Putnam
New Jersey
Tax Exempt
Income Fund
ANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Based on tax-equivalent yields alone, muni funds easily outshine
most taxable-bond funds."
-- Morningstar Mutual Funds, March 1997
* "Although we remain less optimistic about the state's general
obligation bonds, the New Jersey municipal market still offers excellent
investment opportunities, particularly among self-supporting bonds in the
health-care sector."
-- Leslie J. Burke, manager
Putnam New Jersey Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam New Jersey Tax Exempt Income Fund began fiscal 1997 on a hopeful, yet
cautious note in June 1996 after a somewhat tumultuous year for the municipal
bond market. The hope was warranted, as the market rallied in the fall. The
caution was also justified, for the rally ended abruptly in late winter, cut
short by investor worries that inflation and interest rates would both rise in
the wake of an economy still growing too fast.
From the vantage point of the fiscal year's close on May 31, 1997, we can see
that the volatility, while somewhat nerve-racking for many investors, was
unusually low. By spring, even the Federal Reserve Board's increase in the
federal funds rate in late March, the source of considerable earlier anxiety,
caused little stir.
It is in these contexts that Fund Manager Leslie Burke discusses your fund's
performance for the year just past and her view of its prospects for the year
ahead. Her report begins on the following page.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Leslie J. Burke
Putnam New Jersey Tax Exempt Income Fund concluded its fiscal year on an
excellent note. Duration management and outperformance by one of the fund's
hospital holdings drove performance, positioning the fund very competitively
and enabling it to continue to provide investors with a steady stream of
current tax-exempt income. For the 12 months ended May 31, 1997, the fund
provided shareholders with a total return of 8.57% at net asset value (3.38%
at the public offering price) for class A shares. Results for class B and
class M shares and for longer periods can be found on pages 9 through 11.
* MARKET CHARACTERIZED BY ABNORMALLY LOW VOLATILITY
Compared with performance in other years in the not-too-distant past, the
municipal bond market for the 12 months ended May 31, 1997, was characterized
by abnormally low volatility in all dimensions. This covers not just
interest-rate movement, but changes in bond spreads as well. Even the Federal
Reserve Board's increase of a quarter of a percentage point in the federal
funds rate in late March was virtually a nonevent primarily because the
long-awaited rate increase had already been priced into the market.
While many expected the March increase to be the first in a series, the Fed
left rates alone at its May meeting. Once again, the fixed-income market
reaction appeared subdued, although bond prices did respond favorably. Until
there is more evidence of inflation, we believe the markets will continue to
show some uncertainty while they await further Fed action.
* MUNICIPALS OUTPERFORM TAXABLE BONDS OVER PERIOD
The municipal bond market has also experienced relative stability during the
period, and tax-free bond investments have generally outperformed their
taxable counterparts by a significant margin. The fading prominence of last
year's flat-tax proposals explains some of this outperformance, although
favorable supply and demand trends probably account for much more. Supply is
running slightly below the pace of one year ago, while demand -- from
individual investors, insurance companies, and other less traditional buyers
- -- has remained steady. Issuers have continued to meet this demand by
structuring municipal offerings with terms that are especially attractive to
these buyers, many of whom are interested mainly in high-quality
intermediate-term securities. The result has been strong municipal bond market
performance, especially relative to similar taxable investments.
* DEFENSIVE STRATEGY PROPELS PERFORMANCE WHILE PROTECTING VALUE
Although the municipal market continues to perform well, we have begun to
believe that potential for additional price appreciation may be somewhat
limited. Accordingly, we have pursued a defensive strategy in recent months,
designed to continue to generate solid tax-exempt income while protecting the
fund's assets in the face of rising interest rates and robust economic growth.
Duration management has been a key component of this strategy, and over the
past several months we have reduced the portfolio's duration from
approximately seven years to six. Duration is a measure of the price
sensitivity of a portfolio of bonds to changes in interest rates. Like
maturity, with which it is often confused, duration is measured in years. In a
rising interest-rate environment like the current one, a shorter duration
helps protect the fund's net asset value by cushioning the effect of
interest-rate changes, although it can also prevent the fund from benefiting
fully from appreciation in a declining-rate environment.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 20.8%
Health care 16.7%
Education 7.8%
Water and sewerage 7.3%
Utilities 5.8%
Footnote reads:
*Based on net assets as of 5/31/97. Holdings will vary over time.
In addition, we have attempted to concentrate the portfolio in holdings less
sensitive to interest-rate changes. At the same time, we have retained our
focus on the call structure of individual securities in anticipation of the
year 2003, when a significant portion of the municipal marketplace becomes
callable. This dual mandate continues to prompt a repositioning of the
portfolio away from longer-term securities and into more intermediate-term
municipal bonds with maturities between 10 and 20 years.
Higher-coupon bonds have become another important focus for the fund,
providing high current income as well as a measure of protection in the
rising-rate environment. With the strengthening economy compressing credit
spreads between various sectors of the municipal market, these lower-rated
high-yielding bonds have been outperforming. The growing economy has bolstered
the financial standing of many issuers and increased demand for many
higher-yielding investments. Some issuers have even parlayed stronger bottom
lines into improved credit ratings.
* SELF-SUPPORTING BONDS STILL KEY
Although the New Jersey economy shows all the signs of full economic recovery
and low unemployment, economic strength in the New York/New Jersey/Pennsylvania
region remains less buoyant than elsewhere in the country. New Jersey continues
to experience the aftereffects of its much-lauded three-part tax reduction, the
latest difficulty being an unfunded pension liability of approximately $3.2
billion. While many states have similar liabilities, the anti-tax position of
New Jersey's governor leaves this state with fewer options for solving its
dilemma. In fact, shortly after the close of the fiscal period, the legislature
approved and scheduled the issuance of a taxable municipal bond for
approximately $2.7 billion to fund the pension liability.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
Aaa -- 48.1%
Aa -- 19.3%
A -- 8.6%
B -- 1.4%
Ba -- 17.5%
BBB -- 5.1%
Footnote reads:
As a percentage of market value as of 5/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
Major rating agencies have hinted that this action could jeopardize the credit
rating on the state's traditional municipal bonds. Uncompensated health care
and equalization of school funding continue to add to the state's fiscal stress
level.
This climate of uncertainty continues to make the state's general obligation
bonds less appealing investments for the fund. Instead, we remain focused on
self-supporting bonds, primarily in the health-care sector. Issuers of
self-supporting bonds rely on their own fees or charges to pay interest and
principal to bondholders rather than on the state, and this more secure income
stream makes the bonds more likely candidates for a credit upgrade or
prerefunding.
In fact, the fund benefited handsomely in February when one of its largest
hospital holdings was prerefunded. In a prerefunding, the issuer floats a
second bond to raise funds to pay off an older issue at its first call date.
Proceeds from the new bond are invested in top-quality instruments such as
U.S. Treasury securities. Because of the safety of principal represented by
these securities, the older prerefunded bond is generally perceived as having
a substantial improvement in its creditworthiness, and its rating is likely to
be upgraded. Credit upgrades, in turn, often herald higher prices.
Elsewhere in the health-care sector, we have been seeking opportunities among
bonds issued by continuing-care retirement communities. As Americans age and
hospitals seek new ways to provide service for lower costs, these communities
are becoming more widespread. The fund has invested successfully in several of
them already, and our latest foray into the sector came in January with the
purchase of bonds issued on behalf of Crane's Mill continuing-care retirement
community.
* DEFENSIVE POSITIONING REMAINS BEST COURSE FOR COMING MONTHS
"Fed-watching" has once again become the market's favorite pastime as the
Board left short-term interest rates alone at its May meeting. The economy
remains strong and that strength appears to be consumer-driven, since income,
job security, and consumer confidence all posted solid gains in recent months.
Given this scenario, the Fed may well decide to raise interest rates later
this year, perhaps at its August meeting -- a move that could produce
increased volatility throughout the fixed-income market.
At the same time, the municipal market may yet come under pressure in coming
months as seasonal supply upticks test the limits of buyer demand. However,
investors should not let a small rise in interest rates keep them from buying
municipal bonds. Municipals still represent good after-tax value against
taxable investments and an excellent way to diversify a stock-heavy portfolio.
Amid this uncertainty, we believe your fund's defensive positioning continues
to be the most prudent course to tax-exempt income and limited volatility.
Accordingly, although a reduction in the supply of New Jersey municipal issues
that meet our strict quality and structure criteria is adding to the challenge
of our investment efforts, our long-term strategy of reducing the portfolio's
"barbell" shape remains in place. Intermediate-term securities remain highly
desirable in terms of both yield and reduced volatility, and we continue to
seek every opportunity to increase these holdings.
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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
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 8.57% 3.38% 7.87% 2.87% 8.25% 4.78%
- ------------------------------------------------------------------------------
5 years 37.82 31.31 32.64 30.64 35.72 31.32
Annual average 6.63 5.60 5.81 5.49 6.30 5.60
- ------------------------------------------------------------------------------
Life of fund 69.37 61.39 59.98 59.98 64.76 59.45
Annual average 7.52 6.81 6.68 6.68 7.11 6.63
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 8.29 2.23
- ------------------------------------------------------------------------------
5 years 41.80 14.60
Annual average 7.24 2.76
- ------------------------------------------------------------------------------
Life of fund 73.94 25.08
Annual average 7.93 3.13
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One, five, and ten year and life of fund returns for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/20/90
Fund's class A Lehman Bros. Consumer
shares at Municipal Bond Price
Date POP Index Index
2/20/90 9,525 10,000 10,000
12/31/90 10,232 10,684 10,453
12/31/91 11,456 11,981 10,773
12/31/92 12,455 13,037 11,085
12/31/93 14,002 14,637 11,390
12/31/94 13,121 13,884 11,694
12/31/95 15,257 16,308 11,991
12/31/96 15,811 17,032 12,389
5/31/97 16,139 17,394 12,508
Footnote reads:
Past performance is no assurance of future results. Over
the same period, a $10,000 investment in the fund's class B
shares at inception would have been valued at $15,998 on
5/31/97 and no contingent deferred sales charge would apply;
and a $10,000 investment in the fund's class M shares would
have been valued at $16,476 at net asset value on 5/31/97
($15,945 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.474981 $0.416387 $0.448474
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.474981 $0. 416387 $0. 448474
- ------------------------------------------------------------------------------
Share value NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/96 $8.76 $9.20 $8.75 $8.76 $9.05
- ------------------------------------------------------------------------------
5/31/97 9.02 9.47 9.01 9.02 9.32
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.11% 4.87% 4.46% 4.81% 4.66%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.04 8.61 7.89 8.51 8.24
- ------------------------------------------------------------------------------
Current 30-day SEC
yield4 4.96 4.72 4.32 4.67 4.52
- ------------------------------------------------------------------------------
Taxable equivalent3 8.77 8.35 7.63 8.26 7.98
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
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 8.28% 3.14% 7.60% 2.60% 7.96% 4.42%
- ------------------------------------------------------------------------------
5 years 36.75 30.22 31.70 29.70 34.66 30.34
Annual average 6.46 5.42 5.66 5.34 6.13 5.44
- ------------------------------------------------------------------------------
Life of fund 71.02 62.96 61.47 61.47 66.34 60.97
Annual average 7.56 6.86 6.73 6.73 7.16 6.68
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance,
and will differ for each share class. Investment returns and principal value
will fluctuate so that an investor's shares, when sold, may be worth more or
less than their original cost. Please see the first page of the performance
section for the method of performance calculation.
TERMS AND DEFINITIONS
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.
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 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 assumes reinvestment of all distributions
and interest payments, 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.
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Report of independent accountants
For the fiscal year ended May 31, 1997
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, 1997, and the related statement of operations for the
year then ended and the statements of changes in net assets for each of the
two years in the period then ended, 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, 1997, by correspondence with the custodian and brokers.
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, 1997, the results of
its operations for the year then ended and the changes in its net assets for
each of the two years in the period then ended 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 14, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31, 1997 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate 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 (98.2%) *
PRINCIPAL AMOUNT RATING** VALUE
<S> <C> <C> <C>
New Jersey (80.4%)
- ------------------------------------------------------------------------------------------------------------
$1,000,000 Atlantic City, Muni. Utils. Auth. Wtr. Rev. Bonds,
7 3/4s, 5/1/17 AAA/P $1,107,500
Atlantic Cnty. COP
2,000,000 FGIC, 7.4s, 3/1/10 Aaa 2,405,000
1,000,000 (Pub. Fac. Lease Agreement), FGIC, 7.4s, 3/1/09 Aaa 1,198,750
4,250,000 Camden Cnty., Impt. Auth. Rev. Bonds,
8.4s, 4/1/24 B/P 4,420,000
5,850,000 Camden Cnty., Muni. Util. Auth. Rev. Bonds,
FGIC, 6s, 7/15/07 Aaa 6,303,375
6,625,000 Camden Cnty., Muni. Util. Auth. Swr. Rev. Bonds,
FGIC, 6s, 7/15/08 Aaa 7,080,469
3,000,000 Jersey City, G.O. Bonds, Ser. A, AMBAC, 6s,
10/1/10 AAA 3,191,250
1,200,000 Middle Township, Sch. Dist. Rev. Bonds, FGIC,
7s, 7/15/06 Aaa 1,381,500
2,000,000 Middlesex Cnty., Poll. Control Auth. Rev. Bonds,
6 7/8s, 12/1/22 BBB/P 2,120,000
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A, MBIA,
7.4393s, 8/15/10 Aaa 3,292,500
2,105,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB 2,270,769
8,000,000 NJ Econ. Dev. Auth. Hlth. Care Fac. Rev. Bonds
(Ocean Nursing Pavilion), Ser. A, 7 3/8s, 12/1/25 BB/P 8,430,000
NJ Econ. Dev. Auth. Natural Gas Fac. Rev. Bonds
(NJ Natural Gas Co.)
2,500,000 9s, 12/1/17 A 2,606,250
2,500,000 Ser. 84A, 7.05s, 3/1/16 A 2,589,625
NJ Econ. Dev. Auth. Rev. Bonds
5,300,000 (Stolt Terminals), 10 1/2s, 1/15/18 BB 5,611,269
5,000,000 (Tevco Inc.), 8 1/8s, 10/1/09 BBB/P 5,462,500
1,200,000 (Ninette Group L P), 7 3/4s, 8/1/11 A 1,252,500
7,000,000 (1st Mtge.-Cranes Mill), Ser. A, 7 1/2s, 2/1/27 BB/P 7,000,000
2,000,000 (Hartz Mountain Industries, Inc.), 7s, 2/1/14 A 2,177,500
2,970,000 (Lakewood School), Ser. R, 6.9s, 12/1/11 Aa 3,181,613
1,500,000 (NJ Performing Arts Ctr.), 6 3/4s, 6/15/12 Aaa 1,650,000
1,895,000 (Urban Holding Co.), 6 1/2s, 6/1/15 A 2,030,019
1,550,000 (Burlington Coat Factory), 6 1/8s, 9/1/10 A 1,629,438
2,925,000 NJ Econ. Dev. Auth. Waste Paper Recycling Rev.
Bonds (Marcal Paper Mills Inc.), 8 1/2s, 2/1/10 BB/P 3,345,469
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
7,250,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 AAA 8,165,305
3,095,000 (Jersey Shore Med. Ctr.), Ser. B, AMBAC,
8s, 7/1/18 # Aaa 3,282,124
8,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Ba 9,063,125
1,000,000 (East Orange Gen. Hosp.), Ser. B, 7 3/4s, 7/1/20 BBB 1,061,250
1,425,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 Baa 1,505,156
3,030,000 (Kimball Med. Ctr.), 7.3s, 7/1/99 Ba 3,064,209
9,000,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 BB/P 9,438,750
3,300,000 (Christ Hosp. Group), 7s, 7/1/06 AAA 3,770,250
5,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 5,462,500
3,285,000 (Somerset Med. Ctr.), Ser. A, FGIC, 5.2s, 7/1/24 Aaa 3,055,050
NJ State G.O. Bonds
4,065,000 FGIC, 6s, 2/15/11 Aaa 4,364,794
4,000,000 Ser. E, 6s, 7/15/06 Aa 4,335,000
3,000,000 NJ State Edl. Fac. Auth. Rev. Bonds
(Princeton U.), Ser. C, 6 3/8s, 7/1/22 Aaa 3,187,500
3,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB,
Ser. I, 7.98s, 11/1/07 (acquired various dates
from 2/11/93 to 6/14/93 cost $3,134,370) [DBL. DAGGERS] A 3,202,500
1,190,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds
(Home Buyer), Ser. D, MBIA, 7.7s, 10/1/29 Aaa 1,240,575
NJ State Hwy. Auth. Gen. Rev. Bonds
(Garden State Pkwy.)
1,500,000 6.2s, 1/1/10 AA 1,635,000
2,370,000 6s, 1/1/19 Aaa 2,503,313
3,000,000 NJ State Hwy. Auth. Rev. Bonds
(Garden State Pkwy.), 5.2s, 1/1/08 AA 3,022,500
1,800,000 NJ State Tpk. Auth. IFB, MBIA, 8.77s, 1/1/16
(acquired 03/27/92, cost $ 1,817,856) [DBL. DAGGERS] Aaa 2,191,500
NJ State Tpk. Auth. Rev. Bonds, Ser. C
6,000,000 MBIA, 6 1/2s, 1/1/16 Aaa 6,772,500
5,000,000 AMBAC, 6 1/2s, 1/1/08 Aaa 5,575,000
6,400,000 NJ State Tpk. Auth. VRDN, FGIC, 3.7s, 1/1/18 AAA 6,400,000
NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A
17,000,000 MBIA, 6 1/2s, 6/15/11 Aaa 19,188,750
3,000,000 MBIA, 6s, 12/15/06 Aaa 3,225,000
7,000,000 NJ Wastewater Treatment Trust Rev. Bonds,
Ser. A, zero %, 9/1/07 Aaa 4,147,500
NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment Trust)
6,670,000 Ser. C, 7s, 6/15/10 Aa 7,795,563
2,955,000 Ser. B, 7s, 5/15/09 Aa 3,438,881
8,295,000 North Hudson, Swr. Auth. Rev. Bonds,
FGIC, 5 1/4s, 8/1/16 AAA 8,046,150
1,800,000 Passaic Valley, Cmnty. Wtr. Supply Rev. Bonds,
Ser. A., FGIC, 6.4s, 12/15/22 Aaa 1,986,750
7,500,000 Rutgers State U. Rev. Bonds, Ser. A, 6.4s, 5/1/13 AA 8,259,375
1,950,000 Sayreville, Hsg. Dev. Corp. Mtge. Rev. Bonds
(Lakeview Section 8), FHA Insd., 7 3/4s, 8/1/24 AAA 1,967,180
South River, School Dist. G.O. Bonds
1,300,000 FGIC, 5s, 12/1/12 Aaa 1,228,500
1,250,000 FGIC, 5s, 12/1/11 Aaa 1,196,875
1,250,000 FGIC, 5s, 12/1/10 Aaa 1,204,688
1,000,000 Stony Brook, Regional Swr. Rev. Bonds,
Ser. B, 5.45s, 12/1/12 Aa 1,011,250
3,400,000 Union Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds
(American Cynamid Co.), 5.8s, 9/1/09 A 3,582,750
8,695,000 U. of Medicine & Dentistry Rev. Bonds,
Ser. E, 6 1/2s, 12/1/12 A 9,760,138
--------------
250,074,547
New York (8.1%)
- ------------------------------------------------------------------------------------------------------------
Port Auth. NY & NJ Cons. IFB
2,100,000 5.72712s, 11/15/15 (acquired 02/09/94,
cost $2,107,875) [DBL. DAGGERS] AA/P 1,764,000
1,500,000 5.2s, 11/15/15 AA/P 1,430,625
7,500,000 Port Auth. NY & NJ Cons. Rev. Bonds,
Ser. 93rd, 6 1/8s, 6/1/94 AA/P 7,884,376
5,000,000 Port Auth. NY & NJ IFB, 9.303s, 8/1/26
(acquired various dates from 8/29/91 to
1/21/92, cost $5,164,940) [DBL. DAGGERS] AA/P 5,568,750
Port Auth. NY & NJ Rev. Bonds
3,000,000 (Delta Airlines, Inc.), Ser. 1R, 6.95s, 6/1/08 Baa 3,236,250
5,000,000 (Kennedy Intl. Arpt.), 6 3/4s, 10/1/19 BB/P 5,206,250
--------------
25,090,251
Puerto Rico (9.7%)
- ------------------------------------------------------------------------------------------------------------
5,665,000 Cmnwlth. of PR, Aqueduct & Swr. Auth.
Rev. Bonds, 6 1/4s, 7/1/12 A 6,189,013
3,000,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 6 1/4s, 7/1/08 Aaa 3,330,000
1,500,000 Cmnwlth of PR, Hwy. Auth. Rev. Bonds,
Ser. Q, 7 3/4s, 7/1/16 AAA 1,672,500
1,000,000 Cmnwlth of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. W, 5 1/2s, 7/1/15 A 991,250
4,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds,
6.8s, 7/1/21 AAA 4,465,000
PR Elec. Pwr. Auth. Rev Bond
1,375,000 Ser. S, MBIA, 6 1/8s, 7/1/08 Aaa 1,502,188
3,000,000 Ser. Y, MBIA, 7s, 7/1/07 Aaa 3,506,250
2,000,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth.
Rev. Bonds (Special Facilities-American Airlines),
Ser. A, 6.45s, 12/1/25 Baa 2,097,500
3,750,000 PR Pub. Bldgs. Auth. Rev. Bonds,
Ser. K, 6 7/8s, 7/1/21 Aaa 4,200,000
PR Pub. Bldgs. Auth. Gtd. Pub. Edl. & Hlth.
Fac. Rev. Bonds
1,250,000 Ser. G, 7 7/8s, 7/1/16 Aaa 1,278,813
1,000,000 Ser. H, 7 7/8s, 7/1/16 Aaa 1,023,050
--------------
30,255,564
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $296,181,826) *** $305,420,362
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $311,140,274.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
May 31, 1997 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, 1997.
Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the
Report of independent accountants.
*** The aggregate identified cost on a tax basis is $296,181,826, resulting in gross unrealized appreciation and
depreciation of $11,154,735 and $1,916,199, respectively, or net unrealized appreciation of $9,238,536.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1997 was $12,726,750 or 4.1% of net assets.
# A portion of this security was pledged and segregated with the custodian to cover margin requirements futures
contracts at May 31, 1997. The market value of this security is $3,282,124 or 1.1% of net assets.
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, 1997.
The fund had the following industry group concentrations greater than 10% at May 31, 1997 (as a percentage of net assets):
Transportation 20.8%
Healthcare 16.7
The fund had the following insurance concentrations greater than 10% at May 31, 1997 (as a percentage of net assets):
FGIC 14.7%
MBIA 14.2
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1997
Aggregate
Total Face Expiration Unrealized
Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Jun 97 Muni
Index Future $ 14,157,000 $ 13,784,313 Jun-97 $ (372,687)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $296,181,826) (Note 1) $ 305,420,362
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 7,148,198
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 272,080
- ---------------------------------------------------------------------------------------------------
Total assets 312,840,640
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 309,623
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 37,813
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 420,630
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 265,139
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 465,674
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 31,296
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,846
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,187
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 134,954
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 28,204
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,700,366
- ---------------------------------------------------------------------------------------------------
Net assets $ 311,140,274
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 308,737,140
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 2,510
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,465,225)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,865,849
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 311,140,274
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($228,361,257 divided by 25,327,758 shares) $9.02
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.02)* $9.47
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($82,406,694 divided by 9,147,666 shares)** $9.01
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($372,323 divided by 41,285 shares) $9.02
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.02)*** $9.32
- ---------------------------------------------------------------------------------------------------
* 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.
** Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the
offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1997
<S> <C>
Tax exempt interest income: $18,988,464
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 1,844,631
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 311,876
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 18,266
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,123
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 458,413
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 657,796
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,859
- --------------------------------------------------------------------------------------------------
Reports to shareholders 36,181
- --------------------------------------------------------------------------------------------------
Registration fees 1,444
- --------------------------------------------------------------------------------------------------
Auditing 29,058
- --------------------------------------------------------------------------------------------------
Legal 32,703
- --------------------------------------------------------------------------------------------------
Postage 48,835
- --------------------------------------------------------------------------------------------------
Other 12,581
- --------------------------------------------------------------------------------------------------
Total expenses 3,460,766
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (206,152)
- --------------------------------------------------------------------------------------------------
Net expenses 3,254,614
- --------------------------------------------------------------------------------------------------
Net investment income 15,733,850
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 266,616
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 1,316,685
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts during the year 7,335,606
- --------------------------------------------------------------------------------------------------
Net gain on investments 8,918,907
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $24,652,757
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $15,733,850 $15,859,807
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,583,301 2,169,534
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 7,335,606 (9,678,068)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 24,652,757 8,351,273
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,203,229) (12,722,118)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,606,097) (3,109,723)
- ----------------------------------------------------------------------------------------------------------------------
Class M (18,592) (11,099)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,936,873 6,709,677
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 10,761,712 (781,990)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 300,378,562 301,160,552
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $2,510 and $66,944, respectively) $311,140,274 $300,378,562
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------
Eleven months
Per-share ended
operating performance Year ended May 31 May 31 Year ended June 30
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 ++ 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.98 $8.75 $9.46 $8.97
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .47 .48 .46 .51 .54
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .26 (.22) .23 (.58) .58
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations .73 .26 .69 (.07) 1.12
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.48) (.46) (.51) (.55)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.08) (.08)
- --------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- (.05) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.48) (.46) (.64) (.63)
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.02 $8.76 $8.98 $8.75 $9.46
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.57 2.92 8.25 * (0.94) 13.02
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $228,361 $227,940 $242,569 $246,336 $235,243
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .96 .87 * .95 .92
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.28 5.36 5.36 * 5.43 5.90
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.14 52.82 51.86 * 51.74 44.58
- --------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- --------------------------------------------------------------------------------------------------------------------
Eleven months For the period
Per-share ended Year ended Jan. 4, 1993+
operating performance Year ended May 31 May 31 June 30 to June 30
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 ++ 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.75 $8.97 $8.75 $9.46 $9.02
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .41 .42 .41 .45 .21
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 (.22) .22 (.58) .43
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations .68 .20 .63 (.13) .64
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.42) (.41) (.45) (.20)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.02) --
- --------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- (.11) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.42) (.41) (.58) (.20)
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.01 $8.75 $8.97 $8.75 $9.46
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.87 2.25 7.51 * (1.59) 7.21 *
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $82,407 $72,083 $58,591 $44,916 $15,113
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 1.61 1.46 * 1.59 .77 *
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.63 4.69 4.72 * 4.77 2.42 *
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.14 52.82 51.86 * 51.74 44.58
- --------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- -----------------------------------------------------------------------------------------------
For the period
Per-share May 1, 1995+
operating performance Year ended May 31 to May 31
- -----------------------------------------------------------------------------------------------
1997 1996 1995++
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.98 $8.74
- -----------------------------------------------------------------------------------------------
Investment operations
- -----------------------------------------------------------------------------------------------
Net investment income .45 (c) .45 .04
- -----------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .26 (.21) .28
- -----------------------------------------------------------------------------------------------
Total from
investment operations .71 .24 .32
- -----------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------
From net
investment income (.45) (.46) (.08)
- -----------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- -----------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- --
- -----------------------------------------------------------------------------------------------
Total distributions (.45) (.46) (.08)
- -----------------------------------------------------------------------------------------------
Net asset value,
end of period $9.02 $8.76 $8.98
- -----------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.25 2.65 3.21 *
- -----------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $372 $355 $1
- -----------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.26 1.24 .09 *
- -----------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.95 4.92 .42 *
- -----------------------------------------------------------------------------------------------
Portfolio turnover (%) 27.14 52.82 51.86 *
- -----------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
Notes to financial statements
May 31, 1997
Note 1
Significant accounting policies
Putnam New Jersey Tax Exempt Income (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.
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 taxable
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, as amended. Therefore, 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.
At May 31, 1997, the fund had a capital loss carryover of approximately
$4,669,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------------
1,185,000 May 31, 2003
3,484,000 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 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 treatment of realized and
unrealized losses on certain futures contracts, market discount, and capital
loss carryover. 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, 1997, the
fund reclassified $29,634 to increase undistributed net investment income and
$29,634 to increase accumulated net realized loss on investments. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
F) Amortization of bond premium and accretion of bond 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 discount, are accreted according to the effective yield method.
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 of
average net assets, 0.50% of the next $500 million, 0.45% of the next $500
million, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
of the next $5 billion, 0.340% of the next $5 billion and 0.330% thereafter.
Prior to September 20, 1996, any amount over $1.5 billion was based on 0.40%.
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.
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, 1997, fund expenses were reduced by $206,152 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.
Trustees of the fund receive an annual Trustees fee of $500 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 in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 0.20%, .85%
and 0.50% of the average net assets attributable to class A, class B and class
M shares respectively.
For the year ended May 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $28,733 and $524 from the sale of
class A and class M shares, respectively and $208,190 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. For the year
ended May 31, 1997, Putnam Mutual Funds Corp., acting as underwriter received
$553 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $86,014,589 and
$79,383,133, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 9,108,541 $81,241,088
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 762,738 6,820,657
- ------------------------------------------------------------
9,871,279 88,061,745
Shares
repurchased (10,560,633) (94,285,270)
- ------------------------------------------------------------
Net decrease (689,354) $(6,223,525)
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,955,385 $17,456,558
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 244,686 2,186,889
- ------------------------------------------------------------
2,200,071 19,643,447
Shares
repurchased (1,287,825) (11,488,444)
- ------------------------------------------------------------
Net increase 912,246 $8,155,003
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 26,219 $233,233
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,600 14,291
- ------------------------------------------------------------
27,819 247,524
Shares
repurchased (27,083) (242,129)
- ------------------------------------------------------------
Net increase 736 $5,395
- ------------------------------------------------------------
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
May 31, 1997
The fund has designated 99.63% 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 1998 will show the tax
status of all distributions paid to your account in
calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also be insured
up to certain limits. Please call your financial advisor or Putnam at
1-800-225-1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses. Please read
it carefully before you invest or send money.
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
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
William J. Curtin
Vice President
Jerome J. Jacobs
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
The Putnam Funds
One Post Office Square
Boston, Massachusetts
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
34410-019/329/537 7/97
