Putnam
New Jersey
Tax Exempt
Income
Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While the stock market's higher returns may be a lure,
diversification is imperative in any investment portfolio, and municipal
bonds can provide that variety."
-- Business Week, December 16, 1996
* "[T]he bulge of municipal bond issues that peaked at more than $300
billion in 1993 has slimmed down to about $150 billion a year....But a
thinner supply doesn't mean any less demand, since people still want to
shelter their money from Uncle Sam with tax-free munis. Lower supply and
strong demand lead to higher prices."
-- The Orange County (California) Register,
December 8, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
16 Financial statements
26 Results of December 5, 1996, shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam New Jersey Tax Exempt Income Fund's fiscal 1997
presented a significantly brighter municipal bond market environment
than the one that had prevailed in preceding months. As the semiannual
period unfolded, the municipal bond market -- including the market for
New Jersey tax-exempt bonds -- began to develop a sense of serenity. The
period closed on November 30, 1996, in an almost upbeat mood.
That is not to imply there were no challenges. Your fund's manager,
Leslie Burke, continues to address the potential impact of interest-rate
trends and the periodic release of economic data on the market and to
make the appropriate adjustments to the portfolio. Leslie believes the
ongoing scarcity of attractive securities bodes well for the market and
for your fund in the months ahead. Backed by Putnam's extensive credit
research capability, she is confident she will continue to find
attractive opportunities.
In the report that follows, Leslie discusses the events and strategies
that drove the fund's performance during the fiscal year's first half
and then takes a look at prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Leslie J. Burke
In a period marked by one record stock market gain after another, Putnam
New Jersey Tax Exempt Income Fund continued to provide New Jersey
investors with one of the essential ingredients of a well-balanced
portfolio -- an investment dedicated to providing high, current tax-
exempt income. In fact, during the semiannual period ended November 30,
1996, strategic securities selections, along with timely changes in the
portfolio's duration, helped the fund achieve solid gains. For the six
months ended November 30, 1996, the fund provided shareholders with a
total return of 6.70% at net asset value (1.60% 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 9 and 10.
* SLOWING ECONOMY AND STRONG DEMAND SPARK MUNICIPAL BOND RALLY
After a difficult and volatile year, the municipal bond market shifted
gears and rallied during your fund's semiannual period. The U.S.
economy's fast-paced growth of 4.6% during the third quarter of calendar
year 1996 gave way to a projection of 2.2% growth for the final three
months of the year. Economists expect this slowdown to continue into
early 1997. This cooling of economic growth soothed investors' concerns
over rising interest rates and helped lead fixed-income investments,
including municipal bonds, to higher price levels.
Strong demand also helped spur the period's municipal bond rally. While
large numbers of individual investors in the United States focused their
attention on the unprecedented gains in the stock market, overseas
investors purchased upward of $175 billion in U.S. bonds -- an amount
that exceeds the federal budget deficit. Although foreign investors --
ineligible for the tax benefits of U.S. municipal bonds -- invested
primarily in Treasury securities, their interest sparked greater demand
and, consequently, rising prices for the municipal bond market as well.
* DURATION MANAGEMENT BOOSTS PERFORMANCE, THEN PROTECTS GAINS
For most of the past six months, we capitalized on the municipal bond
market's positive performance by maintaining an above-average portfolio
duration. Duration is a measure of a portfolio's sensitivity to
interest-rate changes. A longer duration can mean a more volatile net
asset value if rates change -- but also one more likely to appreciate
substantially if rates decline. A shorter duration can help preserve
portfolio value as interest rates rise.
During the recent municipal bond market rally, your fund's longer
duration helped boost performance as interest rates on medium- and long-
term municipal bonds dropped by 46 and 50 basis points, respectively.
Toward the end of the period, we began to scale back the fund's
duration. The municipal market remains strong; however, we now believe
municipal bonds may be fully priced. With the holiday shopping period
just passed, the market may need time to adjust to buoyant economic
statistics regarding chain store sales and consumer spending.
Accordingly we believe now is the right time to reduce the portfolio's
volatility by reining in its duration to approximately 7 years.
* NONCALLABLE ISSUES BOOST PERFORMANCE
The call structure of bonds has taken on increasing importance in recent
months. This is largely because, in 1993, the municipal bond market
witnessed the largest issuance of tax-free bonds ever. With such a large
portion of the municipal marketplace callable in 2003 -- just 7 years
away -- many investors are now selling these bonds in favor of more
recent issues, which offer greater potential for appreciation.
[GRAPHIC BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 23.5%
Health care 19.6%
Utilities 15.4%
Water and sewerage 9.9%
Education 4.3%
Footnote reads:
* Based on net assets as of 11/30/96. Industry sectors will vary over
time.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
Aaa --42.8%
AA --14.2%
A --14.0%
Ba --12.3%
B --3.0%
Baa --12.3%
VMIG1 --1.4%
Footnote reads:
*As a percentage of market value as of 11/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
securities determined by Putnam Management to be of comparable quality.
Ratings will vary over time.
This explains why your fund benefited substantially from its large
position in noncallable municipal securities. As callable bonds reached
a ceiling of performance potential, noncallable issues continued to
perform steadily throughout the market rally, their value appreciating
consistently. With just over one quarter of assets in noncallable bonds
over the last two months of the semiannual period, we were able to
capitalize on this appreciation while minimizing your fund's exposure to
call risk.
* CONTINUED EMPHASIS ON SELF-SUPPORTING BONDS
Although the New Jersey economy continues to chug along respectably, it
has not exhibited the strength enjoyed by many other regions of the
country. This somewhat tenuous economic picture has been clouded further
by several pressing fiscal issues that the state has not yet fully
resolved. New Jersey's much-touted three-part tax cut has now been
implemented completely and so far has been matched each year with
commensurate spending cuts. Nonetheless, long-term issues surrounding
uncompensated health care -- who will pay for care for those unable to
pay for it themselves -- and the equalization of school funding among
wealthy and less affluent districts have not been laid to rest. In fact,
these difficult issues will most likely continue to surface each year as
the state budget comes up for review and passage in the legislature.
This situation has the potential to place a good deal of stress on the
state budget and could make New Jersey's general obligation bonds less
appealing investments for the fund. Instead, we remain focused on self-
supporting bonds, primarily in transportation and hospital sectors.
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,
and this more secure stream of income makes the bonds more likely
candidates for a credit upgrade or prerefunding.
In fact, one of the fund's largest hospital holdings, St. Elizabeth's,
is currently scheduled for prerefunding in January. 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. Upgrades, in turn, often herald higher prices, and this is
what we anticipate in this case.
Two of the fund's larger holdings warrant particular note as
contributors to the fund's strong performance. We purchased Ocean County
Nursing Home, which has a steady demand for its services from an
adjacent and affiliated hospital, and we held a large position in
noncallable bonds in the New Jersey Transportation Trust Fund.
Steering clear of a sector is sometimes as important a factor in
successful performance as acquiring a large position at an attractive
price. This was certainly the case with the resource recovery sector.
Recent judicial decisions overturning "flow control," which had kept
many financially shaky facilities going, resulted in downgrades for many
of the sector's bonds. Anticipating this, we sold the fund's resource
recovery positions well before the downgrades occurred, protecting the
fund's income stream and net asset value.
* CONSTRUCTIVE, YET CAUTIOUS, OUTLOOK PREVAILS
Although New Jersey's complex budgetary situation has proceeded
relatively smoothly thus far, we remain guarded about the state's
general obligation issues over the near term. For this reason, we intend
to retain the fund's emphasis on self-supporting bonds at present.
Within these issues, we are particularly excited about the health-care
sector; increased merger and acquisition activity in this sector may
well lead to greater investment opportunities ahead.
Nonetheless, after the municipal market's positive performance during
the past six months, we now believe municipal bonds may be fully priced.
Accordingly we have re-positioned the fund more defensively in order to
preserve its net asset value and income stream. This more defensive
posture includes a shorter duration, an increase in noncallable
holdings, and a portfolio structure that emphasizes bonds in the 15- to
20-year maturity range, where we expect to find better values.
As your fund enters the second half of fiscal year 1997, our large staff
of experienced research analysts will continue to scrutinize existing
and new municipal bond issues to find securities that will contribute to
your fund's stream of tax-exempt income. In a post-rally environment,
however, we must remain mindful of another tax consequence -- capital
gains from the sales of portfolio holdings that have risen in value.
Although it is unlikely that any fund could avoid capital gains
altogether, we plan to shift portfolio holdings only when the benefits
will substantially outweigh the potential effects of any taxable
distributions.
Pre-election talks of sweeping tax reforms, such as the flat tax and the
elimination of the Internal Revenue Service, has been shelved, most
likely for the duration of the current administration. Although we
remain aware that these issues are merely dormant, not dead, the short-
term outlook for tax-advantaged income investments remains constructive.
Footnote reads:
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 11/30/96, 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 taxes 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 11/30/96
Class A Class B Class M
(inception date) (2/20/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 6.70% 1.60% 6.48% 1.48% 6.66% 3.25%
- ------------------------------------------------------------------------
1 year 5.10 0.07 4.54 -0.45 4.91 1.47
- ------------------------------------------------------------------------
5 years 41.10 34.38 -- -- -- --
Annual average 7.13 6.09 -- -- -- --
- ------------------------------------------------------------------------
Life of class 66.45 58.61 23.50 20.50 13.00 9.37
Annual average 7.80 7.04 5.54 4.88 7.99 5.80
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.50% 1.28%
- ------------------------------------------------------------------------
1 year 5.89 3.26
- ------------------------------------------------------------------------
5 years 45.83 15.09
Annual average 7.83 2.85
- ------------------------------------------------------------------------
Life of class A 71.06 23.91
Annual average 8.27 3.21
- ------------------------------------------------------------------------
Life of class B 31.20 11.77
Annual average 7.18 2.89
- ------------------------------------------------------------------------
Life of class M 14.92 4.41
Annual average 9.15 2.75
- ------------------------------------------------------------------------
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%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
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Distributions (number) 6 6 6
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Income1 $0.238871 $0.209690 $0.225809
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Total $0.238871 $0.209690 $0.225809
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Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/96 $8.76 $9.20 $8.75 $8.76 $9.05
- ------------------------------------------------------------------------
11/30/96 9.10 9.55 9.10 9.11 9.42
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Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend
rate2 5.23% 4.98% 4.59% 4.98% 4.81%
- ------------------------------------------------------------------------
Taxable
equivalent3 9.25 8.81 8.12 8.81 8.51
- ------------------------------------------------------------------------
Current 30-day
SEC yield4 4.94 4.70 4.29 4.62 4.47
- ------------------------------------------------------------------------
Taxable equivalent3 8.74 8.31 7.59 8.17 7.90
- ------------------------------------------------------------------------
1 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 43.45% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 4.92% -0.06% 14.59% -0.41% 4.77% 1.33%
- ------------------------------------------------------------------------
1 year 3.50 -1.44 2.84 -2.07 3.08 -0.28
- ------------------------------------------------------------------------
5 years 37.84 31.35 -- -- -- --
Annual average 6.63 5.60 -- -- -- --
- ------------------------------------------------------------------------
10 years -- -- -- -- -- --
Annual average -- -- -- -- -- --
- ------------------------------------------------------------------------
Life of class 65.70 57.90 22.76 19.76 12.35 8.74
Annual average 7.64 6.88 5.27 4.62 7.22 5.14
- ------------------------------------------------------------------------
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 principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost.
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.
Footnote reads:
*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.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996 (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
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (97.8%) *
PRINCIPAL AMOUNT RATINGS** VALUE
New Jersey (74.2%)
- ------------------------------------------------------------------------------------------------------------------------
$1,000,000 Atlantic City, Muni. Utils. Auth. Wtr. Rev. Bonds, 7 3/4s, 5/1/17 A $ 1,127,500
Atlantic Cnty., COP
2,000,000 FGIC, 7.4s, 3/1/10 Aaa 2,437,500
1,000,000 (Pub. Fac. Lease Agreement), FGIC, 7.4s, 3/1/09 Aaa 1,215,000
4,250,000 Camden Cnty., Impt. Auth. Rev. Bonds, 8.4s, 4/1/24 (acquired 4/12/94 cost
$4,250,000)(double dagger) B/P 4,366,875
5,850,000 Camden Cnty., Muni. Util. Auth. Rev. Bonds, FGIC, 6s, 7/15/07 Aaa 6,369,188
6,625,000 Camden Cnty., Muni. Util. Auth. Swr. Rev. Bonds, FGIC, 6s, 7/15/08 Aaa 7,155,000
3,000,000 Jersey City, G.O. Bonds, Ser. A, AMBAC, 6s, 10/1/10 Aaa 3,232,500
1,200,000 Middle Township, Sch. Dist. Rev. Bonds, FGIC, 7s, 7/15/06 Aaa 1,407,000
2,000,000 Middlesex Cnty., Poll. Control Auth. Rev. Bonds, 6 7/8s, 12/1/22 BB 2,132,500
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A, MBIA, 7.2s, 8/15/10 Aaa 3,397,500
11,105,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds (Vineland Cogeneration
L.P.), 7 7/8s, 6/1/19 BB 12,062,806
8,000,000 NJ Econ. Dev. Auth. Hlth. Care Fac. Rev. Bonds (Ocean Nursing Pavilion),
Ser. A, 7 3/8s, 12/1/25 BBB 8,400,000
NJ Econ. Dev. Auth. Natural Gas Fac. Rev. Bonds (NJ Natural Gas Co.)
2,500,000 9s, 12/1/17 A 2,664,600
2,500,000 Ser. 84A, 7.05s, 3/1/16 A 2,618,750
3,300,000 NJ Econ. Dev. Auth. Natural Gas Fac. VRDN (NJ Natural Gas Co.), Ser. A,
AMBAC, 3.85s, 8/1/30 A-1 3,300,000
NJ Econ. Dev. Auth. Rev. Bonds
5,300,000 (Stolt Terminals), 10 1/2s, 1/15/18 BB 5,737,250
4,550,000 (Holt Hauling Co.), Ser. D, 10 1/4s, 9/15/14 B/P 4,753,704
5,000,000 (Tevco Inc.), 8 1/8s, 10/1/09 BBB 5,531,250
1,200,000 (Ninette Group L P), 7 3/4s, 8/1/11 A 1,266,000
2,000,000 (Hartz Mountain Industries, Inc.), 7s, 2/1/14 A 2,225,000
2,970,000 (Lakewood School), Ser. R, 6.9s, 12/1/11 Aa 3,211,313
1,500,000 (NJ Performing Arts Ctr.), 6 3/4s, 6/15/12 A 1,670,625
1,895,000 (Urban Holding Co.), 6 1/2s, 6/1/15 A 2,022,913
2,835,000 (#89 Kiva L.P.), 6.4s, 8/1/15 Aa 3,022,819
1,550,000 (Burlington Coat Factory), 6 1/8s, 9/1/10 A 1,646,875
3,000,000 (Clara Maass Med. Ctr. and Clara Maass Hlth. Syst. Inc.), FSA, 5s,
7/1/16 Aaa 2,857,500
2,925,000 NJ Econ. Dev. Auth. Waste Paper Recycling Rev. Bonds (Marcal Paper
Mills Inc.), 8 1/2s, 2/1/10 BB 3,367,406
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
7,250,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Baa 8,002,188
3,095,000 (Jersey Shore Med. Ctr.), Ser. B, AMBAC, 8s, 7/1/18 # Aaa 3,346,469
7,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 BBB 8,062,500
1,000,000 (East Orange Gen. Hosp.), Ser. B, 7 3/4s, 7/1/20 BBB 1,070,000
1,425,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 Baa 1,503,375
3,030,000 (Kimball Med. Ctr.), 7.3s, 7/1/99 BBB 3,064,330
9,000,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 BB 9,495,000
3,300,000 (Christ Hosp. Group), 7s, 7/1/06 AAA 3,832,125
5,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 5,550,000
3,285,000 (Somerset Med. Ctr.), Ser. A, FGIC, 5.2s, 7/1/24 Aaa 3,145,388
3,500,000 (St. Peters Med. Ctr.), Ser. F, MBIA, 5s, 7/1/21 Aaa 3,259,375
NJ State G.O. Bonds
4,065,000 FGIC, 6s, 2/15/11 Aaa 4,420,688
4,000,000 Ser. E, 6s, 7/15/06 Aa 4,420,000
3,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB, Ser. I, 8.431s, 11/1/07 (acquired
various dates from 2/11/93 to 6/14/93 cost $3,134,370)(double dagger) A 3,183,750
1,400,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds (Home Buyer), Ser. D, MBIA,
7.7s, 10/1/29 Aaa 1,468,250
NJ State Hwy. Auth. Gen. Rev. Bonds (Garden State Pkwy.)
1,500,000 6.2s, 1/1/10 AA 1,655,625
2,370,000 6s, 1/1/19 Aaa 2,535,900
3,000,000 5.2s, 1/1/08 AA 3,048,750
1,800,000 NJ State Tpk. Auth. IFB, MBIA, 9.252s, 1/1/16 Aaa 2,290,500
NJ State Tpk. Auth. Rev. Bonds, Ser. C
5,000,000 MBIA, 6 1/2s, 1/1/16 Aaa 5,750,000
5,000,000 AMBAC, 6 1/2s, 1/1/08 Aaa 5,656,250
1,000,000 NJ State Tpk. Auth. VRDN, FGIC, 3.3s, 1/1/18 A-1 1,000,000
NJ State Trans. Trust Fund Auth. Rev. Bonds (Trans. Syst.), Ser. A, MBIA
16,000,000 6 1/2s, 6/15/11 Aaa 18,360,000
3,000,000 6s, 12/15/06 Aaa 3,292,500
7,000,000 NJ Wastewater Treatment Trust Rev. Bonds, Ser. A, zero %, 9/1/07 Aaa 4,086,250
1,800,000 Passaic Valley, Cmnty. Wtr. Supply Rev. Bonds, Ser. A., FGIC, 6.4s, 12/15/22 Aaa 2,016,000
4,500,000 Rutgers State U. Rev. Bonds, Ser. A, 6.4s, 5/1/13 AA 5,000,625
1,960,000 Sayreville, Hsg. Dev. Corp. Mtge. Rev. Bonds (Lakeview Section 8), FHA
Insd., 7 3/4s, 8/1/24 AAA 2,043,300
South River, School Dist. G.O. Bonds, FGIC
1,300,000 5s, 12/1/12 Aaa 1,249,625
1,250,000 5s, 12/1/11 Aaa 1,210,938
1,250,000 5s, 12/1/10 Aaa 1,218,750
1,000,000 Stony Brook, Regional Swr. Rev. Bonds, Ser. B, 5.45s, 12/1/12 Aa 1,032,500
4,695,000 U. of Medicine & Dentistry G.O. Bonds, Ser. E, 6 1/2s, 12/1/12 AA 5,299,481
3,400,000 Union Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds (American Cynamid
Co.), 5.8s, 9/1/09 A 3,616,750
-------------
233,386,556
New York (8.3%)
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4,045,000 North Hudson, Swr. Auth. Rev. Bonds, FGIC, 5 1/4s, 8/1/16 AAA 3,999,494
Port Auth. NY & NJ Cons. IFB
5,000,000 9.703s, 8/1/26 (acquired various dates from 8/29/91 to 1/21/92, cost
$5,164,940)(double dagger) AA 5,750,000
2,100,000 8.144s, 11/15/15 AA 1,811,250
1,500,000 8.341s, 11/15/15 (acquired various dates from 4/12/94 to 12/15/94, cost
$1,501,203)(double dagger) AA 1,462,500
7,500,000 Port Auth. NY & NJ Cons. Rev. Bonds, Ser. 93rd, 6 1/8s, 6/1/94 AA 8,071,875
5,000,000 Port Auth. NY & NJ Rev. Bonds (Kennedy Intl. Arpt.), 6 3/4s, 10/1/19 BB 5,168,750
-------------
26,263,869
Puerto Rico (15.3%)
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Cmnwlth. of PR, Aqueduct & Swr. Auth. Rev. Bonds
3,915,000 6 1/4s, 7/1/12 A 4,330,964
5,615,000 MBIA, 5.2s, 7/1/08 Aaa 5,776,431
Cmnwlth. of PR, Hwy. Auth. Rev. Bonds
1,500,000 Ser. Q, 7 3/4s, 7/1/16 AAA 1,706,250
2,000,000 Ser. X, 5 1/4s, 7/1/21 A 1,890,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. W, 5 1/2s, 7/1/15 A 1,007,500
2,000,000 Ser. X, 5s, 7/1/22 A 1,820,000
4,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds, 6.8s, 7/1/21 AAA 4,540,000
3,000,000 Cmnwlth. of PR, Rev. Bonds, AMBAC, 5s, 7/1/21 Aaa 2,842,500
PR Elec. Pwr. Auth. Rev. Bonds
3,000,000 Ser. Y, MBIA, 7s, 7/1/07 Aaa 3,543,750
1,375,000 Ser. S, 6 1/8s, 7/1/08 A/P 1,495,313
11,000,000 Ser. Z, 5 1/4s, 7/1/21 A/P 10,408,750
2,000,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds (Special
Facilities-American Airlines), Ser. A, 8 3/4s, 12/1/25 Baa 2,115,000
PR Pub. Bldgs. Auth. Gtd. Edl. & Hlth. Fac. Rev. Bonds
1,250,000 Ser. G, 7 7/8s, 7/1/16 Aaa 1,307,525
1,000,000 Ser. H, 7 7/8s, 7/1/16 Aaa 1,046,020
3,750,000 PR Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 4,270,313
-------------
48,100,316
- ------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $295,355,875)*** $ 307,750,741
- ------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $314,760,613.
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
November 30, 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 November 30, 1996.
Securities rated by Putnam are indicated by "/P" and
are not publicly rated.
*** The aggregate identified cost on a tax basis is
$295,355,875, resulting in gross unrealized appreciation and
depreciation of $14,025,211 and $1,630,345, respectively,
or net unrealized appreciation of $12,394,866.
(double dagger) Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
November 30, 1996 was $14,763,125 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 November 30, 1996.
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 November 30, 1996.
The fund had the following industry group
concentrations greater than 10% at
November 30, 1996 (as a percentage of net assets):
Transportatiion 23.5%
Health Care 19.6
Utilities 15.4
The fund had the following insurance
concentrations greater than 10% at
November 30, 1996 (as a percentage of net assets):
MBIA 15.0%
FGIC 12.0
<CAPTION>
- ---------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1996
Aggregate
Face Expiration Unrealized
Total Value Value Date Depreciation
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Short) $10,343,469 $10,231,719 Dec-96 ($111,750)
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $295,355,875) (Note 1) $307,750,741
- -------------------------------------------------------------------------------------------------------
Cash 769,366
- -------------------------------------------------------------------------------------------------------
Interest and other receivables 7,391,554
- -------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 314,291
- -------------------------------------------------------------------------------------------------------
Receivable for securities sold 110,000
- -------------------------------------------------------------------------------------------------------
Total assets 316,335,952
Liabilities
- -------------------------------------------------------------------------------------------------------
Payable for variation margin 80,656
- -------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 395,416
- -------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 387,113
- -------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 459,943
- -------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 10,963
- -------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,128
- -------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,211
- -------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 132,040
- -------------------------------------------------------------------------------------------------------
Payable for organization expense 7,327
- -------------------------------------------------------------------------------------------------------
Other accrued expenses 94,542
- -------------------------------------------------------------------------------------------------------
Total liabilities 1,575,339
- -------------------------------------------------------------------------------------------------------
Net Assets $ 314,760,613
Represented by
- -------------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $309,377,461
- -------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 71,113
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,971,077)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,283,116
- -------------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to capital shares outstanding $314,760,613
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($235,397,576 divided by 25,858,710 shares) $9.10
- -------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.10)* $9.55
- -------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($79,104,152 divided by 8,697,374 shares)** $9.10
- -------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($258,885 divided by 28,432 shares) $9.11
- -------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.11)*** $9.42
- -------------------------------------------------------------------------------------------------------
* 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
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $9,612,570
- -------------------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 917,876
- -------------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 138,549
- -------------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,187
- -------------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,601
- -------------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 230,319
- -------------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 317,972
- -------------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 954
- -------------------------------------------------------------------------------------------------------
Reports to shareholders 22,340
- -------------------------------------------------------------------------------------------------------
Registration fees 2,598
- -------------------------------------------------------------------------------------------------------
Auditing 14,927
- -------------------------------------------------------------------------------------------------------
Legal 15,559
- -------------------------------------------------------------------------------------------------------
Postage 65,755
- -------------------------------------------------------------------------------------------------------
Other 9,992
- -------------------------------------------------------------------------------------------------------
Total expenses 1,752,629
- -------------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (116,568)
- -------------------------------------------------------------------------------------------------------
Net expenses 1,636,061
- -------------------------------------------------------------------------------------------------------
Net investment income 7,976,509
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 514,045
- -------------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 533,770
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 10,752,873
- -------------------------------------------------------------------------------------------------------
Net gain on investments 11,800,688
- -------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,777,197
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ------------------------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $7,976,509 $15,859,807
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,047,815 2,169,534
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 10,752,873 (9,678,068)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,777,197 8,351,273
- ------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (6,198,341) (12,722,118)
- ------------------------------------------------------------------------------------------------------------------------------
Class B (1,764,369) (3,109,723)
- ------------------------------------------------------------------------------------------------------------------------------
Class M (9,630) (11,099)
- ------------------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,577,194 6,709,677
- ------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 14,382,051 (781,990)
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Beginning of period 300,378,562 301,160,552
- ------------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $71,113 and $66,944, respectively) $314,760,613 $300,378,562
- ------------------------------------------------------------------------------------------------------------------------------
* Unaudited
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
Six months May 1, 1995
ended (commencement
November 30 Year ended of operations)
(unaudited) May 31 to May 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1996 1995+
- ---------------------------------------------------------------------------------------------------------------------------
Class M
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.76 $8.98 $8.74
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .45 .04
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .35 (.21) .28
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .58 .24 .32
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.23) (.46) (.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.46) (.08)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.11 $8.76 $8.98
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 6.66* 2.65 3.21*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $259 $355 $1
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .64* 1.24 .09*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 2.53* 4.92 .42*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.06* 52.82 51.86*
- ---------------------------------------------------------------------------------------------------------------------------
See page 21 for Notes to Financial Highlights.
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months
ended Eleven months
November 30 Year ended ended
(unaudited) May 31 May 31
- ---------------------------------------------------------------------------------------------------------------------------
1996 1996 1995+
- ---------------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.75 $8.97 $8.75
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .21 .42 .41
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .35 (.22) .22
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .56 .20 .63
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.21) (.42) (.41)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.42) (.41)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.10 $8.75 $8.97
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 6.48* 2.25 7.51*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $79,104 $72,083 $58,591
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .82* 1.61 1.46*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 2.37* 4.69 4.72*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.06* 52.82 51.86*
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
January 4, 1993 Six months
(commencement ended
Year ended of operations) November 30
June 30 to June 30 (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
1994 1993 1996
- ---------------------------------------------------------------------------------------------------------------------------
Class B
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $9.46 $9.02 $8.76
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .21 .24
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.58) .43 .34
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations (.13) .64 .58
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.20) (.24)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments (.11) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.58) (.20) (.24)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.75 $9.46 $9.10
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) (1.59) 7.21* 6.70*
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $44,916 $15,113 $235,398
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.59 .77* .49*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 4.77 2.42* 2.69*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 51.74 44.58 8.06*
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Eleven months
Year ended ended Year ended
May 31 May 31 June 30
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995+ 1994
- ---------------------------------------------------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $8.98 $8.75 $9.46
- ---------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income .48 .46 .51
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.22) .23 (.58)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations .26 .69 (.07)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------
From net investment income (.48) (.46) (.51)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- (.08)
- ---------------------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- -- (.05)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (.48) (.46) (.64)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.98 $8.75
- ---------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 2.92 8.25* (0.94)
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $227,940 $242,569 $246,336
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .96 .87* .95
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 5.36 5.36* 5.43
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.82 51.86* 51.74
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended June 30
- --------------------------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.97 $8.64
- --------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------
Net investment income .54 .59(b)
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .58 .38
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 1.12 .97
- --------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------
From net investment income (.55) (.60)
- --------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.08) (.04)
- --------------------------------------------------------------------------------------------------------------
In excess of realized gain on investments -- --
- --------------------------------------------------------------------------------------------------------------
Total distributions (.63) (.64)
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.46 $8.97
- --------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(a) 13.02 11.52
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $235,243 $159,658
- --------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) .92 .75(b)
- --------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 5.90 6.69(b)
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 44.58 80.21
- --------------------------------------------------------------------------------------------------------------
* 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) 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.
(c) 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).
</TABLE>
Notes to financial statements
November 30, 1996 (Unaudited)
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.
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 nor 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 capital gains, 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 future contracts, dividends
payable and market discounts. 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.
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 bonds 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, 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 six months ended November 30, 1996, fund expenses were reduced
by $116,568 under expense offset arrangements with PFTC and brokerage
service arrangements. 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 $760 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 six months ended November 30, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $15,024 and $203 from
the sale of class A and class M shares, respectively and $306,533 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 six months ended November 30, 1996, Putnam
Mutual Funds Corp., acting as underwriter received no monies on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$27,227,878 and $23,587,377, 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 November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,983,301 $44,161,293
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 392,190 3,484,066
- ----------------------------------------------------
5,375,491 47,645,359
Shares
repurchased (5,533,893) (49,058,605)
- ----------------------------------------------------
Net decrease (158,402) $(1,413,246)
- ----------------------------------------------------
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)
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 939,218 $8,322,906
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 120,383 1,068,897
- ----------------------------------------------------
1,059,601 9,391,803
Shares
repurchased (597,647) (5,290,894)
- ----------------------------------------------------
Net increase 461,954 $4,100,909
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 13,554 $119,037
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 850 7,543
- ----------------------------------------------------
14,404 126,580
Shares
repurchased (26,521) (237,049)
- ----------------------------------------------------
Net decrease (12,117) $(110,469)
- ----------------------------------------------------
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
- ----------------------------------------------------
Results of December 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
----------- ----------
Jameson Adkins Baxter 18,687,955 325,120
Hans H. Estin 18,694,721 318,354
John A. Hill 18,696,441 316,634
Ronald J. Jackson 18,687,632 325,443
Elizabeth T. Kennan 18,698,281 314,794
Lawrence J. Lasser 18,686,351 326,724
Robert E. Patterson 18,695,979 317,095
Donald S. Perkins 18,691,945 321,130
William F. Pounds 18,693,650 319,425
George Putnam 18,680,958 332,117
George Putnam, III 18,676,795 336,280
Eli Shapiro 18,673,662 339,412
A.J.C. Smith 18,686,351 326,724
W. Nicholas Thorndike 18,684,455 328,620
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 18,426,440 votes for, and
155,493 votes against, with 431,142 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 16,263,875 votes for, and 721,277 votes against, with
2,027,923 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
15,841,207 votes for, and 1,130,584 votes against, with 2,041,284
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
16,234,615 votes for, and 815,018 votes against, with 1,963,442
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
16,336,211 votes for, and 661,962 votes against, with 2,014,902
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
16,357,646 votes for, and 623,525 votes against, with 2,031,904
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 15,865,023 votes for, and 1,152,523 votes against,
with 1,995,529 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 15,735,998 votes for, and 1,189,246 votes against,
with 2,087,831 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 15,410,105
votes for, and 1,192,786 votes against, with 2,410,184 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 15,527,793 votes
for, and 1,124,279 votes against, with 2,361,003 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 15,302,282 votes for, and 1,329,200 votes against, with
2,381,593 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 15,542,745 votes for, and 1,116,118 votes against, with
2,354,212 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 15,978,576 votes for, and 958,128 votes
against, with 2,076,371 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 15,825,958 votes for, and 1,044,729 votes against,
with 2,142,388 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in other investment companies was approved
as follows: 15,887,955 votes for, and 1,015,317 votes against, with
2,109,803 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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* CHOOSE AWARD-WINNING SERVICE
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for the past six years. In 1995, over 146,000 tests of 56 shareholder
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standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.*
* SWITCH FUNDS EASILY
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termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
Footnote reads:
* Regular investing of course, does not guarantee a profit or protect
against a loss in a declining market.
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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
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
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29938-019/329/537 1/97
