N-CSRS 1 a_taxfreehiyld.htm PUTNAM TAX FREE INCOME TRUST a_taxfreehiyld.htm


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:         Bryan Chegwidden, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036
Registrant's telephone number, including area code: (617) 292-1000
Date of fiscal year end: July 31, 2017
Date of reporting period: August 1, 2016 — January 31, 2017



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
Tax-Free High Yield
Fund

Semiannual report
1 | 31 | 17

 

Consider these risks before investing: Capital gains, if any, are taxed at the federal and, in most cases, state levels. For some investors, investment income may be subject to the federal alternative minimum tax. 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 more broadly invested fund. Interest the fund receives might be taxable. Bond prices may fall or fail to rise over time for several reasons, including general financial market conditions, changing market perceptions of the risk of default, changes in government intervention in the financial markets, and factors related to a specific issuer. These factors may also lead to periods of high volatility and reduced liquidity in the bond markets. You can lose money by investing in the fund.


Message from the Trustees

March 9, 2017

Dear Fellow Shareholder:

In the early weeks of 2017, investor sentiment generally brightened at the prospect of moving beyond the challenges of the past year, when political uncertainty, among other issues, tested global financial markets. As stock markets delivered modest gains, the exuberance that greeted the new year calmed somewhat as investors reconsidered a number of ongoing macroeconomic risks. In addition, many bond investors remained cautious as the potential for inflation increased.

As always, we believe investors should continue to focus on time-tested strategies: maintain a well-diversified portfolio, keep a long-term view, and do not overreact to short-term market fluctuations. To help ensure that your portfolio is aligned with your individual goals, time horizon, and tolerance for risk, we also believe it is a good idea to speak regularly with your financial advisor.

In today’s environment, we favor the investment approach practiced at Putnam — active strategies based on fundamental research. Putnam portfolio managers, backed by a network of global analysts, bring years of experience to navigating changing market conditions and pursuing investment opportunities. In the following pages, you will find an overview of your fund’s performance for the reporting period ended January 31, 2017, as well as an outlook for the coming months.

As always, thank you for investing with Putnam.





Performance history as of 1/31/17

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 below and pages 10–12 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.


This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 1/31/17. See above and pages 10–12 for additional fund performance information. Index descriptions can be found on page 14.

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Paul has a B.A. from Suffolk University. Paul has been in the investment industry since he joined Putnam in 1989.

In addition to Paul, your fund is managed by Garrett L. Hamilton, CFA. Garrett holds an M.S. in Investment Management from Boston University and a B.S. in International Business Administration from Southern New Hampshire University. He joined Putnam in 2016 and has been in the investment industry since 2006.

Paul, what was the market backdrop like for municipal bonds during the six-month reporting period ended January 31, 2017?

Prices of municipal bonds declined and their yields moved higher in response to slowing mutual fund demand and record new-issue supply during the reporting period. One factor contributing to the spike in issuance was the decision by many issuers to move up their municipal bond offerings ahead of both the presidential election and a potential interest-rate hike by the Federal Reserve before the end of 2016, which occurred on December 14. As a result, 2016 proved to be a record-setting year for municipal bond issuance, which totaled $445 billion.

On the demand side, outflows began to outpace inflows — a measure of investor interest — as investors became more optimistic about risky asset types following the presidential election. Consequently, many investors transferred assets into more economically sensitive investments or higher-risk investments, such as stocks. Municipal bond prices fell further and their yields rose accordingly, contributing to a steeper municipal bond yield curve for the balance of the reporting period. We believe the uncertainty around U.S. income

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Allocations are shown as a percentage of the fund’s net assets as of 1/31/17. 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, the use of different classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.


Credit qualities are shown as a percentage of the fund’s net assets as of 1/31/17. A bond rated BBB or higher (SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. Ratings may vary over time.

Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.

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tax policy changes for individuals and corporations was an additional headwind for the asset class post-election.

The net effect of these developments was a weaker supply/demand picture for the municipal bond market. For the six months ended January 31, 2017, the Bloomberg Barclays Municipal Bond Index [the benchmark index] returned –3.34%, underperforming the BofA Merrill Lynch U.S. 3-Month Treasury Bill Index, which returned 0.20%. Against this backdrop, lower-yielding, higher-rated municipal bonds slightly outperformed higher-yielding, lower-rated municipal bonds. Municipal bonds with longer maturities underperformed those with shorter maturities.

How did the fund perform for the reporting period?

For the six months ended January 31, 2017, the fund underperformed its benchmark index but outperformed its Lipper peer group average.

What was your investment approach during the reporting period?

During the reporting period, we believed that downside risks included the possibility of interest rates moving higher should the U.S. economic backdrop continue to improve or flows to municipal bonds turning decidedly negative. As such, we maintained a slightly more defensive duration posture — or a lower sensitivity to changes in interest rates — and a somewhat higher cash allocation to help insulate the portfolio from any market pressure from a Fed decision to raise short-term rates. We also believed this strategy would give us greater flexibility to act swiftly when timely investment opportunities presented themselves — as they did when the selloff in municipal bonds rated A and BBB created more value in those bonds, especially compared with lower-rated municipal bond securities, in our view.

Otherwise, many of our broader investment themes remained in place. In addition to a shorter duration positioning, which was slightly below the median of the fund’s Lipper peer group, we maintained a benchmark-relative overweight exposure to municipal bonds rated BBB. We also maintained a preference for higher-education, essential service utilities, and continuing-care retirement community bonds, as well as an underweight position in Puerto Rico-based issuers relative to the fund’s Lipper peers. The fund also continued to be weighted more toward essential service revenue bonds than toward general obligation bonds, which typically rely on the taxing power of state and local governments.


What are your thoughts about the effects of the recent U.S. presidential election and future Fed rate policy?

With the election behind us, fiscal and monetary policy uncertainty has increased. Accordingly, the market has begun to price in a wider range of outcomes. Little is known regarding the President’s formal policy initiatives, but what can be inferred thus far has been generally interpreted by the market as constructive for economic growth. As such, the market is beginning to question the relationship between the timing of the next interest-rate hike and the pace of subsequent hikes. The prospect of more fiscal stimulus against a monetary policy backdrop that is still accommodative by historical measures has the market increasingly concerned about higher inflation.

While there is still a lot that is unknown, our first read is that fiscal policy will become more stimulative, which may mean that the economy will have less dependence on accommodative monetary policy, and that there is greater potential for higher short-term rates. That said, we are still dealing with relatively low,

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but improving, domestic trend growth; demographic headwinds; a data-dependent Fed; and improving global growth. The economic impact of new policy initiatives is yet to be seen, but we believe that we are still in an environment of gradual normalization by historical standards, but perhaps a little less gradual than the environment that existed before the election.

What is your view of the municipal bond market as 2017 begins?

The supply/demand picture may have weakened in recent months, but we still view the asset class as fairly valued. While the $33 billion of new issuance in January 2017 was the heaviest level of new issue supply on record for that month, the markets anticipate supply to taper off as the year progresses. As such, we may see supply and demand coming into a more attractive balance in the near term. Fundamentals are generally sound, in our view, despite a handful of challenging situations, such as Puerto Rico. With the widening of credit spreads and more attractive prices, however, we are finding selective investment opportunities in Illinois and New Jersey. In addition, default rates remained low relative to other fixed-income markets at period-end. On a historical basis, the five-year cumulative default rate stood at 0.08%.

In our view, 2017 is likely to be a volatile and uncertain year. Tax reform is shaping up to be an important feature of Trump’s presidency. While the tax exemption of municipal bonds may be called into question, a number of market analysts believe that the tax-exempt status of municipal bond income reinforces Trump’s infrastructure investment and job creation goals. In our view, tax-exempt municipal bonds have long been a vital and effective tool for financing public projects, such as roads, schools, and hospitals, as state and local governments have turned to the municipal bond market to fund these projects. We will be following the development of government policy closely to see if tax reform actually materializes, and how the details of tax reform may shape the outlook for municipal bonds.

Thank you, Paul, for this update on the fund.


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, the use of different classifications of securities for presentation purposes, and rounding. Holdings and allocations may vary over time.

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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. Statements in the Q&A concerning the fund’s performance or portfolio composition relative to those of the fund’s Lipper peer group may reference information produced by Lipper Inc. or through a third party.

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Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended January 31, 2017, 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 1/31/17         
 
  Annual                 
  average    Annual    Annual    Annual     
  (life of fund)  10 years  average  5 years  average  3 years  average  1 year  6 months 
Class A (9/20/93)                   
Before sales charge  6.02%  53.17%  4.36%  24.65%  4.51%  17.60%  5.55%  0.87%  –4.10% 
After sales charge  5.88  47.04  3.93  19.67  3.66  12.89  4.13  –3.17  –7.94 
Class B (9/9/85)                   
Before CDSC  6.02  45.67  3.83  20.81  3.85  15.30  4.86  0.24  –4.47 
After CDSC  6.02  45.67  3.83  18.81  3.51  12.30  3.94  –4.61  –9.16 
Class C (2/1/99)                   
Before CDSC  5.19  42.06  3.57  20.00  3.71  14.88  4.73  0.09  –4.46 
After CDSC  5.19  42.06  3.57  20.00  3.71  14.88  4.73  –0.88  –5.40 
Class M (12/29/94)                   
Before sales charge  5.78  49.07  4.07  23.00  4.23  16.66  5.27  0.59  –4.23 
After sales charge  5.67  44.23  3.73  19.00  3.54  12.87  4.12  –2.68  –7.34 
Class Y (1/2/08)                   
Net asset value  5.82  56.02  4.55  26.22  4.77  18.45  5.81  1.10  –3.97 

 

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, for class C shares, the higher operating expenses for such shares.

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.

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Comparative index returns For periods ended 1/31/17           
 
  Annual                 
  average    Annual    Annual    Annual     
  (life of fund)  10 years  average  5 years  average  3 years  average  1 year  6 months 
Bloomberg                   
Barclays Municipal  6.55%  52.97%  4.34%  15.61%  2.94%  11.50%  3.70%  –0.28%  –3.34% 
Bond Index                   
Lipper High Yield                   
Municipal Debt                   
Funds category  6.15  40.44  3.42  25.60  4.65  17.93  5.64  0.65  –4.25 
average*                   

 

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 1/31/17, there were 162, 160, 135, 111, 77, and 4 funds, respectively, in this Lipper category.

Fund price and distribution information For the six-month period ended 1/31/17

Distributions  Class A  Class B  Class C  Class M  Class Y 
Number  6  6  6  6  6 
Income1  $0.269455  $0.230065  $0.220486  $0.252411  $0.284208 
Capital gains2  —  —  —  —  — 
Total  $0.269455  $0.230065  $0.220486  $0.252411  $0.284208 
  Before  After  Net  Net  Before  After  Net 
  sales  sales  asset  asset  sales  sales  asset 
Share value  charge  charge  value  value  charge  charge  value 
7/31/16  $13.01  $13.55  $13.04  $13.04  $13.01  $13.45  $13.06 
1/31/17  12.21  12.72  12.23  12.24  12.21  12.62  12.26 
  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 
Current dividend rate3  3.85%  3.69%  3.22%  3.07%  3.58%  3.46%  4.06% 
Taxable equivalent4  6.80  6.52  5.69  5.42  6.33  6.11  7.17 
Current 30-day SEC yield5  N/A  2.80  2.30  2.15  N/A  2.56  3.15 
Taxable equivalent4  N/A  4.95  4.06  3.80  N/A  4.52  5.57 

 

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 2017. 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.

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Fund performance as of most recent calendar quarter Total return for periods ended 12/31/16

  Annual                 
  average    Annual    Annual    Annual     
  (life of fund)  10 years  average  5 years  average  3 years  average  1 year  6 months 
Class A (9/20/93)                   
Before sales charge  6.01%  51.82%  4.26%  28.01%  5.06%  19.74%  6.19%  0.91%  –4.90% 
After sales charge  5.87  45.74  3.84  22.89  4.21  14.95  4.75  –3.13  –8.70 
Class B (9/9/85)                   
Before CDSC  6.01  44.39  3.74  24.06  4.41  17.50  5.52  0.28  –5.19 
After CDSC  6.01  44.39  3.74  22.06  4.07  14.50  4.62  –4.56  –9.84 
Class C (2/1/99)                   
Before CDSC  5.17  40.69  3.47  23.13  4.25  16.97  5.36  0.13  –5.33 
After CDSC  5.17  40.69  3.47  23.13  4.25  16.97  5.36  –0.84  –6.26 
Class M (12/29/94)                   
Before sales charge  5.76  47.76  3.98  26.31  4.78  18.78  5.91  0.64  –5.02 
After sales charge  5.65  42.96  3.64  22.21  4.09  14.92  4.75  –2.63  –8.11 
Class Y (1/2/08)                   
Net asset value  5.80  54.41  4.44  29.51  5.31  20.50  6.41  1.14  –4.84 

 

See the discussion following the fund performance table on page 10 for information about the calculation of fund performance.

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 
Total annual operating expenses for the fiscal           
year ended 7/31/16*  0.83%  1.45%  1.60%  1.10%  0.60% 
Annualized expense ratio for the six-month           
period ended 1/31/17  0.83%  1.45%  1.60%  1.10%  0.60% 

 

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.

* Restated to reflect current fees resulting from a change to the fund’s investor servicing arrangements effective September 1, 2016.

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Expenses per $1,000

The following table shows the expenses you would have paid on a $1,000 investment in each class of the fund from 8/1/16 to 1/31/17. 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 
Expenses paid per $1,000*†  $4.10  $7.15  $7.89  $5.43  $2.96 
Ending value (after expenses)  $959.00  $955.30  $955.40  $957.70  $960.30 

 

* 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 1/31/17. 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.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 1/31/17, use the following calculation method. To find the value of your investment on 8/1/16, 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*†  $4.23  $7.37  $8.13  $5.60  $3.06 
Ending value (after expenses)  $1,021.02  $1,017.90  $1,017.14  $1,019.66  $1,022.18 

 

* 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 1/31/17. 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.

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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 and 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

Bloomberg Barclays Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.

Bloomberg 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.

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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, 2016, 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 Form N-Q on the SEC’s website at www.sec.gov. In addition, the fund’s Form 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, 2017, Putnam employees had approximately $465,000,000 and the Trustees had approximately $135,000,000 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.

Tax-Free High Yield Fund  15 

 


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.

16  Tax-Free High Yield Fund 

 


The fund’s portfolio 1/31/17 (Unaudited)

Key to holding’s abbreviations

ABAG Association Of Bay Area Governments  G.O. Bonds General Obligation Bonds 
AGC Assured Guaranty Corp.  NATL National Public Finance Guarantee Corp. 
AGM Assured Guaranty Municipal Corporation  U.S. Govt. Coll. U.S. Government Collateralized 
AMBAC AMBAC Indemnity Corporation  VRDN Variable Rate Demand Notes, which are floating- 
Cmnwlth. of PR Gtd. Commonwealth of Puerto  rate securities with long-term maturities that carry 
Rico Guaranteed  coupons that reset and are payable upon demand 
COP Certificates of Participation  either daily, weekly or monthly. The rate shown is the 
current interest rate at the close of the reporting period. 

 

MUNICIPAL BONDS AND NOTES (98.4%)*  Rating**  Principal amount  Value 
Alabama (2.1%)       
Cullman Cnty., Hlth. Care Auth. Rev. Bonds       
(Cullman Regl. Med. Ctr.), Ser. A, 7.00%, 2/1/36  Ba1  $2,300,000  $2,429,421 
Jefferson Cnty., Swr. Rev. Bonds       
Ser. D, 6.50%, 10/1/53  BBB–  3,000,000  3,522,450 
zero %, 10/1/46  BBB–  8,800,000  6,589,528 
Lower AL Gas Dist. Rev. Bonds (Gas Project), Ser. A,       
5.00%, 9/1/46  A3  3,650,000  4,189,288 
Selma, Indl. Dev. Board Rev. Bonds (Gulf       
Opportunity Zone Intl. Paper Co.), Ser. A,       
6.25%, 11/1/33  BBB  3,000,000  3,338,730 
      20,069,417 
Arizona (2.7%)       
Casa Grande, Indl. Dev. Auth. Rev. Bonds (Casa       
Grande Regl. Med. Ctr.)       
Ser. A, 7.625%, 12/1/29 (escrow) F   D/P  5,575,000  16,664 
7.25%, 12/1/19 (escrow) F   D/P  500,000  1,495 
Maricopa Cnty., Poll. Control Rev. Bonds (El Paso       
Elec. Co.), Ser. A, 7.25%, 2/1/40  Baa1  4,800,000  5,272,464 
Phoenix, Indl. Dev. Auth. Ed. Rev. Bonds       
(Great Hearts Academies Project), 6.30%, 7/1/42  BB/F  430,000  460,457 
(Great Hearts Academies), 6.00%, 7/1/32  BB/F  300,000  321,900 
(Choice Academies, Inc.), 5.375%, 9/1/32  BB+  2,000,000  2,067,460 
(Great Hearts Academies), 5.00%, 7/1/44  BBB–  3,800,000  4,000,108 
Phoenix, Indl. Dev. Auth. Ed. 144A Rev. Bonds       
(BASIS Schools, Inc.)       
Ser. A, 5.00%, 7/1/46  BB  750,000  743,115 
5.00%, 7/1/35  BB  1,500,000  1,515,375 
Ser. A, 5.00%, 7/1/35  BB  1,750,000  1,767,938 
Salt Verde, Fin. Corp. Gas Rev. Bonds       
5.50%, 12/1/29  Baa1  1,525,000  1,811,853 
5.00%, 12/1/37  Baa1  1,430,000  1,617,659 
5.00%, 12/1/32  Baa1  1,500,000  1,697,235 
Tempe, Indl. Dev. Auth. Rev. Bonds (Friendship       
Village), Ser. A, 6.00%, 12/1/32  BB–/P  1,350,000  1,409,508 
Yavapai Cnty., Indl. Dev. Auth. Hosp. Fac. Rev. Bonds       
(Yavapai Regl. Med.), 5.00%, 8/1/36  Baa1  800,000  850,976 

 

Tax-Free High Yield Fund  17 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Arizona cont.       
Yavapai Cnty., Indl. Dev. Ed. Auth. Rev. Bonds       
(Agribusiness & Equine Ctr.), 5.00%, 3/1/32  BB+  $1,600,000  $1,620,896 
Yavapai Cnty., Indl. Dev. Ed. Auth. 144A Rev. Bonds,       
Ser. A, 5.00%, 9/1/34  BB+  500,000  501,960 
      25,677,063 
California (11.5%)       
ABAG Fin. Auth. for Nonprofit Corps. Rev. Bonds       
(Episcopal Sr. Cmntys.), 6.00%, 7/1/31  BBB+/F  1,295,000  1,448,678 
CA Muni. Fin. Auth. COP (Cmnty. Hosp. Central CA)       
5.25%, 2/1/46  A–  6,180,000  6,194,090 
5.25%, 2/1/37  A–  1,585,000  1,589,945 
CA Muni. Fin. Auth. Rev. Bonds       
(Emerson College), 6.00%, 1/1/42  BBB+  3,330,000  3,784,578 
(Cmnty. Med. Ctrs.), Ser. A, 5.00%, 2/1/46  A–  2,500,000  2,617,325 
CA Pub. Fin. Auth. Rev. Bonds (Henry Mayo Newhall       
Memorial Hosp.), 5.00%, 10/15/47  BBB–  2,000,000  2,101,860 
CA School Fin. Auth. Rev. Bonds       
(2023 Union, LLC), Ser. A, 6.00%, 7/1/33  BBB  1,000,000  1,113,270 
(Klare Holdings), Ser. A, 5.00%, 7/1/34  BBB–  2,075,000  2,180,576 
CA State Muni. Fin. Auth Mobile Home Park Rev.       
Bonds (Caritas Affordable Hsg., Inc.), 5.25%, 8/15/39  BBB  800,000  877,560 
CA State Muni. Fin. Auth. Charter School Rev. Bonds       
(Partnerships Uplift Cmnty.), Ser. A       
5.25%, 8/1/42  BB  850,000  865,819 
5.00%, 8/1/32  BB  665,000  675,846 
CA State Poll. Control Fin. Auth. Rev. Bonds       
(Wtr. Furnishing), 5.00%, 11/21/45  Baa3  5,000,000  5,113,850 
(San Jose Wtr. Co.), 4.75%, 11/1/46  A  1,700,000  1,782,365 
CA State Pub. Wks. Board Rev. Bonds       
Ser. A-1, 6.00%, 3/1/35  A1  2,000,000  2,249,740 
(States Prisons — LA), Ser. C, 5.75%, 10/1/31  A1  1,000,000  1,159,300 
(Judicial Council Projects), Ser. D, 5.00%, 12/1/31  A1  1,000,000  1,125,110 
(Capital Projects), Ser. A, 5.00%, 4/1/30  A1  5,000,000  5,635,150 
CA Statewide Cmnty. Dev. Auth. Rev. Bonds       
(Terraces at San Joaquin Gardens), Ser. A,       
6.00%, 10/1/47  BB/P  500,000  535,275 
(Terraces at San Joaquin Gardens), Ser. A,       
6.00%, 10/1/42  BB/P  1,750,000  1,877,978 
(Terraces at San Joaquin Gardens), Ser. A,       
5.625%, 10/1/32  BB/P  1,105,000  1,177,234 
(U. CA Irvine E. Campus Apts. Phase 1),       
5.375%, 5/15/38  Baa1  1,500,000  1,620,810 
(899 Charleston, LLC), Ser. A, 5.25%, 11/1/44  BB/P  850,000  869,465 
(American Baptist Homes of the West),       
5.00%, 10/1/43  BBB+/F  1,000,000  1,056,380 
CA Statewide Cmnty. Dev. Auth. 144A Rev. Bonds       
(American Baptist Homes West), 6.25%, 10/1/39  BBB+/F  2,500,000  2,720,250 
(Front Porch Cmntys. & Svcs.), Ser. A,       
5.125%, 4/1/37  BBB+  3,300,000  3,304,917 
Foothill/Eastern Corridor Agcy. Rev. Bonds, Ser. A,       
6.00%, 1/15/53  BBB–  5,145,000  5,874,407 

 

18  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
California cont.       
Golden State Tobacco Securitization       
Corp. Rev. Bonds       
Ser. A-2, 5.30%, 6/1/37  B3  $8,000,000  $7,804,960 
Ser. A-1, 5.125%, 6/1/47  B3  7,390,000  6,910,611 
La Verne, COP (Brethren Hillcrest Homes),       
5.00%, 5/15/36  BBB–/F  775,000  802,443 
Long Beach, Bond Fin. Auth. Rev. Bonds (Natural       
Gas Purchase), Ser. A, 5.50%, 11/15/37  Baa1  2,000,000  2,411,040 
Los Angeles, Dept. of Arpt Rev. Bonds (Los Angeles       
Intl. Arpt.), Ser. B, 5.00%, 5/15/41  AA–  1,000,000  1,105,440 
M-S-R Energy Auth. Rev. Bonds       
Ser. A, 6.50%, 11/1/39  BBB+  3,250,000  4,390,458 
Ser. B, 6.50%, 11/1/39  BBB+  2,000,000  2,701,820 
Oakland, Alameda Cnty. Unified School Dist. G.O.       
Bonds (Election of 2006), Ser. A, 5.50%, 8/1/32  Aa3  1,500,000  1,759,095 
Oakley, Pub. Fin. Auth. Special Assmt. Bonds,       
5.00%, 9/2/31  BBB  1,645,000  1,781,190 
Rancho Cordova, Cmnty. Fac. Dist. Special Tax       
Bonds (Sunridge Anatolia), Ser. 03-1, 5.00%, 9/1/37  BBB–/P  1,000,000  1,048,860 
Riverside Cnty., Trans. Comm. Toll Rev. Bonds,       
Ser. A, 5.75%, 6/1/44  BBB–  750,000  835,095 
San Bernardino, Cmnty. College Dist. G.O. Bonds       
(Election of 2008), Ser. B, zero %, 8/1/44  Aa2  15,000,000  4,351,650 
San Diego, Unified School Dist. G.O. Bonds (Election       
of 2008), Ser. C, zero %, 7/1/40  Aa2  5,000,000  1,911,350 
San Francisco City & Cnty. Redev. Agcy. Cmnty. Fac.       
Dist. Special Tax Bonds (No. 6 Mission Bay South),       
Ser. A, 5.15%, 8/1/35  BBB/P  1,000,000  1,001,320 
San Francisco City & Cnty., Redev. Agcy. Cmnty.       
Successor Special Tax Bonds (No. 6 Mission Bay       
Pub. Impts.), Ser. C, zero %, 8/1/43  BBB/P  8,000,000  1,838,240 
San Francisco, City & Cnty. Redev. Fin. Auth. Tax       
Alloc. Bonds (Mission Bay South Redev.), Ser. D,       
6.50%, 8/1/31 (Prerefunded 8/1/19)  BBB+  500,000  564,005 
Santaluz, Cmnty. Fac. Dist. No. 2 Special Tax Bonds       
(Impt. Area No. 1), Ser. A       
5.00%, 9/1/29 (Prerefunded 9/1/21)  BBB+  980,000  1,069,366 
5.00%, 9/1/28 (Prerefunded 9/1/21)  BBB+  985,000  1,076,595 
Selma, Unified School Dist. G.O. Bonds (Election       
of 2006), Ser. C, AGC, zero %, 8/1/37  AA  2,400,000  1,034,232 
Southern CA Pub. Pwr. Auth. Rev. Bonds (Natural       
Gas), Ser. A, 5.25%, 11/1/21  A3  1,500,000  1,681,275 
Sunnyvale, Special Tax Bonds (Cmnty. Fac. Dist.       
No. 1), 7.75%, 8/1/32  B+/P  3,780,000  3,791,038 
      109,421,861 
Colorado (3.6%)       
Central Platte Valley, Metro. Dist. G.O. Bonds,       
5.00%, 12/1/43  BB+  850,000  866,184 
CO Pub. Hwy. Auth. Rev. Bonds       
(E-470), zero %, 9/1/41  A3  1,000,000  327,790 
Ser. A, NATL, zero %, 9/1/28  AA–  5,000,000  3,153,850 

 

Tax-Free High Yield Fund  19 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Colorado cont.       
CO State Hlth. Fac. Auth. Rev. Bonds       
(Christian Living Cmnty.), 6.375%, 1/1/41  BB/P  $810,000  $878,810 
(Total Longterm Care National), Ser. A, 6.25%,       
11/15/40 (Prerefunded 11/15/20)  AAA/P  800,000  936,336 
(Evangelical Lutheran Good Samaritan Society       
Oblig. Group (The)), 5.625%, 6/1/43  BBB+  650,000  699,836 
(Evangelical Lutheran Good Samaritan Society       
Oblig. Group (The)), 5.50%, 6/1/33  BBB+  200,000  216,962 
(Valley View Assn.), 5.25%, 5/15/42  A–  3,025,000  3,042,454 
(Christian Living Cmntys.), 5.25%, 1/1/37  BB/P  750,000  764,250 
(Valley View Assn.), 5.125%, 5/15/37  A–  1,000,000  1,005,650 
(Christian Living Cmntys.), 5.125%, 1/1/30  BB/P  1,415,000  1,451,012 
(Evangelical Lutheran Good Samaritan Society       
Oblig. Group (The)), Ser. A, 5.00%, 6/1/40  Baa1  1,250,000  1,319,588 
(Evangelical Lutheran Good Samaritan Society       
Oblig. Group (The)), 5.00%, 12/1/33  BBB+  5,250,000  5,507,093 
CO State Hlth. Fac. Auth. Hosp. Rev. Bonds (Christian       
Living Neighborhood), 5.00%, 1/1/31  BB/P  2,000,000  2,056,400 
E-470 CO Pub. Hwy. Auth. Rev. Bonds, Ser. A, NATL,       
zero %, 9/1/34  AA–  12,000,000  5,564,640 
Eaton, Area Park & Recreation Dist. G.O. Bonds,       
5.25%, 12/1/34  BB/P  330,000  336,610 
Park Creek, Metro. Dist. Tax Allocation Bonds (Sr.       
Ltd. Property Tax Supported), Ser. A, 5.00%, 12/1/45  BBB/F  350,000  368,606 
Plaza, Tax Alloc. Bonds (Metro. Dist. No. 1),       
5.00%, 12/1/40  BB–/P  3,000,000  3,085,260 
Pub. Auth. for CO Energy Rev. Bonds (Natural Gas       
Purchase), 6.50%, 11/15/38  Baa1  2,000,000  2,672,980 
      34,254,311 
Connecticut (0.3%)       
CT State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(Masonicare Issue), Ser. F, 5.00%, 7/1/33  BBB+/F  1,500,000  1,548,825 
CT State Hlth. & Edl. Fac. Auth. 144A Rev.       
Bonds (Church Home of Hartford, Inc.), Ser. A,       
5.00%, 9/1/46  BB/F  1,000,000  946,840 
      2,495,665 
Delaware (0.8%)       
DE State Econ. Dev. Auth. Rev. Bonds       
(Indian River Pwr.), 5.375%, 10/1/45  Baa3  3,000,000  3,109,020 
(ASPIRA Charter School), Ser. A, 5.00%, 6/1/46  BB+  1,000,000  972,930 
DE State Hlth. Fac. Auth. VRDN (Christiana Care),       
Ser. A, 0.62%, 10/1/38  VMIG1  3,850,000  3,850,000 
      7,931,950 
District of Columbia (1.2%)       
DC Rev. Bonds       
(Howard U.), Ser. A, 6.50%, 10/1/41  BBB  3,945,000  3,980,781 
(Howard U.), Ser. A, U.S. Govt. Coll., 6.50%, 10/1/41       
(Prerefunded 4/1/21)    55,000  65,732 
(Kipp Charter School), 6.00%, 7/1/33  BBB+  1,000,000  1,156,080 
DC, Rev. Bonds (Methodist Home of The DC (The)),       
Ser. A, 5.25%, 1/1/39  BB–/P  765,000  719,460 

 

20  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
District of Columbia cont.       
Metro. Washington, Arpt. Auth. Dulles Toll Rd. Rev.       
Bonds, Ser. B       
zero %, 10/1/40  Baa1  $995,000  $334,549 
zero %, 10/1/38  Baa1  13,000,000  4,833,530 
      11,090,132 
Florida (6.0%)       
Fishhawk, CCD IV Special Assmt. Bonds,       
7.25%, 5/1/43  B/P  600,000  630,312 
Greater Orlando Aviation Auth. Rev. Bonds       
(Arpt. Fac.), Ser. A, 5.00%, 10/1/46  Aa3  3,500,000  3,842,755 
(JetBlue Airways Corp.), 5.00%, 11/15/36  B/P  1,000,000  1,027,310 
Halifax Hosp. Med. Ctr. Rev. Bonds, 5.00%, 6/1/36  A–  3,850,000  4,134,669 
Jacksonville, Econ. Dev. Comm. Hlth. Care Fac.       
Rev. Bonds (FL Proton Therapy Inst.), Ser. A,       
6.00%, 9/1/17  BB–/P  250,000  255,108 
Jacksonville, Econ. Dev. Comm. Indl. Dev. Rev.       
Bonds (Gerdau Ameristeel US, Inc.), 5.30%, 5/1/37  BBB–  2,350,000  2,194,947 
Lakeland, Hosp. Syst. Rev. Bonds       
(Lakeland Regl. Hlth.), 5.00%, 11/15/40  A2  1,075,000  1,151,422 
(Lakeland Regl. Hlth. Syst.), 5.00%, 11/15/30  A2  250,000  276,893 
(Lakeland Regl. Hlth. Syst.), 5.00%, 11/15/29  A2  3,500,000  3,894,765 
Lakeland, Retirement Cmnty. 144A Rev. Bonds (1st       
Mtge. — Carpenters), 6.375%, 1/1/43  BBB–/F  1,820,000  1,895,967 
Lakewood Ranch, Stewardship Dist. Special       
Assessment Bonds (Village of Lakewood Ranch       
South), 5.00%, 5/1/36  B+/P  1,000,000  984,140 
Lakewood Ranch, Stewardship Dist. Special Assmt.       
Bonds, 4.875%, 5/1/35  BB–/P  1,000,000  1,005,350 
Martin Cnty., Rev. Bonds (Indiantown       
Cogeneration), 4.20%, 12/15/25  Baa2  3,000,000  3,071,790 
Miami-Dade Cnty., Aviation Rev. Bonds, Ser. B,       
5.00%, 10/1/41  A2  4,500,000  4,886,190 
Miami-Dade Cnty., Indl. Dev. Auth. Rev. Bonds       
(Pinecrest Academy, Inc.), 5.00%, 9/15/34  BBB–  1,845,000  1,940,054 
Middle Village Cmnty. Dev. Dist. Special Assmt.       
Bonds, Ser. A, 6.00%, 5/1/35  D/P  1,795,000  1,526,055 
Midtown Miami Cmnty. Dev. Dist. Special Assmt.       
Bonds (Garage), Ser. A, 5.00%, 5/1/29  BB–/P  750,000  767,295 
Orlando Cmnty. Redev. Agcy. Tax Alloc. Bonds       
(Republic Drive/Universal), 5.00%, 4/1/24  A–/F  2,000,000  2,197,900 
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds       
(Acts Retirement-Life Cmnty.), 5.50%, 11/15/33       
(Prerefunded 11/15/20)  A–/F  6,000,000  6,857,940 
(Acts Retirement-Life Cmnty., Inc.),       
5.00%, 11/15/32  A–/F  4,000,000  4,314,280 
Sarasota Cnty., Hlth. Fac. Auth. Retirement Fac. Rev.       
Bonds (Village of Isle)       
5.00%, 1/1/31  BBB+/F  935,000  998,225 
5.00%, 1/1/30  BBB+/F  750,000  804,495 
Southeast Overtown Park West Cmnty. Redev. Agcy.       
144A Tax Alloc. Bonds, Ser. A-1, 5.00%, 3/1/30  BBB+  1,440,000  1,563,336 

 

Tax-Free High Yield Fund  21 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Florida cont.       
Town Ctr. at Palm Coast, Cmnty. Dev. Dist. Special       
Assmt. Bonds, 6.00%, 5/1/36  B–/P  $1,615,000  $1,526,853 
Verandah, West Cmnty. Dev. Dist. Special Assmt.       
Bonds (Cap. Impt.), 5.00%, 5/1/33  B+/P  945,000  946,436 
Village Cmnty. Dev. Dist. No. 10 Special Assmt.       
Bonds, 5.75%, 5/1/31  BB/P  1,160,000  1,296,230 
Village Cmnty. Dev. Dist. No. 11 Special Assmt.       
Bonds, 4.50%, 5/1/45  BB–/P  1,480,000  1,461,248 
Village Cmnty. Dev. Dist. No. 8 Special Assmt. Bonds       
(Phase II), 6.125%, 5/1/39  BBB–/P  785,000  870,008 
Village Cmnty. Dev. Dist. No. 9 Special Assmt. Bonds,       
5.00%, 5/1/22  BBB–/P  485,000  502,669 
      56,824,642 
Georgia (3.0%)       
Atlanta, Arpt. Passenger Fac. Charge Rev. Bonds,       
5.00%, 1/1/32  Aa3  1,150,000  1,306,400 
Atlanta, Wtr. & Waste Wtr. Rev. Bonds, Ser. A, 6.25%,       
11/1/39 (Prerefunded 11/1/19)  Aa3  5,000,000  5,669,400 
Clayton Cnty., Dev. Auth. Special Fac. Rev. Bonds       
(Delta Airlines), Ser. A, 8.75%, 6/1/29  Baa3  2,000,000  2,371,980 
Cobb Cnty., Dev. Auth. Student Hsg. Rev. Bonds       
(Kennesaw State U. Real Estate Oblig. Group), Ser. C,       
5.00%, 7/15/38  Baa2  1,250,000  1,308,713 
GA State Private College & U. Auth. Rev. Bonds       
(Mercer U.), Ser. A, 5.00%, 10/1/32  Baa2  1,100,000  1,163,558 
Gainesville & Hall Cnty., Devauth Retirement Cmnty.       
Rev. Bonds (Acts Retirement-Life Cmnty.), Ser. A-2,       
6.625%, 11/15/39 (Prerefunded 11/15/19)  A–/F  1,200,000  1,371,600 
Gainesville & Hall Cnty., Hosp. Auth. Rev.       
Bonds (Northeast GA Hlth. Syst., Inc.), Ser. A,       
5.00%, 2/15/42 ##   A  2,000,000  2,170,600 
Main St. Natural Gas, Inc. Rev. Bonds (GA Gas), Ser. A,       
5.50%, 9/15/21  BBB+  1,255,000  1,425,793 
Marietta, Dev. Auth. Rev. Bonds (Fac. of Life U., Inc.),       
7.00%, 6/15/39  Ba3  3,150,000  3,229,884 
Med. Ctr. Hosp. Auth. Rev. Bonds (Spring Harbor       
Green Island), 5.25%, 7/1/27  BB+/P  2,375,000  2,393,549 
Muni. Election Auth. of GA Rev. Bonds (Plant Voltage       
Units 3 & 4), Ser. A, 5.50%, 7/1/60  A+  3,500,000  3,962,490 
Richmond Cnty., Hosp. Auth. Rev. Bonds (U. Hlth.       
Svcs., Inc.), 5.00%, 1/1/31  A1  925,000  1,062,594 
Rockdale Cnty., Dev. Auth. Rev. Bonds (Visy Paper),       
Ser. A, 6.125%, 1/1/34  BB/P  1,400,000  1,402,506 
      28,839,067 
Guam (0.2%)       
Territory of GU, Rev. Bonds, Ser. A, 5.375%, 12/1/24       
(Prerefunded 12/1/19)  BBB+  1,000,000  1,109,810 
Territory of GU, Dept. of Ed. COP (John F. Kennedy       
High School), Ser. A, 6.875%, 12/1/40  B+  500,000  532,190 
      1,642,000 

 

22  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Hawaii (1.1%)       
HI State Dept. Budget & Fin. Rev. Bonds       
(Craigside), Ser. A, 9.00%, 11/15/44       
(Prerefunded 11/15/19)  B/P  $1,350,000  $1,626,183 
(Hawaiian Elec. Co. — Subsidiary), 6.50%, 7/1/39  Baa2  7,000,000  7,635,530 
(Kahala Nui), 5.125%, 11/15/32  BBB+/F  1,050,000  1,120,445 
      10,382,158 
Illinois (8.5%)       
Chicago, G.O. Bonds       
Ser. A, 6.00%, 1/1/38  BBB+  7,040,000  7,065,626 
Ser. D-05, 5.50%, 1/1/37  BBB+  3,250,000  3,146,748 
Ser. G-07, 5.50%, 1/1/35  BBB+  1,200,000  1,169,280 
Ser. A, 5.25%, 1/1/33  BBB+  3,100,000  2,936,568 
Ser. C, 5.00%, 1/1/38  BBB+  3,000,000  2,776,230 
Chicago, Special Assmt. Bonds (Lake Shore East),       
6.75%, 12/1/32  BB/P  5,010,000  5,037,755 
Chicago, Board of Ed. G.O. Bonds, Ser. C,       
5.25%, 12/1/39  B  4,000,000  3,199,800 
Chicago, Motor Fuel Tax Rev. Bonds       
AGM, 5.00%, 1/1/30  AA  200,000  218,140 
5.00%, 1/1/28  BBB–  1,000,000  1,029,980 
Chicago, O’Hare Intl. Arpt. Rev. Bonds       
Ser. A, 5.75%, 1/1/39  A2  5,000,000  5,615,650 
Ser. C, 5.00%, 1/1/46  A  1,000,000  1,052,650 
Ser. G, 5.00%, 1/1/37  A  600,000  643,092 
Chicago, Waste Wtr. Transmission Rev. Bonds,       
Ser. C, 5.00%, 1/1/33  A  1,000,000  1,067,210 
Chicago, Waste Wtr. Transmission Rev. Bonds, Ser. C       
5.00%, 1/1/39  A  2,850,000  3,000,053 
5.00%, 1/1/34  A  1,950,000  2,072,909 
Chicago, Wtr. Wks Rev. Bonds       
5.00%, 11/1/42  A  650,000  684,392 
5.00%, 11/1/39  A  1,075,000  1,148,874 
5.00%, 11/1/30  A  1,400,000  1,541,666 
Du Page Cnty., Special Svc. Area No. 31 Special Tax       
Bonds (Monarch Landing), 5.625%, 3/1/36  B/P  860,000  861,333 
IL Fin. Auth. Rev. Bonds       
(Silver Cross Hosp. & Med. Ctr.), 7.00%, 8/15/44       
(Prerefunded 8/15/19)  AAA/P  5,250,000  5,983,425 
(Rush U. Med. Ctr.), Ser. C, U.S. Govt. Coll., 6.625%,       
11/1/39 (Prerefunded 5/1/19)  Aaa  1,425,000  1,591,597 
(Navistar Intl. Recvy. Zone), 6.50%, 10/15/40  Caa1  1,155,000  1,193,854 
(Roosevelt U.), 6.50%, 4/1/39  Ba1  2,000,000  2,050,660 
IL State G.O. Bonds       
5.25%, 2/1/30  Baa2  1,000,000  1,027,060 
5.00%, 11/1/36  Baa2  7,500,000  7,443,675 
5.00%, 11/1/34  Baa2  1,250,000  1,245,538 
5.00%, 2/1/29  Baa2  4,750,000  4,862,575 
5.00%, 2/1/28  Baa2  500,000  515,070 

 

Tax-Free High Yield Fund  23 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Illinois cont.       
IL State Fin. Auth. Rev. Bonds       
(Provena Hlth.), Ser. A, 7.75%, 8/15/34       
(Prerefunded 8/15/19)  AAA/P  $35,000  $40,588 
(Provena Hlth.), Ser. A, U.S. Govt. Coll., 7.75%,       
8/15/34 (Prerefunded 8/15/19)  Baa3  3,465,000  4,018,257 
(Presence Hlth. Network), Ser. C, 5.00%, 2/15/36  Baa3  925,000  943,269 
(Riverside Hlth. Syst.), 4.00%, 11/15/32  A+  600,000  588,258 
IL State Fin. Auth. Rev. Bonds (Plymouth Place),       
5.25%, 5/15/45  BB+/F  850,000  872,899 
Metro. Wtr. Reclamation Dist. of Greater Chicago       
G.O. Bonds, Ser. A, 5.00%, 12/1/31  AA+  2,000,000  2,286,920 
Railsplitter, Tobacco Settlement Auth. Rev. Bonds,       
6.00%, 6/1/28  A–  2,150,000  2,448,248 
      81,379,849 
Indiana (0.5%)       
IN State Fin. Auth. Rev. Bonds (OH Valley Elec.       
Corp.), Ser. A, 5.00%, 6/1/32  BBB–  250,000  252,193 
IN State Fin. Auth. VRDN, Ser. A-2, 0.66%, 2/1/37  VMIG1  2,110,000  2,110,000 
Valparaiso, Exempt Facs. Rev. Bonds (Pratt Paper,       
LLC), 6.75%, 1/1/34  B+/P  1,875,000  2,189,738 
      4,551,931 
Iowa (1.4%)       
IA State Fin. Auth. Midwestern Disaster Rev. Bonds       
(IA Fertilizer Co., LLC)       
5.50%, 12/1/22  B  1,500,000  1,511,010 
5.25%, 12/1/25  B  2,250,000  2,246,693 
Tobacco Settlement Auth. of IA Rev. Bonds, Ser. C,       
5.375%, 6/1/38  B+  10,000,000  9,721,100 
      13,478,803 
Kansas (0.3%)       
Lenexa, Hlth. Care Fac. Rev. Bonds       
(LakeView Village, Inc.), 7.25%, 5/15/39  BB/P  1,500,000  1,588,755 
5.375%, 5/15/27  BB/P  500,000  501,150 
Wichita, Hlth. Care Fac. Rev. Bonds (KS Masonic       
Home Oblig. Group), Ser. 2-A, 5.375%, 12/1/46  B/P  1,000,000  993,300 
      3,083,205 
Kentucky (1.3%)       
KY Econ. Dev. Fin. Auth. Rev. Bonds       
(Masonic Home Indpt. Living II), 7.375%, 5/15/46       
(Prerefunded 5/15/21)  BB–/P  1,350,000  1,668,938 
(Masonic Home Indpt. Living II), 7.25%, 5/15/41       
(Prerefunded 5/15/21)  BB–/P  900,000  1,107,990 
(Masonic Home Indpt. Living), 5.00%, 5/15/36  BB/P  2,000,000  1,913,940 
KY Pub. Trans. Infrastructure Auth. Rev. Bonds (1st       
Tier Downtown Crossing), Ser. A, 6.00%, 7/1/53  Baa3  2,000,000  2,226,540 
KY State Econ. Dev. Fin. Auth. Hlth. Care Rev. Bonds       
(Masonic Homes of KY), 5.375%, 11/15/42  BB–/P  1,400,000  1,296,134 
Louisville & Jefferson Cnty., Metro. Govt. College       
Rev. Bonds (Bellarmine U.), Ser. A, 6.00%, 5/1/38  Baa3  855,000  878,119 

 

24  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Kentucky cont.       
Louisville & Jefferson Cnty., Metro. Govt. Hlth.       
Syst. Rev. Bonds (Norton Healthcare, Inc.), Ser. A,       
5.00%, 10/1/32  A–  $2,750,000  $3,030,995 
      12,122,656 
Louisiana (0.3%)       
LA State Pub. Fac. Auth. Rev. Bonds (Ochsner Clinic       
Foundation), 5.00%, 5/15/47  Baa1  525,000  559,771 
LA State Pub. Fac. Solid Waste Disp. Auth. Rev.       
Bonds (LA Pellets, Inc.), Ser. A, 8.375%, 7/1/39  CCC/P  1,000,000  350,000 
Pub. Fac. Auth. Dock & Wharf 144A Rev. Bonds       
(Impala Warehousing, LLC), 6.50%, 7/1/36  B+/P  1,000,000  1,073,990 
St. Tammany, Public Trust Fin. Auth. Rev. Bonds       
(Christwood), 5.25%, 11/15/37  BB/P  765,000  767,846 
      2,751,607 
Maine (0.5%)       
ME Hlth. & Higher Edl. Fac. Auth. Rev. Bonds       
(ME Gen. Med. Ctr.), 7.50%, 7/1/32  Ba2  3,000,000  3,434,970 
ME State Fin. Auth. Solid Waste Disp. 144A       
Mandatory Put Bonds (8/1/25) (Casella Waste Syst.),       
5.125%, 8/1/35  Caa1  1,000,000  922,370 
      4,357,340 
Maryland (0.8%)       
Baltimore Cnty., Rev. Bonds (Oak Crest Village, Inc.),       
5.00%, 1/1/37  A/F  1,585,000  1,722,594 
MD Econ. Dev. Corp. Poll. Control Rev. Bonds       
(Potomac Electric Power Co.), 6.20%, 9/1/22  A2  1,700,000  1,856,961 
Westminster, Rev. Bonds       
(Lutheran Village at Miller’s Grant, Inc. (The)),       
Ser. A, 6.00%, 7/1/34  B–/P  750,000  785,535 
(Carroll Lutheran Village, Inc.), 5.125%, 7/1/34  BB/P  3,000,000  3,118,860 
      7,483,950 
Massachusetts (3.8%)       
MA State G.O. Bonds, Ser. E, 4.00%, 4/1/46  Aa1  5,000,000  5,062,400 
MA State Dev. Fin. Agcy. Rev. Bonds       
(Sabis Intl.), Ser. A, 8.00%, 4/15/39       
(Prerefunded 10/15/19)  BBB  2,140,000  2,509,749 
(Linden Ponds, Inc. Fac.), Ser. A-1, 6.25%, 11/15/46  B–/P  1,816,363  1,861,827 
(Linden Ponds, Inc. Fac.), Ser. A-1, 6.25%, 11/15/31  B–/P  704,147  721,772 
(Loomis Cmntys.), Ser. A, 6.00%, 1/1/33  BBB–  500,000  555,215 
(Milford Regl. Med. Ctr. Oblig. Group), Ser. F,       
5.75%, 7/15/43  Baa3  1,000,000  1,100,390 
(Linden Ponds, Inc.), Ser. B, 5.50%, 11/15/56  B–/P  1,186,016  8,278 
(Linden Ponds, Inc.), Ser. A-2, 5.50%, 11/15/46  B–/P  238,451  235,332 
(Wheelock College), Ser. C, 5.25%, 10/1/37  BBB  2,000,000  2,035,100 
(Suffolk U.), 5.125%, 7/1/40  Baa2  2,000,000  2,083,960 
(Dana-Farber Cancer Inst.), Ser. N, 5.00%, 12/1/46  A1  2,000,000  2,209,020 
(Caregroup), Ser. I, 5.00%, 7/1/36  A3  765,000  846,610 
(WGBH Edl. Foundation), 5.00%, 1/1/35  A+  1,720,000  1,963,827 
MA State Dev. Fin. Agcy. Hlth. Care Fac. 144A Rev.       
Bonds (Adventcare), Ser. A, 6.65%, 10/15/28  B/P  2,150,000  2,183,110 

 

Tax-Free High Yield Fund  25 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Massachusetts cont.       
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(Suffolk U.), Ser. A, 6.25%, 7/1/30  Baa2  $1,400,000  $1,519,238 
(Suffolk U.), Ser. A, U.S. Govt. Coll., 5.75%, 7/1/39       
(Prerefunded 7/1/19)  Baa2  2,125,000  2,255,815 
(Springfield College), 5.625%, 10/15/40       
(Prerefunded 10/15/19)  BBB  3,500,000  3,895,325 
(Winchester Hosp.), 5.25%, 7/1/38  A  3,050,000  3,302,784 
(Fisher College), Ser. A, 5.125%, 4/1/37  BBB  1,400,000  1,405,684 
      35,755,436 
Michigan (2.5%)       
Advanced Tech. Academy Pub. School Rev. Bonds,       
6.00%, 11/1/28  BB+  1,360,000  1,387,798 
Ann Arbor, Econ. Dev. Corp. Ltd. Oblig. Rev. Bonds       
(Glacier Hills, Inc.), 8.375%, 1/15/19 (Escrowed       
to maturity)  AA+  607,000  664,738 
Flint, Hosp. Bldg. Auth. Rev. Bonds       
(Hurley Med. Ctr.), 7.50%, 7/1/39  Ba1  700,000  783,286 
Ser. A, 5.25%, 7/1/39  Ba1  500,000  506,490 
Great Lakes, Wtr. Auth. Swr. Rev. Bonds (Brazos       
Presbyterian Homes, Inc.), Ser. C, 5.00%, 7/1/36  Baa1  1,750,000  1,887,480 
MI State Fin. Auth. Rev. Bonds       
(Presbyterian Villages of MI), 5.50%, 11/15/45  BB+/F  1,000,000  1,035,110 
(Beaumont Hlth. Credit Group), Ser. A,       
5.00%, 11/1/44  A1  1,750,000  1,892,713 
(Local Govt. Loan Program — Detroit Wtr. & Swr.       
Dept. (DWSD)), Ser. C, 5.00%, 7/1/35  Baa1  1,000,000  1,074,490 
(Local Govt. Loan Program — Detroit Wtr. & Swr.       
Dept. (DWSD)), Ser. C, 5.00%, 7/1/34  Baa1  4,600,000  4,959,720 
(Local Govt. Program Detroit Wtr. & Swr.), Ser. D4,       
5.00%, 7/1/34  A3  1,900,000  2,057,491 
(Local Govt. Loan Program), Ser. F1,       
4.50%, 10/1/29  A  650,000  669,936 
MI State Hosp. Fin. Auth. Rev. Bonds (Henry Ford       
Hlth.), 5.75%, 11/15/39 (Prerefunded 11/15/19)  A  4,400,000  4,918,012 
Star Intl. Academy Rev. Bonds (Pub. School       
Academy), 5.00%, 3/1/33  BBB  1,675,000  1,719,639 
      23,556,903 
Minnesota (0.7%)       
Baytown Twp. Lease Rev. Bonds, Ser. A,       
4.00%, 8/1/36  BB+  400,000  340,748 
Ham Lake, Charter School Lease Rev. Bonds       
(DaVinci Academy of Arts & Science), Ser. A,       
5.00%, 7/1/47  BB–/P  1,000,000  911,430 
(Parnassus Preparatory School), Ser. A,       
5.00%, 11/1/36  BB  1,500,000  1,511,400 
Inver Grove Heights, Nursing Home Rev. Bonds       
(Presbyterian Homes Care), 5.50%, 10/1/41  B/P  1,000,000  999,920 
Minneapolis & St. Paul, Hsg. & Redev. Auth.       
Hlth. Care VRDN (Allina Hlth. Syst.), Ser. B-1,       
0.61%, 11/15/35  VMIG1  850,000  850,000 

 

26  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Minnesota cont.       
Otsego, Charter School Lease Rev. Bonds       
(Kaleidoscope Charter School), Ser. A       
5.00%, 9/1/44  BB+  $925,000  $927,858 
5.00%, 9/1/34  BB+  300,000  304,716 
St. Paul, Hsg. & Redev. Auth. Charter School Lease       
Rev. Bonds (Nova Classical Academy), Ser. A,       
6.375%, 9/1/31  BBB–  500,000  565,720 
      6,411,792 
Mississippi (1.5%)       
MS State Bus. Fin. Commission Gulf Opportunity       
Zone VRDN (Chevron USA, Inc.), Ser. E       
0.60%, 12/1/30  VMIG1  6,050,000  6,050,000 
0.60%, 12/1/30  VMIG1  2,750,000  2,750,000 
Warren Cnty., Gulf Opportunity Zone Rev. Bonds       
(Intl. Paper Co.), Ser. A, 6.50%, 9/1/32  Baa2  5,400,000  5,780,700 
      14,580,700 
Missouri (0.2%)       
MO State Hlth. & Edl. Fac. Auth. VRDN (WA U. (The))       
Ser. C, 0.58%, 9/1/30  VMIG1  300,000  300,000 
Ser. D, 0.58%, 9/1/30  VMIG1  1,900,000  1,900,000 
      2,200,000 
Nebraska (0.7%)       
Central Plains, Energy Rev. Bonds       
(NE Gas No. 1), Ser. A, 5.25%, 12/1/18  A3  1,500,000  1,608,060 
(NE Gas No. 3), 5.00%, 9/1/32  A3  3,000,000  3,267,390 
Lancaster Cnty., Hosp. Auth. Rev. Bonds       
(Immanuel Oblig. Group), 5.625%, 1/1/40  AA/F  1,825,000  1,973,975 
      6,849,425 
Nevada (0.7%)       
Clark Cnty., Impt. Dist. No. 159 Special Assessment       
Bonds (Summerlin Village 16A), 5.00%, 8/1/35  B+/P  700,000  715,057 
Henderson, Local Impt. Dist. Special Assmt. Bonds       
(No. T-17), 5.00%, 9/1/25  BBB–/P  725,000  735,382 
Las Vegas, Special Assmt. Bonds       
5.00%, 6/1/30  B+/P  555,000  562,781 
(Dist. No. 607 Local Impt.), 5.00%, 6/1/22  BBB–/P  415,000  447,930 
Las Vegas, Impt. Dist. No. 812 Special Assessment       
Bonds (Summerlin Village 24), 5.00%, 12/1/35  B/P  750,000  743,175 
Las Vegas, Redev. Agcy. Tax Allocation Bonds (Tax       
Increment), 5.00%, 6/15/40  BBB+  1,400,000  1,520,946 
Reno, Sales Tax VRDN (Reno Trans. Rail Access       
Corridor (ReTRAC)), 0.70%, 6/1/42  VMIG1  2,200,000  2,200,000 
      6,925,271 
New Hampshire (0.4%)       
NH State Bus. Fin. Auth. Solid Waste Disp. 144A       
Mandatory Put Bonds (10/1/19) (Casella Waste Syst.,       
Inc.), 4.00%, 4/1/29  Caa1  650,000  641,420 
NH State Hlth. & Ed. Fac. Auth. Rev. Bonds       
(Kendel at Hanover), 5.00%, 10/1/46  BBB+/F  625,000  646,256 
(Elliot Hosp.), 5.00%, 10/1/38  Baa1  500,000  531,470 
(Southern NH Med. Ctr.), 5.00%, 10/1/37  A–  2,210,000  2,391,065 
      4,210,211 

 

Tax-Free High Yield Fund  27 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
New Jersey (6.6%)       
Burlington Cnty., Bridge Comm. Econ. Dev. Rev.       
Bonds (The Evergreens), 5.625%, 1/1/38  BB+/P  $3,500,000  $3,580,920 
NJ State Econ. Dev. Auth. Rev. Bonds       
(Paterson Charter School Science & Tech.), Ser. A,       
6.10%, 7/1/44  BB+  655,000  656,454 
(Cranes Mill), Ser. A, 6.00%, 7/1/38  BBB/F  1,750,000  1,789,743 
(Paterson Charter School Science & Tech.), Ser. A,       
6.00%, 7/1/32  BB+  300,000  309,135 
(MSU Student Hsg.), 5.875%, 6/1/42  Baa3  5,110,000  5,486,147 
(Continental Airlines, Inc.), 5.50%, 6/1/33  Ba3  2,000,000  2,138,580 
(NYNJ Link Borrower, LLC), 5.375%, 1/1/43  BBB–  2,500,000  2,676,075 
(Paterson Charter School), Ser. C, 5.30%, 7/1/44  BB+  2,250,000  2,008,890 
(Lions Gate), 5.25%, 1/1/44  BB–/P  500,000  513,080 
(Continental Airlines, Inc.), 5.25%, 9/15/29  Ba3  4,000,000  4,266,240 
Ser. AAA, 5.00%, 6/15/36  A3  750,000  748,110 
(Biomedical Research), Ser. A, 5.00%, 7/15/29  A3  600,000  616,824 
Ser. B, 5.00%, 11/1/26  A3  6,000,000  6,272,676 
NJ State Econ. Dev. Auth. Energy Fac. Rev. Bonds       
(UMM Energy Partners, LLC), Ser. A       
5.00%, 6/15/37  Baa3  1,000,000  1,032,210 
4.75%, 6/15/32  Baa3  170,000  175,515 
NJ State Econ. Dev. Auth. Fac. Rev. Bonds       
(Continental Airlines, Inc.), 5.625%, 11/15/30  Ba3  1,000,000  1,078,990 
NJ State Hlth. Care Fac. Fin. Auth. Rev. Bonds       
(St. Peter’s U. Hosp.), 6.25%, 7/1/35  Ba1  2,500,000  2,674,600 
(U. Hosp. of NJ), Ser. A, AGM, 5.00%, 7/1/46  AA  500,000  529,900 
(St. Joseph’s Healthcare Syst. Oblig. Group),       
5.00%, 7/1/41  Baa3  2,500,000  2,610,550 
NJ State Trans. Trust Fund Auth. Rev. Bonds (Federal       
Hwy. Reimbursement Notes)       
5.00%, 6/15/30  A+  3,800,000  3,991,140 
5.00%, 6/15/28  A+  2,000,000  2,130,720 
Rutgers State U. VRDN, Ser. A, 0.43%, 5/1/18  VMIG1  3,590,000  3,590,000 
South Jersey, Port Corp. Rev. Bonds (Marine Term.),       
Ser. S-1, 5.00%, 1/1/39  A3  1,100,000  1,071,378 
Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. 1A       
5.00%, 6/1/41  B3  6,750,000  6,058,193 
4.75%, 6/1/34  B3  7,700,000  6,815,347 
      62,821,417 
New Mexico (0.3%)       
Farmington, Poll. Control Rev. Bonds (Public Service       
Co. of San Juan, NM), Ser. D, 5.90%, 6/1/40  BBB+  3,000,000  3,293,400 
      3,293,400 
New York (4.6%)       
Brooklyn Arena Local Dev. Corp. Rev.       
Bonds (Barclays Ctr.), 6.375%, 7/15/43       
(Prerefunded 1/15/20)  AA+  3,000,000  3,437,340 
Glen Cove, Local Econ. Assistance Corp. Rev. Bonds       
(Garvies Point Pub. Impt.), Ser. C, stepped-coupon       
zero % (5.625%, 1/1/24), 1/1/55 ††  B/P  600,000  403,314 

 

28  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
New York cont.       
NY City, Indl. Dev. Agcy. Rev. Bonds (Yankee       
Stadium — Pilot), AGC, 7.00%, 3/1/49  AA  $1,000,000  $1,112,960 
NY City, Muni. Wtr. & Swr. Syst. Fin. Auth. Rev. Bonds       
(2nd Gen. Resolution), Ser. CC-1, 5.00%, 6/15/46  Aa1  8,000,000  8,984,960 
NY Cnty., Tobacco Trust VI Rev. Bonds (Tobacco       
Settlement Pass-Through), 5.00%, 6/1/51  BBB  2,500,000  2,499,825 
NY State Dorm. Auth. Non-State Supported Debt       
Rev. Bonds (Orange Regl. Med. Ctr.), 6.25%, 12/1/37  Baa3  4,180,000  4,409,691 
NY State Env. Fac. Corp. Solid Waste Disp. 144A       
Mandatory Put Bonds (12/2/19) (Casella Waste       
Syst., Inc.), 3.75%, 12/1/44  Caa1  1,500,000  1,472,265 
NY State Liberty Dev. Corp. Rev. Bonds (7 World       
Trade Ctr.), Class 3, 5.00%, 3/15/44  A2  1,000,000  1,076,960 
NY State Liberty Dev. Corp. 144A Rev. Bonds (World       
Trade Ctr.)       
Class 2, 5.375%, 11/15/40  BB–/P  1,250,000  1,347,438 
Class 1, 5.00%, 11/15/44  BB–/P  4,250,000  4,441,888 
NY State Trans. Special Fac. Dev. Corp. Rev. Bonds       
(Laguardia Arpt. Term. B Redev. Program), Ser. A       
5.00%, 7/1/46  Baa3  2,500,000  2,614,800 
5.00%, 7/1/41  Baa3  1,000,000  1,051,760 
Oneida Cnty., Indl. Dev. Agcy. Rev. Bonds (St.       
Elizabeth Med.), Ser. A, 5.875%, 12/1/29  BB–/P  1,500,000  1,504,095 
Onondaga, Civic Dev. Corp. Rev. Bonds (St.       
Joseph’s Hosp. Hlth. Ctr.), U.S. Govt. Coll.       
5.125%, 7/1/31 (Prerefunded 7/1/19)  AAA/P  2,310,000  2,520,187 
5.00%, 7/1/42 (Prerefunded 7/1/22)  AAA/P  1,000,000  1,165,960 
Port Auth. of NY & NJ Special Oblig. Rev. Bonds       
(JFK Intl. Air Term.), 6.00%, 12/1/42  Baa1  2,100,000  2,370,732 
Westchester Cnty., Indl Dev. Agcy. Civic Fac. Rev.       
Bonds (Pace U.), Ser. A, 5.50%, 5/1/42  BBB–  2,750,000  2,921,683 
Yonkers, Indl. Dev. Agcy. Civic Fac. Rev. Bonds (St.       
John’s Riverside Hosp.), Ser. A, 7 1/8s, 7/1/31  BB–  500,000  500,200 
      43,836,058 
North Carolina (1.5%)       
NC Cap. Fin. Agcy. Edl. Fac. Rev. Bonds       
(Meredith College), Ser. A, 6.00%, 6/1/31  BBB  970,000  1,010,915 
(Meredith College), Ser. A, 6.00%, 6/1/31       
(Prerefunded 6/1/18)  AAA/P  30,000  31,940 
NC State Med. Care Cmnty. Hlth. Care Fac.       
Rev. Bonds (Deerfield), Ser. A, 6.125%, 11/1/38       
(Prerefunded 11/1/18)  A–/F  450,000  487,647 
NC State Med. Care Comm. Hlth. Fac. Rev. Bonds       
(Presbyterian Homes), Ser. C, 5.00%, 10/1/31  A–/F  1,000,000  1,104,630 
NC State Med. Care Comm. Retirement       
Fac. Rev. Bonds       
(Carolina Village), 6.00%, 4/1/38  BB/P  3,500,000  3,561,670 
(Salemtowne), 5.25%, 10/1/37  BB/P  3,000,000  3,111,780 
(Aldersgate United Methodist Church),       
5.00%, 7/1/45  BB/P  1,500,000  1,501,980 
(Southminister, Inc.), 5.00%, 10/1/37  BB/P  1,625,000  1,628,591 

 

Tax-Free High Yield Fund  29 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
North Carolina cont.       
NC State Med. Care Comm. Retirement       
Fac. Rev. Bonds       
(United Church Homes & Svcs. Oblig. Group),       
Ser. A, 5.00%, 9/1/37  BB/P  $1,000,000  $1,022,740 
(United Methodist Retirement Homes), Ser. A,       
5.00%, 10/1/35  BBB/F  500,000  520,975 
      13,982,868 
Ohio (5.0%)       
American Muni. Pwr., Inc. Rev. Bonds (Hydroelectric       
Pwr. Plant), Ser. A, 5.00%, 2/15/38  A2  3,055,000  3,360,042 
American Muni. Pwr., Inc. Rev. Bonds (Greenup       
Hydroelectric Pwr. Plant), Ser. A, 5.00%, 2/15/41  A1  2,075,000  2,285,530 
Buckeye, Tobacco Settlement Fin. Auth. Rev. Bonds       
Ser. A-2, 6.50%, 6/1/47  B3  2,000,000  1,968,540 
Ser. A-3, 6.25%, 6/1/37  B–  3,300,000  3,136,023 
Ser. A-2, 6.00%, 6/1/42  B3  2,500,000  2,296,250 
Ser. A-2, 5.875%, 6/1/47  B3  7,000,000  6,422,920 
Ser. A-2, 5.875%, 6/1/30  B–  6,055,000  5,509,202 
Ser. A-2, 5.75%, 6/1/34  B–  3,925,000  3,553,146 
Franklin Cnty., Hlth. Care Fac. Rev. Bonds       
(OH Presbyterian Retirement Svcs. (OPRS) Cmntys.       
Oblig. Group), Ser. A, 6.00%, 7/1/35  BBB–  3,000,000  3,301,470 
Lake Cnty., Hosp. Fac. Rev. Bonds (Lake Hosp. Syst.,       
Inc.), Ser. C       
6.00%, 8/15/43  A3  250,000  264,400 
U.S. Govt. Coll., 6.00%, 8/15/43       
(Prerefunded 8/15/18)  AAA/P  1,300,000  1,396,382 
Lucas Cnty., Hlth. Care Fac. Rev. Bonds       
(Lutheran Homes), Ser. A, 7.00%, 11/1/45       
(Prerefunded 11/1/20)  BB+/P  500,000  597,935 
OH State Air Quality Dev. Auth. Rev. Bonds (Valley       
Elec. Corp.), Ser. E, 5.625%, 10/1/19  BBB–  1,000,000  1,047,010 
OH State Higher Edl. Fac. Comm. Rev. Bonds       
(Kenyon College)       
5.00%, 7/1/44  A+  3,170,000  3,440,496 
U.S. Govt. Coll., 5.00%, 7/1/44       
(Prerefunded 7/1/20)  AAA/P  1,680,000  1,875,989 
OH State Hosp. Rev. Bonds (U. Hosp. Hlth. Syst.),       
Ser. A, 5.00%, 1/15/41  A2  900,000  977,715 
OH State Wtr. Dev. Auth. Poll. Control Fac.       
Mandatory Put Bonds (6/3/19) (FirstEnergy Nuclear       
Generation), Ser. C, 4.00%, 6/1/33  Caa1  2,500,000  1,050,000 
Scioto Cnty., Hosp. Rev. Bonds (Southern OH Med.       
Ctr.), 5.00%, 2/15/34  A2  800,000  890,928 
Southeastern OH Port Auth. Hosp. Fac. Rev. Bonds       
5.75%, 12/1/32  BB/F  2,225,000  2,427,898 
(Memorial Hlth. Syst. Oblig. Group),       
5.50%, 12/1/43  BB/F  235,000  243,904 
Warren Cnty., Hlth. Care Fac. Rev. Bonds (Otterbein       
Homes), Ser. A, 5.00%, 7/1/40  A  1,355,000  1,439,593 
      47,485,373 

 

30  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Oklahoma (0.5%)       
OK Cnty., Fin. Auth. Rev. Bonds (Epworth Village),       
Ser. A, 5.00%, 4/1/33  BB–/P  $1,070,000  $1,071,851 
OK State Tpk. Auth. VRDN, Ser. F, 0.61%, 1/1/28  VMIG1  1,720,000  1,720,000 
Tulsa, Muni. Arpt. Trust Rev. Bonds (American       
Airlines, Inc.), Ser. B, 5.50%, 12/1/35  B+/P  2,000,000  2,088,780 
      4,880,631 
Oregon (0.4%)       
Multnomah Cnty., Hosp. Fac. Auth. Rev.       
Bonds (Mirabella at South Waterfront), Ser. A,       
5.40%, 10/1/44  BB–/P  1,000,000  1,033,480 
Warm Springs Reservation, Confederated Tribes       
144A Rev. Bonds (Pelton Round Butte Tribal), Ser. B,       
6.375%, 11/1/33  A3  1,800,000  1,937,106 
Yamhill Ctny., Hosp. Auth. Rev. Bonds (Friendsview       
Retirement Cmnty.), Ser. A, 5.00%, 11/15/46  BB/P  750,000  725,145 
      3,695,731 
Pennsylvania (2.5%)       
Allegheny Cnty., Higher Ed. Bldg. Auth. Rev. Bonds       
(Robert Morris U.), Ser. A, 5.75%, 10/15/40  Baa3  765,000  831,402 
(Chatham U.), Ser. A, 5.00%, 9/1/35  BBB  1,000,000  1,033,850 
(Chatham U.), Ser. A, 5.00%, 9/1/30  BBB  1,500,000  1,595,610 
Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds (U.S.       
Steel Corp.), 5.75%, 8/1/42  B  1,000,000  904,990 
Chester Cnty., Indl. Dev. Auth. Rev. Bonds       
(Renaissance Academy Charter School),       
5.00%, 10/1/34  BBB–  625,000  663,319 
Cumberland Cnty., Muni. Auth. Rev. Bonds (Diakon       
Lutheran Social Ministries), 5.00%, 1/1/38  BBB+/F  1,400,000  1,477,574 
East Hempfield Twp., Indl. Dev. Auth. Rev.       
Bonds (Millersville U. Student Hsg. & Svcs., Inc.),       
5.00%, 7/1/34  Baa3  800,000  843,496 
Lancaster Cnty., Hosp. & Hlth. Ctr. Auth. Rev.       
Bonds (Landis Homes Retirement Cmnty.), Ser. A,       
5.00%, 7/1/45  BBB–/F  1,500,000  1,520,490 
Lancaster Cnty., Hosp. Auth. Rev. Bonds (Brethren       
Village), Ser. A       
6.50%, 7/1/40  BB–/P  3,000,000  3,026,970 
6.375%, 7/1/30  BB–/P  1,375,000  1,388,310 
Montgomery Cnty., Higher Ed. & Hlth. Auth. Rev.       
Bonds (Arcadia U.), 5.25%, 4/1/30  BBB  1,530,000  1,622,106 
Moon, Indl. Dev. Auth. Rev. Bonds (Baptist Homes       
Society Oblig. Group), 5.75%, 7/1/35  B+/P  2,000,000  2,031,860 
Northeastern PA Hosp. & Ed. Auth. Rev. Bonds       
(Wilkes U.), Ser. A, 5.25%, 3/1/42  BBB  1,000,000  1,042,310 
PA State Higher Edl. Fac. Auth. Rev. Bonds       
(Shippensburg U.), 6.25%, 10/1/43  Baa3  1,000,000  1,092,970 
(Indiana U.), Ser. A, 5.00%, 7/1/32  BBB+  500,000  539,220 
Philadelphia, Auth. for Indl. Dev. Rev. Bonds (Master       
Charter School), 6.00%, 8/1/35 (Prerefunded 8/1/20)  BBB  2,175,000  2,507,797 
Susquehanna, Area Regl. Arpt. Syst. Auth. Rev.       
Bonds, Ser. A, 6.50%, 1/1/38  Baa3  2,000,000  2,059,920 
      24,182,194 

 

Tax-Free High Yield Fund  31 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Puerto Rico (0.9%)       
Cmnwlth. of PR, G.O. Bonds (Pub. Impt.), Ser. A,       
5.75%, 7/1/41 (In default) †  D/P  $5,000,000  $3,303,150 
Cmnwlth. of PR, Pub. Bldg. Auth. Rev. Bonds (Govt.       
Fac.), Ser. P, Cmnwlth. of PR Gtd., 6.75%, 7/1/36       
(In default) †  D/P  2,500,000  1,503,125 
Cmnwlth. of PR, Sales Tax Fin. Corp. Rev.       
Bonds, Ser. A       
5.375%, 8/1/39  Ca  1,370,000  667,875 
NATL, zero %, 8/1/43  AA–  15,000,000  3,274,050 
      8,748,200 
Rhode Island (0.3%)       
Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. B,       
5.00%, 6/1/50  BBB–/P  3,000,000  2,990,130 
      2,990,130 
South Carolina (1.4%)       
SC State Pub. Svc. Auth. Rev. Bonds       
Ser. A, 5.50%, 12/1/54  AA–  6,000,000  6,687,300 
Ser. A, 5.00%, 12/1/50  AA–  2,000,000  2,152,100 
Ser. C, 5.00%, 12/1/46  AA–  1,260,000  1,382,044 
SC State Pub. Svcs. Auth. Rev. Bonds, Ser. E,       
5.25%, 12/1/55  AA–  2,500,000  2,747,925 
      12,969,369 
South Dakota (0.1%)       
SD State Hlth. & Edl. Fac. Auth. Rev. Bonds (Sanford       
Oblig Group), 5.00%, 11/1/35  A1  755,000  826,536 
      826,536 
Texas (10.7%)       
Arlington, Higher Ed. Fin. Corp. Rev. Bonds (Uplift       
Ed.), Ser. A, 5.00%, 12/1/36  BBB–  815,000  870,746 
Austin, Arpt. Syst. Rev. Bonds, Ser. B, 5.00%,       
11/15/41 ##   A1  1,895,000  2,087,380 
Brazos River Harbor Naval Dist. Env. Rev. Bonds       
(Dow Chemical Co.), Ser. A-4, 5.95s, 5/15/33  BBB  2,150,000  2,284,655 
Clifton, Higher Ed. Fin. Corp. Rev. Bonds (Idea       
Pub. Schools)       
6.00%, 8/15/33  BBB  500,000  567,995 
5.00%, 8/15/32  BBB  2,100,000  2,278,080 
Ser. B, 5.00%, 8/15/27  BBB  375,000  423,176 
Dallas-Fort Worth, Intl. Arpt. Rev. Bonds, Ser. A,       
5.00%, 11/1/43  A1  2,000,000  2,110,800 
Dallas-Fort Worth, Intl. Arpt. Fac. Impt. Corp. Rev.       
Bonds, Ser. A, 5.25%, 11/1/30  A+  2,000,000  2,265,000 
Harris Cnty., Cultural Ed. Fac. Fin. Corp. Rev. Bonds       
(Brazos Presbyterian Homes, Inc.), 5.00%, 1/1/37  BB+/F  1,000,000  1,021,120 
Harris Cnty., Cultural Ed. Fac. Fin. Corp. VRDN       
(The Methodist Hosp.), Ser. C-1, 0.62%, 12/1/24  A-1+  5,230,000  5,230,000 
(Texas Med. Ctr.), Ser. B-1, 0.61%, 9/1/31  VMIG1  930,000  930,000 
Houston, Arpt. Syst. Rev. Bonds       
(Continental Airlines, Inc. Term. Project),       
6.50%, 7/15/30  Ba3  3,200,000  3,525,824 
Ser. B-1, 5.00%, 7/15/35  BB–  200,000  204,910 

 

32  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Texas cont.       
Houston, Arpt. Syst. Rev. Bonds       
Ser. B-1, 5.00%, 7/15/30  BB–  $2,650,000  $2,771,609 
(United Airlines, Inc.), 4.75%, 7/1/24  Ba3  4,200,000  4,444,818 
Houston, Higher Ed. Fin. Co. Rev. Bonds (Cosmos       
Foundation), Ser. A       
5.00%, 2/15/42  BBB  2,250,000  2,354,760 
5.00%, 2/15/32  BBB  2,250,000  2,430,360 
Houston, Util. Syst. Rev. Bonds, Ser. B,       
5.00%, 11/15/36  Aa2  3,320,000  3,806,413 
La Vernia, Higher Ed. Fin. Corp. Rev. Bonds (Kipp,       
Inc.), Ser. A       
6.375%, 8/15/44 (Prerefunded 8/15/19)  BBB  2,450,000  2,741,232 
6.25%, 8/15/39 (Prerefunded 8/15/19)  BBB  2,375,000  2,649,978 
Love Field, Arpt. Modernization Corp. Special Fac.       
Rev. Bonds (Southwest Airlines Co.), 5.25%, 11/1/40  Baa1  4,850,000  5,234,460 
Lower CO River Auth. Rev. Bonds, Ser. D,       
5.00%, 5/15/32  A  2,000,000  2,230,760 
Matagorda Cnty., Poll. Control Rev. Bonds       
(Central Pwr. & Light Co.), Ser. A, 6.30%, 11/1/29  Baa1  2,400,000  2,601,648 
(Dist. No. 1), Ser. A, AMBAC, 4.40%, 5/1/30  Baa1  3,000,000  3,218,160 
New Hope, Cultural Ed. Fac. Fin. Corp. Rev. Bonds       
(MRC Senior Living-Langford (The)),       
5.50%, 11/15/46  B–/P  700,000  637,238 
(Wesleyan Homes, Inc.), 5.50%, 1/1/43  BB–/P  1,050,000  1,057,980 
(MRC Senior Living-Langford (The)),       
5.375%, 11/15/36  B–/P  500,000  461,865 
(NCCD College Station Properties, LLC), Ser. A,       
5.00%, 7/1/47  Baa3  1,000,000  1,040,340 
(Collegiate Hsg.-Tarleton St.), 5.00%, 4/1/39  Baa3  500,000  516,770 
(MRC Crestview), 5.00%, 11/15/36  BB+/F  350,000  346,934 
(CHF-Collegiate Student Hsg. Corpus Christi II,       
LLC-Texas A&M), Ser. A, 5.00%, 4/1/36  Baa3  355,000  370,389 
(Collegiate Hsg.-Tarleton St.), 5.00%, 4/1/34  Baa3  750,000  797,805 
(TX A&M U. Collegiate & Student Hsg. College       
Station I, LLC), Ser. A, 5.00%, 4/1/29  Baa3  1,605,000  1,758,743 
North East TX, Regl. Mobility Auth. Rev. Bonds,       
5.00%, 1/1/46  Baa2  1,350,000  1,443,002 
North TX, Edl. Fin. Co. Rev. Bonds (Uplift Edl.), Ser. A,       
5.125%, 12/1/42  BBB–  2,500,000  2,560,050 
North TX, Thruway Auth. Rev. Bonds, Ser. B,       
zero %, 9/1/37  AA+  3,000,000  1,161,330 
North TX, Tollway Auth. Rev. Bonds       
(1st Tier), Ser. I, 6.50%, 1/1/43  A1  5,300,000  6,589,119 
Ser. A, 5.00%, 1/1/39  A1  3,250,000  3,604,575 
Red River, Hlth. Retirement Fac. Dev.       
Corp. Rev. Bonds       
(Happy Harbor Methodist Home, Inc.), Ser. A,       
7.75%, 11/15/44  B–/P  830,000  929,019 
(Sears Methodist Retirement Syst. Oblig. Group),       
Ser. C, 6.25%, 5/9/53 (In default) †  D/P  162,000  243 

 

Tax-Free High Yield Fund  33 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Texas cont.       
Red River, Hlth. Retirement Fac. Dev.       
Corp. Rev. Bonds       
(Sears Methodist Retirement Syst. Oblig. Group),       
Ser. B, 6.15%, 11/15/49 (In default) †  D/P  $2,766,000  $4,149 
(Sears Methodist Retirement Syst. Oblig. Group),       
Ser. A, 6.05%, 11/15/46 (In default) †  D/P  1,833,000  2,750 
(Sears Methodist Retirement Syst. Oblig. Group),       
Ser. D, 6.05%, 11/15/46 (In default) †  D/P  317,000  476 
(Sears Methodist Retirement Syst. Oblig. Group),       
Ser. A, 5.45%, 11/15/38 (In default) †  D/P  4,122,000  6,183 
SA Energy Acquisition Pub. Fac. Corp. Rev. Bonds       
(Gas Supply), 5.50%, 8/1/25  A3  385,000  437,826 
Tarrant Cnty., Cultural Ed. Fac. Fin. Corp. Retirement       
Fac. Rev. Bonds       
(Sr. Living Ctr.), Ser. A, 8.25%, 11/15/44  B+/P  2,050,000  2,181,426 
(Air Force Village), 6.375%, 11/15/44       
(Prerefunded 11/15/19)  BB+/F  4,000,000  4,527,160 
(Buckingham Sr. Living Cmnty., Inc.), Ser. A,       
5.50%, 11/15/45  BB/F  1,500,000  1,552,665 
TX Private Activity Surface Trans. Corp. Rev. Bonds       
(LBJ Infrastructure), 7.00%, 6/30/40  Baa3  4,500,000  5,151,195 
(NTE Mobility), 6.875%, 12/31/39  Baa2  3,350,000  3,798,331 
TX State Private Activity Bond Surface Trans. Corp.       
Rev. Bonds (Blueridge Trans. Group, LLC (SH 288       
Toll Lane))       
5.00%, 12/31/55  Baa3  1,500,000  1,557,855 
5.00%, 12/31/50  Baa3  250,000  260,575 
Uptown, Dev. Auth. Tax Increment Contract Tax       
Alloc. Bonds (Infrastructure Impt. Fac.), 5.50%,       
9/1/29 (Prerefunded 9/1/19)  BBB  1,000,000  1,105,050 
      102,144,927 
Utah (0.1%)       
Murray City, Hosp. VRDN (IHC Hlth. Svcs., Inc.), Ser. C,       
0.60%, 5/15/36  Aa1  600,000  600,000 
      600,000 
Vermont (0.1%)       
VT State Edl. & Hlth. Bldg. Fin. Agcy. Rev. Bonds (U.       
of VT Med. Ctr.), Ser. A, 5.00%, 12/1/35  A3  1,000,000  1,088,540 
      1,088,540 
Virginia (2.2%)       
Alexandria, Indl. Dev. Auth. Res. Care Fac. Mtge. Rev.       
Bonds (Goodwin House, Inc.), 5.00%, 10/1/45  BBB/F  1,500,000  1,620,210 
Cherry Hill Cmnty., Dev. Auth. 144A Special Assmt.       
Bonds (Potomac Shores), 5.15%, 3/1/35  B/P  500,000  508,905 
Chesapeake Bay Bridge & Tunnel Dist. Rev. Bonds       
(1st Tier Gen. Resolution), 5.00%, 7/1/46  Baa2  3,000,000  3,238,140 
Fairfax Cnty., Econ. Dev. Auth. Res. Care Fac. Rev.       
Bonds (Goodwin House, Inc.), Ser. A, 5.00%, 10/1/36  BBB/F  350,000  383,901 
Lower Magnolia Green Cmnty., Dev. Auth. 144A       
Special Assmt. Bonds, 5.00%, 3/1/35  B/P  840,000  846,628 

 

34  Tax-Free High Yield Fund 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Virginia cont.       
Stafford Cnty., Econ. Dev. Auth. Hosp. Fac.       
Rev. Bonds (Mary Washington Healthcare),       
5.00%, 6/15/36  Baa1  $1,000,000  $1,054,240 
Suffolk, Econ. Dev. Auth. Retirement Fac. Rev.       
Bonds (United Church Homes & Svcs. Oblig. Group),       
5.00%, 9/1/31  BB/P  1,500,000  1,586,505 
VA State Small Bus. Fin. Auth. Rev. Bonds       
(Elizabeth River Crossings OPCO, LLC),       
6.00%, 1/1/37  BBB  1,725,000  1,902,761 
(95 Express Lanes, LLC), 5.00%, 1/1/40  BBB–  4,500,000  4,594,005 
Washington Cnty., Indl. Dev. Auth. Hosp. Fac. Rev.       
Bonds (Mountain States Hlth. Alliance), Ser. C,       
7.75%, 7/1/38  Baa1  5,100,000  5,566,395 
      21,301,690 
Washington (2.3%)       
Port Seattle, Port Indl. Dev. Corp. Rev. Bonds (Delta       
Airlines, Inc.), 5.00%, 4/1/30  BB+  5,700,000  5,955,987 
Skagit Cnty., Pub. Hosp. Dist. No. 1 Rev. Bonds       
(Skagit Regl. Hlth. Impt.), 5.00%, 12/1/37  Baa2  2,000,000  2,083,440 
WA State Higher Ed. Fac. Auth. Rev.       
Bonds (Whitworth U.), 5.625%, 10/1/40       
(Prerefunded 10/1/19)  Baa1  1,600,000  1,778,160 
WA State Hlth. Care Fac. Auth. Rev. Bonds       
(WA Hlth. Svcs.), 7.00%, 7/1/39       
(Prerefunded 7/1/19)  Baa1  3,000,000  3,396,120 
(Kadlec Med. Ctr.), 5.50%, 12/1/39       
(Prerefunded 12/1/20)  AAA/P  1,200,000  1,375,476 
(Central WA Hlth. Svcs. Assn.), 4.00%, 7/1/36  Baa1  1,620,000  1,518,426 
WA State Hsg. Fin. Comm. Rev. Bonds (Wesley       
Homes Lea Hill), 5.00%, 7/1/36  B/P  575,000  556,244 
WA State Hsg. Fin. Comm. 144A Rev. Bonds       
(Heron’s Key Oblig. Group), Ser. A, 7.00%, 7/1/50  B–/P  1,000,000  980,940 
(Bayview Manor Homes), Ser. A, 5.00%, 7/1/46  BB+/P  2,025,000  1,991,203 
(Presbyterian Retirement Cmnty. Northwest),       
Ser. A, 5.00%, 1/1/46  BB+/F  2,200,000  2,186,580 
      21,822,576 
West Virginia (0.3%)       
WV State Hosp. Fin. Auth. Rev. Bonds (Thomas Hlth.       
Syst.), 6.75%, 10/1/43  B+/P  2,330,000  2,398,502 
      2,398,502 
Wisconsin (2.0%)       
Platteville, Redev. Auth. Rev. Bonds (UW-Platteville       
Real Estate), 5.00%, 7/1/32  BBB–  1,500,000  1,579,740 
Pub. Fin. Auth. Arpt. Fac. Rev. Bonds       
(Sr. Oblig. Group), 5.25%, 7/1/28  BBB  800,000  850,192 
(Trans. Infrastructure Properties), 5.00%, 7/1/42  BBB  3,500,000  3,571,295 
Pub. Fin. Auth. Exempt Fac. Rev. Bonds (Celanese       
U.S. Holdings, LLC), Ser. C, 4.30%, 11/1/30  Baa3  700,000  695,653 
WI State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(St. Johns Cmntys. Inc.), Ser. A, 7.625%, 9/15/39       
(Prerefunded 9/15/19)  AAA/F  1,550,000  1,799,643 

 

Tax-Free High Yield Fund  35 

 


MUNICIPAL BONDS AND NOTES (98.4%)* cont.  Rating**  Principal amount  Value 
Wisconsin cont.       
WI State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(St. Johns Cmntys. Inc.), Ser. A, 7.25%, 9/15/29       
(Prerefunded 9/15/19)  AAA/F  $1,000,000  $1,151,450 
(Prohealth Care, Inc.), 6.625%, 2/15/39       
(Prerefunded 2/15/19)  AAA/P  3,000,000  3,324,000 
(St. John’s Cmnty., Inc.), Ser. B, 5.00%, 9/15/45  BBB+/F  750,000  774,030 
(Prohealth Care, Inc.), 5.00%, 8/15/39  A1  750,000  821,843 
WI State Pub. Fin. Auth Sr. Living Rev. Bonds (Rose       
Villa, Inc.), Ser. A       
6.00%, 11/15/49  BB–/P  1,000,000  1,051,890 
5.75%, 11/15/44  BB–/P  500,000  519,645 
5.50%, 11/15/34  BB–/P  1,685,000  1,746,334 
WI State Pub. Fin. Auth. 144A Rev. Bonds (Church       
Home of Hartford, Inc.), Ser. A, 5.00%, 9/1/38  BB/F  1,500,000  1,446,225 
      19,331,940 
Total municipal bonds and notes (cost $892,568,688)    $936,727,427 
 
 
PREFERRED STOCKS (0.8%)*    Shares  Value 
MuniMae Tax Exempt Bond Subsidiary, LLC 144A Ser. A-5, 5s cum. pfd.  1,700,000  $1,751,000 
MuniMae Tax Exempt Bond Subsidiary, LLC 144A Ser. B, 7 3/4s cum. pfd.  6,000,000  6,308,100 
Total preferred stocks (cost $7,700,000)      $8,059,100 
 
 
UNITIZED TRUST (0.1%)*    Shares  Value 
CMS Liquidating Trust 144A F     400  $991,752 
Total unitized trust (cost $1,206,477)      $991,752 
 
 
COMMON STOCKS (0.0%)*    Shares  Value 
Tembec, Inc. (Canada) †    10,751  $24,786 
Total common stocks (cost $8,077,612)      $24,786 
 
 
TOTAL INVESTMENTS       
Total investments (cost $909,552,777)      $945,803,065 

 

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, 2016 through January 31, 2017 (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 $951,943,946.

** 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 Fitch are indicated by “/F.” Securities rated by Putnam are indicated by “/P.” The Putnam rating categories are comparable to the Standard & Poor’s classifications. If a security is insured, it will usually be rated by the ratings organizations based on the financial strength of the insurer. For further details regarding security ratings, please see the Statement of Additional Information.

† This security is non-income-producing.

36  Tax-Free High Yield Fund 

 


†† The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate.

## Forward commitment, in part or in entirety (Note 1).

F This security is valued by Putnam Management at fair value following procedures approved by the Trustees. Securities may be classified as Level 2 or Level 3 for ASC 820 based on the securities’ valuation inputs (Note 1).

144A after the name of an issuer represents securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

On Mandatory Put Bonds, the rates shown are the current interest rates at the close of the reporting period and the dates shown 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  23.2% 
Transportation  14.0 
Utilities  11.5 

 

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 
Common stocks*:       
Basic materials  $24,786  $—­  $—­ 
Total common stocks  24,786  —­  —­ 
 
Municipal bonds and notes  —­  936,695,467  31,960 
Preferred stocks  —­  8,059,100  —­ 
Unitized trust  —­  —­  991,752 
Totals by level  $24,786  $944,754,567  $1,023,712 

 

* Common stock classifications are presented at the sector level, which may differ from the fund’s portfolio presentation.

During the reporting period, transfers within the fair value hierarchy, if any, did not represent, in the aggregate, more than 1% of the fund’s net assets measured as of the end of the period. Transfers are accounted for using the end of period pricing valuation method.

At the start and close of the reporting period, Level 3 investments in securities represented less than 1% of the fund’s net assets and were not considered a significant portion of the fund’s portfolio.

The accompanying notes are an integral part of these financial statements.

Tax-Free High Yield Fund  37 

 


Statement of assets and liabilities 1/31/17 (Unaudited)

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $909,552,777)  $945,803,065 
Cash  14,679,604 
Interest and other receivables  10,028,292 
Receivable for shares of the fund sold  333,914 
Receivable for investments sold  6,459,085 
Receivable for custodian fees (Note 2)  10,624 
Prepaid assets  54,236 
Total assets  977,368,820 
 
LIABILITIES   
Payable for investments purchased  13,253,473 
Payable for purchases of delayed delivery securities (Note 1)  4,322,436 
Payable for shares of the fund repurchased  5,996,673 
Payable for compensation of Manager (Note 2)  385,917 
Payable for investor servicing fees (Note 2)  129,407 
Payable for Trustee compensation and expenses (Note 2)  430,198 
Payable for administrative services (Note 2)  9,969 
Payable for distribution fees (Note 2)  218,492 
Distributions payable to shareholders  560,531 
Other accrued expenses  117,778 
Total liabilities  25,424,874 
 
Net assets  $951,943,946 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $1,004,977,138 
Undistributed net investment income (Note 1)  4,106,774 
Accumulated net realized loss on investments (Note 1)  (93,390,254) 
Net unrealized appreciation of investments  36,250,288 
Total — Representing net assets applicable to capital shares outstanding  $951,943,946 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share   
($739,827,421 divided by 60,597,315 shares)  $12.21 
Offering price per class A share (100/96.00 of $12.21)*  $12.72 
Net asset value and offering price per class B share ($11,146,078 divided by 911,018 shares)**  $12.23 
Net asset value and offering price per class C share ($71,206,509 divided by 5,818,731 shares)**  $12.24 
Net asset value and redemption price per class M share ($7,968,435 divided by 652,595 shares)  $12.21 
Offering price per class M share (100/96.75 of $12.21)†  $12.62 
Net asset value, offering price and redemption price per class Y share   
($121,795,503 divided by 9,936,514 shares)  $12.26 

 

* 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  Tax-Free High Yield Fund 

 


Statement of operations Six months ended 1/31/17 (Unaudited)

INVESTMENT INCOME   
Interest income  $23,977,503 
Total investment income  23,977,503 
 
EXPENSES   
Compensation of Manager (Note 2)  2,485,527 
Investor servicing fees (Note 2)  395,969 
Custodian fees (Note 2)  7,747 
Trustee compensation and expenses (Note 2)  25,948 
Distribution fees (Note 2)  1,372,535 
Administrative services (Note 2)  18,155 
Other  192,957 
Total expenses  4,498,838 
Expense reduction (Note 2)  (21,281) 
Net expenses  4,477,557 
 
Net investment income  19,499,946 
 
Net realized gain on investments (Notes 1 and 3)  10,389,294 
Net unrealized depreciation of investments during the period  (74,776,995) 
Net loss on investments  (64,387,701) 
 
Net decrease in net assets resulting from operations  $(44,887,755) 

 

The accompanying notes are an integral part of these financial statements.

 

Tax-Free High Yield Fund  39 

 


Statement of changes in net assets

INCREASE (DECREASE) IN NET ASSETS  Six months ended 1/31/17*  Year ended 7/31/16 
Operations     
Net investment income  $19,499,946  $40,869,114 
Net realized gain (loss) on investments  10,389,294  (446,339) 
Net unrealized appreciation (depreciation) of investments  (74,776,995)  51,550,129 
Net increase (decrease) in net assets resulting     
from operations  (44,887,755)  91,972,904 
Distributions to shareholders (Note 1):     
From ordinary income     
Taxable net investment income     
Class A  (2,066,717)  (1,130,045) 
Class B  (31,649)  (17,643) 
Class C  (198,145)  (101,220) 
Class M  (22,421)  (12,489) 
Class Y  (332,592)  (217,795) 
From tax-exempt net investment income     
Class A  (14,636,064)  (30,842,823) 
Class B  (189,230)  (404,545) 
Class C  (1,125,527)  (2,256,231) 
Class M  (150,651)  (314,652) 
Class Y  (3,030,734)  (6,113,851) 
Increase (decrease) from capital share transactions (Note 4)  (74,703,412)  60,611,203 
Total increase (decrease) in net assets  (141,374,897)  111,172,813 
 
NET ASSETS     
Beginning of period  1,093,318,843  982,146,030 
End of period (including undistributed net investment     
income of $4,106,774 and $6,390,558, respectively)  $951,943,946  $1,093,318,843 

 

* Unaudited.

The accompanying notes are an integral part of these financial statements.

40  Tax-Free High Yield Fund 

 

 

 

 

 

 


 

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Tax-Free High Yield Fund  41 

 


Financial highlights (For a common share outstanding throughout the period)

  INVESTMENT OPERATIONS LESS DISTRIBUTIONS RATIOS AND SUPPLEMENTAL DATA
 
                        Ratio  Ratio of net   
  Net asset    Net realized                  of expenses  investment   
  value,    and unrealized  Total from  From      Non-recurring  Net asset  Total return  Net assets,  to average  income (loss)  Portfolio 
  beginning  Net investment  gain (loss)  investment  net investment  Total  Redemption  reimburse­-  value, end  at net asset  end of period  net assets  to average  turnover 
Period ended­  of period­  income (loss)  on investments­  operations­  income­  distributions  fees  ments­  of period­  value (%)a  (in thousands)  (%)b  net assets (%)  (%) 
Class A­                             
January 31, 2017**  $13.01­  .27­  (.80)  (.53)  (.27)  (.27)  —­  —­  $12.21­  (4.10)*  $739,827­  .42*  1.90*  19* 
July 31, 2016­  12.39­  .52­  .62­  1.14­  (.52)  (.52)  —­  —­  13.01­  9.37­  822,429­  .82­e  4.02­e  25­ 
July 31, 2015­  12.27­  .55­  .12­  .67­  (.55)  (.55)  —­  —­  12.39­  5.48­  765,887­  .80­  4.28­  17­ 
July 31, 2014­  11.85­  .55­  .42­  .97­  (.55)  (.55)  —­  —­  12.27­  8.47­  807,290­  .80­  4.73­  19­ 
July 31, 2013­  12.66­  .57­  (.83)  (.26)  (.55)  (.55)  —­c  —­  11.85­  (2.22)  843,916­  .80­  4.43­  16­ 
July 31, 2012­  11.56­  .60­  1.10­  1.70­  (.60)  (.60)  —­c  —­d  12.66­  15.03­  1,008,921­  .81­  4.94­  13­ 
Class B­                             
January 31, 2017**  $13.04­  .23­  (.81)  (.58)  (.23)  (.23)  —­  —­  $12.23­  (4.47)*  $11,146­  .73*  1.59*  19* 
July 31, 2016­  12.42­  .44­  .62­  1.06­  (.44)  (.44)  —­  —­  13.04­  8.68­  12,746­  1.44­e  3.40­e  25­ 
July 31, 2015­  12.29­  .47­  .13­  .60­  (.47)  (.47)  —­  —­  12.42­  4.91­  11,828­  1.42­  3.66­  17­ 
July 31, 2014­  11.87­  .48­  .42­  .90­  (.48)  (.48)  —­  —­  12.29­  7.79­  12,503­  1.42­  4.11­  19­ 
July 31, 2013­  12.68­  .49­  (.83)  (.34)  (.47)  (.47)  —­c  —­  11.87­  (2.82)  13,324­  1.42­  3.82­  16­ 
July 31, 2012­  11.58­  .52­  1.10­  1.62­  (.52)  (.52)  —­c  —­d  12.68­  14.33­  13,768­  1.43­  4.32­  13­ 
Class C­                             
January 31, 2017**  $13.04­  .22­  (.80)  (.58)  (.22)  (.22)  —­  —­  $12.24­  (4.46)*  $71,207­  .81*  1.51*  19* 
July 31, 2016­  12.42­  .42­  .62­  1.04­  (.42)  (.42)  —­  —­  13.04­  8.52­  80,038­  1.59­e  3.25­e  25­ 
July 31, 2015­  12.29­  .45­  .13­  .58­  (.45)  (.45)  —­  —­  12.42­  4.75­  66,342­  1.57­  3.51­  17­ 
July 31, 2014­  11.88­  .46­  .41­  .87­  (.46)  (.46)  —­  —­  12.29­  7.54­  60,957­  1.57­  3.96­  19­ 
July 31, 2013­  12.69­  .47­  (.83)  (.36)  (.45)  (.45)  —­c  —­  11.88­  (2.97)  69,981­  1.57­  3.67­  16­ 
July 31, 2012­  11.58­  .50­  1.11­  1.61­  (.50)  (.50)  —­c  —­d  12.69­  14.24­  70,823­  1.58­  4.13­  13­ 
Class M­                             
January 31, 2017**  $13.01­  .25­  (.80)  (.55)  (.25)  (.25)  —­  —­  $12.21­  (4.23)*  $7,968­  .55*  1.76*  19* 
July 31, 2016­  12.39­  .48­  .62­  1.10­  (.48)  (.48)  —­  —­  13.01­  9.08­  9,295­  1.09­e  3.75­e  25­ 
July 31, 2015­  12.27­  .51­  .12­  .63­  (.51)  (.51)  —­  —­  12.39­  5.20­  8,549­  1.07­  4.00­  17­ 
July 31, 2014­  11.85­  .52­  .42­  .94­  (.52)  (.52)  —­  —­  12.27­  8.18­  8,014­  1.07­  4.46­  19­ 
July 31, 2013­  12.66­  .53­  (.82)  (.29)  (.52)  (.52)  —­c  —­  11.85­  (2.48)  8,543­  1.07­  4.16­  16­ 
July 31, 2012­  11.57­  .56­  1.09­  1.65­  (.56)  (.56)  —­c  —­d  12.66­  14.68­  9,357­  1.08­  4.68­  13­ 
Class Y­                             
January 31, 2017**  $13.06­  .28­  (.80)  (.52)  (.28)  (.28)  —­  —­  $12.26­  (3.97)*  $121,796­  .30*  2.00*  19* 
July 31, 2016­  12.44­  .54­  .62­  1.16­  (.54)  (.54)  —­  —­  13.06­  9.59­  168,811­  .59­e  4.24­e  25­ 
July 31, 2015­  12.31­  .57­  .13­  .70­  (.57)  (.57)  —­  —­  12.44­  5.79­  129,540­  .57­  4.51­  17­ 
July 31, 2014­  11.89­  .58­  .42­  1.00­  (.58)  (.58)  —­  —­  12.31­  8.69­  74,972­  .57­  4.93­  19­ 
July 31, 2013­  12.70­  .60­  (.83)  (.23)  (.58)  (.58)  —­c  —­  11.89­  (1.99)  50,405­  .57­  4.65­  16­ 
July 31, 2012­  11.59­  .62­  1.11­  1.73­  (.62)  (.62)  —­c  —­d  12.70­  15.38­  103,030­  .58­  5.11­  13­ 

 

* 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, if any (Note 2). Also excludes acquired fund fees and expenses, if any.

c Amount represents less than $0.01 per share.

d Reflects a non-recurring reimbursement pursuant to a settlement between the Securities and Exchange Commission (the SEC) and Southwest Capital, which amounted to less than $0.01 per share outstanding as of August 22, 2011.

e Reflects a voluntary waiver of certain fund expenses in effect during the period. As a result of such waivers, the expenses of each class reflect a reduction of less than .01% as a percentage of average net assets per share for each class (Note 2).

The accompanying notes are an integral part of these financial statements.

42  Tax-Free High Yield Fund  Tax-Free High Yield Fund  43 

 


Notes to financial statements 1/31/17 (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, 2016 through January 31, 2017.

Putnam Tax-Free High Yield 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 goal 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 (but that may be subject to federal alternative minimum tax (AMT)), are combination of below-investment-grade and investment grade securities, and have intermediate- to long-term maturities (i.e., three years or longer). Under normal circumstances, Putnam Management invests at least 80% of the fund’s net assets in tax-exempt investments. This investment policy cannot be changed without the approval of the fund’s shareholders. 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. Effective April 1, 2017, purchases of class B shares will be closed to new and existing investors except by exchange from class B shares of another Putnam fund or through dividend and/or capital gains reinvestment. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively. Class A shares generally are not subject to a contingent deferred sales charge, and class M and class Y shares are not subject to a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, are not subject to 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 are subject to 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.

The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent and custodian, who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.

Under the fund’s Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.

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.

44  Tax-Free High Yield Fund 

 


Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.

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. To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. 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, recovery rates, sales and other multiples and resale restrictions. 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 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.

Securities purchased or sold on a delayed delivery basis may be settled at a future date beyond customary settlement time; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the fair value of the underlying securities or if the counterparty does not perform under the contract.

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.

Lines of credit The fund participates, along with other Putnam funds, in a $317.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be 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 higher of (1) the Federal Funds rate and (2) the overnight LIBOR 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 0.04% of the committed line of credit plus a $25,000 flat fee and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.21% 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

Tax-Free High Yield Fund  45 

 


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, 2016, the fund had a capital loss carryover of $100,920,539 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 
$2,620,956  $32,173,354  $34,794,310  * 
17,411,277  N/A  17,411,277  July 31, 2017 
33,971,635  N/A  33,971,635  July 31, 2018 
14,743,317  N/A  14,743,317  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 $3,809,604 recognized during the period between November 1, 2015 and July 31, 2016 to its fiscal year ending July 31, 2017.

The aggregate identified cost on a tax basis is $908,602,181, resulting in gross unrealized appreciation and depreciation of $65,413,989 and $28,213,105, respectively, or net unrealized appreciation of $37,200,884.

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 all open-end mutual funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). Such annual rates may vary as follows:

0.630%  of the first $5 billion,  0.430%  of the next $50 billion, 
0.580%  of the next $5 billion,  0.410%  of the next $50 billion, 
0.530%  of the next $10 billion,  0.400%  of the next $100 billion and 
0.480%  of the next $10 billion,  0.395%  of any excess thereafter. 

 

For the reporting period, the management fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.240% of the fund’s average net assets.

Putnam Management has contractually agreed, through November 30, 2017, 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

46  Tax-Free High Yield Fund 

 


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. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay 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 for class A, class B, class C, class M, and class Y shares that included (1) a per account fee for each direct and underlying non-defined contribution account (“retail account”) of the fund; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) a specified rate based on the average net assets in retail accounts. Putnam Investor Services, Inc. has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts for these share classes will not exceed an annual rate of 0.25% of the fund’s average assets attributable to such accounts.

Prior to September 1, 2016, Putnam Investor Services, Inc. received fees for investor servicing for class A, class B, class C, class M, and class Y shares that included (1) a per account fee for each retail account of the fund and each of the other funds in its specified category, which was totaled and then allocated to each fund in the category based on its average daily net assets; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) a specified rate based on the average net assets in retail accounts. Prior to September 1, 2016, Putnam Investor Services, Inc. had agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts for these share classes would not exceed an annual rate of 0.320% of the fund’s average assets attributable to such accounts.

During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows:

Class A  $300,011  Class M  3,329 
Class B  4,670  Class Y  58,735 
Class C  29,224  Total  $395,969 

 

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 $21,281 under the expense offset arrangements.

Each Independent Trustee of the fund receives an annual Trustee fee, of which $733, 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 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.

Tax-Free High Yield Fund  47 

 


The fund has adopted distribution plans (the “Plans”) with respect to the following class 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 payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to the following amounts (“Maximum %”) of the average net assets attributable to each class. The Trustees have approved payment by the fund at the following annual rate (“Approved %”) of the average net assets attributable to each class. During the reporting period, the class-specific expenses related to distribution fees were as follows:

  Maximum %  Approved %  Amount 
Class A  0.35%  *  $914,642 
Class B  1.00%  0.85%  52,129 
Class C  1.00%  1.00%  383,888 
Class M  1.00%  0.50%  21,876 
Total      $1,372,535 

 

* Equals 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 March 21, 2005 and (ii) 0.25% on all other net assets of the fund attributable to class A shares.

For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $30,455 and $122 from the sale of class A and class M shares, respectively, and received $285 and $693 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 monies on class A redemptions.

Note 3: Purchases and sales of securities

During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows:

  Cost of purchases  Proceeds from sales 
Investments in securities (Long-term)  $185,096,241  $230,128,202 
U.S. government securities (Long-term)  —  — 
Total  $185,096,241  $230,128,202 

 

The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.

Note 4: Capital shares

At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

  SIX MONTHS ENDED 1/31/17  YEAR ENDED 7/31/16 
Class A  Shares  Amount  Shares  Amount 
Shares sold  3,510,743  $43,939,897  8,139,959  $103,196,248 
Shares issued in connection with         
reinvestment of distributions  1,129,338  14,085,469  2,116,861  26,767,183 
  4,640,081  58,025,366  10,256,820  129,963,431 
Shares repurchased  (7,263,476)  (90,677,439)  (8,847,596)  (111,845,284) 
Net increase (decrease)  (2,623,395)  $(32,652,073)  1,409,224  $18,118,147 

 

48  Tax-Free High Yield Fund 

 


  SIX MONTHS ENDED 1/31/17  YEAR ENDED 7/31/16 
Class B  Shares  Amount  Shares  Amount 
Shares sold  58,424  $751,122  177,414  $2,247,323 
Shares issued in connection with         
reinvestment of distributions  14,795  184,753  28,424  360,067 
  73,219  935,875  205,838  2,607,390 
Shares repurchased  (139,969)  (1,745,812)  (180,734)  (2,292,316) 
Net increase (decrease)  (66,750)  $(809,937)  25,104  $315,074 
 
  SIX MONTHS ENDED 1/31/17  YEAR ENDED 7/31/16 
Class C  Shares  Amount  Shares  Amount 
Shares sold  515,150  $6,502,097  1,464,568  $18,589,212 
Shares issued in connection with         
reinvestment of distributions  66,833  834,344  111,168  1,409,468 
  581,983  7,336,441  1,575,736  19,998,680 
Shares repurchased  (901,859)  (11,289,904)  (779,665)  (9,872,422) 
Net increase (decrease)  (319,876)  $(3,953,463)  796,071  $10,126,258 
 
  SIX MONTHS ENDED 1/31/17  YEAR ENDED 7/31/16 
Class M  Shares  Amount  Shares  Amount 
Shares sold  25,248  $312,500  110,342  $1,401,340 
Shares issued in connection with         
reinvestment of distributions  12,861  160,392  23,757  300,426 
  38,109  472,892  134,099  1,701,766 
Shares repurchased  (99,923)  (1,241,662)  (109,611)  (1,377,553) 
Net increase (decrease)  (61,814)  $(768,770)  24,488  $324,213 
 
  SIX MONTHS ENDED 1/31/17  YEAR ENDED 7/31/16 
Class Y  Shares  Amount  Shares  Amount 
Shares sold  3,289,346  $41,426,644  7,832,121  $99,359,056 
Shares issued in connection with         
reinvestment of distributions  182,459  2,288,799  279,052  3,552,944 
  3,471,805  43,715,443  8,111,173  102,912,000 
Shares repurchased  (6,460,827)  (80,234,612)  (5,602,277)  (71,184,489) 
Net increase (decrease)  (2,989,022)  $(36,519,169)  2,508,896  $31,727,511 

 

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: New pronouncements

In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017. Putnam Management is currently evaluating the amendments and their impact, if any, on the fund’s financial statements.

Tax-Free High Yield Fund  49 

 


Putnam family of funds

The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus, or a summary prospectus if available, containing this and other information for any Putnam fund or product, contact your financial advisor or call Putnam Investor Services at 1-800-225-1581. Please read the prospectus carefully before investing.

Growth  Income 
Growth Opportunities Fund  American Government Income Fund 
International Growth Fund  Diversified Income Trust 
Multi-Cap Growth Fund  Emerging Markets Income Fund 
Small Cap Growth Fund  Floating Rate Income Fund 
 
Blend  Global Income Trust 
Capital Opportunities Fund  Government Money Market Fund* 
Capital Spectrum Fund  High Yield Advantage Fund 
Emerging Markets Equity Fund  High Yield Trust 
Equity Spectrum Fund  Income Fund 
Europe Equity Fund  Money Market Fund† 
Global Equity Fund  Short Duration Income Fund 
International Capital Opportunities Fund  U.S. Government Income Trust 
International Equity Fund 
Investors Fund  Tax-free Income 
Low Volatility Equity Fund  AMT-Free Municipal Fund 
Multi-Cap Core Fund  Intermediate-Term Municipal Income Fund 
Research Fund  Short-Term Municipal Income Fund 
  Tax Exempt Income Fund 
Value  Tax-Free High Yield Fund 
Convertible Securities Fund 
Equity Income Fund  State tax-free income funds‡: 
Global Dividend Fund  Arizona, California, Massachusetts, Michigan, 
The Putnam Fund for Growth and Income  Minnesota, New Jersey, New York, Ohio, 
International Value Fund  and Pennsylvania. 
Multi-Cap Value Fund   
Small Cap Value Fund   

 

50  Tax-Free High Yield Fund 

 


Absolute Return  Retirement Income Fund Lifestyle 1 — a portfolio 
Absolute Return 100 Fund®  with managed allocations to stocks, bonds, 
Absolute Return 300 Fund®  and money market investments to generate 
Absolute Return 500 Fund®  retirement income. 
Absolute Return 700 Fund® 
RetirementReady® Funds — portfolios with 
Global Sector  adjusting allocations to stocks, bonds, and 
Global Consumer Fund  money market instruments, becoming more 
Global Energy Fund  conservative over time. 
Global Financials Fund 
Global Health Care Fund  RetirementReady® 2060 Fund 
Global Industrials Fund  RetirementReady® 2055 Fund 
Global Natural Resources Fund  RetirementReady® 2050 Fund 
Global Sector Fund  RetirementReady® 2045 Fund 
Global Technology Fund  RetirementReady® 2040 Fund 
Global Telecommunications Fund  RetirementReady® 2035 Fund 
Global Utilities Fund  RetirementReady® 2030 Fund 
RetirementReady® 2025 Fund 
Asset Allocation  RetirementReady® 2020 Fund 
George Putnam Balanced Fund   
 
Global Asset Allocation Funds — four   
investment portfolios that spread your money   
across a variety of stocks, bonds, and money   
market instruments.   
 
Dynamic Asset Allocation Balanced Fund   
Dynamic Asset Allocation Conservative Fund   
Dynamic Asset Allocation Growth Fund   
Dynamic Risk Allocation Fund   

 

* You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

† You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The fund’s sponsor has no legal obligation to provide financial support to the fund, and you should not expect that the sponsor will provide financial support to the fund at any time.

‡ Not available in all states.

Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.

Tax-Free High Yield Fund  51 

 


Services for shareholders

Investor services

Systematic investment plan Tell us how much you wish to invest regularly — weekly, semimonthly, or monthly — and the amount you choose will be transferred automatically from your checking or savings account. There’s no additional fee for this service, and you can suspend it at any time. This plan may be a great way to save for college expenses or to plan for your retirement.

Please note that regular investing does not guarantee a profit or protect against loss in a declining market. Before arranging a systematic investment plan, consider your financial ability to continue making purchases in periods when prices are low.

Systematic exchange You can make regular transfers from one Putnam fund to another Putnam fund. There are no additional fees for this service, and you can cancel or change your options at any time.

Dividends PLUS You can choose to have the dividend distributions from one of your Putnam funds automatically reinvested in another Putnam fund at no additional charge.

Free exchange privilege You can exchange money between Putnam funds free of charge, as long as they are the same class of shares. A signature guarantee is required if you are exchanging more than $500,000. The fund reserves the right to revise or terminate the exchange privilege.

Reinstatement privilege If you’ve sold Putnam shares or received a check for a dividend or capital gain, you may reinvest the proceeds with Putnam within 90 days of the transaction and they will be reinvested at the fund’s current net asset value — with no sales charge. However, reinstatement of class B shares may have special tax consequences. Ask your financial or tax representative for details.

Check-writing service You have ready access to many Putnam accounts. It’s as simple as writing a check, and there are no special fees or service charges. For more information about the check-writing service, call Putnam or visit our website.

Dollar cost averaging When you’re investing for long-term goals, it’s time, not timing, that counts. Investing on a systematic basis is a better strategy than trying to figure out when the markets will go up or down. This means investing the same amount of money regularly over a long period. This method of investing is called dollar cost averaging. When a fund’s share price declines, your investment dollars buy more shares at lower prices. When it increases, they buy fewer shares. Over time, you will pay a lower average price per share.

For more information

Visit the Individual Investors section at putnam.com A secure section of our website contains complete information on your account, including balances and transactions, updated daily. You may also conduct transactions, such as exchanges, additional investments, and address changes. Log on today to get your password.

Call us toll free at 1-800-225-1581 Ask a helpful Putnam representative or your financial advisor for details about any of these or other services, or see your prospectus.

52  Tax-Free High Yield 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  James F. Clark 
Putnam Investment  Jameson A. Baxter, Chair  Vice President and  
Management, LLC  Kenneth R. Leibler, Vice Chair   Chief Compliance Officer  
One Post Office Square  Liaquat Ahamed   
Boston, MA 02109  Ravi Akhoury  Michael J. Higgins 
  Barbara M. Baumann  Vice President, Treasurer,  
Investment Sub-Advisor  Robert J. Darretta  and Clerk  
Putnam Investments Limited  Katinka Domotorffy 
57–59 St James’s Street  Catharine Hill  Janet C. Smith 
London, England SW1A 1LD  John A. Hill  Vice President,  
Paul L. Joskow  Principal Financial Officer,  
Marketing Services  Robert E. Patterson  Principal Accounting Officer,  
Putnam Retail Management  George Putnam, III  and Assistant Treasurer  
One Post Office Square  Robert L. Reynolds   
Boston, MA 02109  Manoj Singh  Susan G. Malloy 
  W. Thomas Stephens  Vice President and  
Custodian  Assistant Treasurer  
State Street Bank  Officers   
and Trust Company  Robert L. Reynolds  Mark C. Trenchard 
  President   Vice President and  
Legal Counsel  BSA Compliance Officer  
Ropes & Gray LLP  Jonathan S. Horwitz   
Executive Vice President,   Nancy E. Florek 
  Principal Executive Officer,   Vice President, Director of  
  and Compliance Liaison   Proxy Voting and Corporate  
  Governance, Assistant Clerk,  
  Robert T. Burns  and Associate Treasurer  
  Vice President and    
  Chief Legal Officer    
   

 

This report is for the information of shareholders of Putnam Tax-Free High Yield Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, 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.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Tax Free Income Trust
By (Signature and Title):
/s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: March 31, 2017
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 31, 2017
By (Signature and Title):
/s/ Janet C. Smith
Janet C. Smith
Principal Financial Officer

Date: March 31, 2017