Putnam
Florida
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 opportunities."
-- Leslie Burke, manager
Putnam Florida 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
10 Fund performance summary
15 Portfolio holdings
19 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 Florida Tax Exempt Income Fund's fiscal year, which
closed on May 31, 1998.
Using her knowledge of Florida'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 Florida, 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
The past year marked another period of solid performance for Putnam Florida
Tax Exempt Income Fund. While heavy supply and concerns over economic
difficulties in Asia did produce some price and yield fluctuations, generally
the municipal bond market experienced little volatility over the course of the
year. Upon this quiet playing field, there were fewer opportunities for
profit, but your fund continued to deliver a reliable stream of income exempt
from state and federal taxes along with relatively low share price volatility.
For the 12 months ended May 31, 1998, the fund provided a total return of
8.80% at net asset value (3.59% at public offering price) for class A shares.
Results over longer periods and for class B and class M shares can be found on
pages 10 and 11 of this report.
* MUNICIPAL BOND MARKET BOASTS ATTRACTIVE PRICES, ROBUST SUPPLY AND DEMAND
Despite the relative calm that has fallen over the $1.3 trillion municipal
bond market, prices of these bonds have actually become exceptionally
attractive relative to the Treasury market -- a condition that has not
occurred since the flat-tax scare of 1996. By the end of May, municipal bonds
(as represented by 30-year insured municipals) were offering almost 90% of the
yields of long-term Treasury bonds. Since the typical level is 84%, the
current percentage makes municipal prices remarkably low in relative terms.
Low interest rates also acted as a catalyst for municipal bond refundings and
new issues in recent months. In fact, so far 1998 has been most notable for
its huge supply. The bargain prices in this market have maintained investors'
interest and enabled demand to keep pace with supply.
Also noteworthy is the unusually flat tax-exempt yield curve. With the 30-year
bond paying a modest 30 to 40 basis points over a 10-year bond, investors are
not sufficiently compensated for taking on higher risk. For this reason, we
have emphasized bonds with maturities between 10 and 20 years.
* STAYING FLEXIBLE AND FULLY INVESTED IN MARKET
As the period drew to a close, a number of crosscurrents continued to drive
the financial markets. The U.S. economy remained quite exuberant, with strong
employment and solid income growth fueling robust consumer spending. Indeed,
the Federal Reserve Board remained on alert for indications that economic
strength was producing any uptick in inflation or incipient inflationary
pressures. Thus far, however, Fed action has been restrained by concerns that
the Asian recession might have additional negative consequences for the U.S.
economy, since manufacturers in various industries have already reported
declines in exports to Asia and tough competition from cheaper Asian imports.
Amid these competing forces, the future direction of interest rates remains
unclear. Will the strong economy eventually convince the Fed to raise
short-term rates or will the Asian financial crisis slow growth enough to
prevent such a move? Given this uncertainty, we have positioned the fund
flexibly with a neutral to slightly short duration. Duration is a mathematical
measure used to indicate how much the prices of portfolio holdings are likely
to move up or down with each percentage-point shift in interest rates.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Utilities 17.3%
Transportation 13.7%
Hospital/
health care 13.6%
Housing 8.5%
Water
and sewer 2.4%
Footnote reads:
* Based on net assets as of 5/31/98. Holdings will vary over time.
When we believe interest rates are more likely to move in one direction or
another, we carefully adjust the fund's duration profile in order to better
manage its interest-rate risk. In the present environment, however, a fairly
neutral duration appears to be the most prudent way to keep the fund ready for
potential interest-rate changes while minimizing share price volatility and
continuing to pursue a steady stream of current income.
Although the uncertain interest-rate climate has not prompted us to take a
more emphatic stand on portfolio duration, the attractive prices of municipal
securities have driven us to keep the fund fully invested in the market.
Because this move could extend the fund's duration farther out than we deem
prudent, we have balanced our municipal investments by selling Treasury
futures contracts, which has the effect of shortening duration.
The current supply-and-demand situation has also made it wise to keep the fund
fully invested. While the supply of municipal securities has been quite high
for most of the year, there were signs that new issuance was tapering off
toward mid May. At the same time, demand has been picking up and was expected
to become even more pronounced with the seasonal swell in coupon payments in
early summer. By staying fully invested, the fund stands to realize solid
overall performance gains should municipals outperform when demand begins to
overwhelm supply.
* PURSUING VALUE AND EMPHASIZING INCOME
In a municipal market boasting attractive prices and a flat yield curve,
duration management has played a smaller role in the fund's investment
strategy in recent months. Instead, we have taken a value approach to
investing. Essentially this means staying focused on issues that offer good
relative value along with structural components that will enhance the fund's
income stream while minimizing its share price volatility. For the most part,
we have found these characteristics among bonds with 10- to 20-year
maturities.
At times over the period, this bulleted strategy has led us to investment
opportunities outside Florida. For example, we recently purchased high quality
(Aaa insured) bonds issued by Massachusetts and New York. Both states have had
disproportionately high municipal debt issuance over the past several months.
Consequently, they have been forced to offer attractive prices on newer
offerings. As supply begins to dry up over the next month or so, these bonds
could rise substantially in value, boosting fund performance even further.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa -- 11.9%
A -- 8.9%
Baa -- 15.6%
B -- 2.3%
Ba -- 2.3%
Aaa -- 59.0%
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.
* NONCALLABLE BONDS ENHANCE PERFORMANCE, PRICE STABILITY
Another way of providing shareholders with the best value is to improve the
call risk within the fund. 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 were issued. By
avoiding callable bonds, the portfolio has a better chance of maintaining a
reliable level of income.
During the recent period, the fund was able to take advantage of a number of
call-free bond investment opportunities. The largest purchase involved
noncallable bonds issued by the state of Florida, an uncommon occurrence in a
state in which the robust economy has minimized financing needs and typical
municipal debt issuance comes through various state agencies rather than the
state government itself. These high-quality, call-free bonds offered a strong
6 1/2% coupon, which provided a solid income boost for the fund.
We also found several attractive investment opportunities among securities
issued by municipalities in Puerto Rico. This is another market with a high
supply of municipal debt, with aggressive expansion in the transit and
electric power industries necessitating a large amount of financing. These
securities have been offering excellent relative value along with strong
coupon income. Since many of the commonwealth's major programs have already
been funded through recent municipal bond issuance, we anticipate lighter
supply in the second half of the year. At the same time, demand for these
securities remains strong, providing the potential for total return gains by
fund holdings in the months ahead.
* SECTOR EMPHASIS UNCHANGED; PREREFUNDINGS BOOST RETURNS
For the most part, your fund's sector focus has not changed during the past 12
months. While remaining broadly diversified by industry with holdings in more
than 20 sectors, general obligation bonds (GOs) of political subdivisions and
utilities are still the dominant areas of emphasis. In fact, one of the fund's
larger utilities holdings, a $4-million-plus position in Puerto Rico Power
Authority bonds, recently generated significant appreciation when the bonds
were prerefunded.
In a prerefunding, the issuer floats a second bond to raise funds to pay off
an older issue at the first call date. Proceeds from the new bond are invested
in top-quality instruments such as U.S. Treasury securities. Because of the
safety of principal represented by these securities, the older prerefunded
bond is generally perceived as having a substantial improvement in its
creditworthiness, and its rating is likely to be upgraded. Upgrades, in turn,
often presage higher prices. That is what occurred in this case; each of the
Puerto Rico Power Authority bonds gained substantially in price following the
prerefunding.
* CAUTIOUSLY OPTIMISTIC OUTLOOK
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, contributed to low unemployment, and helped
bring out additional municipal securities supply. Florida's economy has kept
pace with the national trend, and it continues to provide a favorable credit
backdrop for the state's municipal bond market.
Our outlook for the municipal market remains fairly optimistic. With municipal
bond supply relatively high and demand on the upswing, securities valuations
are unlikely to remain so inexpensive relative to Treasuries. Municipal
investors stand to benefit from any price appreciation that may occur as this
supply-and-demand imbalance straightens out. Eventually, however, today's
economic good times may give way to slightly higher inflation, and so we
remain somewhat cautious. In our opinion, this is not a good time to expose
the portfolio to bonds with longer maturities and higher interest-rate risk.
Accordingly we believe the fund's neutral duration, bulleted portfolio
structure, and emphasis on low call risk and in-depth credit research will
continue to 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 Florida 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) (8/24/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 8.80% 3.59% 8.10% 3.10% 8.36% 4.81%
- ------------------------------------------------------------------------
5 years 32.27 25.99 28.15 26.15 30.15 25.91
Annual average 5.75 4.73 5.09 4.76 5.41 4.72
- ------------------------------------------------------------------------
Life of fund 78.15 69.75 68.08 68.08 73.11 67.48
Annual average 7.71 7.05 6.91 6.91 7.32 6.86
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman
Bros. Municipal Consumer
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 85.87 23.71
Annual average 8.33 2.78
- ------------------------------------------------------------------------
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-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.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.479718 $0.418206 $0.451039
- ------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------
Total $0.479718 $0.418206 $0.451039
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/97 $9.14 $9.60 $9.14 $9.14 $9.45
- ------------------------------------------------------------------------
5/31/98 9.45 9.92 9.45 9.44 9.76
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate2 4.92% 4.69% 4.27% 4.62% 4.47%
- ------------------------------------------------------------------------
Taxable equivalent3 8.15 7.76 7.07 7.65 7.40
- ------------------------------------------------------------------------
Current 30-day SEC yield4 4.62 4.40 3.95 4.32 4.18
- ------------------------------------------------------------------------
Taxable equivalent3 7.65 7.28 6.54 7.15 6.92
- ------------------------------------------------------------------------
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 39.60% federal 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 6/30/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (8/24/90) (1/4/93) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 7.84% 2.71% 7.03% 2.03% 7.52% 4.01%
- ------------------------------------------------------------------------
5 years 30.57 24.31 26.25 24.27 28.59 24.43
Annual average 5.48 4.45 4.77 4.44 5.16 4.47
- ------------------------------------------------------------------------
Life of fund 78.56 70.15 68.19 68.19 73.46 67.82
Annual average 7.66 7.01 6.85 6.85 7.27 6.82
- ------------------------------------------------------------------------
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.
[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
8/24/90
Plot Points
Lehman Bros. Consumer
Fund's class A Municipal Bond Price
Date shares at POP Index Index
8/24/90 9,529 10,000 10,000
5/31/91 10,307 10,912 10,304
5/31/92 11,389 11,984 10,615
5/31/93 12,834 13,418 10,957
5/31/94 12,839 13,749 11,208
5/31/95 14,024 15,006 11,565
5/31/96 14,451 15,692 11,900
5/31/97 15,624 16,993 12,165
5/31/98 16,975 18,587 12,371
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 $16,808 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$17,311 ($16,748 at public offering price). 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 unmanaged list of
long-term fixed-rate investment-grade tax-exempt bonds
representative of the municipal bond market. The index does not
take into account brokerage commissions or other costs, may include
bonds different from those in the fund, and may pose different
risks than the fund. It is not possible to invest directly in an
index.
Consumer Price Index (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
Report of independent accountants
To the Trustees and Shareholders of
Putnam Florida 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 Florida 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 statement 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 14, 1998
Portfolio of investments owned
May 31, 1998
Key to Abbreviations
AMBAC - AMBAC Indemnity Corporation
COP - Certificate of Participation
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Assurance
GNMA Coll. - Government National Mortgage Association Collateralized
G.O. Bonds - General Obligation Bonds
IFB - Inverse Floating Rate Bonds
MBIA - Municipal Bond Investors Assurance Corporation
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.7%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
Florida (69.3%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Brevard Cnty., Hlth. Fac. Fin. Auth. Rev. Bonds
(Courtenay Springs Village)
$ 2,000,000 7 3/4s, 11/15/17 BB/P $ 2,220,000
2,345,000 7 1/2s, 11/15/09 BB/P 2,597,088
Broward Cnty., Edl. Fac. Auth. Rev. Bonds
(Nova U. Dorm), Ser. A
2,500,000 7 1/2s, 4/1/17 AAA/P 2,771,875
385,000 7 1/4s, 4/1/01 AAA/P 417,725
1,000,000 Broward Cnty., Hlth. Fac. Auth. Rev. Bonds
(Broward Cnty. Nursing Home), 7 1/2s, 8/15/20 Aa 1,098,750
Broward Cnty., Resource Recvy. Rev. Bonds
6,305,000 (SES Broward Cnty. LP South), 7.95s, 12/1/08 A 6,801,519
1,235,000 (Waste-Energy LP North), 7.95s, 12/1/08 A 1,332,256
1,400,000 Clay Cnty., Multi-Fam. Hsg. Fin. Auth. Rev. Bonds
(Oak Forest), Ser. A, GNMA Coll., 7.4s, 12/1/25 Aaa 1,480,500
1,875,000 Clay Cnty., Single Fam. Hsg. Fin. Auth. Rev. Bonds,
Ser. A, GNMA Coll., 7.45s, 9/1/23 Aaa 1,975,781
1,400,000 Dade Cnty., Rev. Bonds (Seaport), MBIA,
6 1/2s, 10/1/09 Aaa 1,645,000
2,500,000 Dade Cnty., Seaport G.O. Bonds, AMBAC,
6 1/4s, 10/1/21 (SEG) Aaa 2,696,875
5,500,000 Escambia Cnty., Poll. Control Rev. Bonds
(Champion Intl. Corp.), 6.9s, 8/1/22 Baa 6,070,625
2,335,000 Escambia Cnty., Single Fam. Hsg. Fin. Auth. Mtge.
Rev. Bonds (Multi-Cnty. Program), Ser. A,
GNMA Coll., 7.15s, 10/1/24 Aaa 2,387,538
3,750,000 First FL Govt. Fin. Comm. Rev. Bonds,
AMBAC, 6s, 7/1/09 Aaa 4,232,813
FL Hsg. Fin. Agcy. Rev. Bonds
465,000 (Home Ownership Dev. Program), Ser. G-1,
GNMA Coll., 7.9s, 3/1/22 Aaa 494,063
4,360,000 Ser. 1-B, GNMA Coll., 7.1s, 1/1/17 Aaa 4,452,650
7,000,000 FL State Board of Ed. G.O. Bonds, 6.4s, 6/1/19 Aa 7,551,250
13,495,000 FL State Rev. Bonds, FSA, 6s, 7/1/13 Aaa 15,249,350
FL State Mid-Bay Bridge Auth. Rev. Bonds, Ser. A
1,500,000 8s, 10/1/06 BBB/P 1,678,125
2,180,000 7 1/2s, 10/1/17 BBB/P 2,406,175
3,540,000 6.1s, 10/1/22 BBB/P 3,717,000
2,000,000 FL State Muni. Pwr. Agcy. IFB, AMBAC, 9.018s,
10/1/20 (acquired 7/10/92, cost $2,101,200) (RES) Aaa 2,447,500
2,500,000 Gulf Breeze, Local Govt. Rev. Bonds, Ser. E, FGIC,
7 3/4s, 12/1/15 Aaa 2,690,625
Hillsborough Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (Tampa Elec. Co.)
2,500,000 Ser. 91, 7 7/8s, 8/1/21 Aa 2,850,000
3,645,000 6 1/4s, 12/1/34 Aa 4,036,838
2,400,000 Hillsborough Cnty., Util. Rev. Bonds, Ser. A, FSA,
6 1/2s, 8/1/16 Aaa 2,589,000
Jacksonville, Hlth. Fac. Auth. Indl. Dev. Rev. Bonds
(Cypress Village)
1,350,000 7s, 12/1/22 Baa 1,493,438
3,650,000 7s, 12/1/14 Baa 4,037,813
950,000 Jacksonville, Hlth. Fac. Auth. Rev. Bonds
(Mental Hlth. Ctr.), 9 1/8s, 10/15/19 B/P 973,788
Lee Cnty., Board of Directors Hosp. IFB, MBIA
5,000,000 (Lee Memorial Hosp.), 8.685s, 3/26/20 Aaa 5,825,000
4,000,000 9.266s, 4/1/20 Aaa 4,700,000
2,250,000 Lee Cnty., Indl. Dev. Auth. Hlth. Care Facs. Rev. Bonds
(Cypress Cove Hlth. Pk.), Ser. A, 6 3/8s, 10/1/25 BB/P 2,334,375
Leesburg, Hosp. Rev. Bonds (Leesburg Regl. Med Ctr.)
1,000,000 Ser. 91-A, 7 1/2s, 7/1/21 Aaa 1,141,250
2,065,000 6 1/8s, 7/1/18 A 2,186,319
Martin Cnty., Indl. Dev. Auth. Rev. Bonds
(Indian Cogeneration)
2,500,000 Ser. B, 8.05s, 12/15/25 Baa 2,931,250
3,000,000 Ser. A, 7 7/8s, 12/15/25 Baa 3,491,250
10,000,000 Martin Cnty., Poll. Control Rev. Bonds
(FL Pwr. & Lt. Co.), MBIA, 7.3s, 7/1/20 Aaa 10,800,000
4,000,000 Orange Cnty., Hlth. Fac. Auth. IFB, 9.583s, 10/1/14
(acquired 4/19/95, cost $5,273,120) (RES) B/P 6,090,000
5,000,000 Orange Cnty., Hlth. Fac. Auth. Rev. Bonds
(Orlando Regl. Hlthcare), MBIA, 6 1/4s, 10/1/18 Aaa 5,812,500
1,240,000 Orange Cnty., Hsg. Fin. Auth. Mtge. Rev. Bonds,
Ser. E, GNMA Coll., 7.9s, 10/1/22 Aaa 1,306,650
5,950,000 Orlando, Util. Comm. Wtr. & Elec. Rev. Bonds,
Ser. D, 6 3/4s, 10/1/17 Aa 7,221,812
1,996,000 Osceola Cnty., Indl. Dev. Auth. Rev. Bonds
(Cmnty. Provider Pooled Loan Program),
Ser. A, FSA, 7 3/4s, 7/1/10 Aaa 2,160,670
2,000,000 Palm Beach Cnty., Arpt. Syst. Rev. Bonds,
MBIA, 7 3/4s, 10/1/10 Aaa 2,257,500
7,000,000 Palm Beach Cnty., School Board COP, Ser. A,
AMBAC, 6 3/8s, 8/1/15 Aaa 7,875,000
215,000 Palm Beach Cnty., Single Fam. Hsg. Fin. Auth. Mtge.
Rev. Bonds, Ser. A, GNMA Coll., 7.2s, 10/1/24 Aaa 231,125
5,000,000 Pinellas Cnty., Poll. Control Rev. Bonds (FL Pwr. Corp.),
7.2s, 12/1/14 Aa 5,475,000
Port Everglades, Auth. Rev. Bonds
5,000,000 (FL Port Impt.), 7 1/8s, 11/1/16 Aaa 6,075,000
5,000,000 Ser. A, 5s, 9/1/16 BBB 4,825,000
2,935,000 Sanibel, Swr. Util. Rev. Bonds, 7 1/2s, 8/1/21 Aa 3,283,530
2,390,000 Santa Rosa Cnty., Hlth. Fac. Auth. Rev. Bonds
(Gulf Breeze Hosp. Inc.), Ser. A, 6.2s, 10/1/14 BBB 2,515,475
2,675,000 SCA Tax Exempt Trust Multi-Fam. Mtge. Rev. Bonds,
Ser. A-1, FSA, 7.05s, 1/1/30 Aaa 2,912,405
2,250,000 South Broward, Hosp. Dist. IFB, Ser. C, AMBAC,
9.156s, 5/13/21 Aaa 2,655,000
7,800,000 St. Petersburg, Hlth. Fac. Auth. Rev. Bonds
(Allegany Hlth.), Ser. A, MBIA, 7s, 12/1/15 Aaa 8,687,250
4,860,000 Sumter Cnty., School Dist. Rev. Bonds
(Multi Dist. Loan Program), FSA, 7.15s, 11/1/15 Aaa 6,111,450
6,000,000 Tampa Rev. Bonds (Allegany Hlth. Syst. St. Joseph),
MBIA, 6 1/2s, 12/1/23 Aaa 6,870,000
Tampa, Util. Tax Rev. Bonds, AMBAC
1,950,000 zero %, 10/1/21 Aaa 589,875
2,625,000 zero %, 4/1/21 Aaa 813,750
5,800,000 zero %, 10/1/17 Aaa 2,160,500
1,800,000 Volusia Cnty., Hlth. Fac. Auth. Rev. Bonds
(Memorial Hlth. Syst.), 8 1/8s, 6/1/08 BBB 1,975,500
--------------
215,710,396
Illinois (2.4%)
- -------------------------------------------------------------------------------------------------------------
Chicago, O'Hare Intl. Arpt. Special Fac. Rev. Bonds
1,800,000 (United Air Lines, Inc.), Ser. B, 8.95s, 5/1/18 BBB 2,016,000
5,000,000 (American Airlines, Inc.), Ser. A, 7 7/8s, 11/1/25 Baa 5,437,500
--------------
7,453,500
Massachusetts (1.9%)
- -------------------------------------------------------------------------------------------------------------
6,000,000 MA St. Tpk. Auth. Rev. Bonds, Ser. A, MBIA, 5s, 1/1/37 Aaa 5,812,500
New York (3.9%)
- -------------------------------------------------------------------------------------------------------------
Long Island, Pwr. Auth. NY Elec. Syst. Rev. Bonds, Ser. A
4,600,000 5 1/4s, 12/1/26 A 4,548,250
2,670,000 FSA, 5s, 12/1/18 Aaa 2,623,275
5,000,000 NY City, Transitional Fin. Auth. Rev. Bonds,
Ser. C, 5s, 5/1/26 Aa 4,887,500
--------------
12,059,025
Puerto Rico (19.5%)
- -------------------------------------------------------------------------------------------------------------
1,500,000 Cmnwlth. of PR, Aqueduct & Swr. Auth. Rev. Bonds,
Ser. A, 7 7/8s, 7/1/17 Aaa 1,534,845
3,000,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 6.45s, 7/1/17 AAA 3,412,500
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. T, 6 5/8s, 7/1/18 AAA 1,110,000
5,280,000 Ser. Z, MBIA, 6 1/4s, 7/1/15 Aaa 6,164,400
1,000,000 Cmnwlth. of PR, Impt. G.O. Bonds, 7.7s, 7/1/20 Aaa 1,095,000
8,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds (Pub. Impt.),
FSA, 5 1/2s, 7/1/13 AAA 8,670,000
PR Elec. Pwr. Auth. Rev. Bonds
5,900,000 Ser. S, 7s, 7/1/07 A 6,976,750
4,430,000 Ser. W, MBIA, 7s, 7/1/07 Aaa 5,304,925
4,750,000 Ser. T, 6 3/8s, 7/1/24 A 5,403,125
3,000,000 Ser. BB, MBIA, 6 1/4s, 7/1/10 Aaa 3,472,500
3,800,000 PR Indl. Tourist Edl. Med. & Environ. Control
Fac. Fin. Auth. Hosp. Rev. Bonds (Auxilio Muto
Obligation Group), Ser. A, MBIA, 6 1/4s, 7/1/16 Aaa 4,199,000
5,950,000 PR Muni. Fin. Agcy. Rev. Bonds, Ser. A, FSA, 6s, 7/1/12 Aaa 6,760,688
6,595,000 PR Pub. Bldg. Auth. Rev. Gtd. (Govt. Fac.),
Ser. B, AMBAC, 5s, 7/1/27 Aaa 6,520,805
--------------
60,624,538
Texas (1.7%)
- -------------------------------------------------------------------------------------------------------------
5,000,000 Alliance, Arpt. Auth. Special Fac. Rev. Bonds
(American Airlines, Inc.), 7 1/2s, 12/1/29 Baa 5,418,750
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $289,401,019)(b) $ 307,078,709
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $311,079,154.
(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 $289,401,019, resulting in gross unrealized appreciation
and depreciation of $18,301,483 and $623,793, respectively, or net unrealized appreciation of $17,677,690.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1998, $8,537,500 or 2.7% 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 that vary inversely to changes in the market
interest rate are the current 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):
Utilities 17.3%
Transportation 13.7
Hospitals/health care 13.6
The fund had the following insurance concentrations greater than 10% at May 31, 1998
(as a percent of net assets):
MBIA 24.1%
FSA 14.2
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1998
Unrealized
Total Aggregate Face Expiration Appreciation/
Market Value Value Date (Depreciation)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
June 98 Muni Bond Index
(Long) $21,959,062 $21,557,031 Jun-98 $402,031
U.S. Treasury Bond
(Short) 25,804,375 25,546,606 Jun-98 (257,769)
- --------------------------------------------------------------------------------------------
$144,262
- --------------------------------------------------------------------------------------------
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 $289,401,019) (Note 1) $307,078,709
- ---------------------------------------------------------------------------------------------------
Interest receivables 5,889,024
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 628,404
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 1,530,000
- ---------------------------------------------------------------------------------------------------
Total assets 315,126,137
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 2,502,395
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 19,813
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 420,054
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 377,367
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 469,729
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 67,379
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,331
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,045
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 131,791
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 49,079
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,046,983
- ---------------------------------------------------------------------------------------------------
Net assets $311,079,154
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 295,884,425
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (309,395)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (2,317,828)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
(and assets and liabilities in foreign currencies) 17,821,952
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $311,079,154
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($237,909,705 divided by 25,177,129 shares) $9.45
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.45)* $9.92
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($71,925,311 divided by 7,613,998 shares)+ $9.45
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,244,138 divided by 131,775 shares) $9.44
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.44)** $9.76
- ---------------------------------------------------------------------------------------------------
* 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: $18,262,944
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,830,007
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 373,821
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,305
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,933
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 475,305
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 559,971
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 7,483
- --------------------------------------------------------------------------------------------------
Reports to shareholders 20,233
- --------------------------------------------------------------------------------------------------
Registration fees 75
- --------------------------------------------------------------------------------------------------
Auditing 31,889
- --------------------------------------------------------------------------------------------------
Legal 23,826
- --------------------------------------------------------------------------------------------------
Postage 13,399
- --------------------------------------------------------------------------------------------------
Other 2,256
- --------------------------------------------------------------------------------------------------
Total expenses 3,355,503
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (82,302)
- --------------------------------------------------------------------------------------------------
Net expenses 3,273,201
- --------------------------------------------------------------------------------------------------
Net investment income 14,989,743
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,088,113
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 366,831
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 7,543,720
- --------------------------------------------------------------------------------------------------
Net gain on investments 9,998,664
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $24,988,407
- --------------------------------------------------------------------------------------------------
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 (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 14,989,743 $ 15,562,469
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 2,454,944 91,385
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,543,720 7,590,957
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 24,988,407 23,244,811
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (12,164,829) (12,917,911)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,908,782) (2,576,154)
- ----------------------------------------------------------------------------------------------------------------------
Class M (70,449) (57,331)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 1,758,516 (9,664,296)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 11,602,863 (1,970,881)
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 299,476,291 301,447,172
- ----------------------------------------------------------------------------------------------------------------------
End of year (including distribution in excess of net
investment income of $309,395 and $226,298, respectively) $311,079,154 $299,476,291
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
For the
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 $9.14 $8.91 $9.12 $8.77 $9.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .48 .48 .46 .50
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .32 .23 (.21) .35 (.65)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .79 .71 .27 .81 (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.48) (.48) (.48) (.45) (.50)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.48) (.48) (.48) (.46) (.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.45 $9.14 $8.91 $9.12 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.80 8.12 3.04 9.58* (1.79)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $237,910 $239,196 $247,920 $271,309 $276,245
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .96 .95 .83* .91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.06 5.28 5.31 5.24* 5.38
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42.40 70.30 81.99 61.46* 64.83
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ The fiscal year 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
- ------------------------------------------------------------------------------------------------------------------------------------
For the
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 $9.14 $8.91 $9.12 $8.76 $9.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42 .42 .42 .40 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 .23 (.21) .36 (.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .73 .65 .21 .76 (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.42) (.42) (.39) (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- (.01) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.09)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.42) (.42) (.40) (.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.45 $9.14 $8.91 $9.12 $8.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.10 7.42 2.37 9.06* (2.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $71,925 $58,926 $52,541 $44,581 $36,930
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 1.61 1.60 1.42* 1.51
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.40 4.62 4.64 4.62* 4.74
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42.40 70.30 81.99 61.46* 64.83
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ The fiscal year 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 $9.14 $8.91 $9.12 $8.87 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .45 .46 .04
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 .23 (.21) .25
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .75 .68 .25 .29
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.45) (.46) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of
net investment income -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.45) (.46) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.44 $9.14 $8.91 $9.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.36 7.80 2.76 3.28*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,244 $1,355 $986 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.26 1.26 1.23 .10*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.74 4.97 4.82 .45*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 42.40 70.30 81.99 61.46*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
++ The fiscal year 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 Florida 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 as Putnam Investment Management ("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 securities exempt from the Florida
intangibles tax.
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. The fair value of
restricted securities is determined by the Manager following procedures
approved by the Trustees, and such valuations and procedures are reviewed
periodically by the Trustees.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it may invest to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform. 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 the 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) 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
$1,318,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
------------------ ------------------
$406,000 May 31, 2003
908,000 May 31, 2004
4,000 May 31, 2005
E) Distributions to shareholders Income dividends are recorded daily by the
fund and are distributed monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences include temporary and permanent
differences of unrealized gains and losses on certain futures contracts,
market discount and straddle loss deferrals. 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 $71,220 to decrease
distributions in excess of net investment income and $1,946 to increase
paid-in-capital, with an increase to accumulated net realized losses of
$73,166. The calculation of net investment income per share in the financial
highlights table excludes these adjustments.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds are
accreted according to the yield to maturity basis.
G) Line of credit The fund has entered into a committed line of credit with
certain banks. The line of credit agreement includes restrictions that the
fund maintain an asset coverage of 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.
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 and 0.40% of the next $5 billion, 0.375% of the next $5 billion,
0.355% of the next $5 billion, 0.34% of the next $5 billion and 0.33%
thereafter.
As part of the subcustodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. 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 May 31, 1998, the payable to the subcustodian bank represents the amount
due for cash advance for the settlement of a security purchased.
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 PFTC. 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 $82,302 under
expense offset arrangements with PFTC. Investor servicing and custodian fees
reported in the Statement of operations exclude these credits. The fund could
have invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered into
such arrangements.
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 a distribution plan (the "Plan") 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 Plan 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 Plan provides for payment by the fund to Putnam Mutual Funds
Corp. at an annual rate of up to 0.35%, 1.00%, and 1.00% of the fund's 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 $45,640 and $608 from the sale of
Class A and class M shares respectively and $156,891 in contingent deferred
sales from redemption 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 $12,539 on
redemptions.
Note 3
Purchases and sales of securities
During the year ended May 31, 1998, purchases and sales of investment
securities other than short-term investments aggregated $131,806,989 and
$126,591,104, 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 3,987,044 $37,519,868
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 532,271 4,999,148
- ------------------------------------------------------------
4,519,315 42,519,016
Shares
repurchased (5,500,433) (51,568,624)
- ------------------------------------------------------------
Net decrease (981,118) $(9,049,608)
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 3,879,747 $35,312,318
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 595,857 5,405,323
- ------------------------------------------------------------
4,475,604 40,717,641
Shares
repurchased (6,130,755) (55,729,844)
- ------------------------------------------------------------
Net decrease (1,655,151) $(15,012,203)
- ------------------------------------------------------------
Year ended
May 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 2,136,909 $20,073,417
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 121,713 1,142,778
- ------------------------------------------------------------
2,258,622 21,216,195
Shares
repurchased (1,090,677) (10,249,363)
- ------------------------------------------------------------
Net increase 1,167,945 $10,966,832
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,699,146 $15,466,164
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 106,689 967,752
- ------------------------------------------------------------
1,805,835 16,433,916
Shares
repurchased (1,256,224) (11,427,586)
- ------------------------------------------------------------
Net increase 549,611 $ 5,006,330
- ------------------------------------------------------------
Year ended
May 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 44,920 $ 418,892
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,571 33,470
- ------------------------------------------------------------
48,491 452,362
Shares
repurchased (64,962) (611,070)
- ------------------------------------------------------------
Net decrease (16,471) $(158,708)
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 45,965 $418,151
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,650 33,109
- ------------------------------------------------------------
49,615 451,260
Shares
repurchased (12,086) (109,683)
- ------------------------------------------------------------
Net increase 37,529 $341,577
- ------------------------------------------------------------
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.
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 Florida 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
- --------------------
AN046-43763 037/365/453 7/98
