | income (loss) | on investments | operations | income | distributions | fees | reimbursements | end of period | value (%) a | (in thousands) | (%) b | net assets (%) | (%) |
|
| ||||||||||||||
| Class A | ||||||||||||||
| January 31, 2014 ** | $14.74 | .29 | .11 | .40 | (.29) | (.29) | — | — | $14.85 | 2.72 * | $319,017 | .39 * | 1.96 * | 5 * |
| July 31, 2013 | 15.75 | .55 | (1.01) | (.46) | (.55) | (.55) | — | — | 14.74 | (3.06) | 356,787 | .77 | 3.54 | 16 |
| July 31, 2012 | 14.66 | .61 | 1.08 | 1.69 | (.60) | (.60) | — | — | 15.75 | 11.77 | 398,419 | .78 | 3.98 | 10 |
| July 31, 2011 | 14.92 | .63 | (.26) | .37 | (.63) | (.63) | — c | — d | 14.66 | 2.58 | 332,098 | .77 | 4.34 | 25 |
| July 31, 2010 | 14.27 | .63 | .64 | 1.27 | (.62) | (.62) | — c | — | 14.92 | 8.99 | 378,440 | .79 e | 4.24 e | 13 |
| July 31, 2009 | 14.33 | .58 | (.05) | .53 | (.59) | (.59) | — c | — | 14.27 | 3.84 | 317,964 | .85 e | 4.07 e | 22 |
|
| ||||||||||||||
| Class B | ||||||||||||||
| January 31, 2014 ** | $14.76 | .24 | .10 | .34 | (.24) | (.24) | — | — | $14.86 | 2.33 * | $3,185 | .70 * | 1.65 * | 5 * |
| July 31, 2013 | 15.76 | .46 | (1.01) | (.55) | (.45) | (.45) | — | — | 14.76 | (3.59) | 3,826 | 1.38 | 2.92 | 16 |
| July 31, 2012 | 14.67 | .52 | 1.08 | 1.60 | (.51) | (.51) | — | — | 15.76 | 11.09 | 3,654 | 1.40 | 3.37 | 10 |
| July 31, 2011 | 14.94 | .54 | (.27) | .27 | (.54) | (.54) | — c | — d | 14.67 | 1.84 | 3,774 | 1.39 | 3.68 | 25 |
| July 31, 2010 | 14.29 | .54 | .64 | 1.18 | (.53) | (.53) | — c | — | 14.94 | 8.36 | 8,780 | 1.41 e | 3.61 e | 13 |
| July 31, 2009 | 14.35 | .49 | (.05) | .44 | (.50) | (.50) | — c | — | 14.29 | 3.21 | 15,259 | 1.48 e | 3.43 e | 22 |
|
| ||||||||||||||
| Class C | ||||||||||||||
| January 31, 2014 ** | $14.78 | .23 | .11 | .34 | (.23) | (.23) | — | — | $14.89 | 2.32 * | $27,962 | .78 * | 1.57 * | 5 * |
| July 31, 2013 | 15.78 | .43 | (1.00) | (.57) | (.43) | (.43) | — | — | 14.78 | (3.73) | 37,026 | 1.53 | 2.77 | 16 |
| July 31, 2012 | 14.69 | .49 | 1.09 | 1.58 | (.49) | (.49) | — | — | 15.78 | 10.88 | 39,662 | 1.55 | 3.20 | 10 |
| July 31, 2011 | 14.96 | .52 | (.27) | .25 | (.52) | (.52) | — c | — d | 14.69 | 1.76 | 25,825 | 1.54 | 3.56 | 25 |
| July 31, 2010 | 14.30 | .51 | .66 | 1.17 | (.51) | (.51) | — c | — | 14.96 | 8.31 | 30,968 | 1.56 e | 3.47 e | 13 |
| July 31, 2009 | 14.36 | .47 | (.05) | .42 | (.48) | (.48) | — c | — | 14.30 | 3.05 | 18,802 | 1.63 e | 3.29 e | 22 |
|
| ||||||||||||||
| Class M | ||||||||||||||
| January 31, 2014 ** | $14.78 | .27 | .11 | .38 | (.27) | (.27) | — | — | $14.89 | 2.58 * | $952 | .53 * | 1.83 * | 5 * |
| July 31, 2013 | 15.78 | .51 | (1.00) | (.49) | (.51) | (.51) | — | — | 14.78 | (3.24) | 1,120 | 1.03 | 3.27 | 16 |
| July 31, 2012 | 14.69 | .57 | 1.08 | 1.65 | (.56) | (.56) | — | — | 15.78 | 11.44 | 887 | 1.05 | 3.72 | 10 |
| July 31, 2011 | 14.96 | .59 | (.27) | .32 | (.59) | (.59) | — c | — d | 14.69 | 2.27 | 918 | 1.04 | 4.06 | 25 |
| July 31, 2010 | 14.31 | .59 | .64 | 1.23 | (.58) | (.58) | — c | — | 14.96 | 8.78 | 1,354 | 1.06 e | 3.96 e | 13 |
| July 31, 2009 | 14.37 | .54 | (.05) | .49 | (.55) | (.55) | — c | — | 14.31 | 3.57 | 1,236 | 1.13 e | 3.79 e | 22 |
|
| ||||||||||||||
| Class Y | ||||||||||||||
| January 31, 2014 ** | $14.75 | .30 | .11 | .41 | (.30) | (.30) | — | — | $14.86 | 2.84 * | $24,658 | .28 * | 2.08 * | 5 * |
| July 31, 2013 | 15.76 | .59 | (1.01) | (.42) | (.59) | (.59) | — | — | 14.75 | (2.83) | 30,338 | .53 | 3.77 | 16 |
| July 31, 2012 | 14.66 | .65 | 1.09 | 1.74 | (.64) | (.64) | — | — | 15.76 | 12.09 | 32,122 | .55 | 4.17 | 10 |
| July 31, 2011 | 14.93 | .67 | (.28) | .39 | (.66) | (.66) | — c | — d | 14.66 | 2.80 | 13,693 | .54 | 4.59 | 25 |
| July 31, 2010 | 14.27 | .66 | .65 | 1.31 | (.65) | (.65) | — c | — | 14.93 | 9.39 | 8,980 | .56 e | 4.47 e | 13 |
| July 31, 2009 | 14.34 | .61 | (.06) | .55 | (.62) | (.62) | — c | — | 14.27 | 4.01 | 5,033 | .63 e | 4.33 e | 22 |
|
| ||||||||||||||
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
| 42 | AMT-Free Municipal Fund | AMT-Free Municipal Fund | 43 |
Financial highlights (Continued)
* Not annualized.
** Unaudited.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements (Note 2).
c Amount represents less than $0.01 per share.
d Reflects a non-recurring reimbursement related to restitution amounts in connection with a distribution plan approved by the Securities and Exchange Commission (the SEC) which amounted to less than $0.01 per share outstanding on July 21, 2011. Also reflects a non-recurring reimbursement related to short-term trading related lawsuits, which amounted to less than $0.01 per share outstanding on May 11, 2011.
e Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage of | |
| average net assets | |
|
| |
| July 31, 2010 | 0.02% |
|
| |
| July 31, 2009 | 0.01 |
|
| |
The accompanying notes are an integral part of these financial statements.
| 44 | AMT-Free Municipal Fund |
Notes to financial statements 1/31/14 (Unaudited)
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from August 1, 2013 through January 31, 2014.
Putnam AMT-Free Municipal Fund (the fund) is a diversified series of Putnam Tax-Free Income Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The investment objective of the fund is to seek high current income exempt from federal income tax. The fund invests mainly in bonds that pay interest that is exempt from federal income tax, are investment-grade in quality, and have intermediate- to long-term maturities (three years or longer). The fund does not intend to invest in securities the interest on which is subject to the federal alternative minimum tax (AMT). Putnam Management may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.
The fund offers class A, class B, class C, class M and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. The expenses for class A, class B, class C, and class M shares may differ based on the distribution fee of each class, which is identified in Note 2. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, and class M shares, but do not bear a distribution fee. Class Y shares are not available to all investors.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
Note 1: Significant accounting policies
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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
Security valuation Tax-exempt bonds and notes are generally valued on the basis of valuations provided by an independent pricing service approved by the Trustees. Such services use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. These securities will generally be categorized as Level 2.
Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures and recovery rates. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs. The fair value of securities is generally determined
| AMT-Free Municipal Fund | 45 |
as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
Security transactions and related investment income Security transactions are recorded on the trade date (the 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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. The premium in excess of the call price, if any, is amortized to the call date; thereafter, any remaining premium is amortized to maturity.
Total return swap contracts The fund entered into OTC total return swap contracts, which are arrangements to exchange a market linked return for a periodic payment, both based on a notional principal amount, to manage interest rate risk.
To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. OTC total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as an unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain OTC total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk is the fair value of the contract. This risk may be mitigated by having a master netting arrangement between the fund and the counterparty. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC total return swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern OTC derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and with respect to those amounts which can be sold or repledged, are presented in the fund’s portfolio.
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund did not have a net liability position on open derivative contracts subject to the Master Agreements.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from other Putnam funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Line of credit The fund participates, along with other Putnam funds, in a $315 million unsecured committed line of credit and a $185 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be
| 46 | AMT-Free Municipal Fund |
made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to the Federal Funds rate plus 1.25% for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.02% of the committed line of credit and $50,000 for the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.11% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the 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 Code.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
At July 31, 2013, the fund had a capital loss carryover of $3,764,004 available to the extent allowed by the Code to offset future net capital gain, if any. The amounts of the carryovers and the expiration dates are:
| Loss carryover | |||
|
| |||
| Short-term | Long-term | Total | Expiration |
|
| |||
| $3,337,309 | N/A | $3,337,309 | July 31, 2018 |
|
| |||
| 426,695 | N/A | 426,695 | July 31, 2019 |
|
| |||
Under the Regulated Investment Company Modernization Act of 2010, the fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer certain capital losses of $1,384,564 recognized during the period between November 1, 2012 and July 31, 2013 to its fiscal year ending July 31, 2014.
The aggregate identified cost on a tax basis is $350,037,610, resulting in gross unrealized appreciation and depreciation of $23,370,123 and $2,866,698, respectively, or net unrealized appreciation of $20,503,425.
Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. 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.
Expenses of the Trust Expenses directly charged or attributable to any fund will be paid from the assets of that fund. Generally, expenses of the Trust will be allocated among and charged to the assets of each fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each fund or the nature of the services performed and relative applicability to each fund.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of most open-end
| AMT-Free Municipal Fund | 47 |
funds, as defined in the fund’s management contract, sponsored by Putnam Management. Such annual rates may vary as follows:
| 0.590% | of the first $5 billion, | 0.390% | of the next $50 billion, | |
|
|
| |||
| 0.540% | of the next $5 billion, | 0.370% | of the next $50 billion, | |
|
|
| |||
| 0.490% | of the next $10 billion, | 0.360% | of the next $100 billion and | |
|
|
| |||
| 0.440% | of the next $10 billion, | 0.355% | of any excess thereafter. | |
|
|
| |||
The fund’s shareholders approved the fund’s current management contract with Putnam Management effective February 27, 2014. Shareholders were asked to approve the fund’s management contract following the death on October 8, 2013 of The Honourable Paul G. Desmarais, who had controlled directly and indirectly a majority of the voting shares of Power Corporation of Canada, the ultimate parent company of Putnam Management. The substantive terms of the management contract, including terms relating to fees, are identical to the terms of the fund’s previous management contract and reflect the rates provided in the table above.
Putnam Management has contractually agreed, through June 30, 2014, to waive fees or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. Putnam Management pays a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
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 State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. Investor servicing fees will not exceed an annual rate of 0.32% of the fund’s average net assets. During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:
| Class A | $83,387 | Class M | 262 | |
|
|
| |||
| Class B | 876 | Class Y | 6,702 | |
|
|
| |||
| Class C | 7,896 | Total | $99,123 | |
|
|
| |||
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $280 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $239, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
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 a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense
| 48 | AMT-Free Municipal Fund |
for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
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 Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of 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 the annual rate of 0.85%, 1.00% and 0.50% of the average net assets for class B, class C and class M shares, respectively. For class A shares, the annual payment rate will equal the weighted average of (i) 0.20% on the net assets of the fund attributable to class A shares purchased and paid for prior to April 1, 2005 and (ii) 0.25% on all other net assets of the fund attributable to class A shares. During the reporting period, the class specific expenses related to distribution fees were as follows:
| Class A | $390,295 | Class M | 2,632 | |
|
|
| |||
| Class B | 14,952 | Total | $566,310 | |
|
|
| |||
| Class C | 158,431 | |||
|
|
||||
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $3,797 and $— from the sale of class A and class M shares, respectively, and received $813 and $1,016 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no money on class A redemptions.
Note 3: Purchases and sales of securities
During the reporting period, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $19,760,187 and $72,098,439, respectively. There were no purchases or proceeds from sales of long-term U.S. government securities.
Note 4: Capital shares
At the close of the reporting period, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Six months ended 1/31/14 | Year ended 7/31/13 | |||
|
| ||||
| Class A | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 1,647,075 | $24,231,582 | 6,528,324 | $102,535,550 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 350,738 | 5,152,458 | 759,183 | 11,841,784 |
|
| ||||
| 1,997,813 | 29,384,040 | 7,287,507 | 114,377,334 | |
|
| ||||
| Shares repurchased | (4,712,535) | (68,965,964) | (8,392,935) | (129,425,653) |
|
| ||||
| Net decrease | (2,714,722) | $(39,581,924) | (1,105,428) | $(15,048,319) |
|
| ||||
| Six months ended 1/31/14 | Year ended 7/31/13 | |||
|
| ||||
| Class B | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 7,303 | $107,314 | 89,604 | $1,408,412 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 3,601 | 52,944 | 6,976 | 108,836 |
|
| ||||
| 10,904 | 160,258 | 96,580 | 1,517,248 | |
|
| ||||
| Shares repurchased | (55,885) | (819,949) | (69,195) | (1,078,550) |
|
| ||||
| Net increase (decrease) | (44,981) | $(659,691) | 27,385 | $438,698 |
|
| ||||
| AMT-Free Municipal Fund | 49 |
| Six months ended 1/31/14 | Year ended 7/31/13 | |||
|
| ||||
| Class C | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 50,334 | $738,512 | 939,618 | $14,823,879 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 29,082 | 428,240 | 66,782 | 1,043,903 |
|
| ||||
| 79,416 | 1,166,752 | 1,006,400 | 15,867,782 | |
|
| ||||
| Shares repurchased | (706,063) | (10,355,659) | (1,014,569) | (15,708,222) |
|
| ||||
| Net increase (decrease) | (626,647) | $(9,188,907) | (8,169) | $159,560 |
|
| ||||
| Six months ended 1/31/14 | Year ended 7/31/13 | |||
|
| ||||
| Class M | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 3,209 | $47,243 | 32,867 | $519,535 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 1,233 | 18,157 | 2,000 | 31,190 |
|
| ||||
| 4,442 | 65,400 | 34,867 | 550,725 | |
|
| ||||
| Shares repurchased | (16,324) | (240,020) | (15,254) | (240,160) |
|
| ||||
| Net increase (decrease) | (11,882) | $(174,620) | 19,613 | $310,565 |
|
| ||||
| Six months ended 1/31/14 | Year ended 7/31/13 | |||
|
| ||||
| Class Y | Shares | Amount | Shares | Amount |
|
| ||||
| Shares sold | 383,225 | $5,641,059 | 1,055,250 | $16,580,929 |
|
| ||||
| Shares issued in connection with | ||||
| reinvestment of distributions | 28,681 | 421,599 | 61,535 | 959,555 |
|
| ||||
| 411,906 | 6,062,658 | 1,116,785 | 17,540,484 | |
|
| ||||
| Shares repurchased | (808,637) | (11,853,943) | (1,099,414) | (16,998,942) |
|
| ||||
| Net increase (decrease) | (396,731) | $(5,791,285) | 17,371 | $541,542 |
|
| ||||
Note 5: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
Note 6: Summary of derivative activity
The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was as follows based on an average of the holdings at the end of each fiscal quarter:
| OTC total return swap contracts (notional) | $430,000 |
|
| |
As of the close of the reporting period, the fund did not hold any derivative instruments.
| 50 | AMT-Free Municipal Fund |
The following is a summary of realized and change in unrealized gains or losses of derivative instruments on the Statement of operations for the reporting period (see Note 1):
Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | ||
| instruments under ASC 815 | Swaps | Total |
|
| ||
| Interest rate contracts | $(456,672) | $(456,672) |
|
| ||
| Total | $(456,672) | $(456,672) |
|
| ||
Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) on investments
| Derivatives not accounted for as hedging | ||
| instruments under ASC 815 | Swaps | Total |
|
| ||
| Interest rate contracts | $402,204 | $402,204 |
|
| ||
| Total | $402,204 | $402,204 |
|
| ||
| AMT-Free Municipal Fund | 51 |
Shareholder meeting results (Unaudited)
February 27, 2014 special meeting
At the meeting, each of the nominees for Trustees was elected, with all funds of the Trust voting together as a single class, as follows:
| Votes for | Votes withheld | |
|
| ||
| Liaquat Ahamed | 68,076,117 | 3,037,765 |
|
| ||
| Ravi Akhoury | 68,044,791 | 3,069,091 |
|
| ||
| Barbara M. Baumann | 68,314,720 | 2,799,162 |
|
| ||
| Jameson A. Baxter | 68,226,309 | 2,887,573 |
|
| ||
| Charles B. Curtis | 68,230,354 | 2,883,527 |
|
| ||
| Robert J. Darretta | 68,297,789 | 2,816,093 |
|
| ||
| Katinka Domotorffy | 68,201,877 | 2,912,004 |
|
| ||
| John A. Hill | 68,263,895 | 2,849,987 |
|
| ||
| Paul L. Joskow | 68,271,963 | 2,841,918 |
|
| ||
| Kenneth R. Leibler | 68,319,004 | 2,794,878 |
|
| ||
| Robert E. Patterson | 68,304,474 | 2,809,408 |
|
| ||
| George Putnam, III | 68,322,254 | 2,791,628 |
|
| ||
| Robert L. Reynolds | 68,297,610 | 2,816,271 |
|
| ||
| W. Thomas Stephens | 68,309,657 | 2,804,225 |
|
| ||
A proposal to adopt an Amended and Restated Declaration of Trust was approved, with all funds of the Trust voting together as a single class, as follows:
| Votes | Votes | Broker | |
| for | against | Abstentions | non-votes |
|
| |||
| 53,324,545 | 1,989,928 | 3,687,119 | 12,112,289 |
|
| |||
A proposal to approve a new management contract between the fund and Putnam Management was approved as follows:
| Votes | Votes | Broker | |
| for | against | Abstentions | non-votes |
|
| |||
| 12,978,659 | 368,083 | 995,109 | 3,203,673 |
|
| |||
All tabulations are rounded to the nearest whole number.
| 52 | AMT-Free Municipal Fund |
Fund information
Founded over 75 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Trustees | Robert R. Leveille |
| Putnam Investment | Jameson A. Baxter, Chair | Vice President and |
| Management, LLC | Liaquat Ahamed | Chief Compliance Officer |
| One Post Office Square | Ravi Akhoury | |
| Boston, MA 02109 | Barbara M. Baumann | Michael J. Higgins |
| Charles B. Curtis | Vice President, Treasurer, | |
| Investment Sub-Manager | Robert J. Darretta | and Clerk |
| Putnam Investments Limited | Katinka Domotorffy | |
| 57–59 St James’s Street | John A. Hill | Janet C. Smith |
| London, England SW1A 1LD | Paul L. Joskow | Vice President, |
| Kenneth R. Leibler | Principal Accounting Officer, | |
| Marketing Services | Robert E. Patterson | and Assistant Treasurer |
| Putnam Retail Management | George Putnam, III | |
| One Post Office Square | Robert L. Reynolds | Susan G. Malloy |
| Boston, MA 02109 | W. Thomas Stephens | Vice President and |
| Assistant Treasurer | ||
| Custodian | Officers | |
| State Street Bank | Robert L. Reynolds | James P. Pappas |
| and Trust Company | President | Vice President |
| Legal Counsel | Jonathan S. Horwitz | Mark C. Trenchard |
| Ropes & Gray LLP | Executive Vice President, | Vice President and |
| Principal Executive Officer, and | BSA Compliance Officer | |
| Compliance Liaison | ||
| Nancy E. Florek | ||
| Steven D. Krichmar | Vice President, Director of | |
| Vice President and | Proxy Voting and Corporate | |
| Principal Financial Officer | Governance, Assistant Clerk, | |
| and Associate Treasurer | ||
| Robert T. Burns | ||
| Vice President and | ||
| Chief Legal Officer |
This report is for the information of shareholders of Putnam AMT-Free Municipal Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
| Item 2. Code of Ethics: |
| Not applicable |
| Item 3. Audit Committee Financial Expert: |
| Not applicable |
| Item 4. Principal Accountant Fees and Services: |
| Not applicable |
| Item 5. Audit Committee of Listed Registrants |
| Not applicable |
| Item 6. Schedule of Investments: |
| The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
| Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
| Not applicable |
| Item 8. Portfolio Managers of Closed-End Investment Companies |
| Not Applicable |
| Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
| Not applicable |
| Item 10. Submission of Matters to a Vote of Security Holders: |
| Not applicable |
| Item 11. Controls and Procedures: |
| (a) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. |
| (b) Changes in internal control over financial reporting: Not applicable |
| Item 12. Exhibits: |
| (a)(1) Not applicable |
| (a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith. |
| (b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith. |
| Putnam Tax-Free Income Trust |
| By (Signature and Title): |
| /s/Janet C. Smith Janet C. Smith Principal Accounting Officer |
| Date: March 28, 2014 |
| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
| By (Signature and Title): |
| /s/Jonathan S. Horwitz Jonathan S. Horwitz Principal Executive Officer |
| Date: March 28, 2014 |
| By (Signature and Title): |
| /s/Steven D. Krichmar Steven D. Krichmar Principal Financial Officer |
| Date: March 28, 2014 |