Putnam
New Jersey
Tax Exempt
Income
Fund
ANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[G]iven that 1996 is an election year, the popularity of tax
deductions and complexity of implementing any substantial changes to the
tax codes help make the outlook for the muni market optimistic."
-- The Value Line Mutual Fund Survey, March 19, 1996
* "[I]n the months ahead, municipal bond funds may begin to provide
investors fewer bumps and better returns, many bond analysts say . . .
investors are becoming skittish about the sky-high returns on equity
funds and are beginning to seek some less-risky tax-free income; yields
on municipal bonds hover around an attractive 6 percent range, and
investors in some tax-high states can do better on an after-tax basis
investing in municipals than in Treasuries."
-- The New York Times, April 7, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
17 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
One of the fascinating things about market watching is that you can
never tell what's going to trigger a defining event. Often what seems
like a defining event one moment is history the next. Who would have
guessed, for example, that a flat-tax proposal would swirl out of the
presidential primary election campaign to douse the municipal bond
market, only to blow away just as the rest of the bond market was
stumbling on statistics suggesting that inflation might flare up?
These were some of the challenges facing Fund Manager Leslie J. Burke
during Putnam New Jersey Tax Exempt Income Fund's fiscal year, which
ended on May 31, 1996. Leslie handled them with her usual aplomb as the
results on the following pages reveal.
Besides having the luxury of leaving the day-to-day details to Leslie,
shareholders with a long-term investment perspective have the added
advantage of being able to let such events run their course without
undue concern.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Manager
Leslie J. Burke
Putnam New Jersey Tax Exempt Income Fund rewarded shareholders with
competitive returns during the fiscal year that ended on May 31, 1996.
Strong performance during the first half moderated somewhat in the
year's final months as an extremely short supply of appropriate
municipal securities hampered our efforts to stay fully invested in the
rising market. During fiscal 1996, the fund provided shareholders with a
total return of 2.92% at net asset value (-1.99% at public offering
price) for class A shares. Results for class B and class M shares and
for longer periods can be found on pages 8 and 9.
*MUNICIPALS SHOW FAVORABLE RELATIVE PERFORMANCE
Fixed-income markets began calendar 1996 on firm ground, but investor
enthusiasm for bonds changed abruptly to apprehension as evidence of
brisk economic activity late in the first quarter rekindled fears of
inflation. By mid-May, bond prices had recovered somewhat as further
economic news indicated a more moderate growth pace. The rally proved
short-lived, however, as comments from several Federal Reserve officials
hinting at higher short-term interest rates ahead unnerved the market
shortly after Memorial Day.
While this environment has been a difficult one for most fixed-income
securities, prices of tax-exempt bonds have fared better than taxables
since the beginning of the year. In fact, since last December, municipal
yields have fallen from approximately 89% of comparable Treasury bonds
to 83% as of late May. Generally it is considered a good time to buy
municipal bonds when their yields are between 78% and 82% of comparable
Treasuries. The higher the ratio, the more compelling the municipal bond
prices (which fall as yields rise) become. At the same time, the fact
that yields have recently fallen a bit suggests that municipal bond
prices have the potential to recover further and reward investors even
more in the coming months.
The main reason for this outperformance is the apparently reduced
likelihood of a flat tax, which could jeopardize the tax advantages
enjoyed by municipals. Although we expect broader tax reform to become a
prominent campaign issue as the presidential election gets under way,
enactment of a flat tax appears to be off the table for the time being.
In our judgment, this development removes a large obstacle from the
municipal market, providing the potential for continued improvement
relative to taxable bonds.
* SUPPLY/DEMAND DYNAMICS STRENGTHEN MARKET
A favorable relationship between supply and demand also continues to
play an important role in the performance of municipal securities. The
supply of new and outstanding New Jersey municipal issues remains at an
extremely low level. A backup in interest rates early in the year
decreased supply even further, as many municipalities canceled scheduled
bond refundings because rates were too high for refinancing to make
sense. At the same time, there is a real possibility that demand may
soon rise considerably. In June and July, investors are expected to
receive more than $60 billion from municipal bond calls, maturities, and
interest payments. Should even a portion of this cash re-enter the
municipal market, we suspect prices could react quite favorably.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
Transportation 20.4%
Hospitals/health care 19.6%
Water/sewerage 7.9%
Utilities 7.3%
Education 6.6%
*Based on net assets as of 5/31/96. Holdings will vary over time.
* RISING ECONOMY PROMPTS DEFENSIVE POSITIONING
Given the economy's relative strength and the potential for higher
interest rates in the months ahead, we recently shortened the
portfolio's duration. Duration is a mathematical formula indicating how
much bond prices are likely to move up or down with each percentage-
point shift in interest rates. Like maturity, duration is measured in
years. Shorter durations generally go hand in hand with lower levels of
price volatility.
When interest rates were declining, a longer duration benefited the fund
handsomely, as the value of its holdings rose along with the market. In
the current climate, however, we believe a shorter duration is a more
prudent strategy. In the face of market uncertainty surrounding the
presidential election, the economy, and the future direction of interest
rates, we believe this is a key priority.
* SELF-SUPPORTING BONDS STILL OFFER BEST OPPORTUNITIES
New Jersey still faces a number of complicated fiscal issues. First,
there is the completion of the aggressive tax cut that went into effect
in the latter half of 1995 and has not yet been matched by corresponding
cuts in spending. Second, the state's economy remains somewhat sluggish.
Third, New Jersey politicians, like those in many other states, are
publicly grappling with the issue of uncompensated health care: the
question of who will pay for the care of those who cannot afford it
themselves. Finally, like several other states, New Jersey taxpayers are
involved in a great public debate about school funding -- whether or how
to equalize allocations among wealthier and less affluent school
districts.
All of these issues have placed a great deal of stress on the state
budget, making general obligation bonds less appealing investments for
the fund. Instead, we remain focused on so-called self-supporting bonds,
primarily in the transportation and hospital sectors and also in water,
sewer, and electric utilities. Rather than relying on the state for
their monies, these issuers rely on their own fees or charges to pay
interest and principal to bondholders.
* GUARDED APPROACH NECESSARY
A steadily growing economy presents a challenging environment for fixed-
income investing and clearly requires a more cautious strategy. So does
New Jersey's complex budgetary situation -- hence your fund's more
defensive positioning and shorter portfolio duration as well as its
emphasis on self-supporting bonds rather than on state-funded
obligations. In addition, we believe that careful attention to bond
structure and concentrating on larger, well-known issuers will play
important roles in enhancing the price stability and liquidity of your
fund as it enters fiscal 1997.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW*]
A 13.3%
Aa 13.9%
Aaa 42.6%
Ba 18.2%
Baa 9.9%
VMIGI 2.1%
Footnote reads:
*As a percentage of market value as of 5/31/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions, unless noted otherwise. These may include unrated
securities judged by Putnam Management to be of the same quality.
Ratings will vary over time.
On a cheerier note, the summer months have historically been friendly to
municipal bonds as cash from interest payments and bond calls is
frequently reinvested in the tax-exempt market. New issue supply over
the next few months is not expected to keep pace with this year's
potential demand, creating the opportunity for a favorable supply/demand
imbalance.
Sustained interest from nontraditional buyers including banks and
insurance companies could provide further support. In addition, as the
risk of a flat tax diminishes, municipal returns could continue to
outpace those of taxables throughout the course of the year.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam New Jersey Tax Exempt Income Fund is designed for
investors seeking a high level of current income free from federal and
state income tax consistent with preservation of capital.
This section provides, at a glance, information about your fund's
performance. 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class B Class M
(inception date) (2/20/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 2.92% -1.99% 2.25% -2.62% 2.65% -0.68%
- ------------------------------------------------------------------------
5 years 38.93 32.39 -- -- -- --
Annual average 6.80 5.77 -- -- -- --
- ------------------------------------------------------------------------
Life of class 55.99 48.64 15.98 13.07 5.94 2.54
Annual average 7.34 6.62 4.44 3.67 5.44 2.33
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
1 year 4.57% 2.89%
- ------------------------------------------------------------------------
5 years 41.06 15.49
Annual average 7.12 2.92
- ------------------------------------------------------------------------
Life of class A 57.57 22.34
Annual average 7.54 3.26
- ------------------------------------------------------------------------
Life of class B 20.86 10.36
Annual average 5.71 2.93
- ------------------------------------------------------------------------
Life of class M 7.91 3.09
Annual average 7.25 2.84
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 4.75% maximum sales charge for class A shares
and 3.25% for class M shares. CDSC for class B shares assumes the
applicable sales charge, with the maximum being 5%.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 5.39% .39% 4.72% -.28% 5.10% 1.65%
- ------------------------------------------------------------------------
5 years 40.70 34.02 -- -- -- --
Annual average 7.07 6.03 -- -- -- --
- ------------------------------------------------------------------------
Life of class 57.78 50.34 17.26 14.33 7.13 3.69
Annual average 7.43 6.62 4.67 3.91 6.06 3.15
- ------------------------------------------------------------------------
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 2/20/90
Starting value (Insert ending Total)
$9,525 Fund's class A shares at POP $14,864
$10,000 Lehman Bros. Municipal Bond Index $15,757
$10,000 Consumer Price Index $12,234
(plot points for 10-year total return mountain chart)
Lehman Bros.
Date/year Fund at POP Muni Bond Index CPI
- -----------------------------------------------------------------
2/20/90 9,525 10,000 10,000
5/31/90 9,693 10,147 10,094
5/31/91 10,699 11,170 10,594
5/31/92 11,710 12,267 10,914
5/31/93 13,194 13,735 11,266
5/31/94 13,400 14,074 11,523
5/31/95 14,443 15,068 11,891
5/31/96 14,842 15,757 12,234
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 1/4/93 would have been valued
at $11,598 on 5/31/96 ($11,307 with a redemption at the end of the period).
A $10,000 investment in the fund's class M shares at inception on 5/1/95
would have been valued at $10,594 at net asset value on 5/31/96 ($10,254
at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.479498 $0.421061 $0.455558
- ------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------
Total $0.479498 $0.421061 $0.455558
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/95 $8.98 $9.43 $8.97 $8.98 $9.28
- ------------------------------------------------------------------------
5/31/96 8.76 9.20 8.75 8.76 9.05
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate2 5.41% 5.15% 4.76% 5.11% 4.95%
- ------------------------------------------------------------------------
Taxable equivalent3 9.57 9.11 8.42 9.04 8.75
- ------------------------------------------------------------------------
Current 30-day SEC yield4 5.31 5.06 4.65 5.01 4.84
- ------------------------------------------------------------------------
Taxable equivalent3 9.39 8.95 8.22 8.86 8.56
- ------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may be
subject to state and local taxes.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 43.45% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
For some investors, investment income may also be subject to the federal
alternative minimum tax. Investment income may be subject to state and
local taxes.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's CDSC declines from a 5% maximum during the first
year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund. It is not possible
to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
Report of independent accountants
For the Fiscal Year Ended May 31, 1996
To the Trustees and Shareholders of
Putnam New Jersey Tax Exempt Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam New Jersey Tax Exempt Income Fund, including the portfolio of
investments owned, as of May 31, 1996, and the related statement of
operations for the year then ended, the statements of changes in net
assets for the year then ended and for the eleven month period ended May
31, 1995, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights
are the responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam New Jersey Tax Exempt Income Fund as of May
31, 1996, the results of its operations for the year then ended, the
changes in its net assets for the year then ended and for the eleven
month period ended May 31, 1995, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 15, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31,1996
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificates of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
Municipal Bonds and Notes (97.3%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
New Jersey (76.5%)
- -----------------------------------------------------------------------------------------------------------------------------
$1,000,000 Atlantic City, Muni. Util. Auth. Wtr. Rev. Bonds, 7 3/4s, 5/1/17 A $1,123,750
Atlantic Cnty., COP
2,000,000 FGIC, 7.4s, 3/1/10 Aaa 2,330,000
1,000,000 (Pub. Facs. Lease Agreement), FGIC, 7.4s, 3/1/09 Aaa 1,167,500
4,250,000 Camden Cnty., Impt. Auth. Rev. Bonds, 8.4s, 4/1/24 (acquired 4/12/94 cost
$4,250,000) (double dagger) BB/P 4,154,375
5,850,000 Camden Cnty., Muni. Util. Auth. Swr. Rev. Bonds, FGIC, 6s, 7/15/07 Aaa 6,142,500
1,200,000 Middle Township School Dist. Rev. Bonds, FGIC, 7s, 7/15/06 Aaa 1,359,000
2,000,000 Middlesex Cnty., Poll. Control Auth. Rev. Bonds, 6 7/8s, 12/1/22 BB/P 2,062,500
3,000,000 Middlesex Cnty., Util. Auth. Swr. IFB, Ser. A, MBIA, 7.95s, 8/15/10 Aaa 3,191,250
11,105,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds (Vineland Cogeneration L.P.
Project), 7 7/8s, 6/1/19 BB 11,826,825
5,000,000 NJ Econ. Dev. Auth. Hlth. Care Fac. Rev. Bonds (Ocean Nursing Pavilion), Ser. A,
7 3/8s, 12/1/25 BB/P 4,906,250
600,000 NJ Econ. Dev. Auth. Indl. & Econ. Dev. VRDN (Toys R US Inc.), 3.2s, 4/1/19 A 600,000
NJ Econ. Dev. Auth. Natural Gas Fac. Rev. Bonds (NJ Natural Gas Co. Project)
2,500,000 9s, 12/1/17 A 2,700,000
2,500,000 Ser. 84A, 7.05s, 3/1/16 A 2,621,875
1,300,000 NJ Econ. Dev. Auth. Natural Gas Fac. VRDN (NJ Natural Gas Co. Project), 3.6s,
8/1/30 VMIG1 1,300,000
NJ Econ. Dev. Auth. Rev. Bonds
5,300,000 (Stolt Terminals Project), 10 1/2s, 1/15/18 BB/P 5,796,875
4,550,000 (Holt Hauling Co.), Ser. D, 10 1/4s, 9/15/14 BB 4,715,711
5,000,000 (Tevco Inc. Project), 8 1/8s, 10/1/09 BBB 5,537,500
3,260,000 (Cadbury Corp.), 8s, 7/1/15 BB/P 3,398,550
1,200,000 (Ninette Group L P Project), 7 3/4s, 8/1/11 Baa 1,266,000
2,000,000 (Hartz Mountain Industries, Inc.), 7s, 2/1/14 A 2,182,500
3,080,000 (Lakewood School), Ser. R, 6.9s, 12/1/11 Aaa 3,272,500
1,500,000 (NJ Performing Arts Ctr.), 6 3/4s, 6/15/12 A 1,575,000
1,895,000 (Urban Holding Co.), 6 1/2s, 6/1/15 AA 1,958,956
2,835,000 (#89 Kiva L.P. Project), 6.4s, 8/1/15 Aa 2,927,138
2,000,000 (Edl. Testing Svcs.), 6 1/8s, 5/15/15 AAA 2,017,500
1,550,000 (Burlington Coat Factory), 6 1/8s, 9/1/10 A 1,588,750
3,000,000 (Edl. Testing Svcs.),MBIA, 6s, 12/15/06 Aaa 3,176,250
3,000,000 (Clara MAASS Hlth. Syst.), FSA, 5s, 7/1/16 Aaa 2,655,000
2,925,000 NJ Econ Dev. Auth. Waste Paper Recycling Rev. Bonds (Marcal Paper Mills Inc.
Project), 8 1/2s, 2/1/10 BB/P 3,279,656
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
4,250,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 4,611,250
3,095,000 (Jersey Shore Med. Ctr.), Ser. B, AMBAC, 8s, 7/1/18# Aaa 3,381,288
7,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 7,950,000
1,000,000 (East Orange Gen. Hosp.), Ser. B, 7 3/4s, 7/1/20 BBB 1,045,000
3,905,000 (Kimball Med. Ctr.), 7.3s, 7/1/99 Ba 3,948,033
1,425,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 Baa 1,471,313
9,000,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 BB/P 9,045,000
3,300,000 (Christ Hosp. Group), 7s, 7/1/06 AAA 3,708,375
5,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 5,375,000
4,400,000 (St. Mary's Hosp.), 5 7/8s, 7/1/12 Baa 4,103,000
825,000 (Union Hospital/Mega Care Inc.), 5 7/8s, 7/1/07 Baa 785,813
3,285,000 (Somerset Med. Ctr.), Ser. A, FGIC, 5.2s, 7/1/24 Aaa 2,890,800
3,500,000 (St. Peters Med. Ctr.), Ser. F, MBIA, 5s, 7/1/21 Aaa 3,036,250
NJ State Edl. Facs. Auth. Rev. Bonds
3,000,000 (Higher Ed. Facs. Trust Fund), Ser. A, AMBAC, 5 1/8s, 9/1/09 Aaa 2,880,000
3,935,000 (NJ Institute of Technology), Ser. 95-E, MBIA, 5 3/8s, 7/1/16 Aaa 3,674,306
NJ State G.O. Bonds
4,065,000 FGIC, 6s, 2/15/11 Aaa 4,222,519
4,000,000 Ser. E, 6s, 7/15/06 Aa 4,240,000
3,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB, Ser. I, 8.052s, 11/1/07 (acquired
various dates from 2/11/93 to 6/14/93 cost $3,134,370) (double dagger) A 3,067,500
NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds
1,415,000 (Home Buyer Project), Ser. D, MBIA, 7.7s, 10/1/29 Aaa 1,475,138
NJ State Hwy. Auth. Gen. Rev. Bonds (Garden State Pkwy. Project)
1,500,000 6.2s, 1/1/10 AA 1,593,750
2,370,000 6s, 1/1/19 Aaa 2,399,625
3,000,000 5.2s, 1/1/08 AA 2,940,000
1,800,000 NJ State Tpk. Auth. IFB, MBIA, 9.04s, 1/1/16 Aaa 2,085,750
NJ State Tpk. Auth. Rev. Bonds
5,000,000 Ser. C, MBIA, 6 1/2s, 1/1/16 Aaa 5,481,250
5,000,000 Ser. C, AMBAC, 6 1/2s, 1/1/08 Aaa 5,431,250
5,000,000 NJ State Tpk. Auth. VRDN, 3/1/8s, 1/1/18 VMIG1 5,000,000
16,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds (Trans. Syst.), Ser. A,
MBIA, 6 1/2s, 6/15/11 Aaa 17,520,000
7,000,000 NJ Wastewater Treatment Trust Rev. Bonds, Ser. A, zero %, 9/1/07 Aaa 3,815,000
1,800,000 Passaic Valley Cmnty. Wtr. Supply Rev. Bonds, Ser. A, FGIC, 6.4s, 12/15/22 Aaa 1,980,000
4,500,000 Rutgers State U. Rev. Bonds, Ser. A, 6.4s, 5/1/13 AA 4,792,500
1,970,000 Sayreville, Hsg. Dev. Corp. Mtge. Rev. Bonds (Lakeview Section 8), FHA
Insd., 7 3/4s, 8/1/24 Aaa 1,987,238
South River G.O. Bonds
1,300,000 FGIC, 5s, 12/1/12 Aaa 1,197,625
1,250,000 FGIC, 5s, 12/1/11 Aaa 1,162,500
1,250,000 5s, 12/1/10 Aaa 1,178,125
1,000,000 Stony Brook, Regional Swr. Rev. Bonds, Ser. B, 5.45s, 12/1/12 Aa 981,250
3,400,000 Union Cnty., Indl. Poll. Control Fin. Auth. Rev. Bonds (American
Cynamid Co.), 5.8s, 9/1/09 A 3,442,500
4,695,000 U. of Medicine & Dentistry, G.O. Bonds, Ser. E, 6 1/2s, 12/1/12 AA 5,082,338
------------
229,814,997
New York (5.3%)
- -----------------------------------------------------------------------------------------------------------------------------
Port Auth. NY & NJ Cons. IFB
2,100,000 10.491s, 11/15/15 AA 1,554,000
5,000,000 9.963s, 8/1/26 (acquired various dates from 8/29/91 to 1/21/92 cost
$5,164,940)(double dagger) AA 5,543,750
1,500,000 5.2s, 11/15/15 (acquired various dates from 4/12/94 to 12/15/94 cost
$1,501,203)(double dagger) AA 1,381,875
7,500,000 Port Auth. NY & NJ Cons. Rev. Bonds, Ser. 93, 6 1/8s, 6/1/94 AA 7,640,625
------------
16,120,250
Puerto Rico (15.5%)
- -----------------------------------------------------------------------------------------------------------------------------
Cmnwlth. of PR, Aqueduct & Swr. Auth. Rev. Bonds
3,915,000 6 1/4s, 7/1/12 A 4,071,600
5,615,000 MBIA, 5.2s, 7/1/08 AAA 5,495,681
Cmnwlth. of PR, Hwy. Auth. Rev. Bonds Aaa 1,698,750
1,500,000 Ser. Q, 7 3/4s, 7/1/16
2,000,000 Ser. X, 5 1/4s, 7/1/21 A 1,780,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
2,250,000 5 1/2s, 7/1/18 A 2,089,683
1,000,000 Ser. W, 5 1/2s, 7/1/15 A 951,250
4,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds, 6.8s, 7/1/21 Aaa 4,460,000
3,000,000 Cmnwlth. of PR, Rev. Bonds, AMBAC, 5s, 7/1/21 Aaa 2,651,250
PR Elec. Pwr. Auth. Rev. Bonds
3,000,000 MBIA, 7s, 7/1/07 Aaa 3,412,500
1,375,000 Ser. S, 6 1/8s, 7/1/08 A 1,445,470
11,000,000 Ser. Z, 5 1/4s, 7/1/21 A 9,762,500
2,000,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds
(Special Facilities-American Airlines, Inc.), Ser. A, 8 3/4s, 12/1/25 Baa 2,067,680
PR Pub. Bldgs. Auth. Gtd. Edl. & Hlth. Facs. Rev. Bonds
1,250,000 Ser. G, 7 7/8s, 7/1/16 Aaa 1,327,663
1,000,000 Ser. H, 7 7/8s, 7/1/16 Aaa 1,062,130
3,750,000 PR Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 4,195,313
------------
46,471,470
------------
Total Investments (cost $290,874,911)*** $292,406,717
- -----------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $300,378,562.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at May 31, 1996 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 May 31, 1996. Securities rated by
Putnam are indicated by "/P" and are not
publicly rated. Ratings are not covered by the Report of independent accountants.
(double dagger) Restricted, excluding 144A securities, as to public resale. There were no outstanding unrestricted
securities of the same class as those held. The total market value of restricted securities held at
May 31, 1996 was $14,147,500 or 4.7% of net assets.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at May 31, 1996. The market value of this security
is $3,381,288 or 1.1% of net assets.
*** The aggregate identified cost on a tax basis is $290,874,911, resulting in gross unrealized
appreciation and depreciation of $7,525,895 and $5,994,089, respectively, or net unrealized
appreciation of $1,531,806.
The rates shown on IFB, which are securities paying interest rates that vary inversely to
changes in the market interest rates, and VRDN's are the current interest rates at May 31, 1996.
The fund had the following industry group concentrations greater than 10% on May 31, 1996 (as a
percentage of net assets):
Transportation 20.4%
Hospitals/Health Care 19.6
The fund had the following insurance concentration greater than 10% at May 31, 1996(as a
percentage of net assets):
MBIA 10.3%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1996
Total Aggregate Face Expiration Unrealized
Value Value Date Depreciation
UST Bonds (Short) $5,376,563 $5,375,000 Sep 96 $(1,563)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31,1996
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $290,874,911) (Note 1) $292,406,717
- ----------------------------------------------------------------------------------------------
Cash 218,331
- ----------------------------------------------------------------------------------------------
Interest receivable 7,187,744
- ----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 375,536
- ----------------------------------------------------------------------------------------------
Receivable for securities sold 1,767,933
- ----------------------------------------------------------------------------------------------
Total assets $ 301,956,261
Liabilities
- ----------------------------------------------------------------------------------------------
Payable for variation margin 1,563
- ----------------------------------------------------------------------------------------------
Distributions payable to shareholders 429,032
- ----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 453,279
- ----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 457,780
- ----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 77,801
- ----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 236
- ----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,321
- ----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 128,769
- ----------------------------------------------------------------------------------------------
Other accrued expenses 27,918
- ----------------------------------------------------------------------------------------------
Total liabilities 1,577,699
- ----------------------------------------------------------------------------------------------
Net assets $300,378,562
Represented by
- ----------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 3) $306,800,267
- ----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 66,944
- ----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (8,018,892)
- ----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts (Notes/and 3) 1,530,243
- ----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $300,378,562
- ----------------------------------------------------------------------------------------------
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($227,939,826 divided by 26,017,112 shares) $8.76
- ----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.76)* $9.20
- ----------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($72,083,442 divided by 8,235,420 shares)+ $8.75
- ----------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($355,294 divided by 40,549 shares) $8.76
- ----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.76)** $9.05
- ----------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group sales
the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales 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.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended May 31,1996
<S> <C>
Tax exempt interest income $18,797,121
- --------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,824,907
- --------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 340,358
- --------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,725
- --------------------------------------------------------------------------------------
Administrative services (Note 2) 8,170
- --------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 476,014
- --------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 564,213
- --------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,119
- --------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,285
- --------------------------------------------------------------------------------------
Reports to shareholders 26,556
- --------------------------------------------------------------------------------------
Registration fees 8,979
- --------------------------------------------------------------------------------------
Auditing 26,525
- --------------------------------------------------------------------------------------
Legal 16,337
- --------------------------------------------------------------------------------------
Postage 22,296
- --------------------------------------------------------------------------------------
Other 11,362
- --------------------------------------------------------------------------------------
Total expenses 3,340,846
- --------------------------------------------------------------------------------------
Expense reduction (Note 2) (403,532)
- --------------------------------------------------------------------------------------
Net expenses 2,937,314
- --------------------------------------------------------------------------------------
Net investment income 15,859,807
- --------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,695,767
- --------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (1,526,233)
- --------------------------------------------------------------------------------------
Net unrealized depreciation on investments and futures during the year (9,678,068)
- --------------------------------------------------------------------------------------
Net loss on investments (7,508,534)
- --------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $8,351,273
- --------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Eleven
Year ended months ended
May 31 May 31
1996 1995
------------- ------------
<S> <C> <C>
Increase (decrease) in net assets
- -----------------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------------
Net investment income $15,859,807 $15,048,545
- -----------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions 2,169,534 (8,453,743)
- -----------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investment transaction (9,678,068) 15,717,027
- -----------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,351,273 22,311,829
- -----------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------------------
From net investment income
- -----------------------------------------------------------------------------------------------------------
Class A (12,722,118) (12,600,443)
- -----------------------------------------------------------------------------------------------------------
Class B (3,109,723) (2,404,816)
- -----------------------------------------------------------------------------------------------------------
Class M (11,099) --
- -----------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 6,709,677 2,601,270
- -----------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (781,990) 9,907,840
- -----------------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------------
Beginning of year 301,160,552 291,252,712
- -----------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income and
distributions in excess of net investment income
of $66,944 and $18,267, respectively) $300,378,562 $301,160,552
- -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
May 1, 1995 For the
(commencement eleven months
Year ended of operations) Year ended ended
May 31 to May 31 May 31 May 31
1996 1995+ 1996 1995+
------------------------------------------------------
Class M Class B
------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.98 $8.74 $8.97 $8.75
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .45 .04 .42 .41
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.21) .28 (.22) .22
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations .24 .32 .20 .63
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.08) (.42) (.41)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.08) (.42) (.41)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.98 $8.75 $8.97
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) 2.65 3.21 (b) 2.25 7.51 (b)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $355 $1 $72,083 $58,591
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.24 .09 (b) 1.61 1.46 (b)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(d) 4.92 .42 (b) 4.69 4.72 (b)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.82 51.86 (b) 52.82 51.86 (b)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
For the period
January 4, 1993 For the
(commencement eleven months
Year ended of operations) Year ended ended
June 30 to June 30 May 31 May 31
------------------------------------------------------
1994 1993 1996 1995+
------------------------------------------------------
Class A
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.46 $9.02 $8.98 $8.75
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .45 .21 .48 .46
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.58) .43 (.22) .23
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations (.13) .64 .26 .69
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.20) (.48) (.46)
- ---------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments (.11) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.58) (.20) (.48) (.46)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.75 $9.46 $8.76 $8.98
- ---------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) (1.59) 7.21 (b) 2.92 8.25 (b)
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $44,916 $15,113 $227,940 $242,569
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.59 .77 (b) .96 .87 (b)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(d) 4.77 2.42 (b) 5.36 5.36 (b)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 51.74 44.58 (b) 52.82 51.86 (b)
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (Continued)
(For a share outstanding throughout the period)
Year ended June 30
--------------------------------------
1994 1993 1992
--------------------------------------
Class A
--------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.46 $8.97 $8.64
- -----------------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------------
Net investment income .51 .54 .59 (c)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.58) .58 .38
- -----------------------------------------------------------------------------------------------------
Total from investment operations (.07) 1.12 .97
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net investment income (.51) (.55) (.60)
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments (.08) (.08) (.04)
- -----------------------------------------------------------------------------------------------------
In excess of realized gain on investments (.05) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (.64) (.63) (.64)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $8.75 $9.46 $8.97
- -----------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) (a) (0.94) 13.02 11.52
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $246,336 $235,243 $159,658
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .95 .92 .75 (c)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(d) 5.43 5.90 6.69 (c)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 51.74 44.58 80.21
- -----------------------------------------------------------------------------------------------------
+ The fiscal year has been advanced from June 30 to May 31.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect
of sales charges.
(b) Not annualized.
(c) Reflects a voluntary expense limitation. As a result, expenses of
the fund for the year ended June 30, 1992 reflect a reduction of $0.01.
(d) The ratio of expenses to average net assets for the year ended May 31, 1996 includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
May 31, 1996
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a non-diversified, open-end management investment company.
The fund seeks as high a level of current income exempt from federal
income tax and New Jersey personal income tax as Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc. believes is consistent with
preservation of capital by investing primarily in a portfolio of longer-
term New Jersey tax exempt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). 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. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
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 generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value. The fair
value of restricted securities is determined by Putnam Management
following procedures approved by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options 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, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue 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 Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
At May 31, 1996, the fund had a capital loss carryover of approximately
$6,357,000 available to offset future net capital gain, if any. The
amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- --------------------------------------------
$2,872,000 May 31, 2003
$3,485,000 May 31, 2004
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid 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 treatment of realized and unrealized losses on
certain futures contracts, dividends payable and market discount.
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. For the year ended May 31,
1996, the fund reclassified $68,344 to increase undistributed net
investment income, with an increase to accumulated net realized loss on
investments of $68,344. The calculation of net investment income per
share in the financial highlights table excludes these adjustments.
F) Amortization of bond premium and discount Any premium resulting from
the purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discounts on zero coupon bonds and original
issue bonds are accreted according to the effective yield method.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities
and Exchange Commission and with various states and the initial public
offering of its class A shares were $49,086. These expenses have been
fully amortized over a five-year period as of May 31, 1996.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.60% of the
first $500 million, 0.50% of the next $500 million, 0.45% of the next
$500 million, and 0.40% of any amount over $1.5 billion subject, under
current law, to reduction in any year by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of Putnam
Management on the fund's portfolio transactions.
The fund reimburses Putnam Management 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.
Trustees of the fund receive an annual Trustees fee of $770 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "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 Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended May 31, 1996, fund expenses were reduced by $403,532
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of .20%, .85% and .50% of the average net
assets attributable to class A, class B and class M shares, respectively.
For the year ended May 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $48,772 and $419 from the sale
of class A and class M shares, respectively and $146,756 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares, that were purchased without an initial sales charge as part of
an investment of $1 million or more. For the year ended May 31, 1996,
Putnam Mutual Funds Corp., acting as underwriter received $1,048 on
class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $151,644,547
and $153,636,340, respectively. There were no purchases and sales of
U.S. government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At May 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Class M shares became effective on May 1, 1995 and
115 shares were sold to Putnam Investments, Inc. for $1,000.
Transactions in capital shares were as follows:
Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 6,433,107 $57,607,820
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 804,050 7,192,243
- ----------------------------------------------------
7,237,157 64,800,063
Shares
repurchased (8,230,011) (73,691,252)
- ----------------------------------------------------
Net decrease (992,854) $(8,891,189)
- ----------------------------------------------------
Eleven months ended
May 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,583,766 $30,919,620
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 815,266 7,017,119
- ----------------------------------------------------
4,399,032 37,936,739
Shares
repurchased (5,543,768) (47,448,932)
- ----------------------------------------------------
Net decrease (1,144,736) $(9,512,193)
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,466,981 $22,026,771
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 209,155 1,869,308
- ----------------------------------------------------
2,676,136 23,896,079
Shares
repurchased (971,165) (8,657,882)
- ----------------------------------------------------
Net increase 1,704,971 $15,238,197
- ----------------------------------------------------
Eleven months ended
May 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,071,094 $17,921,544
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 163,594 1,407,101
- ----------------------------------------------------
2,234,688 19,328,645
Shares
repurchased (839,933) (7,216,182)
- ----------------------------------------------------
Net increase 1,394,755 $12,112,463
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 40,656 $364,849
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 900 8,089
- ----------------------------------------------------
41,556 372,938
Shares
repurchased (1,122) (10,269)
- ----------------------------------------------------
Net increase 40,434 $362,669
- ----------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Leslie J. Burke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam New Jersey
Tax Exempt Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information, or to request a prospectus, call toll
free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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25867-019/329/537 7/96
