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| UNITED STATES
SECURITIES AND EXCHANGE COMMISSION |
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| CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
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| Investment Company Act file number: | (811–04345) |
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| Exact name of registrant as specified in charter: | Putnam Tax Free Income Trust |
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| Address of principal executive offices: | 100 Federal Street, Boston, Massachusetts 02110 |
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| Name and address of agent for service: | Robert T. Burns, Vice President
100 Federal Street
Boston, Massachusetts 02110 |
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| Copy to: | Bryan Chegwidden, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, New York 10036 |
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| Registrant's telephone number, including area code: | (617) 292–1000 |
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| Date of fiscal year end: | July 31, 2020 |
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| Date of reporting period: | August 1, 2019 — July 31, 2020 |
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Item 1. Report to Stockholders: | |
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| The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940: | |
Putnam
Strategic Intermediate
Municipal Fund
Annual report
7 | 31 | 20
IMPORTANT NOTICE: Delivery of paper fund reports
In accordance with regulations adopted by the Securities and Exchange Commission, beginning on January 1, 2021, reports like this one will no longer be sent by mail unless you specifically request it. Instead, they will be on Putnam’s website, and you will be notified by mail whenever a new one is available, and provided with a website link to access the report.
If you wish to stop receiving paper reports sooner, or if you wish to continue to receive paper reports free of charge after January 1, 2021, please see the back cover or insert for instructions. If you invest through a bank or broker, your choice will apply to all funds held in your account. If you invest directly with Putnam, your choice will apply to all Putnam funds in your account.
If you already receive these reports electronically, no action is required.
Message from the Trustees
September 17, 2020
Dear Fellow Shareholder:
As the world continues to confront the challenges of the COVID-19 pandemic, financial markets, it seems, are enjoying a respite from fear. U.S. markets rallied this summer despite many challenges that weighed down economic activity, including the public health impact of the pandemic, high unemployment, and tensions related to calls for racial equity. In this context, Putnam continues to pursue superior investment performance for you and your fellow shareholders while also working toward its goals of improving diversity and inclusion within its organization.
We would like to take this opportunity to thank Robert E. Patterson, who retired as a Trustee on June 30, 2020, for his 36 years of service. We will miss Bob’s experienced judgment and insights, and we wish him well. We are also pleased to welcome Mona K.Sutphen to the Board. Ms. Sutphen brings extensive professional and directorship experience to her role as a Trustee.
As always, thank you for investing with Putnam.
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See 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.
As of August 28, 2020, the Bloomberg Barclays 3-15 Year Blend Municipal Bond Index replaced the Bloomberg Barclays Municipal Bond Index as the primary benchmark for this fund. In Putnam Investment Management, LLC’s opinion, the securities tracked by the Bloomberg Barclays 3-15 Year Blend Municipal Bond Index more accurately reflect the types of securities that generally will be held by the fund.
* The Bloomberg Barclays Municipal Bond — Bloomberg Barclays 3–15 Year Blend Municipal Bond Linked Benchmark represents performance of the Bloomberg Barclays Municipal Bond Index from inception date of the fund, September 9, 1985, through August 27, 2020 and performance of the Bloomberg Barclays 3-15 Year Municipal Bond Index from August 28, 2020, and thereafter.
† Source: Lipper, a Refinitiv company.
‡ Performance for class A shares before their inception (9/20/93) is derived from the historical performance of class B shares. The fund’s primary benchmark, the Bloomberg Barclays 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 7/31/20. See above and pages 8–11 for additional fund performance information. Index descriptions can be found on pages 14–15.
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| 2 Strategic Intermediate Municipal Fund |
Garrett, how did municipal bonds perform during the reporting period?
Municipal bonds enjoyed solid performance during the first half of the period. The market was supported by strong market technicals of record inflows, average supply levels, narrowing credit spreads (the risk premium investors demand to hold these securities over U.S. Treasuries), and stable fundamentals. However, in late February 2020, fears about the spread of COVID-19 and its potential impact on global economic growth sparked a steep sell-off in high-risk assets. Municipal bond funds saw large outflows in March and April 2020, particularly in the lowest tiers of the market, as investors sought cash. Credit spreads widened significantly, particularly among lower-rated, high-yield municipals led by airline/airport and tobacco bonds. Given the sell-off, municipal bonds were yielding significantly more than 100% of Treasury yields, suggesting an attractive entry point for long-term investors.
Unprecedented policy initiatives designed to ease the economic fallout from the pandemic helped to allay investor fears. The Federal Reserve lowered interest rates to near zero, and in an especially noteworthy move, announced
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| Strategic Intermediate Municipal Fund 3 |
Allocations are shown as a percentage of the fund’s net assets as of 7/31/20. 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 7/31/20. A bond rated BBB or higher (SP-3 or higher, for short-term debt) is considered investment grade. This chart reflects the highest security rating provided by one or more of Standard & Poor’s, Moody’s, and Fitch. Ratings may vary over time.
Cash and net other assets, if any, represent the market value weights of cash, derivatives, and short-term securities in the portfolio. The fund itself has not been rated by an independent rating agency.
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| 4 Strategic Intermediate Municipal Fund |
in March 2020 that it would buy corporate and municipal debt. In early April, the Fed authorized the Municipal Liquidity Facility [MLF] to provide aid to cash-strapped state and local governments. In late April, the Fed increased the scope and duration of the MLF’s programs to include a broader group of counties and cities. The U.S. Congress also passed a $2.2 trillion stimulus package to support American families, hospitals, and businesses. In addition, Congress also approved a new pandemic relief-package totaling $484 billion to aid small businesses and hospitals. With improving news on the economic front coupled with significant relief from the Fed and Congress, municipal bond fund flows turned positive. Weekly inflows increased, but supply remained below 2019 levels. These developments helped to support municipal bonds for the balance of the 12-month period. From April 2, 2020, through July 31, 2020, the Bloomberg Barclays Municipal Bond Index [the fund’s municipal benchmark] rose 7.1%.
Against this backdrop, the fund’s municipal benchmark closed the 12-month period with a return of 5.36%. The ICE BofA U.S. 3-Month Treasury Bill Index returned 1.46% for the period.
How did the fund perform during the reporting period?
For the 12 months ended July 31, 2020, the fund underperformed the benchmark but outperformed the average return of its Lipper peer group, General & Insured Municipal Debt Funds.
What strategies or holdings influenced the fund’s performance during the period?
From a valuation perspective, municipal bonds started to look very attractive to us in the first few weeks of April. We took advantage of the market volatility and selectively added to the fund’s positioning in investment-grade municipal bonds. We also extended duration in April to a point where we felt the fund was longer than the majority of its Lipper peers. [Duration is a measure of the portfolio’s interest-rate sensitivity.] We achieved this mostly by adding higher-quality, longer-term securities. As the market recovered, the fund benefited from the rally versus its peers given their overweight positioning in lower-investment-grade securities and relatively long duration stance. As the higher-quality segment of the municipal bond market generally normalized in May, we slowly moderated our long duration posture, becoming neutral relative to the fund’s Lipper peers by period-end.
The fund held an overweight exposure to higher-quality bonds rated A and BBB at period-end. We also held an underweight exposure to lower-rated, high-yield bonds relative to the Lipper peer group. The fund’s yield-curve positioning was focused on longer intermediate-term securities with maturities of 15 to 20 years. As part of this strategy, the fund held an overweight exposure to long maturity holdings compared with the benchmark.
Within our strategy for state debt, we believe Illinois’ financial outlook continues to stabilize. This was not completely reflected by market spreads, in our view. Thus, we believe these holdings look attractive from a fundamental and relative value standpoint.
We remain cautious about Puerto Rico due to its uncertain economic recovery and a perceived lack of institutional credibility across the Commonwealth’s government. As such, the fund remained underweight in its exposure to uninsured Puerto Rico municipal debt.
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| Strategic Intermediate Municipal Fund 5 |
What is your current assessment of the health of the municipal bond market?
We believe state and local governments have ample reserves to prepare for expected revenue declines. Those that lack reserves will have some flexibility to balance their budgets using one-time measures. They can also reduce expenses, borrow on a short-term basis from either the market or the MLF, and in some cases, raise revenues by increasing taxes or fees. In our view, most states and local governments would only see prolonged fiscal stress should economic activity fail to stabilize over the next 12 to 18 months. Our exposure to state and local governments is limited to credits with diverse tax bases and, in our view, the ability to enact broad revenue enhancements or expense cuts.
What is your outlook for the municipal bond market in the coming months?
The Fed is projecting that it will hold short-term interest rates near zero until 2022. That said, we believe Fed officials stand ready to revisit their non-traditional policy tools should the economy deteriorate further.
We believe the strength of the economic recovery and the pace of normalization will shape the performance of the municipal market in the months ahead. At this point, the greatest risk and opportunity are in lower-rated securities, in our view.
Much of the issuance within the municipal market is used to finance public infrastructure, which include toll roads, subways, bridges, ports, airports, colleges, and convention centers. It is important that people be mobile and able to congregate for these enterprises to generate revenue. Lack of mobility or severely reduced usage by the public could have trickle down effects on state and local municipalities, in our view.
We believe it will take time for the market to digest the longer term impact of COVID-19. While we don’t see a systemic risk to the municipal market, we are seeing credit fundamentals broadly deteriorating. High-yield and lower-investment-grade credit spreads narrowed from the worst levels during the period but are still significantly wider than pre-pandemic levels. We believe this market
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.
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| 6 Strategic Intermediate Municipal Fund |
environment plays to our team’s strengths of fundamental credit analysis.
At period-end, we were waiting for more detail about federal aid for municipalities. We believe that direct aid to states and municipalities is warranted and necessary given the challenges posed by the pandemic.
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.
Of special interest
Effective August 28, 2020, the fund was renamed Putnam Strategic Intermediate Municipal Fund. In connection with that name change, the fund’s investment goal will be to seek as high a level of current income exempt from federal income tax as Putnam Management believes is consistent with preservation of capital. For more information, see your fund’s recently updated prospectus.
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| Strategic Intermediate Municipal Fund 7 |
Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended July 31, 2020, 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.
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| Fund performance Total return for periods ended 7/31/20 | | | | |
| | Annual | | | | | | | |
| | average | | Annual | | Annual | | Annual | |
| | (life of fund) | 10 years | average | 5 years | average | 3 years | average | 1 year |
| Class A (9/20/93) | | | | | | | | |
| Before sales charge | 5.67% | 48.85% | 4.06% | 19.86% | 3.69% | 13.15% | 4.20% | 4.23% |
| After sales charge | 5.55 | 42.90 | 3.63 | 15.07 | 2.85 | 8.62 | 2.80 | 0.06 |
| Class B (9/9/85) | | | | | | | | |
| Before CDSC | 5.67 | 41.61 | 3.54 | 16.17 | 3.04 | 11.10 | 3.57 | 3.58 |
| After CDSC | 5.67 | 41.61 | 3.54 | 14.17 | 2.69 | 8.10 | 2.63 | –1.40 |
| Class C (7/26/99) | | | | | | | | |
| Before CDSC | 5.59 | 37.80 | 3.26 | 15.29 | 2.89 | 10.60 | 3.42 | 3.42 |
| After CDSC | 5.59 | 37.80 | 3.26 | 15.29 | 2.89 | 10.60 | 3.42 | 2.42 |
| Class R6 (5/22/18) | | | | | | | | |
| Net asset value | 5.56 | 52.38 | 4.30 | 21.22 | 3.92 | 13.98 | 4.46 | 4.47 |
| Class Y (1/2/08) | | | | | | | | |
| Net asset value | 5.56 | 52.40 | 4.30 | 21.24 | 3.93 | 14.00 | 4.46 | 4.47 |
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 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 the higher operating expenses for such shares, except for class Y shares, for which 12b-1 fees are not applicable. 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.
Effective November 25, 2019, all outstanding class M shares were converted to class A shares, and class M shares are no longer available for purchase.
For a portion of the periods, the fund had expense limitations, without which returns would have been lower.
Class B share performance reflects conversion to class A shares after eight years.
Class C share performance reflects conversion to class A shares after 10 years.
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| 8 Strategic Intermediate Municipal Fund |
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| Comparative index returns For periods ended 7/31/20 | | | | |
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| | Annual | | | | | | | |
| | average | | Annual | | Annual | | Annual | |
| | (life of fund) | 10 years | average | 5 years | average | 3 years | average | 1 year |
| Bloomberg Barclays | | | | | | | | |
| 3–15 Year Blend Municipal | —% | 46.02% | 3.86% | 20.53% | 3.80% | 13.10% | 4.19% | 5.08% |
| Bond Index * | | | | | | | | |
| Bloomberg Barclays | | | | | | | | |
| Municipal Bond — | | | | | | | | |
| Bloomberg Barclays | 6.39 | 51.77 | 4.26 | 22.42 | 4.13 | 14.18 | 4.52 | 5.36 |
| 3–15 Year Blend Municipal | | | | | | | | |
| Bond Linked Benchmark† | | | | | | | | |
| Lipper General & Insured | | | | | | | | |
| Municipal Debt Funds | 5.92 | 49.82 | 4.09 | 20.57 | 3.79 | 12.81 | 4.09 | 4.14 |
| category average‡ | | | | | | | | |
Index and Lipper results should be compared with fund performance before sales charge, before CDSC, or at net asset value.
As of August 28, 2020, the Bloomberg Barclays 3–15 Year Blend Municipal Bond Index replaced the Bloomberg Barclays Municipal Bond Index as the primary benchmark for this fund. In Putnam Investment Management, LLC’s opinion, the securities tracked by the Bloomberg Barclays 3–15 Year Blend Municipal Bond Index more accurately reflect the types of securities that generally will be held by the fund.
* The fund’s primary benchmark, the Bloomberg Barclays 3–15 Year Blend Municipal Bond Index, was introduced on 1/31/90, which post-dates the inception of the fund.
† The Bloomberg Barclays Municipal Bond — Bloomberg Barclays 3–15 Year Blend Municipal Bond Linked Benchmark represents performance of the Bloomberg Barclays Municipal Bond Index from inception date of the fund, September 9, 1985, through August 27, 2020 and performance of the Bloomberg Barclays 3–15 Year 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 7/31/20, there were 285, 248, 226, 168, 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 $14,161 and $13,780, 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 $15,238 and $15,240, respectively.
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| Strategic Intermediate Municipal Fund 9 |
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| Fund price and distribution information For the 12-month period ended 7/31/20 | |
| Distributions | Class A | Class B | Class C | Class R6 | Class Y |
| Number | 12 | 12 | 12 | 12 | 12 |
| Income1 | $0.360067 | $0.265913 | $0.243359 | $0.396720 | $0.395729 |
| Capital gains2 | | | | | | |
| Long-term gains | 0.165000 | 0.165000 | 0.165000 | 0.165000 | 0.165000 |
| Short-term gains | 0.157000 | 0.157000 | 0.157000 | 0.157000 | 0.157000 |
| Total | $0.682067 | $0.587913 | $0.565359 | $0.718720 | $0.717729 |
| | Before | After | Net | Net | Net | Net |
| | sales | sales | asset | asset | asset | asset |
| Share value | charge | charge | value | value | value | value |
| 7/31/19 | $15.38 | $16.02 | $15.40 | $15.43 | $15.40 | $15.40 |
| 7/31/20 | 15.33 | 15.97 | 15.35 | 15.38 | 15.35 | 15.35 |
| | Before | After | Net | Net | Net | Net |
| Current rate | sales | sales | asset | asset | asset | asset |
| (end of period) | charge | charge | value | value | value | value |
| Current dividend rate3 | 1.91% | 1.84% | 1.34% | 1.19% | 2.15% | 2.18% |
| Taxable equivalent4 | 3.23 | 3.11 | 2.26 | 2.01 | 3.63 | 3.68 |
| Current 30-day | | | | | | |
| SEC yield5 | N/A | 1.12 | 0.58 | 0.43 | 1.42 | 1.41 |
| Taxable equivalent4 | N/A | 1.89 | 0.98 | 0.73 | 2.40 | 2.38 |
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 2020. Results for investors subject to lower tax rates would not be as advantageous.
5 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
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| 10 Strategic Intermediate Municipal Fund |
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| Fund performance as of most recent calendar quarter Total return for periods ended 6/30/20 |
| | Annual | | | | | | | |
| | average | | Annual | | Annual | | Annual | |
| | (life of fund) | 10 years | average | 5 years | average | 3 years | average | 1 year |
| Class A (9/20/93) | | | | | | | | |
| Before sales charge | 5.62% | 47.39% | 3.96% | 17.91% | 3.35% | 11.66% | 3.75% | 2.77% |
| After sales charge | 5.50 | 41.49 | 3.53 | 13.19 | 2.51 | 7.20 | 2.34 | –1.34 |
| Class B (9/9/85) | | | | | | | | |
| Before CDSC | 5.62 | 40.21 | 3.44 | 14.27 | 2.70 | 9.65 | 3.12 | 2.13 |
| After CDSC | 5.62 | 40.21 | 3.44 | 12.30 | 2.35 | 6.66 | 2.17 | –2.78 |
| Class C (7/26/99) | | | | | | | | |
| Before CDSC | 5.54 | 36.55 | 3.16 | 13.41 | 2.55 | 9.16 | 2.96 | 2.04 |
| After CDSC | 5.54 | 36.55 | 3.16 | 13.41 | 2.55 | 9.16 | 2.96 | 1.06 |
| Class R6 (5/22/18) | | | | | | | | |
| Net asset value | 5.51 | 50.88 | 4.20 | 19.32 | 3.60 | 12.48 | 4.00 | 3.08 |
| Class Y (1/2/08) | | | | | | | | |
| Net asset value | 5.51 | 50.80 | 4.19 | 19.26 | 3.58 | 12.42 | 3.98 | 3.00 |
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.
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| Expense ratios | | | | | |
| | Class A | Class B | Class C | Class R6 | Class Y |
| Total annual operating expenses for the fiscal | | | | | |
| year ended 7/31/19 | 0.83%‡ | 1.43% | 1.58% | 0.57% | 0.58% |
| Annualized expense ratio for the six-month | | | | | |
| period ended 7/31/20 *† | 0.94% | 1.56% | 1.71% | 0.70% | 0.71% |
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.
† Includes one-time annualized proxy costs of 0.10%.
‡ Distribution and service (12b-1) fees have been restated to reflect current fees. For periods prior to July 1, 2020, the distribution and service (12b-1) fee rate for class A shares is expected to be 0.23%, which is a blended rate. Effective July 1, 2020, the rate for class A shares is 0.25%.
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| Strategic Intermediate Municipal Fund 11 |
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 2/1/20 to 7/31/20. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
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| | Class A | Class B | Class C | Class R6 | Class Y |
| Expenses paid per $1,000 *† | $4.69‡ | $7.76 | $8.51 | $3.49 | $3.54 |
| Ending value (after expenses) | $1,005.50 | $1,001.80 | $1,001.70 | $1,006.70 | $1,006.60 |
* 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 7/31/20. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
‡ Distribution and service (12b-1) fees reflect actual fees. For the six months ended July 31, 2020, the distribution and service (12b-1) fee rate for class A shares was 0.23% which is a blended rate. Effective July 1, 2020, the rate for class A shares is 0.25%. If this change was in effect during the most recent fiscal half year, the Expenses paid per $1,000 would have been $4.79 for class A shares.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended 7/31/20, use the following calculation method. To find the value of your investment on 2/1/20, 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.
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| | Class A | Class B | Class C | Class R6 | Class Y |
| Expenses paid per $1,000 *† | $4.72 | $7.82 | $8.57 | $3.52 | $3.57 |
| Ending value (after expenses) | $1,020.19 | $1,017.11 | $1,016.36 | $1,021.38 | $1,021.33 |
* 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 7/31/20. The expense ratio may differ for each share class.
† Expenses are calculated by multiplying the expense ratio by the average account value for the six-month period; then multiplying the result by the number of days in the six-month period; and then dividing that result by the number of days in the year.
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| 12 Strategic Intermediate Municipal Fund |
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 negatively impact the fund. You can lose money by investing in the fund.
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| Strategic Intermediate Municipal Fund 13 |
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. Effective November 25, 2019, all outstanding class M shares were converted to class A shares, and class M shares are no longer available for purchase.
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 Barclays 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 Barclays Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.
Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
ICE BofA (Intercontinental Exchange Bank of America) U.S. 3-Month Treasury Bill Index is an unmanaged index that seeks to measure the
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| 14 Strategic Intermediate Municipal Fund |
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.
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, 2020, 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, 2020, Putnam employees had approximately $483,000,000 and the Trustees had approximately $75,000,000 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.
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| Strategic Intermediate Municipal Fund 15 |
Liquidity risk management program
Putnam, as the administrator of the fund’s liquidity risk management program (appointed by the Board of Trustees), presented the first annual report on the program to the Trustees in April 2020. 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 December 2018 through March 2020. The report included a description of the annual liquidity assessment of the fund that Putnam performed in November 2019. 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.
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| 16 Strategic Intermediate Municipal Fund |
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.
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| Strategic Intermediate Municipal Fund 17 |
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 2020, 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 2020, 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 2020 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, 2020. (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 such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the management arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that some aspects of the arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of fee arrangements in previous years. For example, with certain exceptions primarily involving newly
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| 18 Strategic Intermediate Municipal Fund |
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. 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.
Under its management contract, your fund has the benefit of breakpoints in its management fee schedule that provide shareholders with economies of scale in the form of reduced fee levels as assets under management in the Putnam family of funds increase. The Trustees concluded that the fee schedule in effect for your fund represented an appropriate sharing of economies of scale between fund shareholders and Putnam Management.
As in the past, the Trustees also focused on the competitiveness of each fund’s total expense ratio. In order to 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 2019. 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 2019. Putnam Management and PSERV have agreed to maintain these expense limitations until at least November 30, 2021. 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 first quintile in effective management fees (determined for your fund and the other funds in the custom peer group based on fund asset size and the applicable contractual management fee schedule) and in the second quintile in total expenses (excluding any applicable 12b-1 fees) as of December 31, 2019. 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, 2019 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
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| Strategic Intermediate Municipal Fund 19 |
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 represented reasonable compensation for the services being provided and represented an appropriate sharing between fund shareholders and Putnam Management of such 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, and model-only separately managed accounts. 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, 2019 was a strong year of performance for The Putnam Funds, with the Putnam funds, on an asset-weighted basis, ranking in the top quartile of their Lipper Inc. (“Lipper”) peers for the year ended December 31, 2019. For those funds that are evaluated based on their total returns versus selected investment benchmarks, the Trustees observed that the funds, on an asset-weighted-basis, delivered a gross return that was 2.3% ahead of their benchmarks in 2019. 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, was exceptionally strong over both the short and long term, with The Putnam Funds ranking as the 8th best performing mutual fund complex out of 55 complexes for the one-year period ended December 31, 2019 and the 8th best performing mutual fund complex out of 45 complexes for the ten-year period, with 2019 marking the third consecutive year that The Putnam Funds have ranked in the top ten fund complexes for the ten-year period. The Trustees also noted that The Putnam Funds ranked 26th out of 52 complexes for the five-year period ended December 31, 2019. In addition to the Barron’s/Lipper Fund Families
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Survey, the Trustees also considered the funds’ ratings assigned by Morningstar Inc., noting that 22 of the funds were four- or five-star rated at the end of 2019 and that this included five funds that had achieved a five-star rating. They also noted, however, the disappointing investment performance of some funds for periods ended December 31, 2019 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, including the effectiveness of any efforts Putnam Management has undertaken to address underperformance and whether additional actions to address areas of underperformance are 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 with 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 General & Insured Municipal Debt Funds) for the one-year, three-year and five-year periods ended December 31, 2019 (the first quartile representing the best-performing funds and the fourth quartile the worst-performing funds):
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| One-year period | 2nd |
| Three-year period | 2nd |
| Five-year period | 3rd |
Over the one-year, three-year and five-year periods ended December 31, 2019, there were 282, 238 and 211 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 the fund was expected to be renamed Putnam Strategic Intermediate Municipal Fund (formerly, Putnam AMT-Free Municipal Fund) and was expected to change 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 initiatives including structuring compensation for portfolio managers and research analysts 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 2019 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 noted that, in 2019, they had approved the elimination of a fund expense recapture program, whereby a portion of available soft dollars were used to pay fund expenses, and that the amount of commissions allocated to that program were instead used to increase, by a corresponding amount, the budget allocated for execution services. 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.
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| Strategic Intermediate Municipal Fund 21 |
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 contracts and distribution plans with Putnam Retail Management Limited Partnership (“PRM”), both of which are affiliates of Putnam Management. The Trustees concluded that the fees payable by the funds to PSERV and PRM, as applicable, for such services are 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 services provided were required for the operation of the funds, and that they were of a quality at least equal to those provided by other providers.
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| 22 Strategic Intermediate Municipal Fund |
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 year.
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.
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| Strategic Intermediate Municipal Fund 23 |
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 (formerly known as Putnam AMT-Free Municipal Fund) (one of the funds constituting Putnam Tax Free Income Trust referred to hereafter as the “Fund”) as of July 31, 2020, the related statement of operations for the year ended July 31, 2020, the statement of changes in net assets for each of the two years in the period ended July 31, 2020, 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, 2020, 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, 2020 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, 2020 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 17, 2020
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.
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| 24 Strategic Intermediate Municipal Fund |
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| The fund’s portfolio 7/31/20 | |
| |
| Key to holding’s abbreviations | |
| |
| ABAG Association Of Bay Area Governments | NATL National Public Finance Guarantee Corporation |
| AGM Assured Guaranty Municipal Corporation | PSFG Permanent School Fund Guaranteed |
| AMBAC AMBAC Indemnity Corporation | Q-SBLF Qualified School Board Loan Fund |
| BAM Build America Mutual | U.S. Govt. Coll. U.S. Government Collateralized |
| FHLMC Coll. Federal Home Loan Mortgage | VRDN Variable Rate Demand Notes, which are floating- |
| Corporation Collateralized | rate securities with long-term maturities that carry |
| FNMA Coll. Federal National Mortgage | coupons that reset and are payable upon demand |
| Association Collateralized | either daily, weekly or monthly. The rate shown is the |
| FRB Floating Rate Bonds: the rate shown is the current | current interest rate at the close of the reporting |
| interest rate at the close of the reporting period. Rates | period. Rates are set by remarketing agents and may |
| may be subject to a cap or floor. For certain securities, | take into consideration market supply and demand, |
| the rate may represent a fixed rate currently in place | credit quality and the current SIFMA Municipal Swap |
| at the close of the reporting period. | Index rate, which was 0.16% as of the close of the |
| G.O. Bonds General Obligation Bonds | reporting period. |
| |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* | Rating** | Principal amount | Value |
| Alabama (0.5%) | | | |
| Jefferson, Cnty. Rev. Bonds, (Refunding warrants) | | | |
| 5.00%, 9/15/34 | AA | $1,075,000 | $1,324,035 |
| 5.00%, 9/15/33 | AA | 125,000 | 154,276 |
| | | | 1,478,311 |
| 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 | 2,779,794 |
| 4.00%, 10/1/38 | A+/F | 555,000 | 632,706 |
| | | | 3,412,500 |
| Arizona (3.1%) | | | |
| AZ State Indl. Dev. Auth. Rev. Bonds, | | | |
| (Equitable School Revolving Fund), Ser. A | | | |
| 5.00%, 11/1/38 | A | 1,110,000 | 1,342,245 |
| 5.00%, 11/1/36 | A | 1,235,000 | 1,501,439 |
| 5.00%, 11/1/34 | A | 1,000,000 | 1,224,650 |
| Glendale, Indl. Dev. Auth. Sr. Living Fac. Rev. Bonds, | | | |
| (Royal Oaks Life Care Cmnty.) | | | |
| 4.00%, 5/15/31 | A/F | 1,000,000 | 1,037,430 |
| 4.00%, 5/15/29 | A/F | 1,000,000 | 1,051,800 |
| Maricopa Cnty., Indl. Dev. Auth. Ed. Rev. Bonds | | | |
| (Great Hearts Academies), Ser. C, 5.00%, 7/1/37 | AA– | 315,000 | 379,323 |
| (Greathearts, AZ), Ser. A, 5.00%, 7/1/37 | AA– | 750,000 | 903,150 |
| Salt Verde, Fin. Corp. Gas Rev. Bonds, | | | |
| 5.50%, 12/1/29 | A3 | 1,000,000 | 1,344,440 |
| | | | 8,784,477 |
| California (1.3%) | | | |
| ABAG Fin. Auth. for Nonprofit Corps. Rev. Bonds, | | | |
| (Episcopal Sr. Cmntys.), 6.125%, 7/1/41 | A–/F | 500,000 | 510,420 |
| CA Statewide Cmnty. Dev. Auth. Rev. Bonds, AGM, | | | |
| 5.00%, 11/15/44 | AA | 500,000 | 573,310 |
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| Strategic Intermediate Municipal Fund 25 |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| California cont. | | | |
| Chula Vista, Muni. Fin. Auth. Special Tax Bonds, | | | |
| 5.50%, 9/1/30 | AA– | $775,000 | $883,647 |
| M-S-R Energy Auth. Rev. Bonds, Ser. A, | | | |
| 6.50%, 11/1/39 | BBB+ | 750,000 | 1,222,650 |
| Yucaipa Special Tax Bonds, (Cmnty. Fac. | | | |
| Dist. No. 98-1 Chapman Heights), 5.375%, 9/1/30 | A | 375,000 | 392,498 |
| | | | 3,582,525 |
| Colorado (3.2%) | | | |
| CO E-470 Pub. Hwy. Auth. Rev. Bonds, Ser. A, | | | |
| 5.00%, 9/1/40 | A2 | 2,775,000 | 3,195,329 |
| CO State Hlth. Fac. Auth. Hosp. Rev. Bonds, | | | |
| (CommonSpirit Health Oblig. Group) | | | |
| Ser. A-1, 4.00%, 8/1/37 T | Baa1 | 150,000 | 172,754 |
| Ser. A-1, 4.00%, 8/1/38 T | Baa1 | 225,000 | 255,623 |
| Ser. A-1, 4.00%, 8/1/39 T | Baa1 | 225,000 | 254,384 |
| Ser. A-1, 4.00%, 8/1/39 T | Baa1 | 750,000 | 841,060 |
| Ser. A-2, 4.00%, 8/1/49 T | Baa1 | 1,500,000 | 1,667,862 |
| E-470 CO Pub. Hwy. Auth. Rev. Bonds, Ser. A, NATL, | | | |
| zero %, 9/1/34 | A2 | 1,525,000 | 1,169,126 |
| Vauxmont, Metro. Dist. G.O. Bonds, AGM | | | |
| 5.00%, 12/1/34 ### | AA | 285,000 | 357,376 |
| 5.00%, 12/1/32 ### | AA | 250,000 | 315,968 |
| 5.00%, 12/15/30 | AA | 125,000 | 146,784 |
| 5.00%, 12/15/29 | AA | 125,000 | 147,226 |
| 5.00%, 12/15/27 | AA | 125,000 | 147,924 |
| 5.00%, 12/15/25 | AA | 125,000 | 148,953 |
| 5.00%, 12/1/25 ### | AA | 175,000 | 207,821 |
| | | | 9,028,190 |
| Connecticut (2.9%) | | | |
| CT State Special Tax, 5.00%, 5/1/34 | A+ | 3,400,000 | 4,458,862 |
| CT State Hlth. & Edl. Fac. Auth. Rev. Bonds, | | | |
| (Masonicare Issue), Ser. F | | | |
| 5.00%, 7/1/34 | BBB+/F | 1,250,000 | 1,333,438 |
| 5.00%, 7/1/33 | BBB+/F | 250,000 | 267,783 |
| CT State Hsg. Fin. Auth. Mtge. Program Rev. Bonds | | | |
| Ser. B-1, 4.10%, 11/15/39 T | Aaa | 565,000 | 605,614 |
| Ser. B-1, 4.15%, 11/15/44 T | Aaa | 1,355,000 | 1,450,372 |
| | | | 8,116,069 |
| District of Columbia (1.8%) | | | |
| DC Rev. Bonds, (KIPP DC), Ser. A, 5.00%, 7/1/48 | BBB+ | 1,250,000 | 1,425,688 |
| Metro. Washington DC, Arpt. Auth. Dulles Toll Rd. | | | |
| Rev. Bonds, (Dulles Metrorail & Cap. Impt. Proj.) | | | |
| 5.00%, 10/1/53 | A– | 2,000,000 | 2,084,840 |
| 4.00%, 10/1/53 T | A– | 660,000 | 728,737 |
| Ser. B, 4.00%, 10/1/44 T | A– | 665,000 | 732,381 |
| | | | 4,971,646 |
| Florida (3.7%) | | | |
| Double Branch Cmnty. Dev. Dist. Special Assmt. | | | |
| Bonds, Ser. A-1, 4.25%, 5/1/34 | A | 360,000 | 382,547 |
| Halifax Hosp. Med. Ctr. Rev. Bonds, 5.00%, 6/1/36 | A– | 1,375,000 | 1,598,066 |
| |
| 26 Strategic Intermediate Municipal Fund |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Florida cont. | | | |
| Lakeland, Hosp. Syst. Rev. Bonds, | | | |
| (Lakeland Regl. Hlth.), 5.00%, 11/15/45 | A2 | $2,000,000 | $2,244,360 |
| Orange Cnty., Hlth. Fac. Auth. Rev. Bonds, | | | |
| (Presbyterian Retirement Cmntys.), 5.00%, 8/1/34 | A–/F | 1,000,000 | 1,098,400 |
| Orlando Cmnty. Redev. Agcy. Tax Alloc. Bonds, | | | |
| (Republic Drive/Universal), 5.00%, 4/1/23 | A+/F | 1,630,000 | 1,688,729 |
| Palm Beach Cnty., Hlth. Fac. Auth. Rev. Bonds, | | | |
| (Acts Retirement-Life Cmnty., Inc.), 5.00%, 11/15/32 | A–/F | 2,000,000 | 2,336,980 |
| Southeast Overtown Park West Cmnty. Redev. Agcy. | | | |
| 144A Tax Alloc. Bonds, Ser. A-1, 5.00%, 3/1/30 | BBB+ | 240,000 | 270,005 |
| Volusia Cnty., Edl. Fac. Auth. Rev. Bonds, | | | |
| (Embry-Riddle Aeronautical University, Inc.), Ser. A, | | | |
| 4.00%, 10/15/38 | A3 | 750,000 | 864,720 |
| | | | 10,483,807 |
| Georgia (2.7%) | | | |
| Cobb Cnty., Kennestone Hosp. Auth. Rev. Bonds, | | | |
| (WellStar Hlth. Syst. Oblig. Group) | | | |
| 5.00%, 4/1/31 ### | A2 | 250,000 | 319,441 |
| 5.00%, 4/1/30 ### | A2 | 300,000 | 385,265 |
| 4.00%, 4/1/32 ### | A2 | 225,000 | 263,595 |
| Fulton Cnty., Dev. Auth. Rev. Bonds, (GA Tech | | | |
| Athletic Assn.), Ser. A, 5.00%, 10/1/42 | A2 | 900,000 | 964,755 |
| Gainesville & Hall Cnty., Dev. Auth. Edl. Fac. Rev. | | | |
| Bonds, (Riverside Military Academy), 5.00%, 3/1/37 | BB/F | 200,000 | 193,536 |
| Main St. Natural Gas, Inc. Gas Supply Mandatory Put | | | |
| Bonds (9/1/23), Ser. B, 0.865%, 4/1/48 | Aa2 | 2,200,000 | 2,187,372 |
| Muni. Election Auth. of GA Rev. Bonds | | | |
| (Plant Vogtle Units 3 & 4), Ser. A, 5.50%, 7/1/60 | A | 1,500,000 | 1,719,120 |
| (Plant Vogtle Units 3 & 4), Ser. A, 5.00%, 1/1/56 | A2 | 500,000 | 594,610 |
| (Plant Vogtle Units 3 & 4), Ser. A, 4.00%, 1/1/59 | A2 | 750,000 | 825,593 |
| | | | 7,453,287 |
| Guam (0.1%) | | | |
| Territory of GU, Pwr. Auth. Rev. Bonds, Ser. A, AGM, | | | |
| 5.00%, 10/1/30 | AA | 200,000 | 215,004 |
| | | | 215,004 |
| Hawaii (0.1%) | | | |
| HI State Dept. Budget & Fin. Rev. Bonds, | | | |
| (Kahala Nui), 5.25%, 11/15/37 | A/F | 250,000 | 270,098 |
| | | | 270,098 |
| Idaho (0.2%) | | | |
| ID State Hlth. Fac. Auth. Rev. Bonds, (St. Luke’s Hlth. | | | |
| Sys. Oblig. Group), Ser. A, 5.00%, 3/1/37 | A3 | 500,000 | 610,705 |
| | | | 610,705 |
| Illinois (13.3%) | | | |
| Chicago, G.O. Bonds | | | |
| Ser. A, 6.00%, 1/1/38 | BBB+ | 1,600,000 | 1,857,664 |
| Ser. B-2, 5.50%, 1/1/37 | BBB+ | 1,000,000 | 1,082,960 |
| Ser. A, 5.00%, 1/1/30 | BBB+ | 1,300,000 | 1,480,622 |
| Chicago, Motor Fuel Tax Rev. Bonds, AGM, | | | |
| 5.00%, 1/1/31 | AA | 500,000 | 555,025 |
|
| Strategic Intermediate Municipal Fund 27 |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Illinois cont. | | | |
| Chicago, O’Hare Intl. Arpt. Rev. Bonds, Ser. F, | | | |
| 5.00%, 1/1/40 | A2 | $1,045,000 | $1,048,584 |
| Chicago, Waste Wtr. Transmission Rev. Bonds | | | |
| 5.00%, 1/1/44 | A | 500,000 | 547,055 |
| Ser. C, 5.00%, 1/1/39 | A | 750,000 | 846,353 |
| (2nd Lien), 5.00%, 1/1/39 | A | 565,000 | 621,105 |
| Ser. C, 5.00%, 1/1/34 | A | 400,000 | 455,744 |
| Ser. C, 5.00%, 1/1/33 | A | 405,000 | 462,555 |
| Chicago, Wtr. Wks Rev. Bonds, 5.00%, 11/1/39 | A | 675,000 | 753,631 |
| IL State G.O. Bonds | | | |
| 5.00%, 11/1/41 | Baa3 | 600,000 | 652,896 |
| 5.00%, 1/1/41 | Baa3 | 340,000 | 366,877 |
| 5.00%, 11/1/34 | Baa3 | 1,650,000 | 1,826,583 |
| Ser. B, 5.00%, 10/1/31 | Baa3 | 1,000,000 | 1,155,510 |
| Ser. C, 5.00%, 11/1/29 | Baa3 | 1,225,000 | 1,398,705 |
| 5.00%, 2/1/29 | Baa3 | 1,000,000 | 1,138,960 |
| Ser. D, 5.00%, 11/1/28 | Baa3 | 2,080,000 | 2,387,070 |
| Ser. D, 5.00%, 11/1/27 | Baa3 | 920,000 | 1,059,224 |
| IL State Fin. Auth. Mandatory Put Bonds (9/1/22), | | | |
| (Field Museum of Natural History), 0.616%, 11/1/34 | A2 | 2,475,000 | 2,445,845 |
| IL State Fin. Auth. Rev. Bonds | | | |
| (Art Institute of Chicago (The)), 5.00%, 3/1/30 | Aa3 | 1,500,000 | 1,826,175 |
| (Riverside Hlth. Syst.), 4.00%, 11/15/32 | A+ | 400,000 | 452,672 |
| IL State Fin. Auth. Academic Fac. Rev. Bonds, | | | |
| (U. of Illinois at Urbana-Champaign), Ser. A, | | | |
| 5.00%, 10/1/38 | A1 | 700,000 | 866,607 |
| IL State Fin. Auth. Student Hsg. & Academic Fac. Rev. | | | |
| Bonds, (U. of IL Chicago), 5.00%, 2/15/50 | Baa3 | 500,000 | 506,195 |
| IL State Toll Hwy. Auth. Rev. Bonds, Ser. A, | | | |
| 5.00%, 12/1/32 | AA– | 2,000,000 | 2,380,540 |
| Metro. Pier & Exposition Auth. Rev. Bonds, | | | |
| (McCormick Place Expansion), Ser. B, | | | |
| 5.00%, 12/15/33 | BBB | 300,000 | 335,358 |
| Metro. Pier & Exposition Auth. Dedicated State | | | |
| Tax Rev. Bonds, (McCormick), Ser. A, NATL, | | | |
| zero %, 12/15/22 | Baa2 | 5,500,000 | 5,203,660 |
| Metro. Wtr. Reclamation Dist. of Greater Chicago | | | |
| G.O. Bonds, Ser. A, 5.00%, 12/1/31 | AA+ | 1,000,000 | 1,202,090 |
| Sales Tax Securitization Corp. Rev. Bonds, Ser. C, | | | |
| 5.50%, 1/1/36 | AA– | 2,000,000 | 2,478,120 |
| | | | 37,394,385 |
| Indiana (0.4%) | | | |
| IN State Fin. Auth. Rev. Bonds, (BHI Sr. Living), | | | |
| 5.75%, 11/15/41 | BBB/F | 1,000,000 | 1,026,610 |
| | | | 1,026,610 |
|
| 28 Strategic Intermediate Municipal Fund |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Kansas (1.2%) | | | |
| KS State Dev. Fin. Auth. Rev. Bonds, | | | |
| (Lifespace Cmnty’s. Inc.), Ser. S, 5.00%, 5/15/30 | BBB/F | $1,455,000 | $1,456,513 |
| Lyon Cnty., Unified School Dist. No. 253 | | | |
| Emporia G.O. Bonds | | | |
| 4.00%, 9/1/33 | A1 | 1,050,000 | 1,240,859 |
| 4.00%, 9/1/32 | A1 | 350,000 | 415,797 |
| 4.00%, 9/1/31 | A1 | 325,000 | 388,573 |
| | | | 3,501,742 |
| Kentucky (5.3%) | | | |
| KY Pub. Trans. Infrastructure Auth. Rev. Bonds, | | | |
| (1st Tier Downtown Crossing), Ser. A, 6.00%, 7/1/53 | Baa3 | 500,000 | 528,160 |
| KY State Econ. Dev. Fin. Auth. Rev. Bonds, | | | |
| (Louisville Arena Auth., Inc.), Ser. A, AGM, | | | |
| 4.00%, 12/1/41 | AA | 1,000,000 | 1,125,530 |
| KY State Property & Bldg. Comm. Rev. Bonds | | | |
| (No. 119), 5.00%, 5/1/35 | A1 | 1,000,000 | 1,227,520 |
| (No. 122), Ser. A, 4.00%, 11/1/37 | A1 | 1,250,000 | 1,438,900 |
| (No. 122), Ser. A, 4.00%, 11/1/35 | A1 | 500,000 | 579,290 |
| KY State Pub. Energy Auth. | | | |
| Gas Supply Mandatory Put Bonds (6/1/25) Ser. C-1, | | | |
| 4.00%, 12/1/49 | A3 | 3,150,000 | 3,593,016 |
| Gas Supply Mandatory Put Bonds (1/1/25) Ser. B, | | | |
| 4.00%, 1/1/49 | A1 | 2,800,000 | 3,127,264 |
| Louisville & Jefferson Cnty., Metro. Govt. Hlth. | | | |
| Syst. Rev. Bonds, (Norton Healthcare, Inc.), Ser. A, | | | |
| 5.00%, 10/1/30 | A | 2,750,000 | 3,320,268 |
| | | | 14,939,948 |
| Louisiana (2.5%) | | | |
| LA State Pub. Fac. Auth. Rev. Bonds, (LA State | | | |
| U. Greenhouse Phase III), Ser. A, 5.00%, 7/1/59 | A3 | 1,000,000 | 1,124,500 |
| 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 | 1,937,180 |
| St. Tammany Parish Hosp. Svcs. Dist. No. 1 Rev. | | | |
| Bonds, (St. Tammany Parish Hosp.), Ser. A | | | |
| 5.00%, 7/1/38 | A+/F | 1,500,000 | 1,844,025 |
| 5.00%, 7/1/34 | A+/F | 1,000,000 | 1,244,920 |
| Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. A, | | | |
| 5.00%, 5/15/23 | A | 800,000 | 868,648 |
| | | | 7,019,273 |
| Maryland (0.1%) | | | |
| Gaithersburg, Econ. Dev. Rev. Bonds, | | | |
| (Asbury, Oblig. Group), Ser. A, 5.00%, 1/1/36 | BBB/F | 300,000 | 325,707 |
| | | | 325,707 |
| Massachusetts (0.9%) | | | |
| MA State G.O. Bonds, Ser. E, 4.00%, 4/1/46 | Aa1 | 2,275,000 | 2,514,535 |
| MA State Hsg. Fin. Agcy. Rev. Bonds, Ser. 162, FNMA | | | |
| Coll., FHLMC Coll., 2.75%, 12/1/41 | Aa1 | 60,000 | 60,456 |
| | | | 2,574,991 |
|
| Strategic Intermediate Municipal Fund 29 |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Michigan (9.1%) | | | |
| Detroit, Downtown Dev. Auth. Tax Alloc. Bonds, | | | |
| Ser. A, AGM, 5.00%, 7/1/43 | AA | $3,000,000 | $3,374,520 |
| Great Lakes, Wtr. Auth. Swr. Rev. Bonds, | | | |
| (Brazos Presbyterian Homes, Inc.), Ser. C, | | | |
| 5.00%, 7/1/36 | A+ | 2,500,000 | 3,013,725 |
| Karegnondi, Wtr. Auth. Rev. Bonds, 5.00%, 11/1/41 | A | 2,200,000 | 2,661,538 |
| Kentwood, Economic Dev. Rev. Bonds, | | | |
| (Holland Home Oblig. Group), 5.00%, 11/15/37 | BBB–/F | 1,000,000 | 1,045,950 |
| MI State Bldg. Auth. Rev. Bonds, Ser. I, | | | |
| 4.00%, 10/15/49 | Aa2 | 3,000,000 | 3,500,640 |
| MI State Fin. Auth. Rev. Bonds | | | |
| Ser. H-1, 5.00%, 10/1/39 (Prerefunded 10/1/24) | AA– | 525,000 | 604,737 |
| (Pub. Ltg. Auth.), Ser. B, 5.00%, 7/1/39 | BB+ | 2,000,000 | 2,140,920 |
| (Local Govt. Loan Program — Detroit Wtr. & Swr. | | | |
| Dept. (DWSD)), Ser. C, 5.00%, 7/1/35 | A+ | 400,000 | 469,596 |
| (Local Govt. Loan Program — Detroit Wtr. & Swr. | | | |
| Dept. (DWSD)), Ser. D-2, 5.00%, 7/1/34 | A+ | 200,000 | 235,946 |
| (Detroit Wtr. & Swr.), Ser. C-6, 5.00%, 7/1/33 | AA– | 140,000 | 158,899 |
| (Detroit), Ser. C-3, 5.00%, 4/1/28 | Aa2 | 700,000 | 877,240 |
| (Trinity Health Corp. Oblig. Group), Ser. A, | | | |
| 4.00%, 12/1/49 T | Aa3 | 1,325,000 | 1,531,948 |
| MI State Strategic Fund Ltd. Oblig. Rev. Bonds, | | | |
| (Detroit Edison Co.), AMBAC, 7.00%, 5/1/21 | Aa3 | 4,000,000 | 4,194,360 |
| Pontiac City, G.O. Bonds, (Pontiac School Dist.), | | | |
| Q-SBLF, 4.00%, 5/1/34 | Aa1 | 1,370,000 | 1,652,576 |
| | | | 25,462,595 |
| Minnesota (0.2%) | | | |
| MN State Higher Ed. Fac. Auth. Rev. Bonds, | | | |
| (Carleton College) | | | |
| 4.00%, 3/1/37 | Aa2 | 130,000 | 150,938 |
| 4.00%, 3/1/36 | Aa2 | 400,000 | 465,688 |
| | | | 616,626 |
| Mississippi (0.7%) | | | |
| MS State Bus. Fin. Corp. Rev. Bonds, (System Energy | | | |
| Resources, Inc.), 2.50%, 4/1/22 | BBB+ | 2,000,000 | 2,017,400 |
| | | | 2,017,400 |
| Nebraska (1.4%) | | | |
| Central Plains, Energy Mandatory Put Bonds | | | |
| (1/1/24), (No. 4), 5.00%, 3/1/50 | A3 | 2,500,000 | 2,834,175 |
| Central Plains, Energy Rev. Bonds, (NE Gas No. 3), | | | |
| 5.00%, 9/1/32 (Prerefunded 9/1/22) | A3 | 1,000,000 | 1,080,000 |
| | | | 3,914,175 |
| Nevada (0.1%) | | | |
| Clark Cnty., Impt. Dist. Special Assmt. Bonds, | | | |
| (Mountains Edge Local No. 142), 5.00%, 8/1/20 | BBB | 350,000 | 350,000 |
| | | | 350,000 |
| New Hampshire (1.0%) | | | |
| NH State Hlth. & Ed. Fac. Auth. Rev. Bonds | | | |
| (Catholic Med. Ctr.), 5.00%, 7/1/44 | BBB+ | 500,000 | 564,245 |
| (Southern NH Med. Ctr.), 5.00%, 10/1/37 | A– | 2,000,000 | 2,334,820 |
| | | | 2,899,065 |
| |
| 30 Strategic Intermediate Municipal Fund |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| New Jersey (4.1%) | | | |
| NJ State Econ. Dev. Auth. Rev. Bonds | | | |
| Ser. AAA, 5.00%, 6/15/36 | Baa1 | $350,000 | $397,352 |
| Ser. B, 5.00%, 11/1/26 | Baa1 | 3,000,000 | 3,548,070 |
| NJ State Hlth. Care Fac. Fin. Auth. VRDN, | | | |
| (AHS Hosp. Corp.), Ser. B, 0.13%, 7/1/36 | VMIG 1 | 1,500,000 | 1,500,000 |
| NJ State Trans. Trust Fund Auth. Rev. Bonds | | | |
| Ser. A, 5.00%, 12/15/39 | Baa1 | 275,000 | 324,357 |
| Ser. A, 5.00%, 12/15/34 | Baa1 | 680,000 | 802,448 |
| Ser. A, 5.00%, 12/15/33 | Baa1 | 2,000,000 | 2,367,180 |
| (Federal Hwy. Reimbursement Notes), | | | |
| 5.00%, 6/15/28 | A+ | 750,000 | 877,358 |
| Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. A, | | | |
| 5.00%, 6/1/34 | A– | 1,250,000 | 1,547,350 |
| | | | 11,364,115 |
| New Mexico (0.4%) | | | |
| Sante Fe, Retirement Fac. Rev. Bonds, (El Castillo | | | |
| Retirement Res.), 5.00%, 5/15/42 | BB+/F | 980,000 | 985,400 |
| | | | 985,400 |
| New York (5.8%) | | | |
| Hudson Yards Infrastructure Corp. Rev. Bonds, | | | |
| Ser. A, FHLMC Coll., U.S. Govt. Coll., 5.75%, 2/15/47 | | | |
| (Prerefunded 2/15/21) | Aa2 | 15,000 | 15,447 |
| Metro. Trans. Auth. Rev. Bonds, (Green Bonds), | | | |
| Ser. C-1, 4.00%, 11/15/32 | A2 | 1,300,000 | 1,361,945 |
| Metro. Trans. Auth. Dedicated Tax Mandatory Put | | | |
| Bonds (6/1/22), Ser. A-2A, 0.61%, 11/1/26 | AA | 1,850,000 | 1,773,336 |
| New York, G.O. Bonds | | | |
| Ser. D-1, 5.00%, 3/1/43 | Aa1 | 2,500,000 | 3,209,525 |
| Ser. A, 5.00%, 8/1/39 | Aa1 | 1,700,000 | 2,174,861 |
| NY City, Transitional Fin. Auth. Rev. Bonds, Ser. C-1, | | | |
| 4.00%, 5/1/39 | AAA | 1,500,000 | 1,818,855 |
| NY State Dorm. Auth. Personal Income Tax Rev. | | | |
| Bonds, Ser. D | | | |
| 4.00%, 2/15/47 | Aa1 | 3,100,000 | 3,634,347 |
| 4.00%, 2/15/39 | Aa1 | 1,800,000 | 2,149,002 |
| | | | 16,137,318 |
| North Carolina (0.8%) | | | |
| NC State Tpk. Auth. Rev. Bonds, | | | |
| (Triangle Expressway Auth.), AGM, 5.00%, 1/1/49 | AA | 1,700,000 | 2,105,909 |
| | | | 2,105,909 |
| Ohio (4.5%) | | | |
| Buckeye, Tobacco Settlement Fin. Auth. Rev. Bonds, | | | |
| Ser. A-2, Class 1, 4.00%, 6/1/48 | BBB+ | 3,250,000 | 3,639,188 |
| Cleveland, Pub. Pwr. Syst. Rev. Bonds, Ser. A, AGM, | | | |
| 4.00%, 11/15/37 | AA | 500,000 | 592,535 |
| Cuyahoga Cnty., Econ. Dev. Rev. Bonds | | | |
| 5.00%, 1/1/38 | A | 1,380,000 | 1,644,505 |
| 5.00%, 1/1/36 | A | 425,000 | 509,754 |
| Franklin Cnty., Hlth. Care Fac. Rev. Bonds, | | | |
| (Friendship Village of Dublin Oblig. Group), | | | |
| 5.00%, 11/15/34 | BBB+/F | 700,000 | 740,229 |
|
| Strategic Intermediate Municipal Fund 31 |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Ohio cont. | | | |
| Lucas Cnty., Hlth. Care Fac. Rev. Bonds, | | | |
| (Sunset Retirement Cmntys.), 5.50%, 8/15/30 | A–/F | $650,000 | $669,448 |
| OH State Higher Edl. Fac. Comm. Rev. Bonds, | | | |
| (Kenyon College 2020), 4.00%, 7/1/44 | A2 | 1,875,000 | 2,162,888 |
| OH State Hosp. Fac. Rev. Bonds, (Cleveland Clinic | | | |
| Hlth. Syst.), Ser. A, 4.00%, 1/1/34 | Aa2 | 1,250,000 | 1,464,200 |
| Scioto Cnty., Hosp. Rev. Bonds, (Southern OH | | | |
| Med. Ctr.), 5.00%, 2/15/33 | A3 | 500,000 | 573,525 |
| Warren Cnty., Hlth. Care Fac. Rev. Bonds, | | | |
| (Otterbein Homes Oblig. Group), Ser. A, | | | |
| 5.75%, 7/1/33 | A | 500,000 | 546,475 |
| | | | 12,542,747 |
| Oregon (0.1%) | | | |
| Keizer, Special Assmt. Bonds, (Keizer Station), Ser. A, | | | |
| 5.20%, 6/1/31 | Aa3 | 265,000 | 265,946 |
| | | | 265,946 |
| Pennsylvania (4.4%) | | | |
| Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds, | | | |
| (Allegheny Hlth. Network Oblig. Group), Ser. A, | | | |
| 5.00%, 4/1/32 | A | 2,200,000 | 2,706,594 |
| Dallas, Area Muni. Auth. U. Rev. Bonds, | | | |
| (Misericordia U.), 5.00%, 5/1/29 | Baa3 | 300,000 | 324,834 |
| Geisinger, Auth. Hlth. Syst. Mandatory Put Bonds | | | |
| (2/15/27), (Geisinger Hlth. Syst.), 5.00%, 4/1/43 | AA– | 750,000 | 925,628 |
| Geisinger, Auth. Hlth. Syst. Rev. Bonds, | | | |
| (Geisinger Hlth. Syst.), 5.00%, 4/1/35 | AA– | 750,000 | 977,415 |
| Lackawanna Cnty., Indl. Dev. Auth. Rev. Bonds, | | | |
| (Scranton U.), 4.00%, 11/1/40 | A– | 500,000 | 561,770 |
| PA State Higher Edl. Fac. Auth. Rev. Bonds, | | | |
| (East Stroudsburg U.), 5.00%, 7/1/31 | Baa3 | 760,000 | 761,239 |
| PA State Tpk. Comm. Rev. Bonds | | | |
| Ser. A, 5.00%, 12/1/44 | A3 | 700,000 | 854,931 |
| Ser. B-1, 5.00%, 6/1/42 | A3 | 675,000 | 792,572 |
| Ser. 2nd, 5.00%, 12/1/35 | A3 | 1,000,000 | 1,204,550 |
| Philadelphia, School Dist. G.O. Bonds, Ser. A, | | | |
| 4.00%, 9/1/39 | A2 | 1,620,000 | 1,889,406 |
| Wilkes-Barre, Area School Dist. G.O. Bonds, BAM, | | | |
| 5.00%, 4/15/59 | AA | 1,000,000 | 1,230,970 |
| | | | 12,229,909 |
| Rhode Island (0.8%) | | | |
| RI Hlth. & Edl. Bldg. Corp. Rev. Bonds, | | | |
| (Lifespan Oblig. Group-Hosp. Fin.) | | | |
| 5.00%, 5/15/33 | BBB+ | 365,000 | 405,234 |
| 5.00%, 5/15/26 | BBB+ | 580,000 | 679,250 |
| Tobacco Settlement Fin. Corp. Rev. Bonds, Ser. B, | | | |
| 5.00%, 6/1/50 | BBB–/P | 1,000,000 | 1,076,920 |
| | | | 2,161,404 |
| South Carolina (2.8%) | | | |
| Lexington Cnty., Hlth. Svcs. Dist. Rev. Bonds, | | | |
| (LexMed Oblig. Group), 5.00%, 11/1/29 | A1 | 500,000 | 619,375 |
| Myrtle Beach, Tax Allocation Bonds, (Myrtle Beach | | | |
| Air Force Base Redev.), 5.00%, 10/1/28 | A2 | 575,000 | 707,796 |
| |
| 32 Strategic Intermediate Municipal Fund |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| South Carolina cont. | | | |
| SC State Jobs Econ. Dev. Auth. Hosp. VRDN | | | |
| (Prisma Hlth. Oblig. Group), Ser. B, 0.14%, 5/1/48 | VMIG 1 | $500,000 | $500,000 |
| SC State Pub. Svcs. Auth. Rev. Bonds | | | |
| Ser. A, 5.50%, 12/1/54 | A2 | 1,000,000 | 1,129,980 |
| Ser. A, 5.00%, 12/1/55 | A2 | 545,000 | 620,842 |
| (Santee Cooper), Ser. B, 5.00%, 12/1/38 | A2 | 595,000 | 660,408 |
| (Oblig.), Ser. B, 5.00%, 12/1/37 | A2 | 500,000 | 596,730 |
| Ser. A, 5.00%, 12/1/36 | A2 | 1,500,000 | 1,772,040 |
| Ser. A, 5.00%, 12/1/34 | A2 | 1,025,000 | 1,217,393 |
| | | | 7,824,564 |
| 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 | 171,845 |
| Ser. A-1, 4.00%, 8/1/38 T | Baa1 | 150,000 | 171,519 |
| Ser. A-2, 5.00%, 8/1/44 T | Baa1 | 150,000 | 179,282 |
| Ser. A-1, 4.00%, 8/1/44 T | Baa1 | 275,000 | 311,827 |
| Ser. A-2, 5.00%, 8/1/49 T | Baa1 | 250,000 | 296,062 |
| | | | 1,130,535 |
| Texas (9.7%) | | | |
| Arlington, Higher Ed. Fin. Corp. Rev. Bonds | | | |
| (Uplift Ed.), Ser. A, PSFG, 5.00%, 12/1/37 | AAA | 725,000 | 896,716 |
| (Riverwalk Education Foundation, Inc.), PSFG, | | | |
| 4.00%, 8/15/44 | AAA | 1,500,000 | 1,763,565 |
| (Uplift Ed.), Ser. A, PSFG, 4.00%, 12/1/32 | AAA | 375,000 | 441,510 |
| Austin-Bergstrom Landhost Enterprises, | | | |
| Inc. Rev. Bonds | | | |
| 5.00%, 10/1/36 | A3 | 600,000 | 676,026 |
| 5.00%, 10/1/33 | A3 | 400,000 | 455,184 |
| Central TX Regl. Mobility Auth. Rev. Bonds, | | | |
| 5.00%, 1/1/37 | A– | 1,590,000 | 1,876,327 |
| Clifton, Higher Ed. Fin. Corp. Rev. Bonds, | | | |
| (IDEA Pub. Schools) | | | |
| Ser. B, 5.00%, 8/15/27 | A– | 350,000 | 419,447 |
| PSFG, 4.00%, 8/15/32 | AAA | 2,070,000 | 2,549,660 |
| Dallas, Area Rapid Transit Rev. Bonds, Ser. A, | | | |
| 5.00%, 12/1/46 | AA+ | 6,000,000 | 7,020,000 |
| Dallas, Area Rapid Transit Sales Tax Rev. Bonds, | | | |
| Ser. A, 5.00%, 12/1/41 | AA+ | 1,160,000 | 1,364,972 |
| 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 | 512,935 |
| New Hope, Cultural Ed. Fac. Fin. Corp. Rev. Bonds | | | |
| (CHF-Collegiate Hsg. Stephenville III, LLC), 5.00%, | | | |
| 4/1/47 (Prerefunded 4/1/25) | Baa3 | 365,000 | 432,200 |
| (TX Woman’s U. CHF-Collegiate Hsg. Dining), | | | |
| Ser. B-1, AGM, 5.00%, 7/1/38 | AA | 860,000 | 1,002,330 |
| (Tarleton State U. Collegiate Student Hsg.), Ser. A, | | | |
| 5.00%, 4/1/35 (Prerefunded 4/1/25) | Baa3 | 800,000 | 947,288 |
|
| Strategic Intermediate Municipal Fund 33 |
| | | |
| MUNICIPAL BONDS AND NOTES (96.9%)* cont. | Rating** | Principal amount | Value |
| Texas cont. | | | |
| New Hope, Cultural Ed. Fac. Fin. Corp. Rev. Bonds | | | |
| (Collegiate Hsg.-Tarleton St.), 5.00%, 4/1/29 | | | |
| (Prerefunded 4/1/24) | Baa3 | $1,225,000 | $1,404,377 |
| (Children’s Hlth. Syst. of TX), Ser. A, 4.00%, 8/15/34 | Aa3 | 400,000 | 463,752 |
| North TX, Thruway Auth. Rev. Bonds, Ser. B, AGM, | | | |
| 4.00%, 1/1/36 | AA | 1,000,000 | 1,133,240 |
| SA Energy Acquisition Pub. Fac. Corp. Rev. Bonds, | | | |
| (Gas Supply), 5.50%, 8/1/25 | A3 | 1,000,000 | 1,218,380 |
| 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 | 1,439,713 |
| TX State Muni. Gas Acquisition & Supply Corp. III Rev. | | | |
| Bonds, 5.00%, 12/15/28 | A3 | 1,000,000 | 1,078,020 |
| | | | 27,095,642 |
| Utah (1.0%) | | | |
| Murray City, Hosp. VRDN, (IHC Hlth. Svcs., Inc.), | | | |
| Ser. A, 0.17%, 5/15/37 | VMIG 1 | 2,000,000 | 2,000,000 |
| UT State Charter School Fin. Auth. Rev. Bonds, | | | |
| (UT Charter Academies, Inc.), 5.00%, 10/15/30 | AA | 575,000 | 711,856 |
| | | | 2,711,856 |
| Virginia (0.1%) | | | |
| Fairfax Cnty., Econ. Dev. Auth. Res. Care Fac. Rev. | | | |
| Bonds, (Goodwin House, Inc.), Ser. A, 5.00%, 10/1/42 | BBB+/F | 350,000 | 375,631 |
| Federal Home Loan Mortgage Corp. Rev. Bonds, | | | |
| Ser. M-053, Class A, 2.55%, 6/15/35 | AA+ | 6,938 | 7,819 |
| | | | 383,450 |
| Washington (3.4%) | | | |
| Central Puget Sound Regl. Trans. Auth. Rev. Bonds, | | | |
| (Green Bond), Ser. S-1, 5.00%, 11/1/45 | AAA | 3,120,000 | 3,685,344 |
| King Cnty., Public Hosp. Dist. No. 1 G.O. Bonds, | | | |
| (Valley Med. Ctr.), 5.00%, 12/1/37 | A2 | 1,500,000 | 1,783,365 |
| WA State G.O. Bonds, Ser. 21A, 5.00%, 6/1/36 ### | Aaa | 2,130,000 | 2,822,591 |
| WA State Hlth. Care Fac. Auth. Mandatory Put Bonds | | | |
| (7/1/22), (Fred Hutchinson Cancer Research Ctr.), | | | |
| Ser. B, 1.212%, 1/1/42 | A+ | 1,100,000 | 1,100,088 |
| | | | 9,391,388 |
| West Virginia (0.2%) | | | |
| WV State Econ. Dev. Auth. Solid Waste Disp. Fac. | | | |
| FRB, (Appalachian Pwr. Co.), Ser. A, 5.375%, 12/1/38 | A– | 500,000 | 506,390 |
| | | | 506,390 |
| Wisconsin (1.4%) | | | |
| 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 | 1,728,656 |
| 5.00%, 7/1/44 | AA | 1,000,000 | 1,182,970 |
| WI State Hlth. & Edl. Fac. Auth. Rev. Bonds, | | | |
| (Three Pillars Sr. Living), 5.00%, 8/15/33 | A/F | 1,000,000 | 1,079,180 |
| | | | 3,990,806 |
| Total municipal bonds and notes (cost $254,051,303) | | $271,276,515 |
| |
| 34 Strategic Intermediate Municipal Fund |
| | | |
| | Principal amount/ | |
| SHORT-TERM INVESTMENTS (4.6%)* | | shares | Value |
| Putnam Short Term Investment Fund Class P 0.29% L | Shares | 12,630,751 | $12,630,751 |
| State Street Institutional U.S. Government Money Market Fund, | | | |
| Premier Class 0.09% P | Shares | 110,000 | 110,000 |
| U.S. Treasury Bills 0.002%, 9/24/20 | | $85,000 | 84,988 |
| U.S. Treasury Bills 0.153%, 9/8/20 | | 45,000 | 44,996 |
| Total short-term investments (cost $12,870,744) | | | $12,870,735 |
| |
| TOTAL INVESTMENTS | | | |
| Total investments (cost $266,922,047) | | | $284,147,250 |
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, 2019 through July 31, 2020 (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 $279,938,585.
** 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.
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.
P This security was pledged, or purchased with cash that was pledged, to the fund for collateral on certain derivative contracts. 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 $17,362,062 to cover 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.
Debt obligations are considered secured unless otherwise indicated.
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 0.16%, 0.15% and 0.25%, 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.
|
| Strategic Intermediate Municipal Fund 35 |
| | | | | |
| 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 | 18.9% | | | | |
| Tax bonds | 13.7 | | | | |
| State debt | 10.9 | | | | |
| | | | | | |
| OTC TOTAL RETURN SWAP CONTRACTS OUTSTANDING at 7/31/20 | | |
| | | Upfront | | | | |
| | | premium | Termina- | Payments | Total return | Unrealized |
| Swap counterparty/ | | received | tion | received (paid) | received by | appreciation/ |
| Notional amount | Value | (paid) | date | by fund | or paid by fund | (depreciation) |
| Citibank, N.A. | | | | | | |
| $240,000 | $21,719 | $— | 8/25/20 | — | 1.87% minus | $21,719 |
| | | | | | Municipal Market | |
| | | | | | Data Index AAA | |
| | | | | | municipal yields | |
| | | | | | 30 Year rate — At | |
| | | | | | maturity | |
| 730,000 | 72,088 | — | 8/24/20 | — | 1.91% minus | 72,088 |
| | | | | | Municipal Market | |
| | | | | | Data Index AAA | |
| | | | | | municipal yields | |
| | | | | | 30 Year rate — At | |
| | | | | | maturity | |
| 300,000 | 35,884 | — | 8/21/20 | — | 2.01% minus | 35,884 |
| | | | | | Municipal Market | |
| | | | | | Data Index AAA | |
| | | | | | municipal yields | |
| | | | | | 30 Year rate — At | |
| | | | | | maturity | |
| Upfront premium received | — | | Unrealized appreciation | 129,691 |
| Upfront premium (paid) | | — | | Unrealized (depreciation) | — |
| Total | | $— | | Total | | $129,691 |
ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1: Valuations based on quoted prices for identical securities in active markets.
Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3: Valuations based on inputs that are unobservable and significant to the fair value measurement.
| | | |
| The following is a summary of the inputs used to value the fund’s net assets as of the close of the reporting period: |
| |
| | | Valuation inputs |
| Investments in securities: | Level 1 | Level 2 | Level 3 |
| Municipal bonds and notes | $— | $271,276,515 | $— |
| Short-term investments | 12,740,751 | 129,984 | — |
| Totals by level | $12,740,751 | $271,406,499 | $— |
| | | | |
| | | Valuation inputs |
| Other financial instruments: | Level 1 | Level 2 | Level 3 |
| Total return swap contracts | $— | $129,691 | $— |
| Totals by level | $— | $129,691 | $— |
The accompanying notes are an integral part of these financial statements.
| |
| 36 Strategic Intermediate Municipal Fund |
| |
| Statement of assets and liabilities 7/31/20 | |
| ASSETS | |
| Investment in securities, at value (Notes 1 and 8): | |
| Unaffiliated issuers (identified cost $254,291,296) | $271,516,499 |
| Affiliated issuers (identified cost $12,630,751) (Notes 1 and 5) | 12,630,751 |
| Interest and other receivables | 2,457,244 |
| Receivable for shares of the fund sold | 415,926 |
| Receivable for investments sold | 2,895,165 |
| Unrealized appreciation on OTC swap contracts (Note 1) | 129,691 |
| Prepaid assets | 45,508 |
| Total assets | 290,090,784 |
| |
| LIABILITIES | |
| Payable for purchases of delayed delivery securities (Note 1) | 4,333,007 |
| Payable for shares of the fund repurchased | 166,515 |
| Payable for compensation of Manager (Note 2) | 101,541 |
| Payable for custodian fees (Note 2) | 4,558 |
| Payable for investor servicing fees (Note 2) | 28,388 |
| Payable for Trustee compensation and expenses (Note 2) | 124,958 |
| Payable for administrative services (Note 2) | 1,060 |
| Payable for distribution fees (Note 2) | 60,738 |
| Payable for floating rate bonds issued (Note 1) | 5,028,255 |
| Distributions payable to shareholders | 48,539 |
| Collateral on certain derivative contracts, at value (Notes 1 and 8) | 110,000 |
| Other accrued expenses | 144,640 |
| Total liabilities | 10,152,199 |
| | |
| Net assets | $279,938,585 |
| |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $262,314,129 |
| Total distributable earnings (Note 1) | 17,624,456 |
| Total — Representing net assets applicable to capital shares outstanding | $279,938,585 |
| |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share | |
| ($218,231,624 divided by 14,233,307 shares) | $15.33 |
| Offering price per class A share (100/96.00 of $15.33)* | $15.97 |
| Net asset value and offering price per class B share ($741,074 divided by 48,266 shares)** | $15.35 |
| Net asset value and offering price per class C share ($15,888,358 divided by 1,032,963 shares)** | $15.38 |
| Net asset value, offering price and redemption price per class R6 share | |
| ($409,695 divided by 26,689 shares) | $15.35 |
| Net asset value, offering price and redemption price per class Y share | |
| ($44,667,834 divided by 2,910,424 shares) | $15.35 |
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
|
| Strategic Intermediate Municipal Fund 37 |
| |
| Statement of operations Year ended 7/31/20 | |
| INVESTMENT INCOME | |
| Interest (including interest income of $44,030 from investments in affiliated issuers) (Note 5) | $9,520,339 |
| Total investment income | 9,520,339 |
| |
| EXPENSES | |
| Compensation of Manager (Note 2) | 1,276,800 |
| Investor servicing fees (Note 2) | 184,354 |
| Custodian fees (Note 2) | 12,203 |
| Trustee compensation and expenses (Note 2) | 10,748 |
| Distribution fees (Note 2) | 725,523 |
| Administrative services (Note 2) | 8,161 |
| Interest and fees expense (Note 2) | 67,298 |
| Other | 354,640 |
| Total expenses | 2,639,727 |
| | |
| Expense reduction (Note 2) | (42,403) |
| Net expenses | 2,597,324 |
| | |
| Net investment income | 6,923,015 |
| |
| REALIZED AND UNREALIZED GAIN (LOSS) | |
| Net realized gain (loss) on: | |
| Securities from unaffiliated issuers (Notes 1 and 3) | 2,807,383 |
| Futures contracts (Note 1) | (742,490) |
| Swap contracts (Note 1) | 228,784 |
| Total net realized gain | 2,293,677 |
| Change in net unrealized appreciation (depreciation) on: | |
| Securities from unaffiliated issuers | 2,080,526 |
| Swap contracts | (22,825) |
| Total change in net unrealized appreciation | 2,057,701 |
| | |
| Net gain on investments | 4,351,378 |
| |
| Net increase in net assets resulting from operations | $11,274,393 |
The accompanying notes are an integral part of these financial statements.
|
| 38 Strategic Intermediate Municipal Fund |
| | |
| Statement of changes in net assets | | |
| DECREASE IN NET ASSETS | Year ended 7/31/20 | Year ended 7/31/19 |
| Operations | | |
| Net investment income | $6,923,015 | $8,541,975 |
| Net realized gain on investments | 2,293,677 | 5,869,859 |
| Change in net unrealized appreciation of investments | 2,057,701 | 6,661,657 |
| Net increase in net assets resulting from operations | 11,274,393 | 21,073,491 |
| Distributions to shareholders (Note 1): | | |
| From ordinary income | | |
| Taxable net investment income | | |
| Class A | (60,577) | (58,479) |
| Class B | (245) | (256) |
| Class C | (4,710) | (5,064) |
| Class M | — | (228) |
| Class R6 | (109) | (71) |
| Class Y | (12,157) | (12,142) |
| From tax-exempt net investment income | | |
| Class A | (5,439,930) | (6,597,276) |
| Class B | (15,266) | (22,797) |
| Class C | (288,435) | (418,215) |
| Class M | (8,164) | (22,897) |
| Class R6 | (10,336) | (6,998) |
| Class Y | (1,173,966) | (1,420,781) |
| Net realized short-term gain on investments | | |
| Class A | (1,664,142) | — |
| Class B | (6,744) | — |
| Class C | (129,412) | — |
| Class R6 | (2,985) | — |
| Class Y | (333,613) | — |
| From net realized long-term gain on investments | | |
| Class A | (3,337,313) | (2,595,816) |
| Class B | (13,524) | (11,352) |
| Class C | (259,487) | (224,790) |
| Class M | — | (10,110) |
| Class R6 | (5,984) | (3,160) |
| Class Y | (670,112) | (538,970) |
| Decrease from capital share transactions (Note 4) | (29,185,992) | (32,608,603) |
| Total decrease in net assets | (31,348,810) | (23,484,514) |
| |
| NET ASSETS | | |
| Beginning of year | 311,287,395 | 334,771,909 |
| End of year | $279,938,585 | $311,287,395 |
The accompanying notes are an integral part of these financial statements.
|
| Strategic Intermediate Municipal Fund 39 |
| | | | | | | | | | | | | |
| Financial highlights (For a common share outstanding throughout the period) | | | | | | | | | |
| |
| | INVESTMENT OPERATIONS | | | LESS DISTRIBUTIONS | | | | | RATIOS AND SUPPLEMENTAL DATA | |
| | | | | | | | | | | | | Ratio of net | |
| | Net asset | | Net realized | | | | | | | | Ratio | investment | |
| | value, | | and unrealized | Total from | From net | From | | Net asset | Total return | Net assets, | of expenses | income (loss) | Portfolio |
| | beginning | Net investment | gain (loss) | investment | investment | net realized gain | Total | value, end | at net asset | end of period | to average | to average | turnover |
| Period ended | of period | income (loss) | on investments | operations | income | on investments | distributions | of period | value (%) a | (in thousands) | net assets (%) b | net assets (%) | (%) |
| Class A | | | | | | | | | | | | | |
| July 31, 2020 | $15.38 | .36 | .27 | .63 | (.36) | (.32) | (.68) | $15.33 | 4.23 | $218,232 | .87d,e | 2.36 | 42 |
| July 31, 2019 | 14.93 | .41 | .61 | 1.02 | (.41) | (.16) | (.57) | 15.38 | 7.03 | 242,379 | .81 | 2.74 | 38 |
| July 31, 2018 | 15.16 | .44 | (.23) | .21 | (.44) | — | (.44) | 14.93 | 1.43 | 256,172 | .79 | 2.91 | 32 |
| July 31, 2017 | 15.71 | .48 | (.56) | (.08) | (.47) | — | (.47) | 15.16 | (.43) | 310,029 | .79 | 3.14 | 31 |
| July 31, 2016 | 15.28 | .53 | .43 | .96 | (.53) | — | (.53) | 15.71 | 6.39 | 358,847 | .80c | 3.41c | 11 |
| Class B | | | | | | | | | | | | | |
| July 31, 2020 | $15.40 | .26 | .28 | .54 | (.27) | (.32) | (.59) | $15.35 | 3.58 | $741 | 1.49d,e | 1.75 | 42 |
| July 31, 2019 | 14.95 | .32 | .61 | .93 | (.32) | (.16) | (.48) | 15.40 | 6.36 | 1,025 | 1.43 | 2.13 | 38 |
| July 31, 2018 | 15.17 | .35 | (.22) | .13 | (.35) | — | (.35) | 14.95 | .85 | 1,345 | 1.41 | 2.29 | 32 |
| July 31, 2017 | 15.73 | .38 | (.56) | (.18) | (.38) | — | (.38) | 15.17 | (1.11) | 2,099 | 1.41 | 2.52 | 31 |
| July 31, 2016 | 15.30 | .43 | .43 | .86 | (.43) | — | (.43) | 15.73 | 5.73 | 2,874 | 1.42c | 2.79c | 11 |
| Class C | | | | | | | | | | | | | |
| July 31, 2020 | $15.43 | .24 | .27 | .51 | (.24) | (.32) | (.56) | $15.38 | 3.42 | $15,888 | 1.64d,e | 1.59 | 42 |
| July 31, 2019 | 14.97 | .30 | .62 | .92 | (.30) | (.16) | (.46) | 15.43 | 6.26 | 19,827 | 1.58 | 1.98 | 38 |
| July 31, 2018 | 15.20 | .33 | (.23) | .10 | (.33) | — | (.33) | 14.97 | .64 | 23,682 | 1.56 | 2.14 | 32 |
| July 31, 2017 | 15.76 | .36 | (.56) | (.20) | (.36) | — | (.36) | 15.20 | (1.25) | 30,961 | 1.56 | 2.37 | 31 |
| July 31, 2016 | 15.33 | .41 | .43 | .84 | (.41) | — | (.41) | 15.76 | 5.56 | 33,064 | 1.57c | 2.63c | 11 |
| Class R6 | | | | | | | | | | | | | |
| July 31, 2020 | $15.40 | .39 | .28 | .67 | (.40) | (.32) | (.72) | $15.35 | 4.47 | $410 | .63d,e | 2.60 | 42 |
| July 31, 2019 | 14.94 | .45 | .62 | 1.07 | (.45) | (.16) | (.61) | 15.40 | 7.35 | 306 | .57 | 2.97 | 38 |
| July 31, 2018 † | 14.87 | .09 | .07 | .16 | (.09) | — | (.09) | 14.94 | 1.08* | 10 | .11* | .60 * | 32 |
| Class Y | | | | | | | | | | | | | |
| July 31, 2020 | $15.40 | .39 | .28 | .67 | (.40) | (.32) | (.72) | $15.35 | 4.47 | $44,668 | .64d,e | 2.59 | 42 |
| July 31, 2019 | 14.94 | .44 | .62 | 1.06 | (.44) | (.16) | (.60) | 15.40 | 7.34 | 46,574 | .58 | 2.98 | 38 |
| July 31, 2018 | 15.17 | .48 | (.23) | .25 | (.48) | — | (.48) | 14.94 | 1.66 | 52,804 | .56 | 3.14 | 32 |
| July 31, 2017 | 15.73 | .51 | (.56) | (.05) | (.51) | — | (.51) | 15.17 | (.26) | 47,696 | .56 | 3.36 | 31 |
| July 31, 2016 | 15.30 | .56 | .43 | .99 | (.56) | — | (.56) | 15.73 | 6.63 | 52,668 | .57c | 3.61c | 11 |
* Not annualized.
† For the period May 22, 2018 (commencement of operations) to July 31, 2018.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b Includes amounts paid through expense offset arrangements, if any (Note 2). Also excludes acquired fund fees and expenses, if any.
c Reflects a voluntary waiver of certain fund expenses in effect during the period. As a result of such waiver, the expenses of each class reflect a reduction of less than 0.01% as a percentage of average net assets (Note 2).
d Includes interest and fee expense associated with borrowings which amounted to (for each class):
| | | | | |
| | Percentage of average | | | | |
| | net assets | | | | |
| July 31, 2020 | 0.02% | | | | |
e Includes one-time proxy costs of 0.05%.
The accompanying notes are an integral part of these financial statements.
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| 40 Strategic Intermediate Municipal Fund | Strategic Intermediate Municipal Fund 41 |
Notes to financial statements 7/31/20
Within the following Notes to financial statements, references to “State Street” represent State Street Bank and Trust Company, references to “the SEC” represent the Securities and Exchange Commission, references to “Putnam Management” represent Putnam Investment Management, LLC, the fund’s manager, an indirect wholly-owned subsidiary of Putnam Investments, LLC and references to “OTC”, if any, represent over-the-counter. Unless otherwise noted, the “reporting period” represents the period from August 1, 2019 through July 31, 2020.
Putnam Strategic Intermediate Municipal Fund (prior to August 28, 2020 the fund was known as Putnam AMT-Free Municipal Fund) (the fund) is a diversified series of Putnam Tax-Free Income Trust (the Trust), a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Effective August 28, 2020 the goal of the fund is to invest mainly in bonds that pay interest that is exempt from federal income tax (but that may be subject to federal alternative minimum tax (AMT)). The fund normally maintains an average dollar-weighted maturity between three and ten years. The fund may invest broadly in municipal bonds of any duration (a measure of the sensitivity of a bond’s price to interest rate changes), maturity and credit quality although the bonds the fund invests in are mainly investment-grade in quality. The fund may also invest in investments that are below-investment-grade (sometimes referred to as “junk bonds”), which may be considered speculative. Under normal circumstances, the fund invests at least 80% of the fund’s net assets in tax-exempt investments. Investments paying interest subject to the federal AMT for individuals are considered tax-exempt investments for purposes of this policy. This investment policy cannot be changed without the approval of the fund’s shareholders. The fund may invest up to 20% of its net assets in securities the income on which is subject to federal income tax and may invest without limit in investments the income on which is subject to the AMT. The fund may consider, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.
Prior to August 28, 2020 the goal of the fund was to seek high current income exempt from federal income tax. The fund invested mainly in bonds that paid interest that was exempt from federal income tax, were investment-grade in quality, and had intermediate- to long-term maturities (i.e., three years or longer). The fund did not intend to invest in securities the interest on which was subject to the alternative minimum tax (AMT). Under normal circumstances, the fund invested at least 80% of the fund’s net assets in tax-exempt investments. Tax-exempt investments are issued by or for states, territories or possessions of the United States or by their political subdivisions, agencies, authorities or other government entities, and the income from these investments is exempt from federal income tax. This investment policy was changed with the approval of the fund’s shareholders. Putnam Management considered, among other factors, credit, interest rate and prepayment risks, as well as general market conditions, when deciding whether to buy or sell investments.
The fund offers class A, class B, class C, class R6 and class Y shares. Effective November 25, 2019, class M shares were converted to class A shares and are no longer available for purchase. Purchases of class B shares are closed to new and existing investors except by exchange from class B shares of another Putnam fund or through dividend and/or capital gains reinvestment. Class A shares are sold with a maximum front-end sales charge of 4.00%. Class A shares generally are not subject to a contingent deferred sales charge, and class R6 and class Y shares are not subject to a contingent deferred sales charge. Class B shares, which convert to class A shares after approximately eight years, are not subject to a front-end sales charge and are subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Class C shares are subject to a one-year 1.00% contingent deferred sales charge and generally convert to class A shares after approximately ten years. The expenses for class A, class B and class C shares may differ based on the distribution fee of each class, which is identified in Note 2. Class R6 and class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B and class C shares, but do not bear a distribution fee, and in the case of class R6 shares, bear a lower investor servicing fee, which is identified in Note 2. Class R6 and class Y shares are not available to all investors.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund’s management team expects the risk of material loss to be remote.
The fund has entered into contractual arrangements with an investment adviser, administrator, distributor, shareholder servicing agent and custodian, who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
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| 42 Strategic Intermediate Municipal Fund |
Under the fund’s Amended and Restated Agreement and Declaration of Trust, any claims asserted against or on behalf of the Putnam Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
Note 1: Significant accounting policies
The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations. Actual results could differ from those estimates. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued have been evaluated in the preparation of the financial statements.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
Security valuation Portfolio securities and other investments are valued using policies and procedures adopted by the Board of Trustees. The Trustees have formed a Pricing Committee to oversee the implementation of these procedures and have delegated responsibility for valuing the fund’s assets in accordance with these procedures to Putnam Management. Putnam Management has established an internal Valuation Committee that is responsible for making fair value determinations, evaluating the effectiveness of the pricing policies of the fund and reporting to the Pricing Committee.
Tax-exempt bonds and notes are generally valued on the basis of valuations provided by an independent pricing service approved by the Trustees. Such services use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. These securities will generally be categorized as Level 2.
Market quotations are not considered to be readily available for certain debt obligations (including short-term investments with remaining maturities of 60 days or less) and other investments; such investments are valued on the basis of valuations furnished by an independent pricing service approved by the Trustees or dealers selected by Putnam Management. Such services or dealers determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships, generally recognized by institutional traders, between securities (which consider such factors as security prices, yields, maturities and ratings). These securities will generally be categorized as Level 2. Securities quoted in foreign currencies, if any, are translated into U.S. dollars at the current exchange rate.
Investments in open-end investment companies (excluding exchange-traded funds), if any, which can be classified as Level 1 or Level 2 securities, are valued based on their net asset value. The net asset value of such investment companies equals the total value of their assets less their liabilities and divided by the number of their outstanding shares.
To the extent a pricing service or dealer is unable to value a security or provides a valuation that Putnam Management does not believe accurately reflects the security’s fair value, the security will be valued at fair value by Putnam Management in accordance with policies and procedures approved by the Trustees. Certain investments, including certain restricted and illiquid securities and derivatives, are also valued at fair value following procedures approved by the Trustees. These valuations consider such factors as significant market or specific security events such as interest rate or credit quality changes, various relationships with other securities, discount rates, U.S. Treasury, U.S. swap and credit yields, index levels, convexity exposures, recovery rates, sales and other multiples and resale restrictions. These securities are classified as Level 2 or as Level 3 depending on the priority of the significant inputs.
To assess the continuing appropriateness of fair valuations, the Valuation Committee reviews and affirms the reasonableness of such valuations on a regular basis after considering all relevant information that is reasonably available. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security in a current sale and does not reflect an actual market price, which may be different by a material amount.
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| Strategic Intermediate Municipal Fund 43 |
Security transactions and related investment income Security transactions are recorded on the trade date (the date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis.
Interest income, net of any applicable withholding taxes, if any, and including amortization and accretion of premiums and discounts on debt securities, is recorded on the accrual basis.
Securities purchased or sold on a when-issued or delayed delivery basis may be settled at a future date beyond customary settlement time; interest income is accrued based on the terms of the securities. Losses may arise due to changes in the fair value of the underlying securities or if the counterparty does not perform under the contract.
Futures contracts The fund uses futures contracts for hedging treasury term structure risk, and for yield curve positioning.
The potential risk to the fund is that the change in value of futures contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, if interest or exchange rates move unexpectedly or if the counterparty to the contract is unable to perform. With futures, there is minimal counterparty credit risk to the fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default. Risks may exceed amounts recognized on the Statement of assets and liabilities. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” Futures contracts outstanding at period end, if any, are listed after the fund’s portfolio.
Interest rate swap contracts The fund entered into OTC and/or centrally cleared interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, for hedging term structure risk, and for yield curve positioning.
An OTC and centrally cleared interest rate swap can be purchased or sold with an upfront premium. For OTC interest rate swap contracts, an upfront payment received by the fund is recorded as a liability on the fund’s books. An upfront payment made by the fund is recorded as an asset on the fund’s books. OTC and centrally cleared interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers. Any change is recorded as an unrealized gain or loss on OTC interest rate swaps. Daily fluctuations in the value of centrally cleared interest rate swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments, including upfront premiums, received or made are recorded as realized gains or losses at the reset date or the closing of the contract. Certain OTC and centrally cleared interest rate swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract.
The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults, in the case of OTC interest rate contracts, or the central clearing agency or a clearing member defaults, in the case of centrally cleared interest rate swap contracts, on its respective obligation to perform under the contract. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC interest rate swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared interest rate swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared interest rate swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC and centrally cleared interest rate swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Total return swap contracts The fund entered into OTC and/or centrally cleared total return swap contracts, which are arrangements to exchange a market-linked return for a periodic payment, both based on a notional principal amount, for hedging sector exposure, and for gaining exposure to specific sectors.
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| 44 Strategic Intermediate Municipal Fund |
To the extent that the total return of the security, index or other financial measure underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the fund will receive a payment from or make a payment to the counterparty. OTC and/or centrally cleared total return swap contracts are marked to market daily based upon quotations from an independent pricing service or market maker. Any change is recorded as an unrealized gain or loss on OTC total return swaps. Daily fluctuations in the value of centrally cleared total return swaps are settled through a central clearing agent and are recorded in variation margin on the Statement of assets and liabilities and recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or losses. Certain OTC and/or centrally cleared total return swap contracts may include extended effective dates. Payments related to these swap contracts are accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or in the price of the underlying security or index, the possibility that there is no liquid market for these agreements or that the counterparty may default on its obligation to perform. The fund’s maximum risk of loss from counterparty risk or central clearing risk is the fair value of the contract. This risk may be mitigated for OTC total return swap contracts by having a master netting arrangement between the fund and the counterparty and for centrally cleared total return swap contracts through the daily exchange of variation margin. There is minimal counterparty risk with respect to centrally cleared total return swap contracts due to the clearinghouse guarantee fund and other resources that are available in the event of a clearing member default. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities.
OTC and/or centrally cleared total return swap contracts outstanding, including their respective notional amounts at period end, if any, are listed after the fund’s portfolio.
Master agreements The fund is a party to ISDA (International Swaps and Derivatives Association, Inc.) Master Agreements (Master Agreements) with certain counterparties that govern OTC derivative and foreign exchange contracts entered into from time to time. The Master Agreements may contain provisions regarding, among other things, the parties’ general obligations, representations, agreements, collateral requirements, events of default and early termination. With respect to certain counterparties, in accordance with the terms of the Master Agreements, collateral posted to the fund is held in a segregated account by the fund’s custodian and, with respect to those amounts which can be sold or repledged, is presented in the fund’s portfolio.
Collateral pledged by the fund is segregated by the fund’s custodian and identified in the fund’s portfolio. Collateral can be in the form of cash or debt securities issued by the U.S. Government or related agencies or other securities as agreed to by the fund and the applicable counterparty. Collateral requirements are determined based on the fund’s net position with each counterparty.
Termination events applicable to the fund may occur upon a decline in the fund’s net assets below a specified threshold over a certain period of time. Termination events applicable to counterparties may occur upon a decline in the counterparty’s long-term and short-term credit ratings below a specified level. In each case, upon occurrence, the other party may elect to terminate early and cause settlement of all derivative and foreign exchange contracts outstanding, including the payment of any losses and costs resulting from such early termination, as reasonably determined by the terminating party. Any decision by one or more of the fund’s counterparties to elect early termination could impact the fund’s future derivative activity.
At the close of the reporting period, the fund did not have a net liability position on open derivative contracts subject to the Master Agreements.
Tender option bond transactions The fund may participate in transactions whereby a fixed-rate bond is transferred to a tender option bond trust (TOB trust) sponsored by a broker. The TOB trust funds the purchase of the fixed rate bonds by issuing floating-rate bonds to third parties and allowing the fund to retain the residual interest in the TOB trust’s assets and cash flows, which are in the form of inverse floating rate bonds. The inverse floating rate bonds held by the fund give the fund the right to (1) cause the holders of the floating rate bonds to tender their notes at par, and (2) to have the fixed-rate bond held by the TOB trust transferred to the fund, causing the TOB trust to collapse. The fund accounts for the transfer of the fixed-rate bond to the TOB trust as a secured borrowing by including the fixed-rate bond in the fund’s portfolio and including the floating rate bond as a liability in the Statement of assets and liabilities. At the close of the reporting period, the fund’s investments with a value of $9,371,272 were held by the TOB trust and served as collateral for $5,028,255 in floating-rate bonds outstanding. For the reporting period ended, the fund incurred interest expense of $33,805 for these investments based on an average interest rate of 1.06%.
Interfund lending The fund, along with other Putnam funds, may participate in an interfund lending program pursuant to an exemptive order issued by the SEC. This program allows the fund to borrow from other Putnam
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| Strategic Intermediate Municipal Fund 45 |
funds that permit such transactions. Interfund lending transactions are subject to each fund’s investment policies and borrowing and lending limits. Interest earned or paid on the interfund lending transaction will be based on the average of certain current market rates. During the reporting period, the fund did not utilize the program.
Lines of credit The fund participates, along with other Putnam funds, in a $317.5 million unsecured committed line of credit and a $235.5 million unsecured uncommitted line of credit, both provided by State Street. Borrowings may be made for temporary or emergency purposes, including the funding of shareholder redemption requests and trade settlements. Interest is charged to the fund based on the fund’s borrowing at a rate equal to 1.25% plus the higher of (1) the Federal Funds rate and (2) the overnight LIBOR for the committed line of credit and the Federal Funds rate plus 1.30% for the uncommitted line of credit. A closing fee equal to 0.04% of the committed line of credit and 0.04% of the uncommitted line of credit has been paid by the participating funds. In addition, a commitment fee of 0.21% per annum on any unutilized portion of the committed line of credit is allocated to the participating funds based on their relative net assets and paid quarterly. During the reporting period, the fund had no borrowings against these arrangements.
Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time period and otherwise comply with the provisions of the Internal Revenue Code of 1986, as amended (the Code), applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Code.
The fund is subject to the provisions of Accounting Standards Codification 740 Income Taxes (ASC 740). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have a liability to record for any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.
Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences from market discount and from straddle loss deferrals. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. At the close of the reporting period, the fund reclassified $243,198 to increase undistributed net investment income and $243,198 to increase accumulated net realized loss.
Tax cost of investments includes adjustments to net unrealized appreciation (depreciation) which may not necessarily be final tax cost basis adjustments, but closely approximate the tax basis unrealized gains and losses that may be realized and distributed to shareholders. The tax basis components of distributable earnings and the federal tax cost as of the close of the reporting period were as follows:
| |
| Unrealized appreciation | $16,993,628 |
| Unrealized depreciation | (301,280) |
| Net unrealized appreciation | 16,692,348 |
| Undistributed ordinary income | 263,190 |
| Undistributed tax-exempt income | 112,517 |
| Undistributed long-term gain | 604,939 |
| Cost for federal income tax purposes | $267,584,593 |
Expenses of the Trust Expenses directly charged or attributable to any fund will be paid from the assets of that fund. Generally, expenses of the Trust will be allocated among and charged to the assets of each fund on a basis that the Trustees deem fair and equitable, which may be based on the relative assets of each fund or the nature of the services performed and relative applicability to each fund.
Note 2: Management fee, administrative services and other transactions
The fund pays Putnam Management a management fee (based on the fund’s average net assets and computed and paid monthly) at annual rates that may vary based on the average of the aggregate net assets of all open-end mutual funds sponsored by Putnam Management (excluding net assets of funds that are invested in, or that are
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| 46 Strategic Intermediate Municipal Fund |
invested in by, other Putnam funds to the extent necessary to avoid “double counting” of those assets). Such annual rates may vary as follows:
| | | | |
| 0.590% | of the first $5 billion, | | 0.390% | of the next $50 billion, |
| 0.540% | of the next $5 billion, | | 0.370% | of the next $50 billion, |
| 0.490% | of the next $10 billion, | | 0.360% | of the next $100 billion and |
| 0.440% | of the next $10 billion, | | 0.355% | of any excess thereafter. |
For the reporting period, the management fee represented an effective rate (excluding the impact from any expense waivers in effect) of 0.429% of the fund’s average net assets.
Putnam Management has contractually agreed, through November 30, 2021, to waive fees and/or reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses, acquired fund fees and expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period. During the reporting period, the fund’s expenses were not reduced as a result of this limit.
Putnam Investments Limited (PIL), an affiliate of Putnam Management, is authorized by the Trustees to manage a separate portion of the assets of the fund as determined by Putnam Management from time to time. PIL did not manage any portion of the assets of the fund during the reporting period. If Putnam Management were to engage the services of PIL, Putnam Management would pay a quarterly sub-management fee to PIL for its services at an annual rate of 0.40% of the average net assets of the portion of the fund managed by PIL.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund’s assets are provided by State Street. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provides investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing for class A, class B, class C, and class Y shares that included (1) a per account fee for each direct and underlying non-defined contribution account (retail account) of the fund; (2) a specified rate of the fund’s assets attributable to defined contribution plan accounts; and (3) a specified rate based on the average net assets in retail accounts. Putnam Investor Services, Inc. has agreed that the aggregate investor servicing fees for each fund’s retail and defined contribution accounts for these share classes will not exceed an annual rate of 0.25% of the fund’s average assets attributable to such accounts. Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
Class R6 shares paid a monthly fee based on the average net assets of class R6 shares at an annual rate of 0.05%.
| | | | |
| During the reporting period, the expenses for each class of shares related to investor servicing fees were as follows: | |
| | | | |
| |
| Class A | $143,768 | | Class R6 | 202 |
| Class B | 547 | | Class Y | 28,268 |
| Class C | 11,336 | | Total | $184,354 |
| Class M | 233 | | | |
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the reporting period, the fund’s expenses were reduced by $42,403 under the expense offset arrangements.
Each Independent Trustee of the fund receives an annual Trustee fee, of which $203, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the Deferral Plan) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
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| Strategic Intermediate Municipal Fund 47 |
The fund has adopted an unfunded noncontributory defined benefit pension plan (the Pension Plan) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the Plans) with respect to the following share classes pursuant to Rule 12b–1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management Limited Partnership, an indirect wholly-owned subsidiary of Putnam Investments, LLC, for services provided and expenses incurred in distributing shares of the fund. The Plans provide payments by the fund to Putnam Retail Management Limited Partnership at an annual rate of up to the following amounts (Maximum %) of the average net assets attributable to each class. The Trustees have approved payment by the fund at the following annual rate (Approved %) of the average net assets attributable to each class. During the reporting period, the class-specific expenses related to distribution fees were as follows:
| | | |
| | Maximum % | Approved % | Amount |
| Class A | 0.35% | 0.25%* | $532,931 |
| Class B | 1.00% | 0.85% | 7,506 |
| Class C | 1.00% | 1.00% | 183,226 |
| Class M** | 1.00% | 0.50% | 1,860 |
| Total | | | $725,523 |
* Prior to July 1, 2020 equaled the weighted average of (i) 0.20% of the net assets of the fund attributable to class A shares purchased and paid for prior to April 1, 2005 and (ii) 0.25% of all other net assets of the fund attributable to class A shares. Effective July 1, 2020, the Trustees have approved payment by the fund at a rate of 0.25% of all assets attributable to class A shares.
** Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $6,771 and $1 from the sale of class A and class M shares, respectively, and received $73 and $62 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares. For the reporting period, Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A redemptions.
Note 3: Purchases and sales of securities
| | |
| During the reporting period, the cost of purchases and the proceeds from sales, excluding short-term investments, were as follows: |
| | |
| |
| | Cost of purchases | Proceeds from sales |
| Investments in securities (Long-term) | $120,322,242 | $151,587,781 |
| U.S. government securities (Long-term) | — | — |
| Total | $120,322,242 | $151,587,781 |
The fund may purchase or sell investments from or to other Putnam funds in the ordinary course of business, which can reduce the fund’s transaction costs, at prices determined in accordance with SEC requirements and policies approved by the Trustees. During the reporting period, purchases or sales of long-term securities from or to other Putnam funds, if any, did not represent more than 5% of the fund’s total cost of purchases and/or total proceeds from sales.
| |
| 48 Strategic Intermediate Municipal Fund |
Note 4: Capital shares
At the close of the reporting period, there were an unlimited number of shares of beneficial interest authorized. Transactions, including, if applicable, direct exchanges pursuant to share conversions, in capital shares were as follows:
| | | | |
| | YEAR ENDED 7/31/20 | YEAR ENDED 7/31/19 |
| Class A | Shares | Amount | Shares | Amount |
| Shares sold | 1,415,098 | $21,536,207 | 2,037,194 | $30,208,249 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 594,655 | 9,036,787 | 528,636 | 7,865,693 |
| | 2,009,753 | 30,572,994 | 2,565,830 | 38,073,942 |
| Shares repurchased | (3,534,814) | (53,492,227) | (3,969,916) | (58,985,554) |
| Net decrease | (1,525,061) | $(22,919,233) | (1,404,086) | $(20,911,612) |
| |
| | YEAR ENDED 7/31/20 | YEAR ENDED 7/31/19 |
| Class B | Shares | Amount | Shares | Amount |
| Shares sold | 947 | $13,867 | 4,719 | $71,631 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 2,062 | 31,387 | 2,059 | 30,642 |
| | 3,009 | 45,254 | 6,778 | 102,273 |
| Shares repurchased | (21,266) | (324,706) | (30,255) | (451,785) |
| Net decrease | (18,257) | $(279,452) | (23,477) | $(349,512) |
| |
| | YEAR ENDED 7/31/20 | YEAR ENDED 7/31/19 |
| Class C | Shares | Amount | Shares | Amount |
| Shares sold | 54,714 | $841,363 | 114,085 | $1,702,209 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 39,891 | 607,972 | 38,522 | 574,623 |
| | 94,605 | 1,449,335 | 152,637 | 2,276,832 |
| Shares repurchased | (346,642) | (5,255,836) | (449,388) | (6,750,184) |
| Net decrease | (252,037) | $(3,806,501) | (296,751) | $(4,473,352) |
| |
| | YEAR ENDED 7/31/20* | YEAR ENDED 7/31/19 |
| Class M | Shares | Amount | Shares | Amount |
| Shares sold | 388 | $6,039 | 25,739 | $385,009 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 406 | 6,319 | 2,141 | 31,989 |
| | 794 | 12,358 | 27,880 | 416,998 |
| Shares repurchased | (77,027) | (1,193,859) | (2,276) | (34,126) |
| Net increase (decrease) | (76,233) | $(1,181,501) | 25,604 | $382,872 |
|
| Strategic Intermediate Municipal Fund 49 |
| | | | |
| | YEAR ENDED 7/31/20 | YEAR ENDED 7/31/19 |
| Class R6 | Shares | Amount | Shares | Amount |
| Shares sold | 14,623 | $223,982 | 25,598 | $380,218 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 1,279 | 19,414 | 687 | 10,229 |
| | 15,902 | 243,396 | 26,285 | 390,447 |
| Shares repurchased | (9,106) | (139,161) | (7,069) | (105,339) |
| Net increase | 6,796 | $104,235 | 19,216 | $285,108 |
| |
| | YEAR ENDED 7/31/20 | YEAR ENDED 7/31/19 |
| Class Y | Shares | Amount | Shares | Amount |
| Shares sold | 1,488,045 | $22,917,634 | 830,467 | $12,409,604 |
| Shares issued in connection with | | | | |
| reinvestment of distributions | 119,516 | 1,818,212 | 110,272 | 1,641,548 |
| | 1,607,561 | 24,735,846 | 940,739 | 14,051,152 |
| Shares repurchased | (1,722,263) | (25,839,386) | (1,450,044) | (21,593,259) |
| Net decrease | (114,702) | $(1,103,540) | (509,305) | $(7,542,107) |
* Effective November 25, 2019, the fund converted all of its class M shares to class A shares and class M shares were no longer able to be purchased.
At the close of the reporting period, Putnam Investments, LLC owned 738 class R6 shares of the fund (2.77% of class R6 shares outstanding), valued at $11,328.
Note 5: Affiliated transactions
Transactions during the reporting period with any company which is under common ownership or control were as follows:
| | | | | |
| | | | | | Shares |
| | | | | | outstanding |
| | | | | | and fair |
| | Fair value as | Purchase | Sale | Investment | value as |
| Name of affiliate | of 7/31/19 | cost | proceeds | income | of 7/31/20 |
| Short-term investments | | | | | |
| Putnam Short Term | | | | | |
| Investment Fund* | $— | 110,821,438 | $98,190,687 | $44,030 | $12,630,751 |
| Total Short-term | | | | | |
| investments | $— | $110,821,438 | $98,190,687 | $44,030 | $12,630,751 |
* Management fees charged to Putnam Short Term Investment Fund have been waived by Putnam Management. There were no realized or unrealized gains or losses during the period.
Note 6: Market, credit and other risks
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the fund has unsettled or open transactions will default.
On July 27, 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. LIBOR has historically been a common benchmark interest rate index used to make adjustments to variable-rate loans. It is used throughout global banking and financial industries to determine interest rates for a variety of financial instruments and borrowing arrangements. The transition process might lead to increased volatility and illiquidity in markets that currently rely on LIBOR
| |
| 50 Strategic Intermediate Municipal Fund |
to determine interest rates. It could also lead to a reduction in the value of some LIBOR-based investments and reduce the effectiveness of new hedges placed against existing LIBOR-based investments. While some LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, not all may have such provisions and there may be significant uncertainty regarding the effectiveness of any such alternative methodologies. Since the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Beginning in January 2020, global financial markets have experienced, and may continue to experience, significant volatility resulting from the spread of a virus known as COVID–19. The outbreak of COVID–19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand, and general market uncertainty. The effects of COVID–19 have adversely affected, and may continue to adversely affect, the global economy, the economies of certain nations, and individual issuers, all of which may negatively impact the fund’s performance.
Note 7: Summary of derivative activity
The volume of activity for the reporting period for any derivative type that was held during the period is listed below and was based on an average of the holdings at the end of each fiscal quarter:
| |
| Futures contracts (number of contracts) | 20 |
| OTC interest rate swap contracts (notional) | $32,600,000 |
| OTC total return swap contracts (notional) | $9,000,000 |
The following is a summary of the fair value of derivative instruments as of the close of the reporting period:
| | | | |
| Fair value of derivative instruments as of the close of the reporting period | |
| | ASSET DERIVATIVES | LIABILITY DERIVATIVES |
| Derivatives not | | | | |
| accounted for as | Statement of | | Statement of | |
| hedging instruments | assets and | | assets and | |
| under ASC 815 | liabilities location | Fair value | liabilities location | Fair value |
| Interest rate contracts | Receivables | $129,691 | Payables | $— |
| Total | | $129,691 | | $— |
The following is a summary of realized and change in unrealized gains or losses of derivative instruments in the Statement of operations for the reporting period (Note 1):
| | | |
| Amount of realized gain or (loss) on derivatives recognized in net gain or (loss) on investments | |
| Derivatives not accounted for as hedging | | | |
| instruments under ASC 815 | Futures | Swaps | Total |
| Interest rate contracts | $(742,490) | $228,784 | $(513,706) |
| Total | $(742,490) | $228,784 | $(513,706) |
| |
| Change in unrealized appreciation or (depreciation) on derivatives recognized in net gain or (loss) |
| on investments | | | |
| Derivatives not accounted for as | | | |
| hedging instruments under ASC 815 | Swaps | | Total |
| Interest rate contracts | $(22,825) | | $(22,825) |
| Total | $(22,825) | | $(22,825) |
|
| Strategic Intermediate Municipal Fund 51 |
Note 8: Offsetting of financial and derivative assets and liabilities
The following table summarizes any derivatives, repurchase agreements and reverse repurchase agreements, at the end of the reporting period, that are subject to an enforceable master netting agreement or similar agreement. For securities lending transactions or borrowing transactions associated with securities sold short, if any, see Note 1. For financial reporting purposes, the fund does not offset financial assets and financial liabilities that are subject to the master netting agreements in the Statement of assets and liabilities.
| | |
| | Citibank, N.A. | Total |
| Assets: | | |
| OTC Total return swap contracts*# | $129,691 | $129,691 |
| Total Assets | $129,691 | $129,691 |
| Liabilities: | | |
| OTC Total return swap contracts*# | — | — |
| Total Liabilities | $— | $— |
| Total Financial and Derivative Net Assets | $129,691 | $129,691 |
| Total collateral received (pledged)†## | $110,000 | �� |
| Net amount | $19,691 | |
| Controlled collateral received (including | | |
| TBA commitments)** | $110,000 | $110,000 |
| Uncontrolled collateral received | $— | $— |
| Collateral (pledged) (including TBA commitments)** | $— | $— |
* Excludes premiums, if any. Included in unrealized appreciation and depreciation on OTC swap contracts on the Statement of assets and liabilities.
** Included with Investments in securities on the Statement of assets and liabilities.
† Additional collateral may be required from certain brokers based on individual agreements.
# Covered by master netting agreement (Note 1).
## Any over-collateralization of total financial and derivative net assets is not shown. Collateral may include amounts related to unsettled agreements.
|
| 52 Strategic Intermediate Municipal Fund |
Federal tax information (Unaudited)
The fund has designated 98.90% of dividends paid from net investment income during the reporting period as tax exempt for Federal income tax purposes.
Pursuant to §852 of the Internal Revenue Code, as amended, the fund hereby designates $2,289,101 as a capital gain dividend with respect to the taxable year ended July 31, 2020, or, if subsequently determined to be different, the net capital gain of such year.
The Form 1099 that will be mailed to you in January 2021 will show the tax status of all distributions paid to your account in calendar 2020.
Shareholder Meeting Results (Unaudited)
August 19, 2020 special meeting
Approving changes to your fund’s fundamental investment policies regarding investments in tax-exempt investments subject to the federal alternative minimum tax.
| | |
| Votes for | Votes against | Abstentions |
| 8,325,813 | 640,680 | 610,458 |
|
| Strategic Intermediate Municipal Fund 53 |
|
| 54 Strategic Intermediate Municipal Fund |
* Mr. Reynolds is an “interested person” (as defined in the Investment Company Act of 1940) of the fund and Putnam Investments. He is President and Chief Executive Officer of Putnam Investments, as well as the President of your fund and each of the other Putnam funds.
The address of each Trustee is 100 Federal Street, Boston, MA 02110.
As of July 31, 2020, there were 100 Putnam funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 75, removal, or death.
|
| Strategic Intermediate Municipal Fund 55 |
Officers
In addition to Robert L. Reynolds, the other officers of the fund are shown below:
| |
| Robert T. Burns (Born 1961) | Richard T. Kircher (Born 1962) |
| Vice President and Chief Legal Officer | Vice President and BSA Compliance Officer |
| Since 2011 | Since 2019 |
| General Counsel, Putnam Investments, | Assistant Director, Operational Compliance, Putnam |
| Putnam Management, and Putnam Retail Management | Investments and Putnam Retail Management |
| |
| James F. Clark (Born 1974) | Susan G. Malloy (Born 1957) |
| Vice President and Chief Compliance Officer | Vice President and Assistant Treasurer |
| Since 2016 | Since 2007 |
| Chief Compliance Officer and Chief Risk Officer, | Head of Accounting and Middle Office Services, |
| Putnam Investments and Chief Compliance Officer, | Putnam Investments and Putnam Management |
| Putnam Management | |
| | Denere P. Poulack (Born 1968) |
| Nancy E. Florek (Born 1957) | Assistant Vice President, Assistant Clerk, |
| Vice President, Director of Proxy Voting and Corporate | and Assistant Treasurer |
| Governance, Assistant Clerk, and Assistant Treasurer | Since 2004 |
| Since 2000 | |
| | Janet C. Smith (Born 1965) |
| Michael J. Higgins (Born 1976) | Vice President, Principal Financial Officer, Principal |
| Vice President, Treasurer, and Clerk | Accounting Officer, and Assistant Treasurer |
| Since 2010 | Since 2007 |
| | Head of Fund Administration Services, |
| Jonathan S. Horwitz (Born 1955) | Putnam Investments and Putnam Management |
| Executive Vice President, Principal Executive Officer, | |
| and Compliance Liaison | Mark C. Trenchard (Born 1962) |
| Since 2004 | Vice President |
| | Since 2002 |
| | Director of Operational Compliance, Putnam |
| | Investments and Putnam Retail Management |
The principal occupations of the officers for the past five years have been with the employers as shown above, although in some cases they have held different positions with such employers. The address of each officer is 100 Federal Street, Boston, MA 02110.
| |
| 56 Strategic Intermediate Municipal Fund |
Fund information
Founded over 80 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage funds across income, value, blend, growth, sustainable, asset allocation, absolute return, and global sector categories.
| | |
| Investment Manager | Trustees | Michael J. Higgins |
| Putnam Investment | Kenneth R. Leibler, Chair | Vice President, Treasurer, |
| Management, LLC | Liaquat Ahamed | and Clerk |
| 100 Federal Street | Ravi Akhoury | |
| Boston, MA 02110 | Barbara M. Baumann | Jonathan S. Horwitz |
| | Katinka Domotorffy | Executive Vice President, |
| Investment Sub-Advisor | Catharine Bond Hill | Principal Executive Officer, |
| Putnam Investments Limited | Paul L. Joskow | and Compliance Liaison |
| 16 St James’s Street | George Putnam, III | |
| London, England SW1A 1ER | Robert L. Reynolds | Richard T. Kircher |
| | Manoj P. Singh | Vice President and BSA |
| Marketing Services | Mona K. Sutphen | Compliance Officer |
| Putnam Retail Management | | |
| 100 Federal Street | Officers | Susan G. Malloy |
| Boston, MA 02110 | Robert L. Reynolds | Vice President and |
| | President | Assistant Treasurer |
| Custodian | | |
| State Street Bank | Robert T. Burns | Denere P. Poulack |
| and Trust Company | Vice President and | Assistant Vice President, Assistant |
| | Chief Legal Officer | Clerk, and Assistant Treasurer |
| Legal Counsel | | |
| Ropes & Gray LLP | James F. Clark | Janet C. Smith |
| | Vice President, Chief Compliance | Vice President, |
| Independent Registered Public | Officer, and Chief Risk Officer | Principal Financial Officer, |
| Accounting Firm | | Principal Accounting Officer, |
| PricewaterhouseCoopers LLP | Nancy E. Florek | and Assistant Treasurer |
| Vice President, Director of | |
| Proxy Voting and Corporate | Mark C. Trenchard |
| | Governance, Assistant Clerk, | Vice President |
| | and Assistant Treasurer | |
| | | |
This report is for the information of shareholders of Putnam Strategic Intermediate Municipal Bond Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit putnam.com. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus or summary prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
| |
| (a) The fund's principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers. |
| |
| (c) In October 2019, the Code of Ethics of Putnam Investments was amended. The key changes to the Code of Ethics are as follows: (i) Employee notification to the Code of Ethics Officer before acting as a public official for any government entity (ii) Clarifying changes to the Insider Trading provisions and to the rules for trading in securities issued by Great-West Lifeco. |
| |
| Item 3. Audit Committee Financial Expert: |
| |
| The Funds' Audit, Compliance and Distributions Committee is comprised solely of Trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Trustees believe that each member of the Audit, Compliance and Distributions Committee also possesses a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualifies him or her for service on the Committee. In addition, the Trustees have determined that each of Ms. Baumann, Dr. Joskow, and Mr. Singh qualifies as an “audit committee financial expert” (as such term has been defined by the Regulations) based on their review of his or her pertinent experience and education; in the case of Dr. Joskow, including his experience serving on the audit committees of several public companies and institutions and his education and experience as an economist who studies companies and industries, routinely using public company financial statements in his research. The SEC has stated, and the funds' amended and restated agreement and Declaration of Trust provides, that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit, Compliance and Distributions Committee and the Board of Trustees in the absence of such designation or identification |
| |
| Item 4. Principal Accountant Fees and Services: |
| |
| The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund's independent auditor: |
| | | | | |
| Fiscal year ended | Audit Fees | Audit-Related Fees | Tax Fees | All Other Fees |
|
|
| | | | | |
| July 31, 2020 | $50,996 | $ — | $7,088 | $ — |
| July 31, 2019 | $60,683 | $ — | $12,157 | $ — |
| |
| For the fiscal years ended July 31, 2020 and July 31, 2019, the fund's independent auditor billed aggregate non-audit fees in the amounts of $352,930 and $559,141 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund. |
| |
| Audit Fees represent fees billed for the fund's last two fiscal years relating to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements. |
| |
| Audit-Related Fees represent fees billed in the fund's last two fiscal years for services traditionally performed by the fund's auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation. |
| |
| Tax Fees represent fees billed in the fund's last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities. |
| |
| Pre-Approval Policies of the Audit, Compliance and Distributions Committee. The Audit, Compliance and Distributions Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds' independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures. |
| |
| The Audit, Compliance and Distributions Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds' independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm. |
| |
| The following table presents fees billed by the fund's independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2–01 of Regulation S-X. |
| | | | | |
| Fiscal year ended | Audit-Related Fees | Tax Fees | All Other Fees | Total Non-Audit Fees |
|
|
| July 31, 2020 | $ — | $345,842 | $ — | $ — |
| July 31, 2019 | $ — | $546,984 | $ — | $ — |
| |
| Item 5. Audit Committee of Listed Registrants |
| |
| Item 6. Schedule of Investments: |
| |
| The registrant's schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above. |
| |
| Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies: |
| |
| Item 8. Portfolio Managers of Closed-End Investment Companies |
| |
| Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers: |
| |
| Item 10. Submission of Matters to a Vote of Security Holders: |
| |
| Item 11. Controls and Procedures: |
| |
| (a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 180 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. |
| |
| (b) Changes in internal control over financial reporting: Not applicable |
| |
| Item 12. Disclosures of Securities Lending Activities for Closed-End Management Investment Companies: |
| |
| (a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith. |
| |
| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
| |
| Putnam Tax Free Income Trust |
| |
| By (Signature and Title): |
| |
| /s/ Janet C. Smith
Janet C. Smith
Principal Accounting Officer
|
| |
| Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. |
| |
| By (Signature and Title): |
| |
| /s/ Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer
|
| |
| By (Signature and Title): |
| |
| /s/ Janet C. Smith
Janet C. Smith
Principal Financial Officer
|
