Putnam
Tax-Free High Yield
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.

 

Two of the most significant challenges of fixed-income investing are low interest rates and taxes on income. Putnam Tax-Free High Yield Fund can help reduce the impact of both by investing in higher-yielding, lower-rated municipal bonds that are exempt from federal and state income taxes.

Meticulous credit research

Municipal bonds finance important public projects, such as schools, roads, and hospitals, and they can help investors keep more of the income they receive from their investment. Members of Putnam’s fixed-income organization have a range of skills to analyze the credit risk of below-investment-grade municipal bonds and help build a well-diversified portfolio.

 

 

 

The bottom line: Income you keep after paying taxes matters more than pre-tax yield

You keep more income from municipal bonds because it is exempt from most state and federal income taxes.

Sources: Bloomberg Index Services Limited, Putnam, as of 7/31/21. Past performance is no guarantee of future results. Yields for U.S. Treasuries, investment-grade corporates, and municipal bonds are represented by the average “yield to worst” — a calculation of the lowest possible yield generated without defaulting — of the Bloomberg U.S. Treasury Index, an unmanaged index of U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury; the Bloomberg U.S. Corporate Bond Index, an unmanaged index of U.S. dollar-denominated, investment-grade, fixed-rate, taxable corporate bonds; and the Bloomberg Municipal Bond Index, an unmanaged index of long-term fixed-rate, investment-grade tax-exempt bonds, respectively. You cannot invest directly in an index. 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. Income from municipal bonds may be subject to the alternative minimum tax. Annual after-tax income is based on a 40.80% federal income tax rate. This rate reflects the Tax Cuts and Jobs Act of 2017 and includes the 3.80% Medicare surtax. The income data is based on a hypothetical $100,000 investment.

Source: Moody’s Investor Services, Annual U.S. Municipal Bond Defaults and Recoveries, Five-Year Average Cumulative Default Rates, 1970–2020 (July 2021). Most recent data available.

 

 

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 10–13 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.

All Bloomberg indices provided by Bloomberg Index Services Limited.

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

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 10–13 for additional fund performance information. Index descriptions can be found on pages 16–17.

All Bloomberg indices provided by Bloomberg Index Services Limited.

 

 

Paul, how was the market for municipal bonds during the reporting period?

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 ARP. Furthermore, local municipalities have

 

 

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.

 

 

benefited from a strong housing market and higher revenue from local property taxes.

With vaccination progress leading to a strong reopening 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 tightened credit spreads. [Credit spreads reflect the difference in yield between higher- and lower-rated municipal bonds.] For the 12 months ended July 31, 2021, the Bloomberg Municipal Bond Index [the fund’s benchmark] rose 3.29%, solidly outperforming the broader U.S. fixed-income markets, which delivered a slightly negative result, and U.S. Treasuries. Under the surface, long-term municipal bonds outperformed their intermediate- and short-term cohorts. From a credit perspective, higher-yielding, lower-rated municipal bonds outperformed investment-grade municipal bonds.

How did the fund perform during the period?

For the 12 months ended July 31, 2021, the fund outperformed its benchmark by a considerable margin but fell just short of the average return of its Lipper peer group, High Yield Municipal Debt Funds.

What strategies or holdings influenced the fund’s performance?

At period-end, the fund held an overweight exposure to lower-investment-grade bonds rated BBB and and non-investment-grade bonds rated BB relative to its benchmark. The fund also held a neutral exposure to lower-rated, high-yield bonds relative to its Lipper peer group. From a sector- or industry-positioning perspective, we favored continuing-care retirement communities, land development, and charter school bonds relative to the fund’s Lipper peer group. Duration positioning, a measure of the fund’s interest-rate sensitivity, was generally neutral relative to the level of its Lipper peer group at period-end. Our yield-curve strategy was defined by an overweight position in bonds with maturities of 10 to 20 years relative to the Lipper peer group at period-end. As part of this strategy, the fund held an underweight exposure to the longest maturity bonds compared with the benchmark.

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 many 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, 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. In our view, federal grants for these projects would reduce the need for municipal borrowers to issue debt to cover these essential services. This could increase fiscal flexibility for these borrowers while avoiding higher tax burdens.

The current uncertainties surrounding the path of inflation and the course of the pandemic could lead to increased interest-rate volatility. Putnam’s economists believe the recent rise in inflation readings is transitory. In their view, inflation could recede as the U.S. economy continues reopening, growth becomes steadier, and Covid-19 fears subside.

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 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.

This chart shows the fund’s largest allocation shifts, by percentage, 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 portfolio schedule 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.

 

 

Even with Covid-19 challenges in 2020, the default rate represented less than 0.25% of the overall municipal bond market, according to Municipal Market Analytics. Defaults within the investment-grade-rated universe were a rare occurrence.

We continue to believe municipals offer a high-quality, tax-free strategy to garner income in today’s historically low rate environment.

Thank you, Paul, 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. 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.

^* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 7/31/21, there were 187, 174, 141, 99, and 13 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 $16,814 and $16,613, 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 $18,114 and $18,097, 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 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

 

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.

^* 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 (12b-1) 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 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 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 more broadly invested fund. 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 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. 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. Putnam Management and PSERV’s commitment to these expense limitation arrangements, which were intended to support an effort to have fund expenses meet competitive standards, 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 second 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 High Yield 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):

 

Over the one-year, three-year and five-year periods ended December 31, 2020, there were 189, 169 and 143 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 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 Tax-Free High Yield Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities, including the fund’s portfolio, of Putnam Tax-Free High Yield 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 (97.3%)*	Rating**		Principal amount	Value
Alabama (1.4%)
Jefferson Cnty., Swr. Rev. Bonds
Ser. D, 6.50%, 10/1/53	BBB		$3,000,000	$3,516,912
zero %, 10/1/46	BBB		8,800,000	9,091,959
				12,608,871
Alaska (1.6%)
AK State Indl. Dev. & Export Auth. Rev. Bonds, (Tanana Chiefs Conference), Ser. A, 4.00%, 10/1/49	A+/F		8,500,000	9,681,650
Northern Tobacco Securitization Corp. Rev. Bonds
Ser. A, Class 1, 4.00%, 6/1/50	BBB+		1,700,000	2,018,631
Ser. B-1, Class 2, 4.00%, 6/1/50	BBB−		675,000	793,576
Ser. B-2, Class 2, zero %, 6/1/66	BB/P		8,000,000	1,812,487
				14,306,344
Arizona (2.2%)
AZ State Indl. Dev. Auth. Ed. 144A Rev. Bonds, (BASIS Schools, Inc.), Ser. G, 5.00%, 7/1/37	BB		1,500,000	1,765,232
Maricopa Cnty., Indl. Dev. Auth. Ed. Rev. Bonds, (Horizon Cmnty. Learning Ctr.), 5.00%, 7/1/35	BB+		1,500,000	1,671,531
Phoenix, Indl. Dev. Auth. Ed. Rev. Bonds
(Choice Academies, Inc.), 5.375%, 9/1/32	BB		1,000,000	1,033,833
(Great Hearts Academies), 5.00%, 7/1/44	BBB−		3,800,000	4,149,296
Phoenix, Indl. Dev. Auth. Ed. 144A Rev. Bonds, (BASIS Schools, Inc.)
Ser. A, 5.00%, 7/1/46	BB		750,000	836,025
5.00%, 7/1/35	BB		1,500,000	1,685,910
Ser. A, 5.00%, 7/1/35	BB		1,750,000	1,966,895
Phoenix, Indl. Dev. Auth. Student Hsg. Rev. Bonds, (Downtown Phoenix Student Hsg., LLC-AZ State U.), Ser. A, 5.00%, 7/1/37	Baa3		750,000	910,730
Salt Verde, Fin. Corp. Gas Rev. Bonds
5.50%, 12/1/29	A3		1,525,000	2,026,017
5.00%, 12/1/32	A3		1,500,000	2,010,568
Yavapai Cnty., Indl. Dev. Ed. Auth. Rev. Bonds, (Agribusiness & Equine Ctr.), 5.00%, 3/1/32	BB+		1,600,000	1,658,403
Yavapai Cnty., Indl. Dev. Ed. Auth. 144A Rev. Bonds, Ser. A, 5.00%, 9/1/34	BB+		500,000	552,812
				20,267,252

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
California (9.5%)
ABAG Fin. Auth. for Nonprofit Corps. Rev. Bonds, (Episcopal Sr. Cmntys.), 6.00%, 7/1/31	A−/F		$1,295,000	$1,300,271
CA Cmnty. Hsg. Agcy. Essential Hsg. 144A Rev. Bonds
(Aster Apt.), Ser. A-1, 4.00%, 2/1/56	BB+/P		775,000	889,802
(Creekwood Apt.), Ser. A, 4.00%, 2/1/56	BB−/P		1,900,000	2,080,210
(Glendale Properties), Ser. A-1, 4.00%, 2/1/56	BB/P		2,500,000	2,844,042
(Stoneridge Apt.), Ser. A, 4.00%, 2/1/56	BB/P		2,900,000	3,226,729
(Glendale Properties), Ser. A-2, 4.00%, 8/1/47	B+/P		1,900,000	2,108,168
(Fountains at Emerald Park), 4.00%, 8/1/46	BB−/P		4,890,000	5,479,990
CA Hsg. Fin. Agcy. Muni. Certif. Rev. Bonds, Ser. 21-1, Class A, 3.50%, 11/20/35	BBB+		2,911,174	3,470,992
CA Pub. State Fin. Auth. Sr. Living 144A Rev. Bonds, (Enso Village Project), Ser. A
5.00%, 11/15/51	B−/P		500,000	585,896
5.00%, 11/15/46	B−/P		1,000,000	1,175,854
5.00%, 11/15/36	B−/P		750,000	904,824
CA School Fin. Auth. Rev. Bonds, (2023 Union, LLC), Ser. A, 6.00%, 7/1/33	BBB−		1,000,000	1,088,978
CA State Infrastructure & Econ. Dev. Bank 144A Rev. Bonds, (WFCS Holdings II, LLC), Ser. B, zero %, 1/1/61	B−/P		7,500,000	772,926
CA State Muni. Fin. Auth Mobile Home Park Rev. Bonds, (Caritas Affordable Hsg., Inc.), 5.25%, 8/15/39	A−		800,000	880,256
CA State Muni. Fin. Auth. Charter School Rev. Bonds, (Partnerships Uplift Cmnty.), Ser. A
5.25%, 8/1/42	BB		850,000	872,224
5.00%, 8/1/32	BB		665,000	683,880
CA State Poll. Control Fin. Auth. Rev. Bonds, (San Jose Wtr. Co.), 4.75%, 11/1/46	A		1,700,000	1,951,810
CA State Tobacco Securitization Agcy. Rev. Bonds
Ser. B-2, zero %, 6/1/55	BB/P		20,390,000	4,166,334
(Gold Country Settlement Funding Corp.), Ser. B-2, zero %, 6/1/55	BB/P		7,850,000	2,112,957
CA Statewide Cmnty. Dev. Auth. Rev. Bonds
(Terraces at San Joaquin Gardens), Ser. A, 6.00%, 10/1/47 (Prerefunded 10/1/22)	BB/P		500,000	533,797
(Terraces at San Joaquin Gardens), Ser. A, 6.00%, 10/1/42 (Prerefunded 10/1/22)	BB/P		1,750,000	1,868,290
(Terraces at San Joaquin Gardens), Ser. A, 5.625%, 10/1/32 (Prerefunded 10/1/22)	BB/P		1,105,000	1,175,290
(899 Charleston, LLC), Ser. A, 5.25%, 11/1/44	BB/P		850,000	924,316
(American Baptist Homes of the West), 5.00%, 10/1/43 (Prerefunded 10/1/22)	A−/F		1,000,000	1,055,759
CMFA Special Fin. Agcy. I 144A Rev. Bonds, (Social Bond), Ser. A-2, 4.00%, 4/1/56	BB/P		2,500,000	2,727,983
CSCDA Cmnty. Impt. Auth. 144A Rev. Bonds
(Pasadena Portfolio), 4.00%, 12/1/56	BB/P		2,000,000	2,231,002
(Union South Bay), Ser. A-2, 4.00%, 7/1/56	BB−/P		2,500,000	2,742,048
(Jefferson-Anaheim), 3.125%, 8/1/56	BB+/P		1,900,000	1,953,506
(Jefferson-Anaheim), 2.875%, 8/1/41	BB+/P		1,650,000	1,729,764

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
California cont.
Golden State Tobacco Securitization Corp. Rev. Bonds, Ser. A-2, 5.00%, 6/1/47	BB/P		$6,000,000	$6,195,243
Hastings Campus HFA Rev. Bonds, (U. of CA Hastings College of the Law), Ser. A, 5.00%, 7/1/61	BB−/P		2,500,000	3,007,516
La Verne, COP, (Brethren Hillcrest Homes), 5.00%, 5/15/36 (Prerefunded 5/15/22)	AAA/P		775,000	812,344
Long Beach, Bond Fin. Auth. Rev. Bonds, (Natural Gas Purchase), Ser. A, 5.50%, 11/15/37	A2		2,000,000	3,053,965
Palm Desert, Special Tax, (Cmnty. Fac. Dist. 2021-1), 4.00%, 9/1/51	B+/P		650,000	700,499
Rancho Cordova, Cmnty. Fac. Dist. Special Tax Bonds, (Sunridge Anatolia), Ser. 03-1, 5.00%, 9/1/37	BBB−/P		1,000,000	1,039,982
Riverside Cnty., Trans. Comm. Toll Rev. Bonds, Ser. A, 5.75%, 6/1/44	A		750,000	813,249
Sacramento, Special Tax, (Greenbriar Cmnty. Fac. Dist. No 2018-03)
4.00%, 9/1/50	BB/P		600,000	680,686
4.00%, 9/1/46	BB/P		750,000	853,098
San Francisco, City & Cnty. Dev. 144A Special Tax, (Dist. No. 2020-1 Mission Rock Fac. & Svcs.), Ser. A, 4.00%, 9/1/46	B+/P		500,000	577,314
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	1,019,568
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	2,326,810
Sunnyvale, Special Tax Bonds, (Cmnty. Fac. Dist. No. 1), 7.75%, 8/1/32	B+/P		3,780,000	3,795,763
Tobacco Securitization Auth. of Northern CA Rev. Bonds, (Sacramento Cnty., Tobacco Securitization Corp.), Ser. B-2, zero %, 6/1/60	BB/P		3,750,000	948,451
Tobacco Securitization Auth. of Southern CA Rev. Bonds, Ser. B-2, Class 2, zero %, 6/1/54	BB/P		14,660,000	2,924,494
U. of CA VRDN Rev. Bonds, Ser. AL-4, 0.02%, 5/15/48	VMIG 1		3,000,000	3,000,000
				85,286,880
Colorado (5.2%)
Aviation Station North Metro. Dist. No. 2 G.O. Bonds, Ser. A, 5.00%, 12/1/48	B+/P		1,000,000	1,081,727
Broadway Station Metro. Dist. No. 2 Co. G.O. Bonds, Ser. A, 5.125%, 12/1/48	B/P		1,500,000	1,641,785
CO Pub. Hwy. Auth. Rev. Bonds, (E-470), zero %, 9/1/41	A2		1,000,000	635,306
CO State Hlth. Fac. Auth. Rev. Bonds
(Christian Living Cmnty.), 6.375%, 1/1/41 (Prerefunded 1/1/22)	BB/P		810,000	830,679
(Christian Living Cmntys.), 5.25%, 1/1/37 (Prerefunded 1/1/22)	BB/P		750,000	765,745
(Christian Living Cmntys.), 5.125%, 1/1/30 (Prerefunded 1/1/22)	BB/P		1,415,000	1,443,978

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Colorado cont.
CO State Hlth. Fac. Auth. Hosp. Rev. Bonds
(Frasier Meadows Retirement Cmnty.), Ser. A, 5.25%, 5/15/47	BB+/F		$250,000	$295,356
(Frasier Meadows Retirement Cmnty.), Ser. A, 5.25%, 5/15/37	BB+/F		1,000,000	1,181,425
(Frasier Meadows Retirement Cmnty.), Ser. B, 5.00%, 5/15/39	BB+/F		2,000,000	2,108,513
(Christian Living Neighborhood), 5.00%, 1/1/31	BB/P		2,000,000	2,185,124
(Christian Living Neighborhoods Oblig. Group), 4.00%, 1/1/42 ###	BB/P		1,000,000	1,113,706
(Christian Living Neighborhoods), 4.00%, 1/1/38	BBB/P		550,000	613,367
(CommonSpirit Health Oblig. Group), Ser. A-2, 4.00%, 8/1/49 T	Baa1		4,000,000	4,650,233
(CommonSpirit Health Oblig. Group), Ser. A-1, 4.00%, 8/1/44 T	Baa1		2,000,000	2,337,140
(CommonSpirit Health Oblig. Group), Ser. A-1, 4.00%, 8/1/39 T	Baa1		625,000	742,232
(CommonSpirit Health Oblig. Group), Ser. A-1, 4.00%, 8/1/38 T	Baa1		625,000	741,249
(CommonSpirit Health Oblig. Group), Ser. A-1, 4.00%, 8/1/37 T	Baa1		425,000	507,100
(Covenant Living Cmnty. and Svcs. Oblig. Group), 4.00%, 12/1/50	A−/F		1,700,000	1,968,567
(Covenant Living Cmnty. and Svcs. Oblig. Group), 4.00%, 12/1/40	A−/F		2,000,000	2,348,686
Eaton, Area Park & Recreation Dist. G.O. Bonds, 5.25%, 12/1/34 (Prerefunded 12/1/22)	BB/P		330,000	352,499
Parkdale, Cmnty. Auth. Rev. Bonds, (Metro. Dist. No. 1), Ser. A, 5.25%, 12/1/50	B/P		2,285,000	2,513,013
Plaza, Tax Alloc. Bonds, (Metro. Dist. No. 1), 5.00%, 12/1/40	BB−/P		3,000,000	3,088,534
Pub. Auth. for CO Energy Rev. Bonds, (Natural Gas Purchase), 6.50%, 11/15/38	A2		2,000,000	3,164,597
RainDance Metro. Dist. No. 1 Rev. Bonds, (Non-Potable Wtr. Enterprise)
5.25%, 12/1/50	B+/P		1,375,000	1,516,483
5.00%, 12/1/40	B+/P		625,000	689,618
Southlands, Metro. Dist. No. 1 G.O. Bonds, Ser. A-1, 5.00%, 12/1/37	Ba1		500,000	579,104
STC Metro. Dist. No. 2 G.O. Bonds, Ser. A, 5.00%, 12/1/38	B+/P		2,000,000	2,202,981
Trails at Crowfoot Metro. Dist. No. 3 G.O. Bonds, Ser. A, 5.00%, 12/1/49	B+/P		2,000,000	2,162,172
Village Metro. Dist. G.O. Bonds
5.00%, 12/1/49	BB/P		1,250,000	1,414,394
5.00%, 12/1/40	BB/P		1,000,000	1,138,207
Willow Bend Metro. Dist. G.O. Bonds, Ser. A, 5.00%, 12/1/49	BB−/P		1,000,000	1,084,490
				47,098,010

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Connecticut (0.6%)
CT State Hlth. & Edl. Fac. Auth. Rev. Bonds, (Masonicare Issue), Ser. F, 5.00%, 7/1/33	BBB+/F		$1,500,000	$1,738,397
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	1,125,107
Harbor Point Infrastructure Impt. Dist. 144A Tax Alloc. Bonds, (Harbor Point Ltd.), 5.00%, 4/1/39	BB/P		2,500,000	2,912,580
				5,776,084
Delaware (0.8%)
DE State Econ. Dev. Auth. Rev. Bonds, (ASPIRA Charter School), Ser. A
5.00%, 6/1/46	BB		1,820,000	2,023,028
5.00%, 6/1/36	BB		700,000	789,971
Millsboro Special Oblig. 144A Special Tax, (Plantation Lakes), 5.25%, 7/1/48	BB−/P		2,000,000	2,245,759
Millsboro Special Oblig. 144A Tax Alloc. Bonds, (Plantation Lakes Special Dev. Dist.), 5.125%, 7/1/38	BB−/P		1,500,000	1,698,583
				6,757,341
District of Columbia (2.1%)
DC Rev. Bonds
(Ingleside at Rock Creek), Ser. A, 5.00%, 7/1/52	BB−/P		3,170,000	3,417,726
(Latin American Montessori Bilingual Pub. Charter School Oblig. Group), 5.00%, 6/1/40	BB+		2,750,000	3,342,511
(Kipp DC), Ser. B, 5.00%, 7/1/37	BBB+		3,315,000	4,003,428
(KIPP DC), 4.00%, 7/1/49	BBB+		1,000,000	1,141,501
(KIPP DC), 4.00%, 7/1/44	BBB+		250,000	287,216
DC 144A Rev. Bonds, (Rocketship DC Oblig. Group), Ser. 21-A
5.00%, 6/1/61	BB/P		700,000	826,419
5.00%, 6/1/51	BB/P		625,000	742,752
Metro. Washington, Arpt. Auth. Dulles Toll Rd. Rev. Bonds, Cap Apprec 2nd Sr Lien, Ser. B, zero %, 10/1/40	A−		995,000	665,561
Metro. Washington DC, Arpt. Auth. Dulles Toll Rd. Rev. Bonds, (Dulles Metrorail & Cap. Impt. Proj.)
Ser. B, 4.00%, 10/1/44 T	A−		1,940,000	2,269,917
4.00%, 10/1/53 T	A−		1,935,000	2,262,928
				18,959,959
Florida (6.5%)
Cap. Projects Fin. Auth. Rev. Bonds, (CAPFA Cap. Corp. 2000F), Ser. A-1, 5.00%, 10/1/33	Baa3		2,000,000	2,544,055
Cap. Trust Agcy. Rev. Bonds, (Wonderful Foundation Charter School Holdings, LLC), zero %, 1/1/60	B/P		6,000,000	626,363
Cap. Trust Agcy. 144A Rev. Bonds, (Wonderful Foundation Charter School Holdings, LLC), 5.00%, 1/1/55	BB−/P		3,800,000	4,481,435
Cap. Trust Agcy. Edl. Fac. Rev. Bonds, (Liza Jackson Preparatory School, Inc.)
5.00%, 8/1/55	Baa3		1,000,000	1,192,580
5.00%, 8/1/40	Baa3		300,000	363,584
4.00%, 8/1/30	Baa3		200,000	227,338

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Florida cont.
Celebration Pointe Cmnty. Dev. Dist. No. 1 144A Special Assessment Bonds, (Alachua Cnty.), 5.00%, 5/1/48	B/P		$475,000	$515,881
Charlotte Cnty., Indl. Dev. Auth. Util. Syst. 144A Rev. Bonds, (Town & Country Util.), 5.00%, 10/1/49	B/P		500,000	559,296
Escambia Cnty., Hlth. Fac. Auth. Rev. Bonds, (Baptist Hlth. Care), 4.00%, 8/15/45	BBB+		3,000,000	3,510,308
Fishhawk, CCD IV Special Assmt. Bonds, 7.25%, 5/1/43	B/P		560,000	610,637
FL State Higher Edl. Fac. Financial Auth. Rev. Bonds, (St. Leo U., Inc. Oblig. Group), 5.00%, 3/1/49	BBB−		3,930,000	4,567,661
Lake Cnty., Retirement Fac. Rev. Bonds, (Waterman Cmnty., Inc.), 5.75%, 8/15/55	B/P		1,750,000	2,007,120
Lakewood Ranch, Stewardship Dist. Special Assessment Bonds, (Village of Lakewood Ranch South), 5.00%, 5/1/36	B+/P		890,000	983,157
Lakewood Ranch, Stewardship Dist. Special Assmt. Bonds, 4.875%, 5/1/35	BB−/P		915,000	988,351
Lakewood Ranch, Stewardship Dist. 144A Special Assmt., 4.00%, 5/1/50	B/P		500,000	532,242
Lakewood Ranch, Stewardship Dist. 144A Special Assmt. Bonds, (Northeast Sector), 5.30%, 5/1/39	B−/P		1,250,000	1,463,316
Lee Cnty., Indl. Dev. Auth. Rev. Bonds, (Shell Point/Waterside Hlth.)
5.00%, 11/15/49	BBB+		1,800,000	2,121,026
5.00%, 11/15/39	BBB+		750,000	892,997
Miami-Dade Cnty., Indl. Dev. Auth. Rev. Bonds, (Pinecrest Academy, Inc.), 5.00%, 9/15/34	BBB		2,195,000	2,442,199
Midtown Miami Cmnty. Dev. Dist. Special Assmt. Bonds, (Garage), Ser. A, 5.00%, 5/1/29	BB−/P		750,000	787,700
Orlando Cmnty. Redev. Agcy. Tax Alloc. Bonds, (Republic Drive/Universal), 5.00%, 4/1/24	A+/F		2,760,000	2,838,066
Palm Beach Cnty., Rev. Bonds, (Lynn U. Hsg.), Ser. A, 5.00%, 6/1/57	B+/P		1,045,000	1,265,276
Palm Beach Cnty., 144A Rev. Bonds, (PBAU Hsg.), Ser. A, 5.00%, 4/1/39	Ba1		500,000	587,406
Pinellas Cnty., Indl. Dev. Auth. Rev. Bonds, (2017 Foundation for Global Understanding, Inc.), 5.00%, 7/1/39	AAA/P		2,770,000	3,363,908
Sarasota Cnty., Hlth. Fac. Auth. Retirement Fac. Rev. Bonds, (Village of Isle)
5.00%, 1/1/31	BB+/F		1,285,000	1,436,402
5.00%, 1/1/30	BB+/F		750,000	841,291
Southeast Overtown Park West Cmnty. Redev. Agcy. 144A Tax Alloc. Bonds, Ser. A-1, 5.00%, 3/1/30	BBB+		1,440,000	1,585,933
St. John’s Cnty., Indl. Dev. Auth. Rev. Bonds, (Life Care Ponte Vedra Oblig. Group), Ser. A
4.00%, 12/15/50	BB+/F		750,000	835,500
4.00%, 12/15/46	BB+/F		750,000	837,395
4.00%, 12/15/36	BB+/F		400,000	455,051

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Florida cont.
Tampa, Cap. Impt. Cigarette Tax Rev. Bonds, (Cap. Appn.), Ser. A
zero %, 9/1/53	A1		$2,600,000	$797,259
zero %, 9/1/45	A1		2,000,000	879,761
zero %, 9/1/41	A1		1,000,000	526,793
zero %, 9/1/40	A1		850,000	469,113
Verandah, West Cmnty. Dev. Dist. Special Assmt. Bonds, (Cap. Impt.), 5.00%, 5/1/33	B+/P		985,000	1,023,824
Village Cmnty. Dev. Dist. No. 10 Special Assmt. Bonds, 5.75%, 5/1/31	BB/P		995,000	1,072,722
Village Cmnty. Dev. Dist. No. 11 Special Assmt. Bonds, 4.50%, 5/1/45	BB−/P		2,575,000	2,673,038
Village Cmnty. Dev. Dist. No. 12 144A Special Assessment Bonds, 4.00%, 5/1/33	BB−/P		1,190,000	1,353,116
Village Cmnty. Dev. Dist. No. 9 Special Assmt. Bonds, 5.00%, 5/1/22	BBB−/P		75,000	76,708
Village, 144A Special Assmt., (Village Cmnty. Dev. Dist. No. 13), 3.50%, 5/1/51	BB−/P		3,975,000	4,189,741
				58,525,549
Georgia (2.2%)
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	1,399,814
(Kennesaw State U. Real Estate), 5.00%, 7/15/30	Baa2		1,200,000	1,363,454
Gainesville & Hall Cnty., Dev. Auth. Edl. Fac. Rev. Bonds, (Riverside Military Academy), 5.00%, 3/1/37	BB/F		2,385,000	2,441,981
Geo L Smith II GA Congress Ctr. 144A Rev. Bonds, (Signia Hotel Mgt., LLC.)
5.00%, 1/1/54	BB−/P		2,470,000	2,985,750
5.00%, 1/1/36	BB−/P		1,430,000	1,770,723
Muni. Election Auth. of GA Rev. Bonds, (Plant Vogtle Units 3 & 4), Ser. A
5.50%, 7/1/60	A		3,500,000	4,088,442
5.00%, 1/1/56	A2		2,000,000	2,473,216
4.00%, 1/1/59	A2		3,000,000	3,411,089
				19,934,469
Illinois (12.4%)
Chicago, G.O. Bonds
Ser. A, 6.00%, 1/1/38	BBB+		7,040,000	8,826,870
Ser. A, 5.50%, 1/1/49	BBB+		2,000,000	2,527,043
Ser. D-05, 5.50%, 1/1/37	BBB+		3,250,000	3,725,073
Ser. G-07, 5.50%, 1/1/35	BBB+		1,200,000	1,376,428
Ser. A, 5.00%, 1/1/44	BBB+		2,000,000	2,471,839
Ser. A, 5.00%, 1/1/31	BBB+		1,400,000	1,807,245
Ser. A, 5.00%, 1/1/30	BBB+		2,600,000	3,387,389
Chicago, Special Assmt. Bonds, (Lake Shore East), 6.75%, 12/1/32	BB/P		4,804,000	4,816,578
Chicago, Board of Ed. G.O. Bonds
Ser. C, 5.25%, 12/1/39	BB		4,000,000	4,501,584
Ser. H, 5.00%, 12/1/36	BB		4,600,000	5,617,615

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Illinois cont.
Chicago, Board of Ed. 144A G.O. Bonds, Ser. A, 7.00%, 12/1/46	BB		$1,500,000	$1,997,504
Chicago, Motor Fuel Tax Rev. Bonds
AGM, 5.00%, 1/1/30	AA		200,000	215,378
5.00%, 1/1/28	BBB−		1,000,000	1,058,898
Cook Cnty., G.O. Bonds, 5.00%, 11/15/34	A+		1,000,000	1,203,380
Du Page Cnty., Special Svc. Area No. 31 Special Tax Bonds, (Monarch Landing), 5.625%, 3/1/36	B/P		749,000	750,058
IL State G.O. Bonds
Ser. A, 5.25%, 12/1/30	Baa2		5,000,000	6,230,117
5.25%, 2/1/30	Baa2		3,000,000	3,352,016
5.00%, 11/1/41	Baa2		1,900,000	2,219,208
5.00%, 1/1/41	Baa2		1,000,000	1,145,022
5.00%, 2/1/39	Baa2		500,000	551,238
5.00%, 1/1/35	Baa2		2,500,000	2,884,910
Ser. A, 5.00%, 10/1/33	Baa2		1,025,000	1,276,930
5.00%, 1/1/33	Baa2		1,000,000	1,156,181
Ser. A, 5.00%, 12/1/31	Baa2		7,200,000	8,827,540
Ser. C, 5.00%, 11/1/29	Baa2		2,000,000	2,459,937
Ser. A, 5.00%, 12/1/28	Baa2		2,700,000	3,347,973
Ser. D, 5.00%, 11/1/28	Baa2		3,230,000	3,997,818
Ser. D, 5.00%, 11/1/27	Baa2		1,425,000	1,771,526
Ser. A, 5.00%, 10/1/27	Baa2		2,000,000	2,481,297
IL State Fin. Auth. Rev. Bonds
(Plymouth Place), 5.25%, 5/15/50 (Prerefunded 5/15/25)	BB+/F		850,000	1,003,228
(Rosalind Franklin U. of Medicine & Science), Ser. A, 5.00%, 8/1/47	BBB+		850,000	1,001,820
(Rosalind Franklin U. of Medicine & Science), Ser. A, 5.00%, 8/1/42	BBB+		500,000	592,833
(Rosalind Franklin U. of Medicine and Science), Ser. A, 5.00%, 8/1/34	BBB+		650,000	782,108
(Rosalind Franklin U. of Medicine and Science), Ser. A, 5.00%, 8/1/33	BBB+		500,000	603,294
(Southern IL Healthcare Enterprises, Inc.), 5.00%, 3/1/33	A+		200,000	240,438
IL State Fin. Auth. Student Hsg. & Academic Fac. Rev. Bonds, (U. of IL Chicago), 5.00%, 2/15/50	Baa3		4,000,000	4,644,256
Metro. Pier & Exposition Auth. Rev. Bonds, (McCormick Place Expansion)
Ser. A, 5.00%, 6/15/50	BBB+		7,000,000	8,756,960
Ser. B, stepped-coupon zero % (4.850%, 6/15/31), 12/15/42 ††	BBB+		3,000,000	2,751,681
Northern IL U. Rev. Bonds, Ser. B, BAM
5.00%, 4/1/34	AA		650,000	832,670
5.00%, 4/1/30	AA		450,000	585,706
5.00%, 4/1/29	AA		400,000	511,672
4.00%, 4/1/41	AA		625,000	733,038
4.00%, 4/1/38	AA		600,000	707,365
4.00%, 4/1/37	AA		600,000	709,491

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Illinois cont.
Northern IL U. Rev. Bonds, Ser. B, BAM
4.00%, 4/1/36	AA		$600,000	$711,489
4.00%, 4/1/35	AA		525,000	624,549
				111,777,193
Indiana (0.1%)
IN State Fin Auth. Rev. Bonds, (United States Steel Corp.), Ser. A, 4.125%, 12/1/26	B3		1,000,000	1,094,672
				1,094,672
Iowa (0.2%)
IA Tobacco Settlement Auth. Rev. Bonds, Ser. B-1, Class 2, 4.00%, 6/1/49	BBB		1,750,000	2,067,630
				2,067,630
Kansas (0.3%)
Wichita, Hlth. Care Fac. Rev. Bonds, (Presbyterian Manors), Ser. I, 5.00%, 5/15/38	BB−/P		1,000,000	1,093,994
Wyandotte, Cnty./Kansas City, Unified Govt. 144A Rev. Bonds, (Legends Apt. Garage & West Lawn), 4.50%, 6/1/40	BB+/P		1,315,000	1,390,148
				2,484,142
Kentucky (0.7%)
KY Econ. Dev. Fin. Auth. Rev. Bonds, (Masonic Home Indpt. Living), 5.00%, 5/15/36	BB/P		2,000,000	2,090,600
KY Pub. Trans. Infrastructure Auth. Rev. Bonds, (1st Tier Downtown Crossing), Ser. A, 6.00%, 7/1/53	Baa2		2,000,000	2,210,166
KY State Econ. Dev. Fin. Auth. Rev. Bonds, (Owensboro Hlth.), Ser. A, 5.25%, 6/1/41	Baa3		375,000	448,965
KY State Econ. Dev. Fin. Auth. Hlth. Care Rev. Bonds, (Masonic Homes of KY), 5.375%, 11/15/42	BB−/P		1,400,000	1,421,651
				6,171,382
Louisiana (0.6%)
LA State Pub. Fac. Auth. Rev. Bonds, (LA State U. Greenhouse Phase III), Ser. A
4.00%, 7/1/54	A3		2,640,000	3,053,799
4.00%, 7/1/49	A3		1,000,000	1,160,732
LA State Pub. Fac. Solid Waste Disp. Auth. Rev. Bonds, (LA Pellets, Inc.), Ser. A, 8.375%, 7/1/39 (In default) †	D/P		1,000,000	10
St. Tammany, Public Trust Fin. Auth. Rev. Bonds, (Christwood), 5.25%, 11/15/37	BB/P		765,000	837,218
				5,051,759
Maine (0.1%)
ME State Fin. Auth. Solid Waste Disp. 144A Mandatory Put Bonds (8/1/25), (Casella Waste Syst.), 5.125%, 8/1/35	B2		1,000,000	1,156,873
				1,156,873
Maryland (1.8%)
Brunswick, Special Tax, 5.00%, 7/1/36	B+/P		999,000	1,200,578
Frederick Cnty., Edl. Fac. 144A Rev. Bonds, (Mount St. Mary’s U.), Ser. A, 5.00%, 9/1/37	BB+		500,000	569,765

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Maryland cont.
MD Econ. Dev. Corp. Rev. Bonds, (Morgan State U.)
5.00%, 7/1/56	BBB−		$1,000,000	$1,239,131
4.00%, 7/1/40	BBB−		1,000,000	1,169,603
MD Econ. Dev. Corp. Student Hsg. Rev. Bonds, (Bowie State U.), 4.00%, 7/1/50	BBB−		1,000,000	1,149,104
MD State Econ. Dev. Corp. Tax Alloc. Bonds, (Port Covington), 4.00%, 9/1/50	B+/P		2,170,000	2,510,145
MD State Hlth. & Higher Ed. Fac. Auth. Rev. Bonds
(Stevenson U.), 4.00%, 6/1/55	BBB−		1,000,000	1,172,125
(Frederick Hlth., Inc.), 4.00%, 7/1/45	Baa1		500,000	589,415
(Frederick Hlth., Inc.), 4.00%, 7/1/40	Baa1		300,000	358,207
Prince Georges Cnty., Special Oblig. 144A Tax Alloc. Bonds, (Westphalia Town Ctr.)
5.25%, 7/1/48	B/P		2,000,000	2,264,669
5.125%, 7/1/39	B/P		300,000	340,117
Westminster, Rev. Bonds
(Lutheran Village at Miller’s Grant, Inc. (The)), Ser. A, 6.00%, 7/1/34	B−/P		750,000	835,090
(Carroll Lutheran Village, Inc.), 5.125%, 7/1/34	BB/P		3,000,000	3,243,425
				16,641,374
Massachusetts (1.8%)
Lowell, Collegiate Charter School Rev. Bonds, 5.00%, 6/15/49	BB−/P		2,290,000	2,534,129
MA State Dev. Fin. Agcy. Rev. Bonds
(Loomis Communities), Ser. A, 6.00%, 1/1/33	BBB/P		250,000	270,767
(Loomis Communities), Ser. A, U.S. Govt. Coll., 6.00%, 1/1/33 (Prerefunded 7/1/23)	AAA/P		250,000	277,542
(Milford Regl. Med. Ctr. Oblig. Group), Ser. F, 5.75%, 7/15/43	BB+		1,000,000	1,070,945
(Atrius Hlth. Oblig. Group), Ser. A, 4.00%, 6/1/49	BBB		5,000,000	5,711,585
(Linden Ponds, Inc.), Ser. B, zero %, 11/15/56	B−/P		722,603	502,438
MA State Dev. Fin. Agcy. 144A Rev. Bonds, (Linden Ponds, Inc. Fac.), 5.125%, 11/15/46	BB/F		2,000,000	2,243,990
MA State Dev. Fin. Agcy. VRDN (Boston U.), Ser. U-6C, 0.03%, 10/1/42	VMIG 1		2,500,000	2,500,000
MA State Dev. Fin. Agcy. Hlth. Care Fac. 144A Rev. Bonds, (Adventcare), Ser. A, 6.65%, 10/15/28 (In default) †	D/P		2,035,000	915,750
				16,027,146
Michigan (3.9%)
Detroit, G.O. Bonds
5.00%, 4/1/37	Ba3		350,000	415,825
5.00%, 4/1/36	Ba3		1,400,000	1,666,928
Flint, Hosp. Bldg. Auth. Rev. Bonds, Ser. A, 5.25%, 7/1/39	Ba1		500,000	528,334
MI State Fin. Auth. Rev. Bonds
(Local Govt. Loan Program), Ser. F1, 4.50%, 10/1/29	BB+		650,000	699,872
(Tobacco Settlement), Ser. B-2, Class 2, zero %, 6/1/65	BBB/P		11,250,000	1,533,789
(Trinity Health Corp. Oblig. Group), Ser. A, 4.00%, 12/1/49 T	AA−		3,875,000	4,581,305

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Michigan cont.
MI State Fin. Auth. Ltd. Oblig. Higher Ed. Fac. Rev. Bonds, (Aquinas College), 5.00%, 5/1/46	BB/P		$2,000,000	$2,206,415
MI State Fin. Auth. Ltd. Oblig. Rev. Bonds, (Lawrence Technological U.)
5.25%, 2/1/32	BB+		1,000,000	1,155,341
5.00%, 2/1/47	BB+		3,100,000	3,456,762
5.00%, 2/1/37	BB+		1,080,000	1,221,955
MI State Hosp. Fin. Auth. Rev. Bonds, (Trinity Health Corp. Oblig. Group), Ser. A, U.S. Govt. Coll, 5.00%, 12/1/47 (Prerefunded 12/1/22) T	Aa3		11,000,000	11,717,532
MI State Strategic Fund Ltd. Oblig. Rev. Bonds, (Holland Home Oblig. Group)
5.00%, 11/15/43	BBB−/F		500,000	583,366
5.00%, 11/15/34	BBB−/F		1,000,000	1,181,692
Pontiac City, G.O. Bonds, (Pontiac School Dist.), Q-SBLF
4.00%, 5/1/37	Aa1		1,870,000	2,275,225
4.00%, 5/1/36	Aa1		1,695,000	2,066,619
				35,290,960
Minnesota (1.0%)
Baytown Twp., Lease Rev. Bonds, Ser. A, 4.00%, 8/1/36	BB+		400,000	432,697
Duluth, COP, (Indpt. School Dist. No. 709), Ser. A
4.20%, 3/1/34	Ba2		725,000	780,949
4.00%, 3/1/28	Ba2		760,000	833,941
4.00%, 3/1/27	Ba2		730,000	805,874
Forest Lake, Charter School Lease Rev. Bonds, (LILA Bldg. Co.), Ser. A, 5.25%, 8/1/43	BB+		615,000	712,847
Ham Lake, Charter School Lease Rev. Bonds
(DaVinci Academy of Arts & Science), Ser. A, 5.00%, 7/1/47	BB−/P		1,000,000	1,085,693
(Parnassus Preparatory School), Ser. A, 5.00%, 11/1/36	BB		1,500,000	1,700,548
MN State Higher Ed. Fac. Auth. Rev. Bonds, (Augsburg U.), Ser. A, 5.00%, 5/1/46	Ba1		1,750,000	1,887,554
St. Paul, Hsg. & Redev. Auth. Charter School Lease Rev. Bonds, (Nova Classical Academy), Ser. A, 6.375%, 9/1/31	BB+		500,000	502,050
				8,742,153
Missouri (1.6%)
Kansas City, Indl. Dev. Auth. Arpt. Special Oblig. Rev. Bonds, AGM, 4.00%, 3/1/57	AA		4,000,000	4,622,057
Plaza at Noah’s Ark Cmnty. Impt. Dist. Rev. Bonds
3.125%, 5/1/35	B+/P		500,000	508,609
3.00%, 5/1/30	B+/P		725,000	744,177
Saint Louis, Indl. Dev. Auth. Fin. Rev. Bonds, (Ballpark Village Dev.), Ser. A, 4.75%, 11/15/47	BB−/P		1,625,000	1,675,106
St. Louis Cnty., Indl. Dev. Auth. Sr. Living Fac. Rev. Bonds, (Friendship Village)
5.25%, 9/1/53	BB+/F		4,250,000	4,844,219
5.00%, 9/1/48	BB+/F		1,750,000	2,001,601
				14,395,769

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
Nevada (0.7%)
Clark Cnty., Impt. Dist. No. 159 Special Assessment Bonds, (Summerlin Village 16A), 5.00%, 8/1/35	B+/P		$625,000	$685,079
Las Vegas, Special Assmt. Bonds
5.00%, 6/1/30	B+/P		1,010,000	1,100,446
(Dist. No. 607 Local Impt.), 5.00%, 6/1/22	BBB−/P		290,000	299,559
Las Vegas, Impt. Dist. No. 812 Special Assessment Bonds, (Summerlin Village 24), 5.00%, 12/1/35	B/P		715,000	792,202
North Las Vegas, G.O. Bonds, AGM, 4.00%, 6/1/34	AA		1,075,000	1,273,993
North Las Vegas, Local Impt. Special Assmt. Bonds, (Valley Vista Special Impt. Dist. No. 64), 4.50%, 6/1/39	B/P		685,000	781,785
NV State Dept. of Bus. & Indl. 144A Rev. Bonds, (Somerset Academy of Las Vegas), Ser. A, 5.00%, 12/15/38	BB		1,000,000	1,122,150
				6,055,214
New Hampshire (1.0%)
National Fin. Auth. Rev. Bonds, (Caritas Acquisitions VII, LLC), Ser. A
4.50%, 8/15/55	BBB/P		3,495,000	3,758,879
4.25%, 8/15/46	BBB/P		1,650,000	1,763,201
4.125%, 8/15/40	BBB/P		1,475,000	1,580,722
NH State Hlth. & Ed. Fac. Auth. Rev. Bonds, (Kendel at Hanover), 5.00%, 10/1/46	BBB+/F		625,000	724,809
NH State Hlth. & Ed. Fac. Auth. 144A Rev. Bonds, (Hillside Village), Ser. A
6.25%, 7/1/42 (In default) †	D/P		250,000	185,000
6.125%, 7/1/37 (In default) †	D/P		1,000,000	740,000
				8,752,611
New Jersey (6.4%)
NJ State Econ. Dev. Auth. Rev. Bonds
(Paterson Charter School Science & Tech.), Ser. A, 6.10%, 7/1/44	BB		655,000	681,360
(Paterson Charter School Science & Tech.), Ser. A, 6.00%, 7/1/32	BB		300,000	313,258
(Continental Airlines, Inc.), 5.50%, 6/1/33	Ba3		2,000,000	2,183,304
(Paterson Charter School), Ser. C, 5.30%, 7/1/44	BB		2,250,000	2,320,187
Ser. EEE, 5.00%, 6/15/48	Baa1		4,000,000	4,952,570
(North Star Academy Charter School of Newark, Inc.), 5.00%, 7/15/47	BBB−		500,000	584,987
Ser. EEE, 5.00%, 6/15/43	Baa1		3,910,000	4,868,188
Ser. DDD, 5.00%, 6/15/42	Baa1		1,500,000	1,803,591
Ser. EEE, 5.00%, 6/15/38	Baa1		2,500,000	3,133,617
(Provident Group-Montclair State U. Student Hsg. & Properties), 5.00%, 6/1/37	AA		1,000,000	1,208,703
(North Star Academy Charter School of Newark, Inc.), 5.00%, 7/15/32	BBB−		1,000,000	1,197,887
(NJ Transit Trans.), Ser. A, 4.00%, 11/1/39	Baa1		2,000,000	2,355,563
(NJ Transit Trans.), Ser. A, 4.00%, 11/1/38	Baa1		3,000,000	3,540,763

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
New Jersey cont.
NJ State Econ. Dev. Auth. Energy Fac. Rev. Bonds, (UMM Energy Partners, LLC), Ser. A
5.00%, 6/15/37	Baa2		$1,000,000	$1,031,568
4.75%, 6/15/32	Baa2		170,000	175,236
NJ State Econ. Dev. Auth. Fac. Rev. Bonds, (Continental Airlines, Inc.), 5.625%, 11/15/30	Ba3		1,000,000	1,122,025
NJ State Hlth. Care Fac. Fin. Auth. Rev. Bonds, (St. Peter’s U. Hosp.), 6.25%, 7/1/35	Ba1		2,500,000	2,507,920
NJ State Trans. Trust Fund Auth. Rev. Bonds
Ser. A, 5.00%, 12/15/34	Baa1		5,600,000	7,066,601
Ser. A, 5.00%, 12/15/33	Baa1		6,550,000	8,273,533
Ser. AA, 5.00%, 6/15/38 ###	Baa1		1,600,000	2,021,008
Ser. AA, 5.00%, 6/15/36 ###	Baa1		645,000	821,789
Ser. A, 4.00%, 6/15/40 ###	BBB		3,000,000	3,467,365
Ser. A, 4.00%, 6/15/38 ###	BBB		2,000,000	2,326,755
				57,957,778
New Mexico (0.2%)
Sante Fe, Retirement Fac. Rev. Bonds, (El Castillo Retirement Residences), Ser. A, 5.00%, 5/15/49	BB+/F		1,200,000	1,364,621
				1,364,621
New York (3.7%)
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	646,764
Metro. Trans. Auth. Rev. Bonds, (Green Bond), Ser. C-1, 5.00%, 11/15/50	A3		1,500,000	1,879,096
NY City, Transitional Fin. Auth. Rev. Bonds, Ser. B-1, 4.00%, 11/1/41 T	Aa2		10,000,000	12,900,656
NY Counties, Tobacco Trust VI Rev. Bonds, (Tobacco Settlement Pass Through), Ser. A-2B, 5.00%, 6/1/51	BB+/P		2,500,000	2,692,755
NY State Dorm. Auth. Non-State Supported Debt 144A Rev. Bonds, (Orange Regl. Med. Ctr.), 5.00%, 12/1/35	Baa3		1,300,000	1,578,764
NY State Env. Fac. Corp. Solid Waste Disp. Mandatory Put Bonds (9/2/25), (Casella Waste Syst. Inc.), Ser. R-1, 2.75%, 9/1/50	B		475,000	504,357
NY State Liberty Dev. Corp. 144A Rev. Bonds
(World Trade Ctr.), Class 2, 5.375%, 11/15/40	BB−/P		1,250,000	1,413,180
(3 World Trade Ctr., LLC), Class 1-3, 5.00%, 11/15/44	BB−/P		6,750,000	7,492,515
NY State Trans. Special Fac. Dev. Corp. Rev. Bonds
(Delta Air Lines, Inc.), 5.00%, 10/1/40	Baa3		2,000,000	2,575,908
(American Airlines, Inc.), 3.00%, 8/1/31	B/F		1,150,000	1,248,254
				32,932,249
North Carolina (1.6%)
NC State Med. Care Comm. Hlth. Care Fac. Rev. Bonds, (Lutheran Svcs. for the Aging, Inc. Oblig. Group), Ser. C
4.00%, 3/1/42 ###	BB/P		2,500,000	2,712,597
4.00%, 3/1/31 ###	BB/P		825,000	919,889
4.00%, 3/1/30 ###	BB/P		790,000	886,279

MUNICIPAL BONDS AND NOTES (97.3%)* cont.	Rating**		Principal amount	Value
North Carolina cont.
NC State Med. Care Comm. Hlth. Fac. Rev. Bonds, (Presbyterian Homes Oblig. Group), 4.00%, 10/1/50	BBB+/F		$1,350,000	$1,559,573
NC State Med. Care Comm. Retirement Fac. Rev. Bonds
(Maryfield, Inc. Oblig. Group), 5.00%, 10/1/50	BB/P		1,500,000	1,706,842
(Twin Lakes Cmnty.), Ser. A, 5.00%, 1/1/49	BBB/F		2,970,000	3,434,216
(Southminister, Inc.), 5.00%, 10/1/37	BB/P		1,625,000	1,777,731
(United Church Homes & Svcs. Oblig. Group), Ser. A, 5.00%, 9/1/37	BB/P		1,000,000	1,089,414
				14,086,541
Ohio (2.5%)
Buckeye, Tobacco Settlement Fin. Auth. Rev. Bonds, Ser. A-3, 6.25%, 6/1/37 (Prerefunded 6/1/22)	AAA/P		7,300,000	7,673,261
Centerville, Hlth. Care Rev. Bonds, (Graceworks Lutheran Svcs.), 5.25%, 11/1/47	BB+/P		2,000,000	2,241,116
Cleveland-Cuyahoga Cnty., Port Auth. Cultural Fac. Rev. Bonds
(Playhouse Square Foundation), 5.50%, 12/1/43	BB+		500,000	607,314
(Playhouse Sq. Foundation), 5.25%, 12/1/38	BB+		1,065,000	1,291,716
Franklin Cnty., Hlth. Care Fac. Rev. Bonds, (Ohio Living)
6.00%, 7/1/35	BBB/F		2,825,000	2,952,496
6.00%, 7/1/35 (Prerefunded 7/1/22)	AAA/P		175,000	184,185
Hickory Chase, Cmnty. Auth. Infrastructure Impt. 144A Rev. Bonds, (Hickory Chase), Ser. A, 5.00%, 12/1/40	B+/P		1,485,000	1,638,408
Lake Cnty., Hosp. Fac. Rev. Bonds, (Lake Hosp. Syst., Inc.), Ser. C, 6.00%, 8/15/43	Baa1		250,000	250,893
OH State Air Quality Dev. Auth. Exempt Fac. 144A Rev. Bonds, (Pratt Paper, LLC), 4.50%, 1/15/48	BB+/P		2,000,000	2,362,148
OH State Higher Edl. Fac. Comm. Rev. Bonds, 5.25%, 12/1/48	BB		750,000	860,769
Southeastern OH Port Auth. Hosp. Fac. Rev. Bonds
5.75%, 12/1/32	BB−/F		2,225,000	2,335,336
(Memorial Hlth. Syst. Oblig. Group), 5.50%, 12/1/43	BB−/F		235,000	256,420
				22,654,062
Oregon (0.3%)
Clackamas Cnty., Hosp. Fac. Auth. Rev. Bonds, (Rose Villa, Inc.), Ser. A, 5.375%, 11/15/55	BB/P		1,000,000	1,120,103
Warm Springs, Reservation Confederated Tribes 144A Rev. Bonds, (Pelton-Round Butte), Ser. B
5.00%, 11/1/39	A3		700,000	856,446
5.00%, 11/1/32	A3		360,000	447,254
				2,423,803
Pennsylvania (3.2%)
Chester Cnty., Indl. Dev. Auth. Rev. Bonds
(Collegium Charter School), Ser. A, 5.125%, 10/15/37	BB		1,200,000	1,382,168
(Renaissance Academy Charter School), 5.00%, 10/1/34	BBB−		625,000	675,125