(logo)
Putnam
Arizona
Tax Exempt
Income Fund
Semiannual
Report
February 28, 1994
(artwork)
For investors seeking high current income free from federal and
Arizona income tax, consistent with capital preservation
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
6 Portfolio of investments owned
11 Financial statements
18 Fund performance supplement
19 Your Trustees
A member of the
Putnam Family
of Funds
<PAGE>
How your
fund performed
For periods ended February 28, 1994
Total return* Lehman
Fund Brothers Consumer
Class A Class B Municipal Price
NAV POP NAV CDSC Bond Index Index
6 months 1.27% -3.52% 0.84% -4.07% 1.05% 1.31%
1 year 5.93 0.94 -- -- 5.54 2.51
3 years 33.99 27.66 -- -- 32.05 8.82
annualized 10.24 8.48 -- -- 9.71 2.86
Life-of-class**
(class A shares)33.72 27.43 -- -- 33.22 8.98
annualized 9.86 8.16 -- -- 9.73 2.82
(class B shares) -- -- 2.31 -2.65 3.27 1.59
Share data Class A Class B
NAV POP NAV
August 31, 1993 $9.47 $9.94 $9.47
February 28, 1994 $9.31 $9.77 $9.30
Distributions (a) Short-term
6 months ended Investment capital
February 28, 1994 Number income gainsTotal
Class A 7 $0.251391 $0.03 $0.281391
Class B 7 $0.220440 $0.03 $0.250440
Current returns Taxable equivalents+
at the end of the Class A Class B Class A Class B
period NAV POP NAV NAV POP NAV
Current dividend
rate 5.36% 5.10% 4.69% 9.54% 9.08% 8.35%
Current 30-day
yield 4.92 4.69 4.18 8.76 8.35 7.44
[FN]
*Performance data represent past results. Investment return and
principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
**The fund began operations on January 30, 1991, offering shares
now known as class A shares. On July 15, 1993, the fund began
offering class B shares. Performance for each share class will
differ.
(a) Capital gains, if any, are taxable for federal purposes. For
some investors, investment income may also be subject to the
alternative minimum tax.
+Assumes maximum federal tax rate of 43.83%. Results for
investors subject to lower tax rates would not be as
advantageous, although many would have the opportunity to receive
attractive tax benefits from a fund investment. Consult your tax
advisor for more guidance.
[/FN]
Terms you need to know
Total return is the change in value of an investment from
beginning to end of a period, assuming reinvestment of all
distributions.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not reflecting any 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.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares rather than the time of
purchase.
Class A shares are the shares of your fund offered subject to an
initial sales charge. Your fund's POP includes the maximum 4.75%
sales charge.
Class B shares are shares of your fund offered with no initial
sales charge. Within first six years of purchase, they are
subject to a CDSC declining from 5% to 1%. After sixth year, CDSC
no longer applies.
Current dividend rate is calculated by annualizing the net
investment income paid to shareholders in the fund's most recent
distribution, then dividing by the NAV or POP on the last day of
the period.
Current yield, based only on the fund's net investment income
earnings, is calculated in accordance with SEC guidelines.
Taxable equivalent return is the return that a taxable investment
would have to produce to equal the fund's current return.
Please see the fund performance supplement on page 18 for
additional information about performance comparisons and the
fund's most recent calendar quarter performance.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(C) Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
Tax-sensitive investors may look back on 1993 with particular
frustration, recalling the retroactive impact of higher federal
income tax rates. These higher rates -- which have increased
Arizona's top combined federal and state bracket to 43.83% --
illustrate the advantages of an investment in Putnam Arizona Tax
Exempt Income Fund.
As a fund shareholder, you receive high current income that is
free from both Arizona and federal income taxes. For an Arizona
resident in the top bracket, a taxable investment would have had
to generate a current dividend rate of 9.54% in order to match
the fund's current dividend rate of 5.36% for class A shares at
net asset value as of February 28, 1994. Class B share results
will differ.
This emphasis on income has always been your fund's primary
focus; although much of its recent strength has reflected
appreciation in the value of portfolio securities, income is
expected to play a much greater part in future performance.
Toward the end of this semiannual period, we witnessed the return
of inflationary fears which can dampen all bond markets, and
which contributed to a decline in the value of most fixed income
securities. As Fund Manager Howard Manning counsels in the
following Report from Putnam Management, depending on your
perspective, the recent correction can also present a valuable
buying opportunity.
Despite volatile bond market conditions, we believe the bright
prospects for the Arizona economy over the next two years bode
well for your fund. Your fund's investments in sectors such as
housing, health care, utilities, and transportation support the
vital functions of a thriving state -- while providing a level of
diversification an individual would find both difficult and
expensive to achieve. With Howard's able investment direction and
Putnam's proven credit research, we believe your fund remains
well prepared to take advantage of promising opportunities
throughout the Arizona municipal bond market.
Respectfully yours,
(signature of George Putnam)
George Putnam
April 20, 1994<PAGE>
Report from
Putnam Management
In the first half of Putnam Arizona Tax Exempt Income Fund's
fiscal 1994, your fund faced some of the challenges of economic
change. The resulting performance, while it may appear
disappointing compared with some earlier periods, remains
attractive relative to the broader municipal bond market.
During this semiannual period, an unexpectedly strong U.S. gross
domestic product, combined with global economic uncertainties,
created inflationary concerns that affected the bond market.
Then, near the end of the period, the Federal Reserve Board
tightened short-term interest rates slightly. Investors'
reactions, heightened by fears that additional rate increases
were imminent, put considerable pressure on longer-term bond
prices. The effect quickly swept through the municipal bond
market, adversely affecting most single-state tax-exempt funds.
However, we believe the impact on your fund was comparatively
minor.
Despite this market volatility, Putnam Management believes the
long-term investment fundamentals for Arizona tax-sensitive
investors remain solid. There is a limited supply of high-quality
tax-free municipal bonds available to meet escalating demand.
Consequently, we anticipate a gradual restoration of stability to
municipal bond prices and, in turn, your fund's net asset value.
How your investment performed Putnam Arizona Tax Exempt Income
Fund's class A shares have outperformed the unmanaged benchmark
Lehman Brothers Municipal Bond Index at net asset value over the
periods of six months, one year, and three years ending February
28, 1994.
The average 30-day SEC yield of Arizona municipal debt funds
tracked by Lipper Analytical Services was 4.32%. Your fund's
30-day SEC yield as of February 28, 1994, was 4.69%, according to
Lipper's calculations. In terms of yield, your fund ranked in the
top quartile of the 24 Arizona funds tracked by Lipper.
The Arizona economy A stronger economy should progress moderately
through 1994 and 1995, outperforming the nation in many respects,
according to Arizona Business, published by Arizona State
University (January 1994). Personal income is expected to
continue growing at 7.5% annually. There is surprising strength
in retail sales. Employment is expected to rise and unemployment
to drop. The state population, now at four million, is increasing
at one of the fastest rates in the U.S. This trend is expected to
keep housing construction healthy in single-family units and
multi-family apartments.
The value of credit research Arizona is a state with two
principal population centers -- Phoenix and Tucson -- and a scant
supply of municipal bonds. When an attractive issue comes along,
we have been able to draw on Putnam's substantial credit research
capability in order to assess that issue's risks. This careful
research and cautious approach to acquisition represent added
value to shareholders.
The average credit quality of the bonds in your fund's portfolio
was AA as of February 28, 1994. Thirty-one percent of portfolio
issues are rated BBB or lower.
While these lower-rated issues carry higher risk, they have been
purchased only after undergoing Putnam's in-depth credit analysis
and offer opportunities for higher yield.
Current strategy Two of the portfolio's market sectors, in
particular, made noteworthy contributions to performance during
this period:
Health care Represented chiefly by hospital bonds as discussed
in our last annual report, this sector has generated substantial
rewards. In fact, based on data in the Lehman Brothers Municipal
Bond Index, hospitals were the best-performing sector of the
entire municipal bond market in 1993. We have focused on the
BBB-rated bonds of hospitals with excess capacity. Now the market
is recognizing the need for hospital expansion to handle
population growth.
Industrial development revenue bonds After thorough credit
research, we have taken two new, relatively large positions that
expand the portfolio's diversification: Asarco Mining and Phelps
Dodge. Both operations are situated outside the Phoenix and
Tucson metropolitan markets.
Demand for the investment-grade Phelps Dodge issue was four times
the supply, reaffirming the scarcity of such bonds. Your fund's
ability to capture this important opportunity reflected our
thorough advance credit research. A subsequent prerefunding, in
which new bonds were issued and an escrow fund sufficient to pay
off the entire issue put in place, has improved the credit
perception of this issue and favorably impacted its price. In the
future, an actual credit upgrade could lead to further
appreciation.
A positive outlook In the near future, bond prices are likely to
remain volatile. However, our longer-term outlook for municipal
bonds is positive, particularly in a high income tax environment
such as Arizona and among investors in the higher combined state
and federal income tax brackets. We believe the value of
tax-exempt issues should increase. In addition, the combination
of dwindling bond supply and increasing demand should eventually
drive prices higher and contribute to improved total return.
<PAGE>
<TABLE>
<CAPTION>
Portfolio of
investments owned
February 28, 1994 (Unaudited)
Municipal Bonds and Notes (99.9%)(a)
Principal Amount Ratings(b)Value
<S> <C> <C> <C> <C>
Arizona (86.7%)
$1,500,000 AZ State Certif. of Participation,
6 5/8s, 9/1/08 AAA $1,629,375
AZ State Hlth. Fac. Auth. Hosp. Syst.
Rev. Bonds
965,000 (St. Luke's Hosp. Syst.), Ser. A,
10 1/8s, 11/1/15 Ba 1,034,962
1,975,000 (Phoenix Mem. Hosp.), 8.2s, 6/1/21 BBB 2,239,155
1,500,000 (Phoenix Mem. Hosp.), 8 1/8s, 6/1/12 BBB 1,693,125
3,415,000 (St. Luke's Hlth. Syst.), 7 1/4s, 11/1/14 Ba 3,641,244
550,000 AZ State Muni. Fin. Program Certif. of
Participation, Ser. 34, 7 1/4s, 8/1/09 AAA 649,000
2,500,000 AZ State Trans. Board Hwy. Rev. Bonds,
Ser. A, 6 1/2s, 7/1/11 AA 2,803,125
2,000,000 AZ State U. Rev. Bonds, Ser. A, 5 3/4s,
7/1/12 AA 2,022,500
1,000,000 AZ State Wastewater Mgmt. Auth. Rev.
Bonds, 6.8s, 7/1/11 AA 1,113,750
500,000 Apache Cnty., Pub. Fin. Corp. Certif. of
Participation 5 1/2s, 5/1/10 A 468,125
2,140,000 Avondale, Muni. Dev. Corp. Facs. Rev.
Bonds, American Municipal Bond Assurance
Corp., 8.85s, 7/1/13 AAA 2,313,875
Central AZ Wtr. Conservation Dist. Contract
Rev. Bonds
1,000,000 (Central AZ Project), Ser. A, 5 1/2s,
11/1/09 AA 1,016,250
1,250,000 (Central AZ Project), Municipal Bond
Insurance Assn. (MBIA) 4 3/4s, 5/1/09 AAA 1,160,937
500,000 Chandler, General Obligation (G.O.) Bonds,
Financial Guaranty Insurance Co. (FGIC),
7s, 7/1/12 AAA 573,750
750,000 Chandler, Wtr. & Swr. Rev. Bonds, FGIC,
7s, 7/1/12 AAA 833,438
750,000 Cochise Cnty., U. School Dist. No. 68 Rev.
Bonds (Sierra Vista), FGIC, 7 1/2s,
7/1/09 AAA 902,812
785,000 Douglas, Hsg. Fin. Corp. Multi-Fam. Hsg.
Rev. Bonds, Ser. A, Federal Housing Auth.
(FHA), 7s, 1/1/24 AAA 836,025
6,880,000 Gila Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds, 8.9s, 7/1/06 BBB 7,894,800
1,000,000 Gilbert, Wtr. & Swr. Rev. Bonds, FGIC,
6 1/2s, 7/1/22 AAA 1,081,250
3,250,000 Greenlee Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (Phelps Dodge Corp.
Project), 5.45s, 6/1/09 A 3,197,188
Maricopa Cnty., Indl. Dev. Auth. Hlth.
Facs. Rev. Bonds
2,500,000 MBIA, 7.752s, 7/1/13 AAA $2,512,500
2,500,000 (Catholic H.C.-West), Ser. A, MBIA,
5 5/8s, 7/1/23 AAA 2,500,000
Maricopa Cnty., Indl. Dev. Auth. Hosp.
Facs. Rev. Bonds
600,000 (John C. Lincoln Hosp.), 7 1/2s, 12/1/13 AAA 685,500
3,500,000 (Samaritan Hlth. Svcs.), Ser. A, MBIA,
7s, 12/1/16 AAA 4,116,875
1,800,000 Maricopa Cnty., Indl. Dev. Auth. Hosp.
Facs. Variable Rate Demand Notes
(Samaritan Hlth. Svcs. Hosp.), MBIA,
2.8s, 12/1/08 VMIG1 1,800,000
Maricopa Cnty., Indl. Dev. Auth. Single Fam.
Mtge. Rev. Bonds
2,715,000 Ser. A, 7 1/2s, 8/1/12 AA 2,782,875
520,000 Maricopa Cnty., Poll. Control Rev. Bonds
(Pub. Svc. Co. of New Mexico Palo-Verde),
7 3/4s, 11/1/09 BB 560,950
4,000,000 Maricopa Cnty., U. School Dist. No. 48
Rev. Bonds, Ser. B, 4.6s, 7/1/11 AA 3,625,000
2,000,000 Mesa, G.O. (Project of 1987), MBIA, 5.7s,
7/1/08 AAA 2,067,500
Mohave Cnty., Indl. Dev. Auth. Hosp. Syst.
Rev. Bonds (Med. Environment Inc. &
Phoenix Hosp. & Med. Ctr.)
500,000 7s, 7/1/16 Baa 526,875
2,000,000 6 3/4s, 7/1/08 Baa 2,097,500
1,500,000 Mohave Cnty., Indl. Dev. Auth. Multi-Fam.
Mtge. Rev. Bonds, 7 3/8s, 4/1/32 AAA 1,646,250
365,000 Mohave Cnty., Indl. Dev. Auth. Rev. Bonds
(Citizen Util. Project), Ser. B, 7.05s,
8/1/20 AAA 404,694
5,000,000 Navajo Cnty., Poll. Control Rev. Bonds
(Public Svc. Co.), Ser. A, 5 7/8s,
8/15/28 BBB 4,862,500
500,000 Peoria, Impt. Dist. Special Assessment Rev.
Bonds, 7.2s, 1/1/12 BBB 532,500
Phoenix, Civic Impt. Corp. Wastewater Syst.
Lease Rev. Bonds
1,000,000 6 1/8s, 7/1/23 A 1,103,750
1,500,000 6s, 7/1/08 A 1,640,625
6,000,000 4 3/4s, 7/1/23 A 5,160,000
1,000,000 Phoenix, G.O. Bonds, 6 3/8s, 7/1/13 AA 1,071,250
Phoenix, Indl. Dev. Auth. Mtge. Rev. Bonds
(Chris Ridge Vlg. Project), FHA
2,150,000 6.8s, 11/1/25 AAA 2,311,250
400,000 6 3/4s, 11/1/12 AAA 428,500
Phoenix, Indl. Dev. Auth. Hosp. Rev. Bonds
1,000,000 (Lincoln Hospital & Healthcare), 6s,
12/1/14 BBB 968,750
Phoenix, Indl. Dev. Auth. Rev. Bonds
1,000,000 (Christian Care Retirement Apts.), Ser. A,
10 1/4s, 1/1/18 B/P 1,005,000
1,365,000 Pima Cnty., Indl. Dev. Auth. Multi-Fam.
Rev. Bonds (Rancho Mirage Project),
7.05s, 4/1/22 AA 1,419,600
Pima Cnty., Indl. Dev. Auth. Rev. Bonds
5,000,000 (Tucson Elec. Pwr. Co. Project), Ser. A,
7 1/4s, 7/15/10 AAA 5,525,000
2,525,000 (Carondelet Hlth. Care Corp.), MBIA,
5 1/4s, 7/1/11 AAA 2,449,250
1,000,000 Pima Cnty., School Dist. No. 1 Rev. Bonds,
FGIC, 7 1/2s, 7/1/08 AAA 1,216,250
750,000 Pinal Cnty., Certif. of Participation,
7.9s, 6/1/01 BBB 781,875
Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.)
2,040,000 9s, 12/1/13 BB/P 2,170,050
2,000,000 Ser. A, 8 1/8s, 12/1/22 BB/P 2,210,000
Salt River Projects, Agricultural Impt.
& Pwr. Dist. Elec. Syst. Rev. Bonds
2,000,000 5s, 1/1/30 AA 1,767,500
3,250,000 4 3/4s, 1/1/17 AA 2,888,437
3,000,000 Salt River Projects, Agricultural Impt.
& Pwr. Dist. Elec. Syst. Residual
Interest Bonds (RIBS), 8.655s, 1/1/19
(acquired 3/16/93, cost $3,015,990)(c) A 3,041,250
500,000 Santa Cruz Cnty., Indl. Dev. Auth. Rev.
Bonds (Citizens Util. Co. Projec), 7.15s,
2/1/23 AAA 541,250
Scottsdale, G.O. Bonds, Ser. D
685,000 4 1/2s, 7/1/11 AA 615,645
475,000 4s, 7/1/13 AA 393,062
1,430,000 4s, 7/1/12 AA 1,190,475
Sierra Vista, Indl. Dev. Auth. Hosp. Rev.
Bonds (Sierra Vista Cmnty. Hosp. Project)
1,800,000 8 3/4s, 12/1/16 BB/P 1,993,500
2,000,000 8 1/2s, 12/1/21 BB/P 2,275,000
1,000,000 South Tucson, Muni. Property Corp. Facs.
Rev. Bonds, 8 1/2s, 6/1/05 BBB 1,180,000
1,370,000 Tucson & Pima Cntys., Indl. Dev. Auths.
Single Fam. Mtge. Rev. Bonds, 9 3/8s,
2/1/14 BB 1,416,238
6,750,000 Tucson, Arpt. Auth. Special Fac. Rev.
Bonds (Lockheed-Aermod Ctr. Inc.),
8.7s, 9/1/19 A 8,007,188
920,000 Tucson, Indl. Dev. Auth. Multi-Fam. Rev.
Bonds (La Entrada), 7.4s, 7/1/26 AAA 991,300
1,500,000 Tucson, Street & Hwy. User Rev. Bonds,
Ser. B, 9 1/4s, 7/1/05 A 2,038,125
Tucson, Wtr. Rev. Bonds
300,000 Ser. D, FGIC, 9 3/4s, 7/1/10 AAA 433,875
1,500,000 6 1/2s, 7/1/16 A 1,616,250
5,500,000 5 3/4s, 7/1/18 A 5,568,750
1,000,000 U. of AZ Certif. of Participation
(Telecommunications Syst.), 6 1/2s,
7/15/12 A 1,061,250
U. of AZ, Hosp. Rev. Bonds (Med. Ctr.
Corp.), MBIA
1,450,000 6 7/8s, 7/1/21 AAA 1,658,438
1,000,000 6 1/4s, 7/1/16 AAA 1,041,250
1,900,000 5s, 7/1/21 AAA 1,750,375
2,000,000 5s, 7/1/13 AAA 1,880,000
U. of AZ Rev. Bonds
1,000,000 Ser. B, 6.9s, 6/1/16 AA 1,138,750
1,000,000 6 1/4s, 6/1/11 AA 1,066,250
$142,841,513
Puerto Rico (7.9%)
Cmnwlth. of Puerto Rico, Aqueduct & Swr.
Auth. Rev. Bonds
300,000 Ser. A, 7.9s, 7/1/07 BBB 342,000
2,500,000 Ser. A, 7 7/8s, 7/1/17 BBB 2,853,125
2,700,000 Cmnwlth. of Puerto Rico, RIBS, MBIA,
9.084s, 7/1/08 AAA 3,013,875
1,000,000 Puerto Rico, Elec. Pwr. Auth. Rev. Bonds,
Ser. P, 7s, 7/1/21 A 1,111,250
295,000 Puerto Rico, Hsg. Fin. Corp. Single Fam.
Mtge. Rev. Bonds, Ser. B, Government
National Mortgage Assn. (GNMA) Coll.,
7.65s, 10/15/22 AAA 308,275
<PAGE>
2,000,000 Puerto Rico, Hsg. Fin. Corp. Si
Mtge. RIBS, GNMA Coll., 10.315s, 8/4/25 AAA 2,080,000
Puerto Rico, Pub. Bldgs. Auth. Ed. & Hlth.
Facs. Rev. Bonds
1,375,000 Ser. H, 7 7/8s, 7/1/16 AAA 1,567,500
1,500,000 Ser. L, 6 7/8s, 7/1/21 A 1,743,750
$13,019,775
Virgin Islands (3.4%)
5,100,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds,
Ser. A, 7 1/4s, 10/1/18 BBB/P 5,616,375
Guam (1.9%)
3,000,000 Guam Aprt. Auth. Rev. Bonds, Ser. B, 6.6s,
10/1/10 BBB 3,138,750
Total Investments (cost $158,212,295)(d) $164,616,413
<FN>
(a) Percentages indicated are based on total net assets of $164,810,341, which correspond
to a net asset value per Class A share and Class B share of $9.31 and $9.30, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent
ratings available at February 28, 1994 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 February 28,
1994. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
(c) Restricted as to public resale. At the date of acquisition this security was valued at
cost. There were no outstanding unrestricted securities of the same class as that held.
Total market value of restricted securities owned at February 28, 1994 was $3,041,250 or
1.8% of net assets.
(d) The aggregate identified cost on a tax basis is $158,217,025, resulting in gross
unrealized appreciation and depreciation of $7,840,037 and $1,440,649, respectively, or
net unrealized appreciation of $6,399,388.
The rates shown on Variable Rate Demand Notes (VRDN) and Residual Interest Bonds (RIBS)
are the current interest rates at February 28, 1994, which are subject to change based on
the terms of the security.
The Fund had the following industry group concentration greater than 10% at February 28,
1994 (as a percentage of net assets):
Utilities 25.4%
Health Care 23.3
The Fund had the following insurance concentration greater than 10% at February 28, 1994
(as a percentage of net assets):
MBIA 15.7%
</FN>
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
February 28, 1994 (unaudited)
<S> <C> <C>
Assets
Investments in securities, at value (identified cost
$158,212,295) (Note 1) $164,616,413
Cash 101,742
Interest receivable 2,402,276
Receivable for shares of the Fund sold 671,511
Unamortized organization expenses (Note 1) 21,602
Total assets 167,813,544
Liabilities
Distributions payable to shareholders $143,018
Payable for securities purchased 2,087,783
Payable for shares of the Fund repurchased 419,856
Payable for compensation of Manager (Note 2) 241,997
Payable for compensation of Trustees (Note 2) 878
Payable for investor servicing and custodian fees
(Note 2) 43,679
Payable for administrative services (Note 2) 539
Payable for distribution fees (Note 2) 58,949
Other accrued expenses 6,504
Total liabilities 3,003,203
Net assets $164,810,341
<PAGE>
Represented by
Paid-in capital (Note 4) $158,204,475
Distributions in excess of net investment income (21,943)
Accumulated net realized gain on investment transactions 223,691
Net unrealized appreciation of investments 6,404,118
Total -- Representing net assets applicable to capital
shares outstanding $164,810,341
Computation of net asset value and offering price
Net asset value and redemption price of Class A shares
($153,646,001 divided by 16,509,965 shares) $9.31
-----
Offering price per share (100/95.25 of $9.31)* $9.77
Net asset value and redemption price of Class B shares
($11,164,340 divided by 1,200,333 shares)** $9.30
<FN>
*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.
</FN>
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Six months ended February 28, 1994 (unaudited)
<S> <C> <C>
Tax exempt interest income $5,096,055
Expenses:
Compensation of Manager (Note 2) $475,961
Investor servicing and custodian fees (Note 2) 79,056
Payable for compensation of Trustees (Note 2) 6,317
Reports to shareholders 5,455
Auditing 10,165
Legal 8,693
Administrative services (Note 2) 2,603
Postage 4,777
Registration fees 12,397
Distribution Fees -- Class A (Note 2) 152,455
Distribution Fees -- Class B (Note 2) 32,146
Amortization of organization expenses (Note 1) 5,291
Other 2,904
Total expenses 798,220
Net investment income 4,297,835
Net realized gain on investments (Notes 1 and 3) 774,944
Net unrealized depreciation of investments during the period(3,366,609)
Net loss on investments (2,591,665)
Net increase in net assets resulting from operations $1,706,170
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
Six months ended Year ended
February 28 August 31
---------------- ----------
1994* 1993
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $4,297,835 $6,761,077
Net realized gain on investments 774,944 37,692
Net realized loss on futures contracts -- (5,991)
Net unrealized appreciation (depreciation)
of investments and futures contracts (3,366,609) 6,344,925
Net increase in net assets resulting from
operations 1,706,170 13,137,703
Distributions to shareholders from:
Net investment income
Class A (4,025,870) (6,875,128)
Class B (171,446) (7,051)
Net realized gain on investments
Class A (481,882) (611,999)
Class B (24,958) --
Increase from capital share transactions
(Note 4) 19,530,859 54,067,595
Total increase in net assets 16,532,873 59,711,120
Net assets
Beginning of period 148,277,468 88,566,348
<PAGE>
End of period (including distributions in
excess of net investment income of $(21,943)
and $(138,844), respectively) $164,810,341 $148,277,468
*Unaudited
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial
Highlights*
(For a share outstanding throughout the period)
For the period For the period
July 15, 1993 January 30, 1991
Six months (commencement Six months (commencement
ended of operations) to ended Year ended of operations) to
February 28 August 31 February 28 August 31 August 31
----------- ----------------- ----------- ----------------- -----------
1994* 1993 1994* 1993 1992 1991
------------------------------ -------------------------------------------
Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.47 $9.39 $9.47 $9.07 $8.66 $8.50
Investment Operations
Net Investment Income .22 .11 .26 .54(a) .57(a) .33(a)
Net Realized and Unrealized
Gain on Investments (.14) .03 (.14) .47 .42 .16
Total from Investment Operations .08 .14 .12 1.01 .99 .49
Less Distributions from:
Net Investment Income (.22) (.06) (.25) (.55) (.57) (.33)
Net Realized Gain on Investments (.03) -- (.03) (.06) (.01) --
Total Distributions (.25) (.06) (.28) (.61) (.58) (.33)
Net Asset Value, End of Period $9.30 $9.47 $9.31 $9.47 $9.07 $8.66
Total Investment Return at Net Asset
Value (%)(b) 1.68(c) 11.15(c) 2.54(c) 11.54 11.85 9.90(c)
<PAGE>
Net Assets, End of Period
(in thousands) $11,164 $2,974 $153,646 $145,304 $88,566 $46,902
Ratio of Expenses to Average Net
Assets (%) 1.60(c) 1.44(c) .98(c) .89 .58(a) .27(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 4.62(c) 3.27(c) 5.45(c) 5.82 6.34(a) 6.67(a)(c)
Portfolio Turnover (%) 20.32(d) 5.72 20.32(d) 5.72 31.84 12.46(d)
<FN>
*Unaudited
**Financial Highlights for periods ended through August 31, 1992 have been restated to conform with requirements issued
by the SEC in April 1993.
(a) Reflects a voluntary absorption of expenses incurred by the Fund and an expense limitation applicable during the
period. As a result of these limitations, net investment income of the Fund for the year ended August 31, 1992 and the
period ended August 31, 1991, reflect expense reductions of $0.03 and $0.05 per share, respectively. See Note 2.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
</FN>
/TABLE
<PAGE>
Notes to
financial statements
February 28, 1994 (Unaudited)
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a non-diversified, open-end management investment
company. The Fund seeks as high a level of current income exempt
from federal income tax and Arizona state income tax as Putnam
Management believes is consistent with preservation of capital by
investing primarily in a portfolio of Arizona tax-exempt
securities.
The Fund offers both Class A and Class B shares. The Fund
commenced its public offering of Class B shares on July 15, 1993.
Class A shares are sold with a maximum front-end sales charge of
4.75%. Class B shares do not pay a front-end sales charge, but
pay a higher ongoing distribution fee than Class A shares, and
may be subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. In addition,
the Trustees declare separate dividends on each class of shares.
Expenses of the Fund are borne pro-rata by the holders of both
classes of shares, except that each class bears expenses unique
to that class (including the distribution fees applicable to such
class) and 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.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
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 Trustee.
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 A futures contract is an agreement between two
parties to buy and sell a security at a set price on a future
date. Upon entering into such a contract, the Fund is required to
pledge to the broker an amount of cash or tax-exempt securities
equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments
are known as "variation margin," and are recorded by the Fund as
unrealized gains or losses. 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. The potential risk to the Fund is that
the change in value of the underlying securities may not
correspond to the change in value of the futures contracts.
D) Federal taxes It is the policy of the Fund to distribute all
of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
Fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of securities
held and excise tax on income and capital gains.
E) Distributions to shareholders Income dividends are declared
daily by the Fund and are distributed monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and
paid annually.
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.
Discount on zero-coupon bonds is accreted according to the
effective yield method.
G) Unamortized organization expenses Expenses incurred by the
Fund in connection with its organization, its registration with
the Securities & Exchange Commission and with various states, and
the initial public offering of its Class A shares aggregated
$44,979. These expenses are being amortized over a five-year
period based on current and projected net asset levels.
Note 2 Management fee, administrative services, and other
transactions
Compensation of Putnam Investment Management, Inc., the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.,
for management and investment advisory services is paid quarterly
based on the average net assets of the Fund for the quarter. Such
fee is based on the following annual rates: 0.6% of the first
$500 million of average net assets, 0.5% of the next $500
million, 0.45% of the next $500 million, 0.4% of the next $1.5
billion. Subject to reduction in any year by the amount of
certain brokerage commissions and fees (less expenses) received
by affiliates of the Manager on the Fund's portfolio
transactions.
The Fund also reimburses the Manager 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. For the six months ended February 28, 1994, the Fund
paid $2,603 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,050
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
Custodial functions for the Fund 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. Fees paid for these
investor servicing and custodial functions for the six months
ended February 28, 1994, amounted to $79,056. Investor servicing
and custodian fees reported in the Statement of operations for
the six months ended February 28, 1994, have been reduced by
credits allowed by PFTC.
The Fund has adopted a distribution plan with respect to its
Class A shares (the "Class A Plan") pursuant to rule 12b-1 under
the Investment Company Act of 1940. The purpose of Class A 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 Class A shares. The
Trustees have approved payment by the Fund to Putnam Mutual Funds
Corp. at an annual rate of 0.20% of average net assets
attributable to Class A shares. For the six months ended February
28, 1994, the Fund paid Putnam Mutual Funds Corp. distribution
fees of $152,455 for Class A shares.
A deferred sales charge of up to 1.00% is assessed on certain
redemptions of Class A shares purchased as part of an investment
of $1 million or more. For the six months ended February 28,
1994, Putnam Mutual Funds Corp., acting as underwriter, received
$1,639 on such redemptions.
During the six months ended February 28, 1994, Putnam Mutual
Funds Corp., acting as an underwriter, received net commissions
of $39,944 from the sale of shares of the Fund.
<PAGE>
The Fund has adopted a separate distribution plan with respect to
its Class B shares (the "Class B Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the
Class B Plan is to compensate Putnam Mutual Funds Corp. for
services provided and expenses incurred by it in distributing
Class B shares. The Class B Plan provides for payments by the
Fund to Putnam Mutual Funds Corp. at an annual rate of 0.85% of
the Fund's average net assets attributable to Class B shares.
Payments under the plan cannot exceed 1% without shareholder
approval. For the six months ended February 28, 1994, the Fund
paid Putnam Mutual Funds Corp. distribution fees of $32,146 for
Class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of the
contingent deferred sales charges levied on Class B share
redemptions within six years of purchase. The charge is based on
declining rates, which begin at 5% of the net asset value of the
redeemed shares. Putnam Mutual Funds Corp. received $299,152 in
contingent deferred sales charges from such redemptions for the
six months ended February 28, 1994.
Note 3 Purchases and sales of securities
During the six months ended February 28, 1994, purchases and
sales of investment securities other than short-term municipal
obligations aggregated $39,717,005 and $16,998,307, respectively.
Purchases and sales of short-term municipal obligations
aggregated $10,900,000, and $13,100,000, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Note 4 Capital shares
At February 28, 1994, there was an unlimited number of shares of beneficial interest
authorized, divided into two classes, Class A and Class B capital stock. Transaction in
capital shares were as follows:
Six months ended Year ended
February 28 August 31
----------------------- -----------------------
1994 1993
----------------------- -----------------------
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,996,942 $18,998,377 6,706,299 $61,485,594
Shares issued in
connection with
reinvestment of
distributions 246,479 2,336,156 367,991 3,386,744
2,243,421 21,334,533 7,074,290 64,872,338
Shares repurchased (1,078,298) (10,231,514) (1,495,084) (13,752,962)
Net increase 1,165,123 $11,103,019 5,579,206 $51,119,376
<PAGE>
July 15, 1993
(commencement
Six months ended of operations) to
February 28 August 31
--------------------- ---------------------
1994 1993
--------------------- ---------------------
Class B Shares Amount Shares Amount
Shares sold 905,883 $8,614,151 313,697 $2,945,774
Shares issued in
connection with
reinvestment of
distributions 11,626 109,949 302 2,845
917,509 8,724,100 313,999 2,948,619
Shares repurchased (31,133) (296,260) (42) (400)
Net increase 886,376 $8,427,840 313,957 $2,948,219
/TABLE
<PAGE>
Note 5 Reclassification of Capital Accounts
Effective September 1, 1993, The Putnam Arizona Tax Exempt Income
Fund has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions, by
Investment Companies (SOP)." The purpose of this SOP is to report
the accumulated net investment (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $16,382 to
decrease distributions in excess of net investment income with a
decrease of $16,382 to additional paid-in capital.
These adjustments represent the cumulated amounts necessary to
report these balances through August 31, 1993, the close of the
Fund's most recent fiscal year and for financial reporting and
tax purposes.
Fund performance supplement
Putnam Arizona Tax Exempt Income Fund is a portfolio managed for
high current income, exempt from federal income taxes, consistent
with capital preservation. This fund invests at least 75% of its
portfolio in investment-grade tax-exempt bonds.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment-grade, fixed rate, long-term
maturity tax-exempt bonds, which are selected to be
representative of the market in terms of price movement and
sector distribution. The average quality of bonds held in the
index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of
the lower rating classifications in which the fund may invest.
The index does not take into account brokerage commissions or
other costs and may pose different risks from the fund. Total
return performance for the index reflects mathematically derived
changes of market price and reinvestment of interest payments, as
computed by Lehman Brothers. The fund's portfolio contains
securities that do not match those in the index.
The Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
The fund performance supplement has been prepared by Putnam
Management to provide additional information about the fund and
the indexes used for performance comparisons. The information is
not part of the portfolio of investments owned or the financial
statements.<PAGE>
Total return
at end of most recent
calendar quarter Cumulative Annualized
Periods ended March 31, 1994 NAV POP NAV POP
1 year 1.97% -2.89% -- --
3 years 27.83 21.76 8.53% 6.78%
Life-of-class*
(class A shares) 27.68 21.68 -- --
(class B shares) -- -- -2.25% -6.97%
[FN]
*Performance data represent past results. Investment return and
principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
[/FN]
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
The Putnam Funds,
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Jameson Adkins Baxter
President,
Baxter Associates, Inc.
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
<PAGE>
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Arizona
Tax Exempt
Income Fund
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
(DALBAR logo)
Putnam Investor Services has received the DALBAR award each year
since the award's 1990 inception. In more than 10,000 tests of 38
shareholder service components, Putnam outperformed the industry
standard in every category.
48/05-11528
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President and
Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Arizona 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.
<PAGE>
- ---------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
