Putnam
Strategic Intermediate
Municipal Fund

Annual report
7 | 31 | 21

 

Message from the Trustees

September 9, 2021

Dear Fellow Shareholder:

Through the summer months of 2021, financial markets continued to rise. Stocks were powered by new highs in corporate earnings, and bonds appreciated despite an uptick in inflation. Experts at Putnam believe inflation will likely be temporary, caused by an uneven recovery from the Covid-19 pandemic.

Even as the economy returns to a more normal trajectory, the evolving pandemic remains a justifiable concern. During these unsettled times, well-managed companies have tried to be flexible and resilient, adapting to conditions while focusing on their goals.

Putnam’s research teams also remain focused on their objectives. They analyze and debate how businesses are adjusting to these challenges as they work to identify investment opportunities for our portfolios. We believe this active approach is well-suited to this time.

Thank you for investing with Putnam.

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. Performance for class A shares before their inception (9/20/93) is derived from the historical performance of class B shares. See below and pages 8–11 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.

Before August 28, 2020, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before this date.

All Bloomberg indices provided by Bloomberg Index Services Limited.

Lipper peer group average provided by Lipper, a Refinitiv company.

* The Bloomberg Municipal Bond — Bloomberg 3–15 Year Blend Municipal Bond Linked Benchmark represents performance of the Bloomberg Municipal Bond Index from inception date of the fund, September 9, 1985, through August 27, 2020, and performance of the Bloomberg 3–15 Year Blend Municipal Bond Index from August 28, 2020, and thereafter.

† The fund’s primary benchmark, the Bloomberg 3–15 Year Blend Municipal Bond Index, was introduced on 1/31/90, which post-dates the inception of the fund.

This comparison shows your fund’s performance in the context of broad market indexes for the 12 months ended 7/31/21. See above and pages 8–11 for additional fund performance information. Index descriptions can be found on pages 14–15.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

Garrett, how was the market for intermediate-term municipal bonds during the reporting period?

Intermediate-term municipal bonds performed relatively well, even as U.S. Treasury yields rose. [Bond prices move inversely to interest rates.] The yield on the benchmark 10-year U.S. Treasury note rose from 0.55% on July 31, 2020, to a high of 1.74% in March 2021 before closing the 12-month period at 1.24% on July 31, 2021. Interest rates moved higher in response to the reopening of the U.S. economy, stimulus measures, and investors pricing in higher inflation expectations.

President Biden’s signing of the $1.9 trillion American Rescue Plan [ARP] in March 2021 provided a tailwind for the asset class. This Covid-19 relief bill provided a windfall of $350 billion in direct aid to states and local governments. This support, coupled with the fact that state budgets have generally outperformed conservative forecasts, has improved the outlook for some of the largest issuers in the municipal bond market. Transit agencies, colleges and universities, and school districts are among the municipal sectors that were targeted for substantial aid in the

 

Allocations are shown as a percentage of the fund’s net assets as of 7/31/21. 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 timing of matured security transactions, 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 7/31/21. 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.

 

ARP. Furthermore, local municipalities have benefited from a strong housing market and higher revenue from local property taxes.

With vaccination progress leading to reopenings in the United States, investors speculated the Federal Reserve might begin scaling back its support for the U.S. economy. In June 2021, the Fed assumed a more hawkish tone. In their commentary, Fed officials projected two rate increases in 2023 if recent inflation persisted, which was sooner than expected. Although the Fed would continue its asset purchases near term, it indicated it was still considering tapering its asset purchases at some point. In July 2021, however, the Fed indicated it wanted to see more progress in the U.S. jobs market before reducing its support for the economy.

Improving municipal credit fundamentals and strong market technicals pushed municipal rates lower, and credit spreads narrowed. [Credit spreads reflect the difference in yield between higher- and lower-rated municipal bonds.] For the 12 months ended July 31, 2021, the Bloomberg 3–15 Year Blend Municipal Bond Index [the fund’s primary benchmark] rose 2.60%, solidly outperforming the broader U.S. fixed-income markets, which delivered a slightly negative result, and U.S. Treasuries.

How did the fund perform during the period?

For the 12 months ended July 31, 2021, the fund outperformed its primary and secondary benchmarks and the average return of its Lipper peer group, Intermediate Municipal Debt Funds.

What strategies or holdings influenced the fund’s performance?

The fund began the period with a duration positioning, or interest-rate sensitivity, that was generally neutral relative to the fund’s Lipper peer group. As part of this strategy, the fund had an overweight exposure to the longer intermediate portion of the yield curve focused on bonds with maturities of 15 years and longer.

Regarding credit risk, the fund had an overweight position in lower-investment-grade securities rated A and BBB and some portions of the lower-rated, high-yield municipal bond market relative to its Lipper peer group. This positioning reflected our view that with economic growth improving, credit spreads were likely to narrow. Narrowing credit spreads tend to reflect improving creditworthiness, which, in turn, can lead to higher prices.

These strategies were intact through the end of 2020 when the municipal bond market typically sees large reinvestment flows at the start of a new calendar year. These flows were met with very muted supply, which helped to support municipal bond prices. With valuations relatively high and absolute rates nearing historical lows in late January 2021, we reduced our interest-rate exposure to a modestly short position. We achieved this by selling higher-rated holdings and securities with maturities of 10 to 20 years while maintaining the portfolio’s overweight to lower-investment-grade securities rated A and BBB and lower-rated, high-yield municipal bonds. This resulted in a more neutral yield-curve positioning and a short duration posture relative to the fund’s Lipper peer group for the balance of the period. From a sector- or industry-positioning perspective, the fund held overweight exposures to hospitals, continuing-care retirement communities, and private higher education relative to the fund’s Lipper peer group.

The fund’s exposure to state and local governments was limited to those with, in our view, diverse tax bases and the ability to enact broad

 

revenue enhancements or expense cuts. As part of our strategy for state debt, the fund held an overweight exposure to Illinois relative to the Lipper peer group. We believe Illinois’s financial profile continues to stabilize, and its flexibility and credit fundamentals appear to have improved since the onset of the Covid-19 pandemic in the United States.

We remain cautious about Puerto Rico due to what we believe are its seemingly fragile economy, weak demographic trends, poor-quality infrastructure, volatile political environment, and history of fiscal mismanagement. As such, the fund remained underweight in its exposure to uninsured Puerto Rico municipal debt relative to its Lipper peer group. We continue to monitor the Commonwealth’s ongoing restructuring efforts for potential opportunities.

What is your outlook for the municipal bond market for the coming months?

The recent infusions under the ARP, fiscal stimulus, and a pick-up in economic activity should help state and local governments enter their 2022 budget sessions with enough cash on hand to help absorb the economic stress of the pandemic, in our view. In August 2021, the Senate passed a $1 trillion bipartisan infrastructure bill to repair the nation’s deteriorating roads and bridges, fund new broadband and climate initiatives, and modernize the power grid. The House subsequently passed a budget reconciliation blueprint and set a deadline to vote on the bipartisan deal by September 27, 2021. Depending on the details of the infrastructure bill, in our view, it would likely be a positive development for many municipal borrowers, particularly state and local governments, transit agencies, airports, and other entities that typically finance transportation infrastructure. We believe federal grants could reduce the need for municipal borrowers to issue debt to cover essential services. This would increase fiscal flexibility for these borrowers while avoiding higher tax burdens, in our view.

Municipals were one of the best-performing fixed-income classes during the first half of 2021. Given this result, we believe municipal bond returns in the second half of 2021 are

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

 

unlikely to match the relatively strong results of the first half. With current valuations at relatively rich levels versus history, we would view any rate volatility or a market sell-off as a potential buying opportunity. We continue to believe the greatest opportunities reside in the lower tiers of the investment-grade universe as well as the high-yield sectors at this point in the economic recovery. Defaults, despite pandemic-related challenges, remained low and within long-term ranges during the period.

Thank you, Garrett, for your time and insights today.

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.

 

Your fund’s performance

This section shows your fund’s performance, price, and distribution information for periods ended July 31, 2021, the end of its most recent 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. Before August 28, 2020, the fund was managed with a materially different investment strategy and may have achieved materially different performance results under its current investment strategy from that shown for periods before this date. 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 R6 and 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 7/31/21

 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After-sales-charge returns for class A shares reflect the deduction of the maximum 4.00% sales charge 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 R6 and Y shares have no initial sales charge or CDSC. Performance for class A, C, 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. Performance for class R6 shares prior to their inception is derived from the historical performance of class Y shares and has not been adjusted for the lower investor servicing fees applicable to class R6 shares; had it, returns would have been higher.

For a portion of the periods, the fund had expense limitations, without which returns would have been lower.

Class B and C share performance reflects conversion to class A shares after eight years.

 

Comparative index returns For periods ended 7/31/21

 

Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.

All Bloomberg indices provided by Bloomberg Index Services Limited.

Lipper peer group average provided by Lipper, a Refinitiv company.

^* The fund’s primary benchmark, the Bloomberg 3–15 Year Blend Municipal Bond Index, was introduced on 1/31/90, which post-dates the inception of the fund.

^† The Bloomberg Municipal Bond — Bloomberg 3–15 Year Blend Municipal Bond Linked Benchmark represents performance of the Bloomberg Municipal Bond Index from inception date of the fund, September 9, 1985, through August 27, 2020, and performance of the Bloomberg 3–15 Year Blend Municipal Bond Index from August 28, 2020, and thereafter.

^‡ Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 7/31/21, there were 214, 189, 160, 119, and 27 funds, respectively, in this Lipper category.

Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and C shares would have been valued at $14,442 and $14,274, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class R6 and Y shares would have been valued at $15,546 and $15,546, respectively.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

Fund price and distribution information For the 12-month period ended 7/31/21

 

The classification of distributions, if any, is an estimate. Before-sales-charge share value and current dividend rate for class A 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) 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 40.80% federal tax rate for 2021. 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.

 

Fund performance as of most recent calendar quarter Total return for periods ended 6/30/21

 

See the discussion following the fund performance table on page 8 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

 

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.

^† Expense ratios for each class are for the fund’s most recent fiscal half year. As a result of this, ratios may differ from expense ratios based on one-year data in the financial highlights.

^‡ Distribution and service fees have been restated to reflect current fees.

 

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 2/1/21 to 7/31/21. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

 

^* 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 7/31/21. 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 (181); and then dividing that result by the number of days in the year (365).

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended 7/31/21, use the following calculation method. To find the value of your investment on 2/1/21, 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.

 

^* 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 7/31/21. 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 (181); and then dividing that result by the number of days in the year (365).

 

Consider these risks before investing

Capital gains, if any, are taxable for federal and, in most cases, state purposes. Income from federally tax-exempt funds may be subject to state and local taxes. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. The fund may invest significantly in particular segments of the tax-exempt debt market, making it more vulnerable to fluctuations in the values of the securities it holds than a fund that invests more broadly. Interest the fund receives might be taxable.

The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political, or financial market conditions; investor sentiment and market perceptions; government actions; geopolitical events or changes; and factors related to a specific issuer, geography, industry, or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings.

Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could have a negative effect on the fund. You can lose money by investing in the fund.

 

Terms and definitions

Important terms

Total return shows how the value of the fund’s shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund.

Before sales charge, or net asset value, is the price, or value, of one share of a mutual fund, without a sales charge. Before-sales-charge figures fluctuate with market conditions, and are calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

After sales charge is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. After-sales-charge performance figures shown here assume the 4.00% maximum sales charge for class A shares.

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 closed to new investments and are only available by exchange from another Putnam fund or through dividend and/or capital gains reinvestment. They 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 R6 shares are not subject to an initial sales charge or CDSC and carry no 12b-1 fee. They are generally only available to employer-sponsored retirement plans, corporate and institutional clients, and clients in other approved programs.

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 3–15 Year Blend Municipal Bond Index is an unmanaged index comprised of investment-grade municipal securities ranging from 2 and 17 years in maturity.

Bloomberg Municipal Bond — Bloomberg 3–15 Year Blend Municipal Bond Linked Benchmark represents performance of the Bloomberg Municipal Bond Index from inception date of the fund, September 9, 1985, through August 27, 2020, and performance of the Bloomberg 3–15 Year Municipal Bond Index from August 28, 2020, and thereafter.

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

 

Bloomberg U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

ICE BofA (Intercontinental Exchange Bank of America) 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.

BLOOMBERG^®  is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approve or endorse this material, or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

ICE Data Indices, LLC (“ICE BofA”), used with permission. ICE BofA permits use of the ICE BofA indices and related data on an “as is” basis; makes no warranties regarding same; does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the ICE BofA indices or any data included in, related to, or derived therefrom; assumes no liability in connection with the use of the foregoing; and does not sponsor, endorse, or recommend Putnam Investments, or any of its products or services.

Lipper, a Refinitiv company, 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.

Other information for shareholders

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, 2021, are available in the Individual Investors section of putnam.com and on the Securities and Exchange Commission (SEC) 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-PORT within 60 days of the end of such fiscal quarter. Shareholders may obtain the fund’s Form N-PORT on the SEC’s website at www.sec.gov.

Prior to its use of Form N-PORT, the fund filed its complete schedule of its portfolio holdings with the SEC on Form N-Q, which is available online at www.sec.gov.

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 July 31, 2021, Putnam employees had approximately $569,000,000 and the Trustees had approximately $80,000,000 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.

 

Liquidity risk management program

Putnam, as the administrator of the fund’s liquidity risk management program (appointed by the Board of Trustees), presented the most recent annual report on the program to the Trustees in April 2021. The report covered the structure of the program, including the program documents and related policies and procedures adopted to comply with Rule 22e-4 under the Investment Company Act of 1940, and reviewed the operation of the program from January 2020 through December 2020. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2020. The report noted that there were no material compliance exceptions identified under Rule 22e-4 during the period. The report included a review of the governance of the program and the methodology for classification of the fund’s investments. The report also included a discussion of liquidity monitoring during the period, including during the market liquidity challenges caused by the Covid-19 pandemic, and the impact those challenges had on the liquidity of the fund’s investments. Putnam concluded that the program has been operating effectively and adequately to ensure compliance with Rule 22e-4.

 

Important notice regarding Putnam’s privacy policy

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ names, addresses, Social Security numbers, and dates of birth. Using this information, we are able to maintain accurate records of accounts and transactions.

It is our policy to protect the confidentiality of our shareholder information, whether or not a shareholder currently owns shares of our funds. In particular, it is our policy not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use.

Under certain circumstances, we must share account information with outside vendors who provide services to us, such as mailings and proxy solicitations. In these cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. Finally, it is our policy to share account information with your financial representative, if you’ve listed one on your Putnam account.

 

Trustee approval of management contract

General conclusions

The Board of Trustees of The Putnam Funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Investment Management, LLC (“Putnam Management”) and the sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”). The Board, with the assistance of its Contract Committee, requests and evaluates all information it deems reasonably necessary under the circumstances in connection with its annual contract review. The Contract Committee consists solely of Trustees who are not “interested persons” (as this term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”)) of The Putnam Funds (“Independent Trustees”).

At the outset of the review process, members of the Board’s independent staff and independent legal counsel considered any possible changes to the annual contract review materials furnished to the Contract Committee during the course of the previous year’s review and, as applicable, identified those changes to Putnam Management. Following these discussions and in consultation with the Contract Committee, the Independent Trustees’ independent legal counsel requested that Putnam Management and its affiliates furnish specified information, together with any additional information that Putnam Management considered relevant, to the Contract Committee. Over the course of several months ending in June 2021, the Contract Committee met on a number of occasions with representatives of Putnam Management, and separately in executive session, to consider the information that Putnam Management provided. Throughout this process, the Contract Committee was assisted by the members of the Board’s independent staff and by independent legal counsel for The Putnam Funds and the Independent Trustees.

In May 2021, the Contract Committee met in executive session to discuss and consider its recommendations with respect to the continuance of the contracts. At the Trustees’ June 2021 meeting, the Contract Committee met in executive session with the other Independent Trustees to review a summary of the key financial, performance and other data that the Contract Committee considered in the course of its review. The Contract Committee then presented its written report, which summarized the key factors that the Committee had considered and set forth its recommendations. The Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management and sub-management contracts, effective July 1, 2021. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not attempted to evaluate PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.) The Independent Trustees’ approval was based on the following conclusions:

• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds, the costs incurred by Putnam Management in providing services to the fund, and the application of certain reductions and waivers noted below; and

• That the fee schedule in effect for your fund represented an appropriate sharing between fund shareholders and Putnam Management of any economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of

 

fee arrangements in previous years. For example, with certain exceptions primarily involving newly launched or repositioned funds, the current fee arrangements under the vast majority of the funds’ management contracts were first implemented at the beginning of 2010 following extensive review by the Contract Committee and discussions with representatives of Putnam Management, as well as approval by shareholders.

Management fee schedules and total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints. Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees also reviewed the total expenses of each Putnam fund, recognizing that in most cases management fees represented the major, but not the sole, determinant of total costs to fund shareholders. (Two funds have implemented so-called “all-in” management fees covering substantially all routine fund operating costs.) In reviewing fees and expenses, the Trustees generally focus their attention on material changes in circumstances — for example, changes in assets under management, changes in a fund’s investment strategy, changes in Putnam Management’s operating costs or profitability, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not indicate that changes to the management fee schedule for your fund would be appropriate at this time.

As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to support the effort to have fund expenses meet competitive standards, the Trustees and Putnam Management and the funds’ investor servicing agent, Putnam Investor Services, Inc. (“PSERV”), have implemented expense limitations that were in effect during your fund’s fiscal year ending in 2020. These expense limitations were: (i) a contractual expense limitation applicable to specified open-end funds, including your fund, of 25 basis points on investor servicing fees and expenses and (ii) a contractual expense limitation applicable to specified open-end funds, including your fund, of 20 basis points on so-called “other expenses” (i.e., all expenses exclusive of management fees, distribution fees, investor servicing fees, investment-related expenses, interest, taxes, brokerage commissions, acquired fund fees and expenses and extraordinary expenses). These expense limitations attempt to maintain competitive expense levels for the funds. Most funds, including your fund, had sufficiently low expenses that these expense limitations were not operative during their fiscal years ending in 2020. Putnam Management and PSERV have agreed to maintain these expense limitations until at least November 30, 2022. The support of Putnam Management and PSERV for these expense limitation arrangements was an important factor in the Trustees’ decision to approve the continuance of your fund’s management and sub-management contracts.

The Trustees reviewed comparative fee and expense information for a custom group of competitive funds selected by Broadridge Financial Solutions, Inc. (“Broadridge”). This comparative information included your fund’s percentile ranking for effective management fees and total expenses (excluding any applicable 12b-1 fees), which provides a general indication of your fund’s relative standing. In the custom peer group, your fund ranked in the second quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the fourth quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2020. The first quintile represents the least expensive funds and the fifth quintile the most expensive funds. The fee and expense data reported by Broadridge as of December 31, 2020 reflected the most recent fiscal year-end data available in Broadridge’s database at that time.

In connection with their review of fund management fees and total expenses, the Trustees also reviewed the costs of the services provided and the profits realized by Putnam Management and its affiliates from their contractual relationships with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management, investor servicing and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis

 

of the revenues, expenses and profitability of Putnam Management and its affiliates, allocated on a fund-by-fund basis, with respect to the funds’ management, distribution, and investor servicing contracts. For each fund, the analysis presented information about revenues, expenses and profitability for each of the agreements separately and for the agreements taken together on a combined basis. The Trustees concluded that, at current asset levels, the fee schedules in place for the Putnam funds, including the fee schedule for your fund, represented reasonable compensation for the services being provided and represented an appropriate sharing between fund shareholders and Putnam Management of any economies of scale as may exist in the management of the Putnam funds at that time.

The information examined by the Trustees in connection with their annual contract review for the Putnam funds included information regarding services provided and fees charged by Putnam Management and its affiliates to other clients, including defined benefit pension and profit-sharing plans, sub-advised mutual funds, private funds sponsored by affiliates of Putnam Management, model-only separately managed accounts and Putnam Management’s newly launched exchange-traded funds. This information included, in cases where a product’s investment strategy corresponds with a fund’s strategy, comparisons of those fees with fees charged to the Putnam funds, as well as an assessment of the differences in the services provided to these clients as compared to the services provided to the Putnam funds. The Trustees observed that the differences in fee rates between these clients and the Putnam funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients may reflect, among other things, historical competitive forces operating in separate marketplaces. The Trustees considered the fact that in many cases fee rates across different asset classes are higher on average for mutual funds than for other clients, and the Trustees also considered the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to its other clients. The Trustees did not rely on these comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of Putnam Management’s investment process and performance by the work of the investment oversight committees of the Trustees and the full Board of Trustees, which meet on a regular basis with individual portfolio managers and with senior management of Putnam Management’s Investment Division throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — based on the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to them, and in general Putnam Management’s ability to attract and retain high-quality personnel — but also recognized that this does not guarantee favorable investment results for every fund in every time period.

The Trustees considered that, in the aggregate, The Putnam Funds generally performed well in 2020, which Putnam Management characterized as a challenging year with significant volatility and varied market dynamics. On an asset-weighted basis, the Putnam funds ranked in the second quartile of their peers as determined by Lipper Inc. (“Lipper”) for the year ended December 31, 2020 and, on an asset-weighted-basis, delivered a gross return that was 2.3% ahead of their benchmarks in 2020. In addition to the performance of the individual Putnam funds, the Trustees considered, as they had in prior years, the performance of The Putnam Fund complex versus competitor fund complexes. In this regard, the Trustees observed that The Putnam Funds’ relative performance, as reported in the Barron’s/Lipper Fund Families survey, continued to be exceptionally strong over the long term, with The Putnam Funds ranking as the 3rd best performing mutual fund complex out of 44 complexes for the ten-year period, with 2020 marking the fourth consecutive year that The Putnam Funds have ranked in the top ten fund complexes for the ten-year period. The Trustees noted that The Putnam Funds’ performance was solid over the one- and five-year periods, with The Putnam Funds ranking 22nd out of 53 complexes and 14th out of 50 complexes, respectively. In addition to the Barron’s/Lipper Fund Families

 

Survey, the Trustees also considered the funds’ ratings assigned by Morningstar Inc., noting that 26 of the funds were four- or five-star rated at the end of 2020 (representing an increase of four funds year-over-year) and that this included seven funds that had achieved a five-star rating (representing an increase of two funds year-over-year). They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2020 and considered information provided by Putnam Management regarding the factors contributing to the underperformance and actions being taken to improve the performance of these particular funds. The Trustees indicated their intention to continue to monitor closely the performance of those funds and evaluate whether additional actions to address areas of underperformance may be warranted.

For purposes of the Trustees’ evaluation of the Putnam funds’ investment performance, the Trustees generally focus on a competitive industry ranking of each fund’s total net return over a one-year, three-year and five-year period. For a number of Putnam funds with relatively unique investment mandates for which Putnam Management informed the Trustees that meaningful competitive performance rankings are not considered to be available, the Trustees evaluated performance based on their total gross and net returns and comparisons of those returns to the returns of selected investment benchmarks. In the case of your fund, the Trustees considered that its class A share cumulative total return performance at net asset value was in the following quartiles of its Lipper peer group (Lipper Intermediate Municipal Debt Funds) for the one-year, three-year and five-year periods ended December 31, 2020 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):

 

For the five-year period ended December 31, 2020, your fund’s performance was in the top decile of its Lipper peer group. Over the one-year, three-year and five-year periods ended December 31, 2020, there were 209, 182 and 160 funds, respectively, in your fund’s Lipper peer group. (When considering performance information, shareholders should be mindful that past performance is not a guarantee of future results.)

The Trustees noted that, effective August 28, 2020, the fund had been renamed Putnam Strategic Intermediate Municipal Fund (formerly, Putnam AMT-Free Municipal Fund) and had changed its investment strategies to become an intermediate-term municipal bond fund that could pursue a wider range of opportunities across the municipal bond market. The Trustees considered Putnam Management’s continued efforts to support fund performance through certain initiatives, including structuring compensation for portfolio managers to enhance accountability for fund performance, emphasizing accountability in the portfolio management process, and affirming its commitment to a fundamental-driven approach to investing. The Trustees noted further that Putnam Management had made selective hires and internal promotions in 2020 to strengthen its investment team.

Brokerage and soft-dollar allocations; investor servicing

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage allocation and the use of soft dollars, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that are expected to be useful to Putnam Management in managing the assets of the fund and of other clients. Subject to policies established by the Trustees, soft dollars generated by these means are used predominantly to acquire brokerage and research services (including third-party research and market data) that enhance Putnam Management’s investment capabilities and supplement Putnam Management’s internal research efforts. The Trustees indicated their continued intent to monitor regulatory and industry developments in this area with the assistance of their Brokerage Committee. In addition, with the assistance of their Brokerage Committee, the Trustees indicated their continued intent to monitor the allocation of the Putnam funds’ brokerage in order to ensure that the principle of seeking best price and execution remains paramount in the portfolio trading process.

Putnam Management may also receive benefits from payments that the funds make to Putnam Management’s affiliates for investor or distribution services. In conjunction with the annual review of

 

your fund’s management and sub-management contracts, the Trustees reviewed your fund’s investor servicing agreement with PSERV and its distributor’s contract and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are fair and reasonable in relation to the nature and quality of such services, the fees paid by competitive funds, and the costs incurred by PSERV and PRM, as applicable, in providing such services. Furthermore, the Trustees were of the view that the investor services provided by PSERV were required for the operation of the funds, and that they were of a quality at least equal to those provided by other providers.

 

Audited financial statements

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, constitute the fund’s audited 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.

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.

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Putnam Tax-Free Income Trust
and Shareholders of Putnam Strategic Intermediate Municipal Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the fund’s portfolio, of Putnam Strategic Intermediate Municipal Fund (one of the funds constituting Putnam Tax-Free Income Trust, referred to hereafter as the “Fund”) as of July 31, 2021, the related statement of operations for the year ended July 31, 2021, the statement of changes in net assets for each of the two years in the period ended July 31, 2021, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of July 31, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended July 31, 2021 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2021 by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
September 9, 2021

We have served as the auditor of one or more investment companies in the Putnam Investments family of mutual funds since at least 1957. We have not been able to determine the specific year we began serving as auditor.

 

The fund’s portfolio 7/31/21

Key to holding’s abbreviations

 

MUNICIPAL BONDS AND NOTES (94.6%)*	Rating**		Principal amount	Value
Alabama (0.5%)
Jefferson, Cnty. Rev. Bonds, (Refunding warrants)
5.00%, 9/15/34	AA		$1,075,000	$1,318,467
5.00%, 9/15/33	AA		125,000	153,386
				1,471,853
Alaska (1.2%)
AK State Indl. Dev. & Export Auth. Rev. Bonds, (Tanana Chiefs Conference), Ser. A
4.00%, 10/1/39	A+/F		2,445,000	2,828,519
4.00%, 10/1/38	A+/F		555,000	643,492
				3,472,011
Arizona (3.3%)
AZ State Indl. Dev. Auth. Rev. Bonds, (Equitable School Revolving Fund), Ser. A
5.00%, 11/1/38	A		1,110,000	1,371,186
5.00%, 11/1/36	A		1,235,000	1,532,084
5.00%, 11/1/34	A		1,000,000	1,244,574
Glendale, Indl. Dev. Auth. Sr. Living Fac. Rev. Bonds, (Royal Oaks Life Care Cmnty.)
4.00%, 5/15/31	BBB−/F		1,000,000	1,078,755
4.00%, 5/15/29	BBB−/F		1,000,000	1,084,193
Salt River Project Agricultural Impt. & Pwr. Dist. Rev. Bonds, 5.00%, 1/1/27 ###	Aa1		1,200,000	1,484,228
Salt Verde, Fin. Corp. Gas Rev. Bonds, 5.50%, 12/1/29	A3		1,000,000	1,328,536
				9,123,556
California (7.0%)
ABAG Fin. Auth. for Nonprofit Corps. Rev. Bonds, (Episcopal Sr. Cmntys.), 6.125%, 7/1/41	A−/F		500,000	501,729
CA Cmnty. Hsg. Agcy. Essential Hsg. 144A Rev. Bonds, (Aster Apt.), Ser. A-1, 4.00%, 2/1/56	BB+/P		250,000	287,033
CA Hsg. Fin. Agcy. Muni. Certif. Rev. Bonds, Ser. 21-1, Class A, 3.50%, 11/20/35	BBB+		920,628	1,097,664
CA State Enterprise Dev. Auth. Student Hsg. Rev. Bonds, (Provident Group-SDSU Properties, LLC), Ser. A
5.00%, 8/1/30	Baa3		100,000	132,008
5.00%, 8/1/28	Baa3		150,000	190,667

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
California cont.
CA State Infrastructure & Econ. Dev. Bank
Mandatory Put Bonds (6/1/26), (Museum Associates), 0.72%, 12/1/50	A3		$1,000,000	$1,013,530
Mandatory Put Bonds (8/1/24), (CA Academy of Sciences), 0.37%, 8/1/47	A2		1,500,000	1,503,469
CA State Muni. Fin. Auth. Rev. Bonds, (HumanGood Oblig. Group), Ser. A, 4.00%, 10/1/32	A−/F		1,000,000	1,152,766
CA State Poll. Control Fin. Auth. Rev. Bonds, (San Jose Wtr. Co.), 4.75%, 11/1/46	A		1,000,000	1,148,124
CA State Pub. Wks. Board Rev. Bonds, (Various Cap. Projects.), Ser. A, 5.00%, 8/1/32 ###	Aa3		1,000,000	1,322,200
CA State, Pub. Wks. Board Rev. Bonds, Ser. A, 5.00%, 2/1/30 ###	Aa3		1,000,000	1,335,716
Chula Vista, Muni. Fin. Auth. Special Tax Bonds, 5.50%, 9/1/30	AA−		775,000	855,402
Port of Oakland Rev. Bonds
5.00%, 5/1/28	A2		750,000	949,999
1.081%, 5/1/24	A1		750,000	758,626
Sacramento, City Unified School Dist. G.O. Bonds, Ser. G, AGM
4.00%, 8/1/36	AA		200,000	244,464
4.00%, 8/1/35	AA		250,000	306,664
4.00%, 8/1/34	AA		500,000	614,343
4.00%, 8/1/33	AA		200,000	246,547
4.00%, 8/1/32	AA		200,000	247,580
San Jose Arpt. Rev. Bonds, (Norman Y Mineta San Jose Intl. Arpt.), Ser. A, BAM, 4.00%, 3/1/34	AA		1,800,000	2,214,429
Sierra View, Local Hlth. Care Dist. Rev. Bonds
5.00%, 7/1/30	A/F		620,000	818,396
5.00%, 7/1/27	A/F		625,000	773,521
4.00%, 7/1/26	A/F		300,000	346,800
4.00%, 7/1/25	A/F		290,000	327,447
4.00%, 7/1/24	A/F		235,000	258,371
4.00%, 7/1/23	A/F		260,000	277,382
4.00%, 7/1/22	A/F		230,000	237,385
Yucaipa Special Tax Bonds, (Cmnty. Fac. Dist. No. 98-1 Chapman Heights), 5.375%, 9/1/30	A		375,000	377,689
				19,539,951
Colorado (3.2%)
CO State Hlth. Fac. Auth. Hosp. Rev. Bonds, (CommonSpirit Health Oblig. Group)
Ser. A-1, 4.00%, 8/1/37 T	Baa1		150,000	178,937
Ser. A-1, 4.00%, 8/1/38 T	Baa1		225,000	266,791
Ser. A-1, 4.00%, 8/1/39 T	Baa1		225,000	267,145
Ser. A-1, 4.00%, 8/1/44 T	Baa1		750,000	876,237
Ser. A-2, 4.00%, 8/1/49 T	Baa1		1,500,000	1,743,460
E-470 Pub. Hwy. Auth. Mandatory Put Bonds (9/1/24), Ser. B, 0.384%, 9/1/39	A2		4,000,000	4,006,562
Vauxmont, Metro. Dist. G.O. Bonds, AGM
5.00%, 12/1/34	AA		285,000	367,059
5.00%, 12/1/32	AA		250,000	323,781

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Colorado cont.
Vauxmont, Metro. Dist. G.O. Bonds, AGM
5.00%, 12/15/30	AA		$125,000	$145,490
5.00%, 12/15/29	AA		125,000	145,900
5.00%, 12/15/27	AA		125,000	146,714
5.00%, 12/15/25	AA		125,000	147,044
5.00%, 12/1/25	AA		175,000	207,226
				8,822,346
Connecticut (1.6%)
CT State Hlth. & Edl. Fac. Auth. Rev. Bonds
(Masonicare Issue), Ser. F, 5.00%, 7/1/34	BBB+/F		1,250,000	1,446,744
(Masonicare Issue), Ser. F, 5.00%, 7/1/33	BBB+/F		250,000	289,733
(Stamford Hosp. Oblig. Group (The)), Ser. L-1, 4.00%, 7/1/26	BBB+		700,000	810,300
CT State Hsg. Fin. Auth. Mtge. Program Rev. Bonds
Ser. B-1, 4.10%, 11/15/39 T	Aaa		565,000	601,215
Ser. B-1, 4.15%, 11/15/44 T	Aaa		1,355,000	1,439,116
				4,587,108
District of Columbia (2.2%)
DC Rev. Bonds
(KIPP DC), Ser. A, 5.00%, 7/1/48	BBB+		1,250,000	1,483,846
(Latin American Montessori Bilingual Pub. Charter School Oblig. Group), 4.00%, 6/1/30	BB+		1,000,000	1,146,320
Metro. Washington DC, Arpt. Auth. Dulles Toll Rd. Rev. Bonds, (Dulles Metrorail & Cap. Impt. Proj.)
Ser. B, 4.00%, 10/1/44 T	A−		665,000	775,719
Ser. B, 4.00%, 10/1/53 T	A−		660,000	773,852
Metro. Washington, Arpt. Auth. Dulles Toll Rd. Rev. Bonds, (Dulles Metrorail), 5.00%, 10/1/53	A−		2,000,000	2,057,331
				6,237,068
Florida (4.4%)
Cap. Trust Agcy. 144A Rev. Bonds, (WFCS Holdings II, LLC), Ser. A-1, 3.30%, 1/1/31	BB/P		230,000	246,940
Double Branch Cmnty. Dev. Dist. Special Assmt. Bonds, Ser. A-1, 4.25%, 5/1/34	A		360,000	378,206
Halifax Hosp. Med. Ctr. Rev. Bonds, 5.00%, 6/1/36	A−		1,375,000	1,622,967
Lakeland, Hosp. Syst. Rev. Bonds, (Lakeland Regl. Hlth.), 5.00%, 11/15/45	A2		2,000,000	2,273,930
Orange Cnty., Hlth. Fac. Auth. Rev. Bonds, (Presbyterian Retirement Cmntys.), 5.00%, 8/1/34	A−/F		1,000,000	1,121,245
Orlando Cmnty. Redev. Agcy. Tax Alloc. Bonds, (Republic Drive/Universal), 5.00%, 4/1/23	A+/F		1,630,000	1,675,391
Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds, (Acts Retirement-Life Cmnty., Inc.), 5.00%, 11/15/32	A−/F		2,000,000	2,398,117
Southeast Overtown Park West Cmnty. Redev. Agcy. 144A Tax Alloc. Bonds, Ser. A-1, 5.00%, 3/1/30	BBB+		240,000	264,322
St. John’s Cnty., Indl. Dev. Auth. Rev. Bonds, (Life Care Ponte Vedra Oblig. Group), Ser. A
4.00%, 12/15/31	BB+/F		200,000	229,474
4.00%, 12/15/30	BB+/F		195,000	224,630
4.00%, 12/15/29	BB+/F		215,000	249,084

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Florida cont.
Village, 144A Special Assmt., (Village Cmnty. Dev. Dist. No. 13), 1.875%, 5/1/25	BB−/P		$700,000	$715,624
Volusia Cnty., Edl. Fac. Auth. Rev. Bonds, (Embry-Riddle Aeronautical University, Inc.), Ser. A, 4.00%, 10/15/38	A2		750,000	881,316
				12,281,246
Georgia (3.4%)
Burke Cnty., Dev. Auth. Poll. Control Mandatory Put Bonds (2/3/25), (Oglethorpe Pwr. Corp.), 1.50%, 1/1/40	Baa1		1,600,000	1,644,775
Gainesville & Hall Cnty., Dev. Auth. Edl. Fac. Rev. Bonds, (Riverside Military Academy), 5.00%, 3/1/37	BB/F		200,000	204,778
Main Street Natural Gas, Inc. Gas Supply Mandatory Put Bonds (9/1/23), Ser. B, 0.817%, 4/1/48	Aa2		2,200,000	2,211,693
Muni. Election Auth. of GA Rev. Bonds, (Plant Vogtle Units 3 & 4)
Ser. A, 5.50%, 7/1/60	A		1,500,000	1,752,189
Ser. A, 5.00%, 1/1/56	A2		500,000	618,304
4.00%, 1/1/46	BBB+		330,000	381,721
AGM, 4.00%, 1/1/46	AA		1,750,000	2,053,896
AGM, 4.00%, 1/1/46	AA		450,000	528,145
				9,395,501
Guam (0.1%)
Territory of GU, Pwr. Auth. Rev. Bonds, Ser. A, AGM, 5.00%, 10/1/30	AA		200,000	210,283
				210,283
Hawaii (0.1%)
HI State Dept. Budget & Fin. Rev. Bonds, (Kahala Nui), 5.25%, 11/15/37	A/F		250,000	262,645
				262,645
Illinois (11.1%)
Chicago, G.O. Bonds
Ser. A, 6.00%, 1/1/38	BBB+		1,600,000	2,006,107
Ser. B-2, 5.50%, 1/1/37	BBB+		1,000,000	1,146,176
Chicago, Motor Fuel Tax Rev. Bonds, AGM, 5.00%, 1/1/31	AA		500,000	537,381
Chicago, Waste Wtr. Transmission Rev. Bonds
5.00%, 1/1/44	A		500,000	551,769
Ser. C, 5.00%, 1/1/39	A		750,000	857,419
(2nd Lien), 5.00%, 1/1/39	A		565,000	623,786
Ser. C, 5.00%, 1/1/34	A		400,000	459,481
Ser. C, 5.00%, 1/1/33	A		405,000	465,818
Chicago, Wtr. Wks Rev. Bonds, 5.00%, 11/1/39	A		675,000	761,562
IL State G.O. Bonds
5.00%, 11/1/41	Baa2		600,000	700,803
5.00%, 1/1/41	Baa2		340,000	389,308
5.00%, 11/1/34	Baa2		1,650,000	1,948,760
Ser. C, 5.00%, 11/1/29	Baa2		1,225,000	1,506,711
Ser. D, 5.00%, 11/1/28	Baa2		2,080,000	2,574,447
Ser. D, 5.00%, 11/1/27	Baa2		920,000	1,143,722

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Illinois cont.
IL State G.O. Bonds
4.125%, 11/1/31	Baa2		$830,000	$945,725
4.00%, 1/1/31	Baa2		695,000	775,332
IL State Fin. Auth.
Mandatory Put Bonds (11/15/26), (OSF Hlth. Care Syst. Oblig. Group), Ser. B-2, 5.00%, 5/15/50	A		1,000,000	1,203,788
Mandatory Put Bonds (9/1/22), (Field Museum of Natural History), 0.568%, 11/1/34	A2		2,445,000	2,445,000
IL State Fin. Auth. Rev. Bonds
(Rosalind Franklin U. of Medicine and Science), Ser. A, 5.00%, 8/1/31	BBB+		400,000	485,051
(Art Institute of Chicago (The)), 5.00%, 3/1/30	Aa3		1,500,000	1,794,035
IL State Fin. Auth. Student Hsg. & Academic Fac. Rev. Bonds, (U. of IL Chicago), 5.00%, 2/15/50	Baa3		500,000	580,532
Metro. Pier & Exposition Auth. Rev. Bonds, (McCormick Place Expansion), Ser. B, 5.00%, 12/15/33	BBB+		300,000	369,712
Metro. Pier & Exposition Auth. Dedicated State Tax Rev. Bonds, (McCormick), Ser. A, NATL, zero %, 12/15/22	Baa2		5,500,000	5,448,246
Metro. Wtr. Reclamation Dist. of Greater Chicago G.O. Bonds, Ser. A, 5.00%, 12/1/31	AA		1,000,000	1,233,717
				30,954,388
Indiana (1.0%)
IN State Fin. Auth. Rev. Bonds, (BHI Sr. Living), 5.75%, 11/15/41 (Prerefunded 11/15/21)	BBB/F		1,000,000	1,015,913
IN State. Fin. Auth. Rev. Bonds, (Rose-Hulman Inst. of Tech., Inc.)
5.00%, 6/1/32	A2		200,000	259,881
5.00%, 6/1/31	A2		200,000	260,724
5.00%, 6/1/30	A2		200,000	262,039
5.00%, 6/1/29	A2		175,000	225,041
5.00%, 6/1/28	A2		100,000	125,932
5.00%, 6/1/27	A2		180,000	221,370
4.00%, 6/1/34	A2		235,000	282,307
4.00%, 6/1/33	A2		210,000	253,096
				2,906,303
Iowa (0.6%)
IA State Fin. Auth. Solid Waste Fac. Mandatory Put Bonds (10/1/22), (Gevo NW Iowa RNG, LLC), 1.50%, 1/1/42	Aa3		1,700,000	1,719,330
				1,719,330
Kansas (0.5%)
KS State Dev. Fin. Auth. Rev. Bonds, (Lifespace Cmnty’s. Inc.), Ser. S, 5.00%, 5/15/30	BBB/F		1,455,000	1,459,383
				1,459,383
Kentucky (4.8%)
KY Bond Dev. Corp. Edl. Fac. Rev. Bonds, (Transylvania U.), Ser. A
5.00%, 3/1/32	A−		705,000	897,387
5.00%, 3/1/30	A−		635,000	815,187

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Kentucky cont.
KY Bond Dev. Corp. Edl. Fac. Rev. Bonds, (Transylvania U.), Ser. A
4.00%, 3/1/49	A−		$330,000	$374,967
4.00%, 3/1/46	A−		485,000	552,540
4.00%, 3/1/33	A−		180,000	211,231
KY Pub. Trans. Infrastructure Auth. Rev. Bonds, (1st Tier Downtown Crossing), Ser. A, 6.00%, 7/1/53	Baa2		500,000	552,542
KY State Pub. Energy Auth. Gas Supply
Mandatory Put Bonds (6/1/25), Ser. C-1, 4.00%, 12/1/49	A1		3,150,000	3,543,236
Mandatory Put Bonds (1/1/25), Ser. B, 4.00%, 1/1/49	A1		2,800,000	3,114,165
Louisville & Jefferson Cnty., Metro. Govt. Hlth. Syst. Rev. Bonds, (Norton Healthcare, Inc.), Ser. A, 5.00%, 10/1/30	A		2,750,000	3,317,163
				13,378,418
Louisiana (0.9%)
LA Stadium & Exposition Dist. Rev. Bonds, 4.00%, 7/3/23	BBB+/F		500,000	528,984
St. John The Baptist Parish Mandatory Put Bonds (7/1/26), (Marathon Oil Corp.), Ser. A-3, 2.20%, 6/1/37	Baa3		2,000,000	2,104,889
				2,633,873
Maryland (0.6%)
Gaithersburg, Econ. Dev. Rev. Bonds, (Asbury, Oblig. Group), Ser. A, 5.00%, 1/1/36	BBB/F		300,000	336,344
MD State Hlth. & Higher Ed. Fac. Auth. Rev. Bonds, (Stevenson U.)
5.00%, 6/1/33	BBB−		425,000	564,639
5.00%, 6/1/31	BBB−		350,000	468,677
4.00%, 6/1/34	BBB−		250,000	304,590
				1,674,250
Massachusetts (0.3%)
MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. D, 3.10%, 6/1/30	Aa2		720,000	791,410
				791,410
Michigan (4.6%)
Detroit, G.O. Bonds, 5.50%, 4/1/34	Ba3		660,000	848,671
Detroit, Downtown Dev. Auth. Tax Alloc. Bonds, Ser. A, AGM, 5.00%, 7/1/43	AA		3,000,000	3,364,462
Kentwood, Economic Dev. Rev. Bonds, (Holland Home Oblig. Group), 5.00%, 11/15/37	BBB−/F		1,000,000	1,149,674
MI State Fin. Auth. Rev. Bonds
(Trinity Health Corp. Oblig. Group), Ser. A, 4.00%, 12/1/49 T	AA−		1,325,000	1,578,760
Ser. H-1, 5.00%, 10/1/39 (Prerefunded 10/1/24)	AA−		525,000	597,675
(Pub. Ltg. Auth.), Ser. B, 5.00%, 7/1/39	BB+		2,000,000	2,154,426
(Detroit Wtr. & Swr.), Ser. C-6, 5.00%, 7/1/33	AA−		140,000	158,483
(Detroit), Ser. C-3, 5.00%, 4/1/28	Aa2		700,000	862,097
(Tobacco Settlement), Ser. A-1, 2.326%, 6/1/30	A		764,071	799,315
MI State Fin. Auth. Ltd. Oblig. Rev. Bonds, (Lawrence Technological U.), 5.25%, 2/1/32	BB+		1,145,000	1,322,865
				12,836,428

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Minnesota (1.8%)
Duluth, Econ. Dev. Auth. Rev. Bonds, (Benedictine Hlth. Syst. Oblig. Group), Ser. A, 4.00%, 7/1/31	BB/P		$625,000	$694,240
MN State Higher Ed. Fac. Auth. Rev. Bonds, (Augsburg U.), Ser. A, 5.00%, 5/1/46	Ba1		750,000	808,952
St. Paul, Hsg. & Redev. Auth. Charter School Lease Rev. Bonds, (Hmong College Prep Academy), 5.50%, 9/1/36	BB+		3,000,000	3,536,251
				5,039,443
Mississippi (0.6%)
MS State Bus. Fin. Corp. Rev. Bonds, (System Energy Resources, Inc.)
2.50%, 4/1/22	BBB+		750,000	754,252
2.375%, 6/1/44	A		900,000	910,999
				1,665,251
Missouri (0.3%)
Plaza at Noah’s Ark Cmnty. Impt. Dist. Rev. Bonds
3.00%, 5/1/26	B+/P		275,000	286,116
3.00%, 5/1/25	B+/P		225,000	233,239
3.00%, 5/1/24	B+/P		200,000	206,124
				725,479
Nebraska (1.4%)
Central Plains, Energy Mandatory Put Bonds (1/1/24), (No. 4), 5.00%, 3/1/50	A2		2,500,000	2,765,562
Central Plains, Energy Rev. Bonds, (NE Gas No. 3), 5.00%, 9/1/32 (Prerefunded 9/1/22)	A2		1,000,000	1,051,220
				3,816,782
New Hampshire (1.5%)
National Fin. Auth. Rev. Bonds, (Caritas Acquisitions VII, LLC), Ser. A, 3.75%, 8/15/30	BBB/P		1,050,000	1,122,771
NH State Hlth. & Ed. Fac. Auth. Rev. Bonds
(Catholic Med. Ctr.), 5.00%, 7/1/44	BBB+		500,000	586,357
(Southern NH Med. Ctr.), 5.00%, 10/1/37	A−		2,000,000	2,372,303
				4,081,431
New Jersey (2.8%)
NJ State Econ. Dev. Auth. Rev. Bonds, Ser. AAA, 5.00%, 6/15/36	Baa1		350,000	421,463
NJ State Edl. Fac. Auth. Rev. Bonds, (William Paterson U. of NJ (The)), Ser. C, AGM
5.00%, 7/1/27	AA		100,000	124,154
5.00%, 7/1/26	AA		100,000	120,842
5.00%, 7/1/25	AA		100,000	117,107
5.00%, 7/1/24	AA		100,000	113,077
NJ State Hlth. Care Fac. Fin. Auth. VRDN
(Virtua Hlth.), Ser. C, 0.01%, 7/1/43	A-1		1,665,000	1,665,000
(AHS Hosp. Corp.), Ser. B, 0.01%, 7/1/36	VMIG 1		1,500,000	1,500,000
NJ State Trans. Trust Fund Auth. Rev. Bonds
(Federal Hwy. Reimbursement Notes), 5.00%, 6/15/28	A+		750,000	898,528
Ser. AA, 5.00%, 6/15/36 ###	Baa1		775,000	987,421
Ser. A, 4.00%, 6/15/39 ###	BBB		1,510,000	1,751,170
				7,698,762

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
New Mexico (0.4%)
Sante Fe, Retirement Fac. Rev. Bonds, (El Castillo Retirement Res.), 5.00%, 5/15/42	BB+/F		$980,000	$999,620
				999,620
New York (3.9%)
Albany, Cap. Resource Corp. Rev. Bonds, (Empire Commons Student Hsg., Inc.)
5.00%, 5/1/26	A		400,000	484,288
Ser. A, 5.00%, 5/1/25	A		645,000	755,156
5.00%, 5/1/24	A		575,000	648,975
5.00%, 5/1/23	A		795,000	861,416
Hempstead, Union Free School Dist. G.O. Bonds, Ser. A, 1.00%, 6/30/22	A1		1,750,000	1,762,349
Metro. Trans. Auth. Dedicated Tax Mandatory Put Bonds (6/1/22), Ser. A-2A, 0.47%, 11/1/26	AA		1,820,000	1,820,047
NY City, Indl. Dev. Agcy. Rev. Bonds, (Yankee Stadium, LLC), AGM, 5.00%, 3/1/28	AA		500,000	636,341
NY State Mtge. Agcy. Rev. Bonds, Ser. 196, 2.60%, 4/1/25	Aa1		750,000	796,220
NY State Trans. Dev. Corp. Exempt Fac. Rev. Bonds, (Empire State Thruway Partners, LLC.), 4.00%, 10/31/46	BBB−/F		1,500,000	1,782,916
NY State Trans. Special Fac. Dev. Corp. Rev. Bonds
(JFK Intl. Arpt. Term. 4, LLC), 5.00%, 12/1/29	Baa1		500,000	654,727
(American Airlines, Inc.), 2.25%, 8/1/26	B/F		250,000	259,602
Saratoga Cnty., Cap. Resource Rev. Bonds, (Skidmore College), Ser. 21A, 5.00%, 7/1/25	A1		425,000	501,504
				10,963,541
North Carolina (1.4%)
NC State Med. Care Comm. Hlth. Care Fac. Rev. Bonds, (Lutheran Svcs. for the Aging, Inc. Oblig. Group), Ser. C
5.00%, 3/1/28 ###	BB/P		365,000	428,526
5.00%, 3/1/27 ###	BB/P		460,000	532,627
5.00%, 3/1/26 ###	BB/P		440,000	500,016
4.00%, 3/1/29 ###	BB/P		755,000	846,635
NC State Tpk. Auth. Rev. Bonds, 5.00%, 2/1/24	BBB		1,500,000	1,677,456
				3,985,260
Ohio (3.4%)
Cuyahoga Cnty., Econ. Dev. Rev. Bonds
5.00%, 1/1/38	A		1,380,000	1,669,952
5.00%, 1/1/36	A		425,000	516,642
Franklin Cnty., Hlth. Care Fac. Rev. Bonds, (Friendship Village of Dublin Oblig. Group), 5.00%, 11/15/34	BBB+/F		700,000	781,055
Lucas Cnty., Hlth. Care Fac. Rev. Bonds, (Sunset Retirement Cmntys.), 5.50%, 8/15/30	A−/F		650,000	652,114
OH State Higher Edl. Fac. Comm. Rev. Bonds, (John Carroll U.)
5.00%, 10/1/30	A3		455,000	588,524
5.00%, 10/1/29	A3		810,000	1,030,326
5.00%, 10/1/28	A3		370,000	462,117

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Ohio cont.
OH State Higher Edl. Fac. Comm. Rev. Bonds, (John Carroll U.)
5.00%, 10/1/27	A3		$350,000	$429,320
5.00%, 10/1/26	A3		350,000	419,952
5.00%, 10/1/25	A3		220,000	256,685
OH State Hosp. Rev. Bonds, (Premier Hlth. Partners Oblig. Group)
5.00%, 11/15/27	Baa1		240,000	298,976
5.00%, 11/15/26	Baa1		285,000	345,996
5.00%, 11/15/24	Baa1		135,000	154,437
Port of Greater Cincinnati Dev. Auth. 144A Rev. Bonds, 4.25%, 12/1/50	BB/P		750,000	772,345
Scioto Cnty., Hosp. Rev. Bonds, (Southern OH Med. Ctr.), 5.00%, 2/15/33	A3		500,000	588,534
Warren Cnty., Hlth. Care Fac. Rev. Bonds, (Otterbein Homes Oblig. Group), Ser. A, 5.75%, 7/1/33	A		500,000	542,931
				9,509,906
Oregon (0.1%)
Keizer, Special Assmt. Bonds, (Keizer Station), Ser. A, 5.20%, 6/1/31	Aa3		245,000	245,917
				245,917
Pennsylvania (5.3%)
Chester Cnty., Indl. Dev. Auth. Student Hsg. Rev. Bonds, (West Chester U. Student Hsg., LLC), Ser. A, 5.00%, 8/1/45	Ba2		750,000	787,900
Dallas, Area Muni. Auth. U. Rev. Bonds, (Misericordia U.), 5.00%, 5/1/29	Baa3		300,000	329,057
Lackawanna Cnty., Indl. Dev. Auth. Rev. Bonds, (Scranton U.), 4.00%, 11/1/40	A−		500,000	567,542
PA Rev. Bonds, (City of Philadelphia, Wtr. & Wastewater)
4.00%, 1/1/32	Baa2		540,000	650,724
4.00%, 1/1/31	Baa2		165,000	197,460
4.00%, 1/1/30	Baa2		115,000	136,444
4.00%, 1/1/29	Baa2		725,000	855,020
PA State Tpk. Comm. Rev. Bonds
Ser. B-1, 5.00%, 6/1/42	A3		675,000	814,457
Ser. B, 4.00%, 12/1/51	A		1,200,000	1,438,214
Pittsburgh Wtr. & Swr. Auth. Mandatory Put Bonds (12/1/23), Ser. C, AGM, 0.67%, 9/1/40	AA		1,875,000	1,891,733
Scranton, School Dist. G.O. Bonds, Ser. 14-R, 0.918%, 4/1/31	A2		5,640,000	5,667,973
Westmoreland Cnty. Indl. Dev. Auth. Hlth. Syst. Rev. Bonds, (Excela Hlth. Oblig. Group), Ser. A
5.00%, 7/1/28	Baa1		275,000	349,047
5.00%, 7/1/27	Baa1		375,000	465,089
4.00%, 7/1/26	Baa1		300,000	347,743
4.00%, 7/1/24	Baa1		200,000	220,502
				14,718,905

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Rhode Island (0.8%)
RI Hlth. & Edl. Bldg. Corp. Rev. Bonds, (Lifespan Oblig. Group-Hosp. Fin.)
5.00%, 5/15/33	BBB+		$365,000	$420,168
5.00%, 5/15/26	BBB+		580,000	690,953
Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. B, 5.00%, 6/1/50	BBB−/P		1,000,000	1,118,064
				2,229,185
South Carolina (4.8%)
Myrtle Beach, Tax Allocation Bonds, (Myrtle Beach Air Force Base Redev.), 5.00%, 10/1/28	A2		575,000	692,277
SC State Pub. Svcs. Auth. Rev. Bonds
Ser. A, 5.50%, 12/1/54	A2		1,000,000	1,132,153
Ser. A, 5.00%, 12/1/55	A2		545,000	628,072
(Santee Cooper), Ser. B, 5.00%, 12/1/38	A2		595,000	656,841
(Oblig.), Ser. B, 5.00%, 12/1/37	A2		500,000	606,905
Ser. A, 5.00%, 12/1/36	A2		1,500,000	1,794,209
SC Trans. Infrastructure Bank Mandatory Put Bonds (10/1/21), Ser. 03B
0.517%, 10/1/31	AA−/P		120,000	120,022
U.S. Govt. Coll., 0.517%, 10/1/31 (Prerefunded 10/1/21)	AAA/P		7,860,000	7,864,271
				13,494,750
Tennessee (0.4%)
Chattanooga, Hlth. Edl. & Hsg. Fac. Rev. Bonds, (CommonSpirit Health Oblig. Group)
Ser. A-1, 4.00%, 8/1/37 T	Baa1		150,000	178,335
Ser. A-1, 4.00%, 8/1/38 T	Baa1		150,000	177,689
Ser. A-2, 5.00%, 8/1/44 T	Baa1		150,000	184,775
Ser. A-1, 4.00%, 8/1/44 T	Baa1		275,000	323,946
Ser. A-2, 5.00%, 8/1/49 T	Baa1		250,000	310,014
				1,174,759
Texas (6.4%)
Arlington, Higher Ed. Fin. Corp. Rev. Bonds
(Harmony Pub. Schools), Ser. A, PSFG, 4.00%, 2/15/51 ##	Aaa		2,000,000	2,374,715
(Uplift Ed.), Ser. A, PSFG, 4.00%, 12/1/32	AAA		375,000	436,999
Austin-Bergstrom Landhost Enterprises, Inc. Rev. Bonds
5.00%, 10/1/36	A3		1,485,000	1,732,154
5.00%, 10/1/33	A3		400,000	468,906
Clifton, Higher Ed. Fin. Corp. Rev. Bonds, (IDEA Pub. Schools), Ser. B, 5.00%, 8/15/27	A−		350,000	421,016
Fort Bend, Indpt. School Dist. Mandatory Put Bonds (8/1/26), Ser. B, PSFG, 0.72%, 8/1/51	AAA		1,000,000	1,009,508
Harris Cnty., Cultural Ed. Fac. Fin. Corp. Rev. Bonds, (YMCA of the Greater Houston Area), Ser. A, 5.00%, 6/1/38	Baa2		500,000	516,914
Lake Houston Redev. Auth. Rev. Bonds, (City of Houston, Reinvestment Zone No. 10)
5.00%, 9/1/31	BBB−		200,000	264,264
5.00%, 9/1/30	BBB−		200,000	260,262

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Texas cont.
Lake Houston Redev. Auth. Rev. Bonds, (City of Houston, Reinvestment Zone No. 10)
5.00%, 9/1/29	BBB−		$175,000	$224,584
5.00%, 9/1/28	BBB−		150,000	189,351
5.00%, 9/1/26	BBB−		125,000	151,169
5.00%, 9/1/25	BBB−		100,000	117,529
5.00%, 9/1/24	BBB−		100,000	113,904
4.00%, 9/1/33	BBB−		150,000	182,462
4.00%, 9/1/32	BBB−		150,000	183,144
New Hope, Cultural Ed. Fac. Fin. Corp. Rev. Bonds
(CHF-Collegiate Hsg. Stephenville III, LLC), 5.00%, 4/1/47 (Prerefunded 4/1/25)	AAA/P		365,000	427,706
(TX Woman’s U. CHF-Collegiate Hsg. Dining), Ser. B-1, AGM, 5.00%, 7/1/38	AA		860,000	1,056,797
(Tarleton State U. Collegiate Student Hsg.), Ser. A, 5.00%, 4/1/35 (Prerefunded 4/1/25)	AAA/P		800,000	937,439
(Collegiate Hsg.-Tarleton St.), 5.00%, 4/1/29 (Prerefunded 4/1/24)	AAA/P		1,225,000	1,369,840
(Collegiate Housing Island Campus, LLC.), Ser. A, 5.00%, 4/1/25 (Escrowed to maturity)	AAA/P		500,000	583,904
Newark, Higher Ed. Fin. Corp. Rev. Bonds, (Austin Achieve Pub. Schools, Inc.), 5.00%, 6/15/33	BBB−/P		200,000	206,089
SA Energy Acquisition Pub. Fac. Corp. Rev. Bonds, (Gas Supply), 5.50%, 8/1/25	A2		1,000,000	1,194,462
Tarrant Cnty., Cultural Ed. Fac. Fin. Corp. Retirement Fac. Rev. Bonds, (Buckner Retirement Svcs., Inc.), 5.00%, 11/15/37	A/F		1,250,000	1,515,328
Temple, Tax Increment Tax Alloc. Bonds, (Reinvestment Zone No. 1), Ser. A, BAM
5.00%, 8/1/30	AA		250,000	324,806
5.00%, 8/1/29	AA		200,000	256,268
5.00%, 8/1/28	AA		150,000	189,937
5.00%, 8/1/27	AA		125,000	154,297
5.00%, 8/1/26	AA		125,000	150,743
4.00%, 8/1/33	AA		200,000	239,405
4.00%, 8/1/32	AA		225,000	270,453
4.00%, 8/1/31	AA		200,000	241,527
				17,765,882
Utah (1.5%)
Murray City, Hosp. VRDN, (IHC Hlth. Svcs., Inc.), Ser. A, 0.03%, 5/15/37	VMIG 1		2,000,000	2,000,000
UT Infrastructure Agcy. Rev. Bonds, Ser. A
4.00%, 10/15/30	BBB−/F		400,000	487,797
4.00%, 10/15/28	BBB−/F		200,000	239,180
4.00%, 10/15/27	BBB−/F		570,000	674,034
UT State Charter School Fin. Auth. Rev. Bonds, (UT Charter Academies, Inc.), 5.00%, 10/15/30	AA		575,000	697,373
				4,098,384

MUNICIPAL BONDS AND NOTES (94.6%)* cont.	Rating**		Principal amount	Value
Virginia (0.9%)
Fairfax Cnty., Econ. Dev. Auth. Res. Care Fac. Rev. Bonds, (Goodwin House, Inc.), Ser. A, 5.00%, 10/1/42	BBB+/F		$350,000	$394,585
VA State Small Bus. Fin. Auth. Rev. Bonds, (National Sr. Campuses, Inc. Oblig. Group)
5.00%, 1/1/29	A/F		590,000	741,426
5.00%, 1/1/28	A/F		700,000	877,656
5.00%, 1/1/27	A/F		320,000	390,417
				2,404,084
Washington (4.0%)
Seattle, Muni. Lt. & Pwr. Mandatory Put Bonds (11/1/26), Ser. B, 0.27%, 5/1/45 ##	Aa2		750,000	750,348
WA State Hlth. Care Fac. Auth.
Mandatory Put Bonds (7/1/22), (Fred Hutchinson Cancer Research Ctr.), Ser. B, 1.16%, 1/1/42	A+		1,100,000	1,102,636
Mandatory Put Bonds (7/3/23), (Fred Hutchinson Cancer Research Ctr.), 1.07%, 1/1/42	A+		8,000,000	8,055,110
WA State Hsg. Fin. Comm. Rev. Bonds, (Social Certif.), Ser. A-1, 3.50%, 12/20/35	BBB+		1,167,321	1,379,141
				11,287,235
Wisconsin (1.5%)
Pub. Fin. Auth. Student Hsg. Fac. Rev. Bonds, (Beyond Boone, LLC-Appalachian State U.), Ser. A, AGM
5.00%, 7/1/54	AA		1,475,000	1,786,131
5.00%, 7/1/44	AA		1,000,000	1,220,347
WI State Hlth. & Edl. Fac. Auth. Rev. Bonds, (Three Pillars Sr. Living), 5.00%, 8/15/33 (Prerefunded 8/15/23)	BBB+/F		1,000,000	1,098,645
				4,105,123
Total municipal bonds and notes (cost $249,817,270)				$263,767,050

SHORT-TERM INVESTMENTS (10.0%)*		Principal amount/ shares	Value
Putnam Short Term Investment Fund Class P 0.09% L	Shares	27,436,292	$27,436,292
U.S. Treasury Bills 0.018%, 9/21/21 # §		$500,000	499,965
Total short-term investments (cost $27,936,280)			$27,936,257

TOTAL INVESTMENTS
Total investments (cost $277,753,550)	$291,703,307

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, 2020 through July 31, 2021 (the reporting period). Within the following notes to the portfolio, 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 “ASC 820” represent Accounting Standards Codification 820 Fair Value Measurements and Disclosures.
*	Percentages indicated are based on net assets of $278,896,563.

**	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. Ratings are not covered by the Report of Independent Registered Public Accounting Firm. For further details regarding security ratings, please see the Statement of Additional Information.
#	This security, in part or in entirety, was pledged and segregated with the broker to cover margin requirements for futures contracts at the close of the reporting period. Collateral at period end totaled $117,988 and is included in Investments in securities on the Statement of assets and liabilities (Notes 1 and 8).
§	This security, in part or in entirety, was pledged and segregated with the custodian for collateral on the initial margin on certain centrally cleared derivative contracts at the close of the reporting period. Collateral at period end totaled $299,970 and is included in Investments in securities on the Statement of assets and liabilities (Notes 1 and 8).
##	Forward commitment, in part or in entirety (Note 1).
L	Affiliated company (Note 5). The rate quoted in the security description is the annualized 7-day yield of the fund at the close of the reporting period.
T	Underlying security in a tender option bond transaction. This security has been segregated as collateral for financing transactions.
###	When-issued security.
	At the close of the reporting period, the fund maintained liquid assets totaling $26,239,399 to cover certain derivative contracts, tender option bonds, and the settlement of certain securities.
	Unless otherwise noted, the rates quoted in Short-term investments security descriptions represent the weighted average yield to maturity.
	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. Rates are set by remarketing agents and may take into consideration market supply and demand, credit quality and the current SIFMA Municipal Swap Index, 1 Month US LIBOR or 3 Month US LIBOR rates, which were 0.02%, 0.09% and 0.12%, respectively, as of the close of the reporting period.
	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	23.6%
	Education	14.3

FUTURES CONTRACTS OUTSTANDING at 7/31/21
	Number of contracts	Notional amount	Value	Expiration date	Unrealized appreciation/ (depreciation)
U.S. Treasury Note 5 yr (Short)	116	$14,435,656	$14,435,656	Sep-21	$(74,574)
Unrealized appreciation					—
Unrealized (depreciation)					(74,574)
Total					$(74,574)

OTC TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 7/31/21
Swap counterparty/ Notional amount		Value	Upfront premium received (paid)	Termination date	Payments received (paid) by fund	Total return received by or paid by fund	Unrealized appreciation/ (depreciation)
Morgan Stanley & Co. International PLC
	$2,000,000	$30,718	$—	11/18/21	—	0.10% minus Municipal Market Data Index AAA municipal yields 10 Year rate — At maturity	$30,718
	2,000,000	28,718	—	11/18/21	—	0.10% minus Municipal Market Data Index AAA municipal yields 10 Year rate — At maturity	28,718
	2,750,000	4,084	—	11/2/21	—	0.10% minus Municipal Market Data Index AAA municipal yields 10 Year rate — At maturity	4,084
	1,000,000	24,014	—	11/18/21	—	0.20% minus Municipal Market Data Index AAA municipal yields 30 Year rate — At maturity	(24,014)
	1,000,000	24,014	—	11/18/21	—	0.20% minus Municipal Market Data Index AAA municipal yields 30 Year rate — At maturity	(24,014)
Upfront premium received			—		Unrealized appreciation		63,520
Upfront premium (paid)			—		Unrealized (depreciation)		(48,028)
Total			$—		Total	$15,492

CENTRALLY CLEARED TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 7/31/21
Notional amount		Value	Upfront premium received (paid)	Termination date	Payments received (paid) by fund	Total return received by or paid by fund	Unrealized appreciation/ (depreciation)
	$11,893,000	$373,202	$(120)	3/29/26	2.51% — At maturity	USA Non-revised Consumer Price Index-Urban (CPI-U) — At maturity	$(373,322)
Total			$(120)	$(373,322)