Putnam
New Jersey
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Because of their limited attractiveness to non-U.S. investors, municipal
bonds did not experience the turbulence endured by taxable bonds,
especially U.S. Treasury issues, in the wake of global investors' flight
to quality last fall. For U.S. investors, however, municipals have
provided unusually handsome current income both in real terms, thanks to
low inflation, and relative to after-tax returns on taxable securities,
especially for higher-bracket taxpayers.
Putnam New Jersey Tax Exempt Income Fund's management has been focusing on
generating maximum current income without undue risk to principal,
primarily through careful selection of portfolio holdings and strategies
aimed at risk reduction. Management is also cautiously seeking out bonds
with longer maturities and is currently focusing on noncallable bonds,
both moves designed to lock in attractive current returns.
I am pleased to introduce David E. Hamlin as your fund's new manager.
Before joining Putnam in 1998 as a senior portfolio manager, Dave was with
Vanguard Group, Provident Institutional Management Corp., and Provident
Bank. He has 17 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
David E. Hamlin
A mixed bag of events influenced the performance of the municipal bond
market and Putnam New Jersey Tax Exempt Income Fund over the past year.
Making headlines were worldwide financial and political instability,
ever-changing investor sentiment, Federal Reserve Board interest-rate
cuts, subdued inflation, and healthy U.S. and New Jersey economies.
Against a rapidly changing backdrop, we kept a steady course and
positioned your fund to benefit from what we believed were the
opportunities at hand. The result proved to be a relatively stable ride
for the 12 months ended May 31, 1999. Complete performance information
begins on page 7.
Total return for 12 months ended 5/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------
3.05% -1.80% 2.37% -2.53% 2.63% -0.67%
- ----------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* FISCAL 1999 PRESENTED OPPORTUNITIES AND PITFALLS
Near-record new issuance, approximately $284 billion in long-term bonds,
marked the national municipal bond market for much of calendar 1998. Many
of these new bonds were financed by prerefundings, in which a municipal
issuer sells new bonds at lower rates of interest and buys high-quality
securities, such as U.S. Treasury bonds, which are pledged to pay off the
older, higher-yielding debt. Because of the safety associated with
Treasury securities, a prerefunding immediately improves the credit
quality of the older bond that, in turn, may help boost its price. The
boom in refundings gave a boost to many bonds in the market.
The wave of refundings, however, slowed when last fall's stampede to U.S.
Treasury securities pushed yields to a 30-year low. For a time, it became
financially impractical to refinance the older, higher-yielding municipal
debt with lower-yielding Treasury bonds. The recent rise in interest rates
is causing a slowdown in new issuance; municipalities must now deliberate
more carefully the merits of a particular project or service in order to
justify borrowing at higher costs.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 22.0%
Transportation 19.4%
Water and sewer 14.9%
Education 9.0%
Utilities 6.3%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
During the Treasury rally, the ratio of municipal bond yields to
comparable Treasuries rose to the 95% to 100% range, making their prices
remarkably attractive. Investors started to recognize the value of these
bonds at a time when overall supply was diminishing and demand increased
as a result. When inflation fears hit the market recently and put downward
pressure on most fixed-income securities, the pent-up demand for municipal
bonds helped lend support to the sector.
Nevertheless, two widely publicized defaults last summer in the hospital
sector, the Allegheny Health, Education, and Research Foundation and the
Philadelphia Graduate Hospital System, caused investors and municipal
insurers to exercise caution and created a downturn in health-care issues.
The Federal Balanced Budget Act of 1997 and its implications for Medicaid
and Medicare, along with Y2K concerns, further hindered the bonds'
performance.
* UNCERTAIN ENVIRONMENT DICTATED STRATEGIES
Fiscal 1999's sharp contrasts required us to employ strategies designed to
pursue the optimum balance of current income, total return, and risk.
Finding the right balance of duration, yield curve positioning, coupon
structure, and credit emphasis was our greatest challenge.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
B/B -- 6.5%
BB/Ba -- 11.0%
BBB/Baa -- 8.1%
A/A -- 7.3%
AA/Aa -- 14.2%
AAA/Aaa -- 52.9%
Footnote reads:
*As a percentage of market value as of 5/31/99. A bond rated BBB/Baa
or higher is considered investment grade. Percentages may include
unrated bonds considered by Putnam Management to be of comparable
quality. Ratings will vary over time.
Duration is a measure that gauges a bond portfolio's price sensitivity to
interest-rate changes. Throughout most of the fiscal year, we kept your
fund's average duration relatively short. (A short duration helps dampen
volatility when interest rates rise. A long duration helps boost price
appreciation potential when interest rates decline.) One of the ways we
achieved this was to sell Treasury futures contracts. Because of
conflicting inflation and economic reports, the direction of interest
rates was often impossible to forecast and we believed prudence, that is,
a short duration, was necessary.
It is possible, however, to be a bit too prudent. During the fall, when
the Federal Reserve Board cut rates three times and the Treasury market
soared, the portfolio's short duration detracted from performance. We held
on to the fund's Treasury futures positions, though, believing they still
had merit given the high level of uncertainty that existed. We were
rewarded when rates began to rise later in the period and we took that
opportunity to eliminate the positions and realize some profits. By
period's end, we had moved the fund's duration stance closer to neutral.
Although the yield curve steepened for brief periods during the fiscal
year, for the most part it remained relatively flat. Throughout the
period, we clustered the fund's holdings at what we believed was the most
optimum point along the yield curve in such an environment --
intermediate-term securities. During the short bursts of steepening in the
yield curve, these securities benefited.
A closer look at municipal credit ratings
Rating agencies such as Moody's Investors Service and Standard & Poor's Corp.
assign ratings to municipal issuers based on an in-depth analysis of the
issuer's financial condition; management, economic, and debt characteristics,
and the specific revenue sources securing the bond. The highest ratings are
Aaa (Moody's) and AAA (Standard & Poor's). Bonds rated in the Baa/BBB category
or higher (A and Aa/AA) are considered to be investment grade. Securities in
the Ba/BB group and below are considered to be below investment grade or high
yield. If you look at "The fund's portfolio" in the back of this report, you
will see ratings next to each issuer's name. The pie chart on page 3
summarizes this listing to give you a sense of the portfolio's overall quality.
Sometimes smaller bonds are not rated because the cost of obtaining a rating
is not justifiable. Unrated bonds can still offer attractive investment
opportunities and may end up in your fund's portfolio. In such cases, Putnam's
analysts perform their own ratings and the bonds are identified in the
portfolio listing by a /P rating.
In contrast, we barbelled portfolio holdings in terms of coupon and of
credit quality to a lesser extent. To achieve the barbelled positioning,
we anchored assets in both premium coupon bonds (those selling at prices
above par value) and discount coupon bonds (those selling at prices below
par value). Premiums typically offer coupons higher than current rates and
tend to be less seriously affected when yields rise and prices decline.
Their higher income stream represents a greater portion of their return,
thus providing a temporary floor to their prices. Discounts, on the other
hand, offer price appreciation potential when interest rates decline and
the market is on the upswing. They also provide a measure of call
protection.
To sustain credit quality without sacrificing yield, we invested more than
half the fund's net assets in AAA-rated bonds while also emphasizing
selected issues having a credit quality of BBB and below. The higher-rated
issues contributed to performance when rates declined in 1998 and credit
spreads widened in the fall. The lower-rated issues contributed to
performance as rates rose over the past few months and should lend further
price support if rates continue to rise.
* ESSENTIAL SERVICE, SELF-SUPPORTING, AND NON-STATE BONDS TARGETED
Rather than emphasize the state's general obligation bonds, we have chosen
to focus on revenue bonds whose issuers do not rely on the state for their
monies. Instead, the issuers generate revenues through fees or charges
that can be used to pay interest and principal to bondholders. Although
the health-care sector came under pressure as credit spreads widened, it
is an area in which considerable yield opportunity resides and thus
continues to have a place in the portfolio. To help mitigate any potential
volatility, we draw heavily on the capabilities and expertise of Putnam's
research analysts and bond traders to uncover appropriate health-care
opportunities and to monitor individual credits once purchased.
"Examine your needs for municipal bonds now. If you can use more, market
conditions are very favorable now. Technical factors built into the market
may make today's yields and spreads look very attractive in the future."
- -- "Munis Are Back," Northwestern Financial Review, March 20, 1999
Frequently we take advantage of the fund's ability to invest outside the
state when compelling opportunities arise. This past year the fund
benefited greatly from investment in Puerto Rico insured bonds. Their high
yields compensated the fund for their sensitivity to the U.S. economy and
the insurance they carried acted as a buffer against any potential credit
problems. Because the supply of Puerto Rico bonds diminished as the period
progressed, these holdings rose substantially in price. We then sold most
of the issues and redeployed some assets to Guam municipal securities,
which currently look more promising.
* NEAR-TERM OUTLOOK UNCERTAIN; FUNDAMENTALS REMAIN STRONG
Ironically we begin fiscal 2000 with a similar level of uncertainty as
that which prevailed in early fiscal 1999. The actual strength of the U.S.
economy is being hotly debated -- again. Behind the scenes in the New
Jersey municipal bond market, however, the fundamentals and reasons for
investing remain quite strong. The Whitman administration has been
successful in promoting economic growth and the bull market on Wall Street
is further serving to propel the local economy. So while we are mindful of
the setbacks that may lie ahead, we are optimistic about the latent
potential of the municipal market. With both defensive and opportunistic
strategies in place, we are confident your fund can successfully meet the
challenges of the coming year.
The views expressed here are exclusively those of Putnam Management. They
are not meant as investment advice. Although the described holdings were
viewed favorably as of 5/31/99, 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 high current income
free from federal and state income taxes, consistent with capital
preservation.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class M
(inception dates) (2/20/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------
1 year 3.05% -1.80% 2.37% -2.53% 2.63% -0.67%
- -----------------------------------------------------------------------
5 years 34.62 28.24 30.20 28.20 32.78 28.43
Annual average 6.13 5.10 5.42 5.09 5.83 5.13
- -----------------------------------------------------------------------
Life of fund 89.33 80.40 76.52 76.52 83.07 77.17
Annual average 7.13 6.57 6.32 6.32 6.74 6.36
- -----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
Lehman Brothers Consumer
Municipal Bond Index price index
- -----------------------------------------------------------------------
1 year 4.67% 2.09%
- -----------------------------------------------------------------------
5 years 41.51 12.68
Annual average 7.19 2.42
- -----------------------------------------------------------------------
Life of fund 99.16 29.84
Annual average 7.73 2.86
- -----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 2/20/90
Fund's class A Lehman Brothers Municipal Consumer price
Date shares at POP Bond Index index
2/20/90 9,525 10,000 10,000
5/31/90 9,693 10,147 10,094
5/31/91 10,699 11,170 10,594
5/31/92 11,710 12,267 10,914
5/31/93 13,195 13,735 11,266
5/31/94 13,431 14,074 11,523
5/31/95 14,427 15,360 11,891
5/31/96 14,865 16,062 12,234
5/31/97 16,117 17,394 12,508
5/31/98 17,507 19,027 12,719
5/31/99 $18,040 $19,916 $12,984
Footnote reads:
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 $17,652 and no contingent deferred sales charges would apply;
a $10,000 investment in the fund's class M shares would have been valued at
$18,307 ($17,717 at public offering price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/99
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.451893 $0.390861 $0.423685
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.451893 $0.390861 $0.423685
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/98 $9.32 $9.78 $9.31 $9.33 $9.64
- ------------------------------------------------------------------------------
5/31/99 9.15 9.61 9.14 9.15 9.46
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 4.84% 4.61% 4.22% 4.55% 4.40%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.56 8.15 7.46 8.05 7.78
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.10 3.90 3.45 3.81 3.68
- ------------------------------------------------------------------------------
Taxable equivalent3 7.25 6.90 6.10 6.74 6.51
- ------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
3Assumes maximum 43.45% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (2/20/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------------
1 year 1.13% -3.63% 0.49% -4.33% 0.59% -2.66%
- ---------------------------------------------------------------------------
5 years 32.95 26.58 28.61 26.61 30.78 26.59
Annual average 5.86 4.83 5.16 4.83 5.51 4.83
- ---------------------------------------------------------------------------
Life of fund 86.15 77.38 73.49 73.49 79.53 73.74
Annual average 6.86 6.31 6.06 6.06 6.45 6.08
- ---------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. 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 class B 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. 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.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price is determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to determine
the net asset value per share, which is calculated separately for each class
of shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment
income or realized capital gains) over the current reporting period and the
most recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended May 31, 1999
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 fund's portfolio, 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, 1999,
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 statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31, 1999
by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999
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
MUNICIPAL BONDS AND NOTES (97.4%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Guam (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,500,000 Guam, Pwr. Auth. Rev. Bonds, Ser. A, 5 1/8s, 10/1/29 BBB $ 1,443,750
New Jersey (79.6%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Atlantic City, Muni. Utils. Auth. Wtr. Rev. Bonds,
7 3/4s, 5/1/17 A- 1,059,170
Atlantic Cnty. COP, FGIC
2,000,000 7.4s, 3/1/10 Aaa 2,455,000
1,000,000 (Pub. Fac. Lease Agreement), 7.4s, 3/1/09 Aaa 1,220,000
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 4,690,938
Camden Cnty., Muni. Util. Auth. Swr.
Rev. Bonds, FGIC
6,625,000 6s, 7/15/08 Aaa 7,328,906
5,850,000 6s, 7/15/07 Aaa 6,486,188
3,000,000 Jersey City, G.O. Bonds, Ser. A, AMBAC,
6s, 10/1/10 Aaa 3,371,250
1,700,000 Jersey City, Swr. Auth. Rev. Bonds, AMBAC,
6 1/4s, 1/1/14 Aaa 1,939,479
1,200,000 Middle Township, School Dist. Rev. Bonds,
FGIC, 7s, 7/15/06 Aaa 1,398,000
2,000,000 Middlesex Cnty., Poll. Control Auth. Rev. Bonds,
6 7/8s, 12/1/22 BBB-/P 2,135,000
3,000,000 Middlesex Cnty., Utils. Auth. Swr. IFB, Ser. A,
MBIA, 6 1/4s, 8/15/10 Aaa 3,425,940
2,105,000 NJ Econ. Dev. Auth. Elec. Energy Fac. Rev. Bonds
(Vineland Cogeneration L.P.), 7 7/8s, 6/1/19 BB+ 2,281,294
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 8,660,000
NJ Econ. Dev. Auth. Rev. Bonds
5,000,000 (Tevco Inc.), 8 1/8s, 10/1/09 BBB+/P 5,203,800
7,000,000 (1st Mtge.-Cranes Mill), Ser. A, 7 1/2s, 2/1/27 BB-/P 7,883,750
2,000,000 (Hartz Mountain Industries, Inc.), 7s, 2/1/14 A+ 2,155,000
2,725,000 (Lakewood School), Ser. R, 6.9s, 12/1/11 Aa3 2,905,531
1,500,000 (NJ Performing Arts Ctr.), 6 3/4s, 6/15/12 Aaa 1,616,250
1,895,000 (Urban Holding Co.), 6 1/2s, 6/1/15 A 2,060,813
1,550,000 (Burlington Coat Factory), 6 1/8s, 9/1/10 Aa3 1,675,938
4,000,000 (Franciscan Oaks), 5 3/4s, 10/1/23 BB/P 3,915,000
3,000,000 (Fellowship Village, Inc.), Ser. A, 5 1/2s, 1/1/25 BBB- 2,910,000
1,500,000 (NJ Performing Arts Ctr.), Ser. C, AMBAC,
5 1/2s, 6/15/13 Aaa 1,582,500
2,000,000 (EDL Testing Svc.), Ser. A, 4 3/4s, 5/15/25 Aaa 1,865,000
2,925,000 NJ Econ. Dev. Auth. Waste Paper Recycling
Rev. Bonds (Marcal Paper Mills Inc.),
8 1/2s, 2/1/10 BB/P 3,414,938
9,750,000 NJ Econ. Dev. Auth. Wtr. Facs. Rev. Bonds
(American Wtr. Co., Inc.), FGIC, 6 1/2s, 4/1/22 (SEG) Aaa 10,432,500
5,000,000 NJ Sports & Expo Auth. Ser A, MBIA, 4 1/2s, 3/1/24 Aaa 4,525,000
NJ Hlth. Care Fac. Fin. Auth. Rev. Bonds
7,250,000 (St. Elizabeth Hosp.), Ser. B, 8 1/4s, 7/1/20 Aaa 7,706,315
8,500,000 (Kimball Med. Ctr.), Ser. C, 8s, 7/1/13 Baa3 9,089,985
1,000,000 (East Orange Gen. Hosp.), Ser. B, 7 3/4s, 7/1/20 BBB+ 1,045,150
5,395,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/21 B2 5,577,081
500,000 (Columbus Hosp.), Ser. A, 7 1/2s, 7/1/08 B2 518,750
9,000,000 (Raritan Bay Med. Ctr.), 7 1/4s, 7/1/27 B-/P 9,146,250
3,300,000 (Christ Hosp. Group), 7s, 7/1/06 AAA 3,811,500
5,000,000 (Gen. Hosp. Ctr.-Passaic Inc.), FSA, 6 3/4s, 7/1/19 Aaa 5,812,500
2,000,000 (AHS Hosp. Corp.), Ser. A, 6s, 7/1/07 Aaa 2,207,500
1,355,000 (Cathedral Hlth. Svcs.), FHA Insd., MBIA,
5 1/2s, 8/1/11 Aaa 1,444,769
6,000,000 (Barnabas Hlth.), Ser. B, MBIA, 4 3/4, 7/1/28 Aaa 5,565,000
4,065,000 NJ State G.O. Bonds, FGIC, 6s, 2/15/11 Aaa 4,557,881
3,000,000 NJ State Edl. Fac. Auth. Rev. Bonds (Princeton U.),
Ser. C, 6 3/8s, 7/1/22 Aaa 3,270,000
720,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. Bonds
(Home Buyer), Ser. D, MBIA, 7.7s, 10/1/29 Aaa 737,849
3,000,000 NJ State Hsg. & Mtge. Fin. Agcy. Rev. IFB, Ser. I,
8.781s, 11/1/07 (acquired various dates from
2/11/93 to 6/14/93, cost $3,134,370) (RES) A+/P 3,318,750
NJ State Hwy. Auth. Gen. Rev. Bonds
(Garden State Pkwy.)
1,500,000 6.2s, 1/1/10 AA- 1,700,520
2,370,000 6s, 1/1/19 Aaa 2,651,438
1,800,000 NJ State Tpk. Auth. IFB, MBIA, 9.234s, 1/1/16
(acquired 3/27/92, cost $1,817,856) (RES) Aaa 2,387,250
NJ State Tpk. Auth. Rev. Bonds, Ser. C
6,000,000 MBIA, 6 1/2s, 1/1/16 Aaa 7,010,820
5,000,000 AMBAC, 6 1/2s, 1/1/08 Aaa 5,718,750
3,000,000 NJ State Trans. Trust Fund Auth. Rev. Bonds
(Trans. Syst.), Ser. A, MBIA, 6s, 12/15/06 Aaa 3,322,500
8,500,000 NJ Trans. Fund Auth. IFB (PA 345A), 9.212s,
6/15/11 (acquired 4/3/98, cost $11,581,250) (RES) AAA/P 11,305,000
NJ Wastewtr. Treatment Rev. Bonds
(Wastewtr. Treatment Trust)
6,670,000 Ser. C, 7s, 6/15/10 Aa2 8,020,675
2,955,000 Ser. B, 7s, 5/15/09 Aa2 3,516,450
7,000,000 Ser. A, zero %, 9/1/07 Aaa 4,882,500
1,800,000 Passaic Valley, Cmnty. Wtr. Supply Rev. Bonds,
Ser. A., FGIC, 6.4s, 12/15/22 Aaa 1,982,250
7,500,000 Rutgers State U. Rev. Bonds, Ser. A, 6.4s, 5/1/13 AA 8,578,125
7,665,000 Salem Cnty., Indl. Poll. Ctrl. Fin. Auth. IFB, 8.642s,
8/1/30 (acquired 4/23/98, cost $9,149,864) (RES) Aaa/P 9,245,906
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 1,287,500
1,250,000 5s, 12/1/10 Aaa 1,296,875
1,000,000 Stony Brook, Regional Swr. Rev. Bonds, Ser. B,
5.45s, 12/1/12 Aa 1,052,500
8,695,000 U. of Medicine & Dentistry Rev. Bond, Ser. E,
MBIA, 6 1/2s, 12/1/12 Aaa 10,117,676
3,400,000 Union Cnty., Indl. Poll. Ctrl. Fin. Auth. Rev. Bonds
(American Cynamid Co.), 5.8s, 9/1/09 A3 3,650,750
--------------
251,469,700
New York (9.1%)
- --------------------------------------------------------------------------------------------------------------------------
Port Auth. NY & NJ Cons. IFB
2,100,000 7.788s, 11/15/15 (acquired 2/09/94,
cost $2,107,875) (RES) A+/P 2,134,125
1,500,000 5.2s, 11/15/15 A+/P 1,511,250
5,000,000 Port Auth. NY & NJ Cons. Rev. IFB, 9.520s, 8/1/26
(acquired various dates from 8/29/91 to 1/21/92,
cost $5,164,940) (RES) AA- 5,625,000
Port Auth. NY & NJ Rev. Bonds
3,000,000 (Delta Airlines, Inc.), Ser. 1R, 6.95s, 6/1/08 Baa3 3,228,750
5,000,000 (Kennedy Intl. Arpt.), 6 3/4s, 10/1/19 BB/P 5,468,750
2,075,000 6 3/4s, 10/1/11 BB/P 2,277,313
7,500,000 Ser. 93rd, 6 1/8s, 6/1/94 AA- 8,428,125
--------------
28,673,313
Puerto Rico (8.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds, 6.8s, 7/1/21 AAA 4,405,000
5,665,000 Cmnwlth. of PR, Aqueduct & Swr. Auth. Rev. Bonds,
6 1/4s, 7/1/12 A 6,465,181
1,830,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds,
Ser. GG, FSA, 4 3/4s, 7/1/21 Aaa 1,738,500
1,000,000 Cmnwlth. of PR, Hwy.Trans. Auth. Rev. Bonds,
Ser. W, MBIA, 5 1/2s, 7/1/15 Aaa 1,068,750
1,500,000 Cmnwlth. of PR, Hwy. Auth. Rev. Bonds, Ser. Q,
7 3/4s, 7/1/16 AAA 1,601,835
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 2,732,500
1,375,000 Ser. S, MBIA, 6 1/8s, 7/1/08 Aaa 1,550,312
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 Aa3 2,157,500
3,750,000 PR Pub. Bldg. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 4,139,060
--------------
25,858,638
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $292,632,005) (b) $ 307,445,401
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $315,783,918.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
May 31, 1999 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, 1999.
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 $292,632,005, resulting in gross unrealized appreciation and
depreciation of $16,117,786 and $1,304,390, respectively, or net unrealized appreciation of $14,813,396.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held
at May 31, 1999 was $41,439,469 or 13.1% 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, 1999.
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, 1999.
The fund had the following industry group concentrations greater than 10% at May 31, 1999 (as a percentage of net
assets):
Health care 22.0%
Transportation 19.4
Water and sewer 14.9
The fund had the following insurance concentrations greater than 10% at May 31, 1999 (as a percentage of net
assets):
MBIA 13.0%
FGIC 12.6
- ----------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- ----------------------------------------------------------------------------------
Municipal Index
Future (Long) $1,084,219 $1,089,089 Sep-99 $(4,870)
- ----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $292,632,005) (Note 1) $307,445,401
- -----------------------------------------------------------------------------------------------
Interest and other receivables 6,769,341
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,368,146
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 2,531
- -----------------------------------------------------------------------------------------------
Total assets 321,585,419
Liabilities
- -----------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,926,555
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 329,399
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 1,456,343
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 372,251
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 475,080
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 40,357
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,853
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,591
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 144,252
- -----------------------------------------------------------------------------------------------
Other accrued expenses 45,820
- -----------------------------------------------------------------------------------------------
Total liabilities 5,801,501
- -----------------------------------------------------------------------------------------------
Net assets $315,783,918
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $308,834,263
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (12,982)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,845,889)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 14,808,526
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $315,783,918
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($214,876,246 divided by 23,487,153 shares) $9.15
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.15)* $9.61
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($99,780,813 divided by 10,915,239 shares)** $9.14
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,126,859 divided by 123,155 shares) $9.15
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.15)*** $9.46
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Tax exempt interest income: $18,507,873
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,900,119
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 434,840
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,392
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,743
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 432,465
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 845,334
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,750
- -----------------------------------------------------------------------------------------------
Reports to shareholders 17,283
- -----------------------------------------------------------------------------------------------
Registration fees 2,249
- -----------------------------------------------------------------------------------------------
Auditing 26,986
- -----------------------------------------------------------------------------------------------
Legal 10,785
- -----------------------------------------------------------------------------------------------
Postage 30,129
- -----------------------------------------------------------------------------------------------
Other 54,451
- -----------------------------------------------------------------------------------------------
Total expenses 3,775,526
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (32,688)
- -----------------------------------------------------------------------------------------------
Net expenses 3,742,838
- -----------------------------------------------------------------------------------------------
Net investment income 14,765,035
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 341,888
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (1,500,453)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (4,778,076)
- -----------------------------------------------------------------------------------------------
Net loss on investments (5,936,641)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 8,828,394
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 14,765,035 $ 14,650,378
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,158,565) (167,449)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (4,778,076) 10,720,753
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 8,828,394 25,203,682
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (10,496,304) (10,966,516)
- ---------------------------------------------------------------------------------------------------------------
Class B (4,169,877) (3,781,411)
- ---------------------------------------------------------------------------------------------------------------
Class M (43,160) (28,287)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 7,369,500 (7,272,377)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,488,553 3,155,091
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 314,295,365 311,140,274
- ---------------------------------------------------------------------------------------------------------------
End of year (including distributions in excess of
net investment income of $12,982 and $68,676 respectively) $315,783,918 $314,295,365
- ---------------------------------------------------------------------------------------------------------------
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 Year
Per-share ended ended
operating performance Year ended May 31 May 31 June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995++ 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.32 $9.02 $8.76 $8.98 $8.75 $9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .45 .47 .48 .46 .51
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) .30 .26 (.22) .23 (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .28 .75 .73 .26 .69 (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.45) (.47) (.48) (.46) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- -- (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.45) (.47) (.48) (.46) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.15 $9.32 $9.02 $8.76 $8.98 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.05 8.48 8.57 2.92 8.25* (0.94)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $214,876 $218,312 $228,361 $227,940 $242,569 $246,336
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .99 .96 .96 .96 .87* .95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.87 4.84 5.28 5.36 5.36* 5.43
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.19 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 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 Year
Per-share ended ended
operating performance Year ended May 31 May 31 June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995++ 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.31 $9.01 $8.75 $8.97 $8.75 $9.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39 .39 .41 .42 .41 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.17) .30 .27 (.22) .22 (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .22 .69 .68 .20 .63 (.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.39) (.39) (.42) (.42) (.41) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- -- (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.39) (.39) (.42) (.42) (.41) (.58)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.14 $9.31 $9.01 $8.75 $8.97 $8.75
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.37 7.78 7.87 2.25 7.51* (1.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $99,781 $95,315 $82,407 $72,083 $58,591 $44,916
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.64 1.61 1.61 1.61 1.46* 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.22 4.18 4.63 4.69 4.72* 4.77
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.19 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 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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.33 $9.02 $8.76 $8.98 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .42 .45 (c) .45 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18) .31 .26 (.21) .28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .24 .73 .71 .24 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.42) (.45) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.42) (.45) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.15 $9.33 $9.02 $8.76 $8.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.63 8.28 8.25 2.65 3.21*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,127 $668 $372 $355 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.29 1.26 1.26 1.24 .09*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.61 4.48 4.95 4.92 .42*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.19 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 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, 1999
Note 1
Significant accounting policies
Putnam New Jersey Tax Exempt Income Fund (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. 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, 1999, 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, 1999, the fund had a capital loss carryover of approximately
$4,357,000 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
589,000 May 31, 2007
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
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 dividends
payable and unrealized gains and losses on certain futures contracts.
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, 1999,
the fund required no such reclassifications.
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.
On June 4, 1999, the Trustees approved a management fee schedule to become
effective on July 1, 1999, based upon the lesser of (i) an annual rate of
0.50% of the average net asset value of the Fund or (ii) the initial tiers
mentioned above.
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.
As part of the subcustodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At (fund specific), the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
For the year ended May 31, 1999, fund expenses were reduced by $32,688
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 $400 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, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $33,456 and $2,351 from the sale
of class A and class M shares, respectively and $196,773 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, 1999, Putnam Mutual Funds Corp., acting
as underwriter received $336 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended May 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $26,286,317 and
$22,527,695, 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, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,311,199 $30,755,143
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 642,823 5,992,077
- -----------------------------------------------------------------------------
3,954,022 36,747,220
Shares
repurchased (3,889,310) (36,237,969)
- -----------------------------------------------------------------------------
Net increase 64,712 $ 509,251
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,307,954 $21,504,022
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 272,783 2,540,129
- -----------------------------------------------------------------------------
2,580,737 24,044,151
Shares
repurchased (1,898,936) (17,667,196)
- -----------------------------------------------------------------------------
Net increase 681,801 $ 6,376,955
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 88,836 $830,619
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,683 24,971
- -----------------------------------------------------------------------------
91,519 855,590
Shares
repurchased (40,024) (372,296)
- -----------------------------------------------------------------------------
Net increase 51,495 $483,294
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
David E. Hamlin
Vice President and Fund Manager
Richard A. Monaghan
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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN050 53222 019/329/537 7/99
