Putnam
New Jersey
Tax Exempt
Income Fund
ANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Owing to our emphasis on income, we focused on premium-coupon bonds
as much as possible, retaining those already in the portfolio while
searching for additional issues."
-- Leslie Burke, manager
Putnam New Jersey Tax Exempt Income Fund
* "Surging tax revenues in most states help bolster municipal credit
bond ratings. Standard & Poor's says the number of rating upgrades in
this year's first quarter was more than nine times the number of
downgrades."
-- The Wall Street Journal, April 8, 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
14 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Analyzing risk premiums, yield spreads, call dates, yield curves, credit
ratings, supply-and-demand dynamics, taxable versus tax-exempt yield
relationships, and a host of other factors is all in a day's work for Putnam's
Tax-Exempt Bond Group. The result was another period of competitive
performance for Putnam New Jersey Tax Exempt Income Fund's fiscal year that
closed on May 31, 1998.
Using her knowledge of New Jersey's tax-exempt bond environment and backed by
Putnam's extensive credit analysis capability, Fund Manager Leslie Burke made
the strategic and tactical decisions that provided these positive results. In
the following report, Leslie discusses the fund's performance during fiscal
1998 and then takes a look at prospects for the tax-exempt market, especially
with regard to New Jersey, in the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Leslie Burke
If this year's increase in municipal bond issuance was something of a tidal
wave, the New Jersey municipal market bears more of a resemblance to the
ripples on a quiet country pond. Just as we reported in Putnam New Jersey Tax
Exempt Income Fund's semiannual report, we faced the continued challenge of a
slow New Jersey market with little bond supply throughout fiscal 1998.
Nevertheless, our focus on income as well as certain strategic decisions made
this year allowed your fund's class A shares to post a competitive total
return of 8.48% at net asset value (3.33% at public offering price) for the 12
months ended May 31, 1998, and, more importantly, to provide attractive
tax-free income. The Lehman Brothers Municipal Bond Index had a total return
of 9.39% during the period. Results for other share classes and longer periods
can be found on page 8.
* GENERAL BOND MARKET REMAINS RANGE BOUND
As the period progressed, economists considered what effects, if any, the
financial and economic problems in Asia would have on the economy. The bond
market took heart from the notion that a drop-off in Asian economic activity
would translate into lower growth rates in the United States, and thus there
would be less of a chance the Federal Reserve Board would move to raise
short-term interest rates in order to head off inflation. Additionally, U.S.
bonds were the beneficiaries of a flight to quality, as foreign investors
shunned volatile overseas securities and flocked to U.S.-dollar denominated
assets.
The bond market settled into a tight trading range with the movement of the
yield on the 30-year Treasury bond remaining between 5.75% and 6.15% before
yields fell and prices rose even further following the close of the period. It
appears the market has already discounted the brake provided by Asia's
problems and is now considering what kind of growth rate the economy will have
at the end of 1998 and into 1999.
* TAKING ADVANTAGE OF GENERAL MARKET DYNAMICS
Despite a strong supply of municipal bonds nationally, the New Jersey bond
supply remained thin. A surfeit of supply in the general municipal bond
market, coupled with weak supply in the New Jersey market, posed an
interesting challenge for us: how to stay fully invested without compromising
our goal of attractive income.
One recourse available to the managers of single-state municipal bond funds is
the purchase of municipal bonds issued by the Commonwealth of Puerto Rico, as
well as other tax-exempt entities on the islands. Puerto Rican debt is free
from federal, state, and local income taxes and is commonly purchased by
single-state fund managers. Well-structured Puerto Rican bonds are easier to
find in the marketplace than New Jersey bonds, are issued by municipal
authorities similar to those in New Jersey, and can offer the positive
attributes that may not be readily available in the more sparse New Jersey
market. Currently our analysis indicates that Puerto Rico is in solid fiscal
and economic shape and the bonds your fund owns either have their principal
and interest insured by a municipal insurance agency or come from what we
consider to be creditworthy issuers.
We found that the tremendous amount of supply in the general market was
pushing down the prices of municipal bonds and making them cheap as an asset
class. We took advantage of this by buying Puerto Rican bonds, including those
in the transit and electric power sectors. This spring, as supply abated
somewhat and demand increased, the fund benefited from the appreciation in
these bonds.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Transportation 19.3%
Health care 14.3%
Water and sewer 10.2%
Education 7.1%
Utilities 4.4%
Footnote reads:
* Based on net assets as of 5/31/98. Holdings will vary over time.
* SEARCH FOR INCOME LEADS TO SOME ATTRACTIVE NEW JERSEY ISSUERS
Due to our emphasis on income, we focused on premium-coupon bonds as much as
possible, retaining those already in the portfolio while searching for
additional issues. Premium-coupon bonds offer coupons higher than prevailing
municipal interest rates -- and thus an attractive level of income -- while
their prices tend to be less volatile, making them very popular in the
marketplace at present.
Some examples in the fund included bonds from Salem County as well as
long-term care facilities such as Franciscan Oaks and Fellowship Village. We
also purchased industrial development bonds for Continental Airlines. These
are lower-rated, higher-yielding bonds. However, because of strengthening
demand for air travel as the economy expands, we believe these bonds have
solid potential for the fund. While these securities, along with others
discussed in this report, were viewed favorably at the end of the fiscal
period, all are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* DECREASING CALL RISK AND METICULOUS SECURITY SELECTION
Another way of providing shareholders with the best value is to improve the
portfolio's level of call risk. Noncallable bonds or bonds with distant call
dates enable us to provide the highest and most durable level of income.
Callable bonds have the option of being called away by the issuer at a certain
future date, usually if interest rates are lower than when the bonds are first
issued. By avoiding callable bonds, the portfolio has a better chance of
maintaining a reliable level of income.
It is always important to highlight careful security selection and in-depth
credit analysis as a fundamental investment strategy of the fund. This
strategy becomes even more important when we invest in bonds that carry
ratings below investment grade. These are the bonds that can add tremendously
to a fund's income level, but they also mean greater credit risk and require
the most meticulous research efforts.
[GRAPHIC OMITTED: pie chart of CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Ba -- 15.7%
Baa -- 8.5%
A -- 8.3%
Aa -- 13.8%
Aaa -- 52.2%
B -- 1.5%
Footnote reads:
* Based on percentage of market value as of 5/31/98. 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.
* SOLID OUTLOOK FOR STATE; POSITIONING FOR FUTURE
We are quite satisfied with the fiscal condition of New Jersey. Although in
the past, we feared that the Whitman administration's push to reduce income
taxes might eventually have negative implications for the state's fiscal
standing, this has not come to pass. New Jersey has enjoyed solid economic
growth driven by a robust national economy.
While the Asian crisis has been widely publicized as negative for economic
growth around the world, it has produced some positive effects in the United
States. Fears of the financial turmoil in Asia and other emerging markets have
helped keep interest rates low. In turn, low interest rates have helped
improve corporate balance sheets, encouraged construction, and contributed to
low unemployment.
Eventually these favorable conditions may give way to slightly higher
inflation, so we remain cautious in our outlook for the second half of the
year. In our opinion, this is not a good time to expose the portfolio to bonds
with longer maturities and higher interest-rate risk. We believe that a
cautious strategy emphasizing intermediate maturities, low call risk, and
in-depth credit research will produce the best returns in the months ahead.
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 5/31/98, 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 5/31/98
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 8.48% 3.33% 7.78% 2.78% 8.28% 4.79%
- ------------------------------------------------------------------------------
5 years 32.50 26.27 28.16 26.16 30.86 26.68
Annual average 5.79 4.78 5.09 4.76 5.53 4.84
- ------------------------------------------------------------------------------
Life of fund 83.48 74.84 72.22 72.22 78.17 72.42
Annual average 7.62 6.99 6.79 6.79 7.23 6.81
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 9.39% 1.69%
- ------------------------------------------------------------------------------
5 years 38.53 12.90
Annual average 6.74 2.46
- ------------------------------------------------------------------------------
Life of fund 90.27 27.19
Annual average 8.11 2.96
- ------------------------------------------------------------------------------
Past performance is not indicative of future results. Returns for class A
and class M shares reflect the current maximum initial sales charges of
4.75% and 3.25%, respectively. Class B share returns for the 1-, 5-, and
10-year (where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines 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 expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. 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: mountain 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
PLOT POINTS
Lehman Bros. Consumer
Fund's class A Municipal Price
Date shares at POP Bond Index Index
2/20/90 9,525 10,000 10,000
12/31/90 10,227 10,147 10,094
12/31/91 11,451 11,170 10,594
12/31/92 12,450 12,267 10,914
12/31/93 13,996 13,735 11,265
12/31/94 13,116 14,074 11,523
12/31/95 15,251 15,361 11,891
12/31/96 15,804 16,063 12,234
12/31/97 17,192 17,394 12,507
5/31/98 $17,484 $19,027 $12,719
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $17,222 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$17,817 ($17,242 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.451378 $0.39066 $0.423651
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.451378 $0.39066 $0.423651
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/97 $9.02 $9.47 $9.01 $9.02 $9.33
- ------------------------------------------------------------------------------
5/31/98 9.32 9.78 9.31 9.33 9.64
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 4.83% 4.61% 4.18% 4.53% 4.38%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.54 8.15 7.39 8.01 7.75
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.56 4.34 3.91 4.26 4.12
- ------------------------------------------------------------------------------
Taxable equivalent3 8.06 7.67 6.91 7.53 7.29
- ------------------------------------------------------------------------------
1 Capital 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 42.26% 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 6/30/98
(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 7.50% 2.43% 6.81% 1.81% 7.18% 3.64%
- ------------------------------------------------------------------------------
5 years 30.07 23.91 25.80 23.84 28.30 24.12
Annual average 5.40 4.38 4.70 4.37 5.11 4.42
- ------------------------------------------------------------------------------
Life of fund 83.84 75.18 72.46 72.46 78.28 72.53
Annual average 7.56 6.94 6.74 6.74 7.16 6.74
- ------------------------------------------------------------------------------
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. See first page of
performance section for performance calculation method.
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 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 4.75% maximum 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 index of approximately 20,000
fixed-rate investment-grade tax-exempt bonds. 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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DOUBLE DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DOUBLE DAGGER]
OTC & Emerging Growth Fund
Research Fund
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
Global Growth and Income Fund
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
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DOUBLE DAGGER]
High Yield Total Return Fund
High Yield Trust [DOUBLE DAGGER]
High Yield Trust II
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM 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
* Formerly Putnam Diversified Income Trust II
+ Formerly Putnam Federal Income Trust
[DOUBLE DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** 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.
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.
Report of independent accountants
For the fiscal year ended May 31, 1998
To the Trustees and Shareholders of
Putnam New Jersey Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned, except for bond ratings, and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam New Jersey Tax Exempt Income Fund (the "fund") at May 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statements presentation. We believe that
our audits, which included confirmation of investments owned at May 31, 1998
by correspondence with the custodian and the application of alternative
auditing procedures where investments purchased were not yet received by the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 10, 1998
Portfolio of investments owned
May 31, 1998
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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.3%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C> <C> <C> <C>
New Jersey (79.2%)
- -------------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Atlantic City, Muni. Utils. Auth. Wtr. Rev. Bonds,
7 3/4s, 5/1/17 A-/P $ 1,087,500
Atlantic Cnty. COP
2,000,000 FGIC, 7.4s, 3/1/10 Aaa 2,480,000
1,000,000 (Pub. Fac. Lease Agreement), FGIC,
7.4s, 3/1/09 Aaa 1,233,750
4,250,000 Camden Cnty., Impt. Auth. Rev. Bonds,
8.4s, 4/1/24 (acquired 4/12/94,
cost $4,250,000) (RES) B/P 4,733,438
5,850,000 Camden Cnty., Muni. Util. Auth. Rev. Bonds,
FGIC, 6s, 7/15/07 Aaa 6,544,688
6,625,000 Camden Cnty., Muni. Util. Auth. Swr.
Rev. Bonds, FGIC, 6s, 7/15/08 Aaa 7,378,594
3,000,000 Jersey City, G.O. Bonds, Ser. A, AMBAC, 6s, 10/1/10 Aaa 3,405,000
1,700,000 Jersey City, Swr. Auth. Rev. Bonds, AMBAC,
6 1/4s, 1/1/14 Aaa 1,969,875
1,200,000 Middle Township, School Dist. Rev. Bonds,
FGIC, 7s, 7/15/06 Aaa 1,414,500
2,000,000 Middlesex Cnty., Poll. Control Auth. Rev. Bonds,
6 7/8s, 12/1/22 BBB-/P 2,170,000
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A, MBIA,
6.25s, 8/15/10 Aaa 3,468,750
2,105,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 2,331,288
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 8,670,000
NJ Econ. Dev. Auth. Rev. Bonds
5,000,000 (Tevco Inc.), 8 1/8s, 10/1/09 BBB/P 5,375,000
1,200,000 (Ninette Group L P), 7 3/4s, 8/1/11 A+ 1,229,112
7,000,000 (1st Mtge.-Cranes Mill), Ser. A, 7 1/2s, 2/1/27 BB-/P 7,857,500
2,000,000 (Hartz Mountain Industries, Inc.), 7s, 2/1/14 A+ 2,197,500
2,850,000 (Lakewood School), Ser. R, 6.9s, 12/1/11 Aa3 3,085,125
1,500,000 (NJ Performing Arts Ctr.), 6 3/4s, 6/15/12 Aaa 1,642,500
1,895,000 (Urban Holding Co.), 6 1/2s, 6/1/15 A 2,093,975
1,550,000 (Burlington Coat Factory), 6 1/8s, 9/1/10 Aa3 1,697,250
NJ Econ. Dev. Auth. Rev. Bonds
3,500,000 (Franciscan Oaks), 5 3/4s, 10/1/23 BB/P 3,513,125
4,000,000 (Continental Airlines, Inc.), 5 1/2s, 4/1/28 Ba2 3,960,000
3,000,000 (Fellowship Village, Inc.), Ser. A, 5 1/2s, 1/1/25 BBB- 2,996,250
1,500,000 (NJ Performing Arts Ctr.), Ser. C, AMBAC,
5 1/2s, 6/15/13 Aaa 1,578,750
2,925,000 NJ Econ. Dev. Auth. Waste Paper Recycling
Rev. Bonds (Marcal Paper Mills Inc.),
8 1/2s, 2/1/10 BB/P 3,480,750
9,750,000 NJ Econ. Dev. Auth. Wtr. Facs. Rev. Bonds
(American Wtr. Co., Inc.), FGIC, 6 1/2s, 4/1/22 Aaa 10,530,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
7,250,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 8,002,188
3,095,000 (Jersey Shore Med. Ctr.), Ser. B, AMBAC,
8s, 7/1/18 (SEG) Aaa 3,167,052
8,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 9,339,375
1,000,000 (East Orange Gen. Hosp.), Ser. B, 7 3/4s, 7/1/20 BBB+ 1,068,750
3,175,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 Ba2 3,389,313
9,000,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 BB/P 9,855,000
3,300,000 (Christ Hosp. Group), 7s, 7/1/06 AAA 3,873,375
5,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA,
6 3/4s, 7/1/19 Aaa 5,937,500
2,000,000 (AHS Hosp. Corp.), Ser. A, 6s, 7/1/07 Aaa 2,227,500
1,355,000 (Cathedral Hlth. Svcs.), FHA Insd., MBIA,
5 1/2s, 8/1/11 Aaa 1,451,544
4,065,000 NJ State G.O. Bonds, FGIC, 6s, 2/15/11 Aaa 4,629,019
3,000,000 NJ State Edl. Fac. Auth. Rev. Bonds
(Princeton U.), Ser. C, 6 3/8s, 7/1/22 Aaa 3,303,750
3,000,000 NJ State Hsg. & Mtge. Fin. Agcy. IFB,
Ser. I, 8.251s, 11/1/07 (acquired various
dates from 2/11/93 to 6/14/93 cost
$3,134,370) (RES) A+ 3,288,750
1,035,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds
(Home Buyer), Ser. D, MBIA, 7.7s, 10/1/29 Aaa 1,076,400
NJ State Hwy. Auth. Gen. Rev. Bonds
(Garden State Pkwy.)
1,500,000 6.2s, 1/1/10 AA- 1,715,625
2,370,000 6s, 1/1/19 Aaa 2,695,875
1,800,000 NJ State Tpk. Auth. IFB, MBIA, 8.912s, 1/1/16
(acquired 03/27/92, cost $ 1,817,856) (RES) Aaa 2,479,500
NJ State Tpk. Auth. Rev. Bonds, Ser. C
6,000,000 MBIA, 6 1/2s, 1/1/16 Aaa 7,170,000
5,000,000 AMBAC, 6 1/2s, 1/1/08 Aaa 5,787,500
3,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, MBIA, 6s, 12/15/06 Aaa 3,348,750
8,500,000 NJ Trans. Fund Auth. IFB, 9s, 6/15/11
(acquired 4/3/98, cost $11,581,250) (RES) AAA/P 11,570,625
NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment Trust)
6,670,000 Ser. C, 7s, 6/15/10 Aa2 8,204,100
2,955,000 Ser. B, 7s, 5/15/09 Aa2 3,605,100
7,000,000 NJ Wastewtr. Treatment Trust Rev. Bonds,
Ser. A, zero %, 9/1/07 Aaa 4,690,000
1,800,000 Passaic Valley, Cmnty. Wtr. Supply Rev. Bonds,
Ser. A., FGIC, 6.4s, 12/15/22 Aaa 2,000,250
7,500,000 Rutgers State U. Rev. Bonds, Ser. A, 6.4s, 5/1/13 AA 8,718,750
7,665,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. IFB, 8.1s,
8/1/30 (acquired 4/23/98, cost $9,149,864) (RES) Aaa 9,236,325
South River, School Dist. G.O. Bonds FGIC
1,300,000 5s, 12/1/12 Aaa 1,335,750
1,250,000 5s, 12/1/11 Aaa 1,295,313
1,250,000 5s, 12/1/10 Aaa 1,301,563
1,000,000 Stony Brook, Regional Swr. Rev. Bonds,
Ser. B, 5.45s, 12/1/12 Aa 1,080,000
8,695,000 U. of Medicine & Dentistry Rev. Bond, Ser. E,
MBIA, 6 1/2s, 12/1/12 Aaa 10,357,919
3,400,000 Union Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds
(American Cynamid Co.), 5.8s, 9/1/09 A3 3,765,500
------------
249,092,181
New York (8.6%)
- -------------------------------------------------------------------------------------------------------------------------------
5,000,000 NY & NJ Port Auth. Rev. Bonds (Kennedy
Intl. Arpt.), 6 3/4s, 10/1/19 BB/P 5,562,500
Port Auth. NY & NJ Cons. IFB
2,100,000 7.776s, 11/15/15 (acquired 02/09/94,
cost $2,107,875) (RES) A+/P 2,065,875
1,500,000 5.2s, 11/15/15 A+/P 1,515,000
5,000,000 Port Auth. NY & NJ IFB, 9.513s, 8/1/26
(acquired various dates from 8/29/91
to 1/21/92, cost $5,164,940) (RES) Aa- 5,787,500
3,000,000 Port Auth. NY & NJ Rev. Bonds (Delta
Airlines, Inc.), Ser. 1R, 6.95s, 6/1/08 Baa3 3,288,750
7,500,000 Port Auth. NY & NJ Cons. Rev. Bonds,
Ser. 93rd, 6 1/8s, 6/1/94 Aa- 8,662,500
------------
26,882,125
Puerto Rico (10.5%)
- -------------------------------------------------------------------------------------------------------------------------------
Cmnwlth. of PR, G.O. Bonds
3,000,000 MBIA, 6 1/4s, 7/1/08 Aaa 3,438,750
2,000,000 5s, 7/1/27 A 1,935,000
4,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds,
6.8s, 7/1/21 AAA 4,470,000
5,665,000 Cmnwlth. of PR, Aqueduct & Swr. Auth.
Rev. Bonds, 6 1/4s, 7/1/12 A 6,486,425
1,500,000 Cmnwlth. of PR, Hwy. Auth. Rev. Bonds,
Ser. Q, 7 3/4s, 7/1/16 AAA 1,644,375
1,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. Rev. Bonds,
Ser. W, MBIA, 5 1/2s, 7/1/15 Aaa 1,081,250
PR Elec. Pwr. Auth. Rev. Bonds
2,000,000 10.15s, 7/1/07 (acquired 10/30/97,
cost $2,765,000) (RES) AAA/P 2,817,500
1,375,000 Ser. S, MBIA, 6 1/8s, 7/1/08 Aaa 1,567,500
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 Baa2 2,185,000
3,750,000 PR Pub. Bldg. Auth. Rev. Bonds, Ser. K, 6 7/8s,
7/1/21 Aaa 4,200,000
3,250,000 PR Pub. Bldg. Auth. Rev. Gtd. (Govt. Fac.), Ser. B,
AMBAC, 5s, 7/1/27 Aaa 3,213,433
------------
33,039,233
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $289,039,531) (b) $ 309,013,539
- -------------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $314,295,365.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at May 31, 1998
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, 1998. Securities rated by Putnam are indicated by "/P" and
are not publicly rated. Ratings are not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $289,039,531, resulting in gross unrealized appreciation and depreciation
of $20,245,552 and $271,544, respectively, or net unrealized appreciation of $19,974,008.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
May 31, 1998 was $41,979,513 or 13.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at May 31, 1998.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the market interest
rates are the current interest rates at May 31, 1998.
The fund had the following industry group concentrations greater than 10% at May 31, 1998
(as a percentage of net assets):
Transportation 19.3%
Health care 14.3
Water and sewer 10.2
The fund had the following insurance concentrations greater than 10% at May 31, 1998
(as a percentage of net assets):
FGIC 12.8%
MBIA 11.9
- -------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1998
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------
Municipal Index
Future (Short) $ 3,845,938 $ 3,787,813 Jun-98 $ (58,125)
U.S. Treasury Bond
Future (Short) 28,725,625 28,396,344 Jun-98 (329,281)
- -------------------------------------------------------------------------
$(387,406)
- -------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998
<S> <C>
Assets
- -------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $289,039,531) (Note 1) $309,013,539
- -------------------------------------------------------------------------------------------------
Cash 91,059
- -------------------------------------------------------------------------------------------------
Interest and other receivables 6,174,862
- -------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 398,000
- -------------------------------------------------------------------------------------------------
Total assets 315,677,460
Liabilities
- -------------------------------------------------------------------------------------------------
Payable for variation margin 64,813
- -------------------------------------------------------------------------------------------------
Distributions payable to shareholders 396,113
- -------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 228,680
- -------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 477,026
- -------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 51,061
- -------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,493
- -------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,044
- -------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 141,970
- -------------------------------------------------------------------------------------------------
Other accrued expenses 12,895
- -------------------------------------------------------------------------------------------------
Total liabilities 1,382,095
- -------------------------------------------------------------------------------------------------
Net assets $314,295,365
Represented by
- -------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $301,464,763
- -------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (68,676)
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,687,324)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 19,586,602
- -------------------------------------------------------------------------------------------------
Total - Representing net assets applicable to
capital shares outstanding $314,295,365
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($218,311,975 divided by 23,422,441 shares) $9.32
- -------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.32)* $9.78
- -------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($95,315,097 divided by 10,233,438 shares)** $9.31
- -------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($668,293 divided by 71,660 shares) $9.33
- -------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.33)*** $9.64
- -------------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Tax exempt interest income: $18,149,194
- -------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 1,890,731
- -------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 395,737
- -------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,817
- -------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,371
- -------------------------------------------------------------------------------------------------
Distribution fees - Class A (Note 2) 449,579
- -------------------------------------------------------------------------------------------------
Distribution fees - Class B (Note 2) 762,389
- -------------------------------------------------------------------------------------------------
Distribution fees - Class M (Note 2) 3,125
- -------------------------------------------------------------------------------------------------
Reports to shareholders 15,549
- -------------------------------------------------------------------------------------------------
Registration fees 209
- -------------------------------------------------------------------------------------------------
Auditing 28,774
- -------------------------------------------------------------------------------------------------
Legal 26,801
- -------------------------------------------------------------------------------------------------
Postage 8,526
- -------------------------------------------------------------------------------------------------
Other 16,204
- -------------------------------------------------------------------------------------------------
Total expenses 3,614,812
- -------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (115,996)
- -------------------------------------------------------------------------------------------------
Net expenses 3,498,816
- -------------------------------------------------------------------------------------------------
Net investment income 14,650,378
- -------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,977,724
- -------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (2,145,173)
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures contracts during the year 10,720,753
- -------------------------------------------------------------------------------------------------
Net gain on investments 10,553,304
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $25,203,682
- -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 14,650,378 $ 15,733,850
- -------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (167,449) 1,583,301
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 10,720,753 7,335,606
- -------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 25,203,682 24,652,757
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (10,966,516) (12,203,229)
- -------------------------------------------------------------------------------------------------------------------
Class B (3,781,411) (3,606,097)
- -------------------------------------------------------------------------------------------------------------------
Class M (28,287) (18,592)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (7,272,377) 1,936,873
- -------------------------------------------------------------------------------------------------------------------
Total increase in net assets 3,155,091 10,761,712
Net assets
- -------------------------------------------------------------------------------------------------------------------
Beginning of year 311,140,274 300,378,562
- -------------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income and undistributed net investment
income of $68,676 and $2,510, respectively) $314,295,365 $311,140,274
- -------------------------------------------------------------------------------------------------------------------
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 Year ended
operating performance Year ended May 31 May 31 June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995+ 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.02 $8.76 $8.98 $8.75 $9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .47 .48 .46 .51
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .26 (.22) .23 (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .75 .73 .26 .69 (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.47) (.48) (.46) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.47) (.48) (.46) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.32 $9.02 $8.76 $8.98 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.48 8.57 2.92 8.25* (0.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $218,312 $228,361 $227,940 $242,569 $246,336
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .96 .96 .87* .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.84 5.28 5.36 5.36* 5.43
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.03 27.14 52.82 51.86* 51.74
- ------------------------------------------------------------------------------------------------------------------------------------
++ 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
Per-share ended Year ended
operating performance Year ended May 31 May 31 June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995+ 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.01 $8.75 $8.97 $8.75 $9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39 .41 .42 .41 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .27 (.22) .22 (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .69 .68 .20 .63 (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.39) (.42) (.42) (.41) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.42) (.42) (.41) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.31 $9.01 $8.75 $8.97 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.78 7.87 2.25 7.51* (1.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $95,315 $82,407 $72,083 $58,591 $44,916
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 1.61 1.61 1.46* 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.18 4.63 4.69 4.72* 4.77
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.03 27.14 52.82 51.86* 51.74
- ------------------------------------------------------------------------------------------------------------------------------------
++ 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.02 $8.76 $8.98 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .45 (c) .45 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 .26 (.21) .28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .73 .71 .24 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.45) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.45) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.33 $9.02 $8.76 $8.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.28 8.25 2.65 3.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $668 $372 $355 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.26 1.26 1.24 .09*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.48 4.95 4.92 .42*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.03 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, 1998
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 within approximately six to 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. When the contract is
closed, the fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. Realized gains and losses on purchased options are
included in realized gains and losses on investment securities.
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended May 31, 1998, the fund had
no borrowings against the line of credit.
E) 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, 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, 1998, the fund had a capital loss carryover of approximately
$3,768,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------
$ 284,000 May 31, 2003
3,484,000 May 31, 2004
F) 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 temporary and permanent
differences of unrealized gains and losses on certain futures contracts,
market discount, and current year straddles. 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, 1998, the fund reclassified $54,650 to decrease
distributions in excess of net investment income and $54,650 to increase
accumulated net realized loss on investments. The calculation of net
investment income per share in the financial highlights table excludes these
adjustments.
G) 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 bonds are accreted according to the yield-to-maturity
basis.
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.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a 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, 1998, fund expenses were reduced by $115,996 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.
Each Trustee of the fund receives an annual Trustee fee, of which $410 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral 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 currently limit payment by the fund to an annual rate of 0.20%, 0.85%
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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $26,430 and $615 from the sale of
class A and class M shares, respectively and $196,042 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, 1998, Putnam Mutual Funds Corp., acting as underwriter received
$8,832 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $88,404,645 and
$90,624,329, 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 3,181,106 $29,288,985
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 661,801 6,125,121
- ------------------------------------------------------------
3,842,907 35,414,106
Shares
repurchased (5,748,224) (53,010,798)
- ------------------------------------------------------------
Net decrease (1,905,317) $(17,596,692)
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 2,345,444 $21,689,342
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 244,904 2,265,279
- ------------------------------------------------------------
2,590,348 23,954,621
Shares
repurchased (1,504,576) (13,907,312)
- ------------------------------------------------------------
Net increase 1,085,772 $10,047,309
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 44,476 $409,490
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,145 19,859
- ------------------------------------------------------------
46,621 429,349
Shares
repurchased (16,246) (152,343)
- ------------------------------------------------------------
Net increase 30,375 $277,006
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
WELCOME TO
www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market news
and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
[bullet] the benefits of investing with Putnam
[bullet] Putnam's money management philosophy
[bullet] complete fund information, daily pricing and long-term performance
[bullet] your current account value, portfolio value and transaction history
[bullet] the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name or
objective, use our glossary to decode investment terms . . . and much more.
The site can be accessed through any of the major online services (America
Online, CompuServe, Prodigy) that offer web access. Of course, you can
also access it via Netscape or Microsoft Internet Explorer, using an
independent Internet service provider.
New features will be added to the site regularly.
So be sure to bookmark us at
http://www.putnaminv.com
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President
Leslie Burke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN050-43749-019/329/537 7/98
