Putnam Arizona Tax Exempt Income Fund
ANNUAL REPORT
August 31, 1994
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
"The health care sector currently represents a significant
portion of the fund's holdings. We've been able to take
Putnam's considerable experience in tax-free health care
investing and put it to good use in Arizona."
- -- Howard Manning, Fund Manager
Performance should always be considered in light of a fund's
investment strategy. Putnam Arizona Tax Exempt Income Fund is
designed for investors seeking a high level of current income
free from federal and Arizona state income taxes, consistent
with preservation of capital.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
Total return: NAV POP NAV CDSC
- ---------------------------------------------------------------
- --
12 months ended 8/31/94
(change in value during
period plus reinvested
distributions) -1.07% -5.75% -1.80% -6.46%
- ---------------------------------------------------------------
- --
Share value: NAV POP NAV
- ---------------------------------------------------------------
- --
8/31/93 $9.47 $9.94 $9.47
8/31/94 8.84 9.28 8.83
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- --
Short-term
capital
Distributions: Number Income gains(1) Total
- ---------------------------------------------------------------
- --
Class A 13 $0.503683 $0.03 $0.533683
Class B 13 0.445784 0.03 0.475784
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- --
Current return
(end of period): NAV POP NAV
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- --
Current dividend rate(2) 5.71% 5.44% 5.12%
Taxable equivalent(3) 10.17 9.68 9.12
Current 30-day
SEC yield(4) 5.54 5.27 4.82
Taxable equivalent(3) 9.86 9.38 8.58
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- --
<FN>
Performance data represent past results and will differ for
each share class. For performance over longer periods, see
pages 8 and 9. POP assumes 4.75% maximum sales charge. CDSC
assumes 5% maximum contingent deferred sales charge. (1)Capital
gains, if any, are taxable. (2)Income portion of most recent
distribution, annualized and divided by NAV or POP at end of
period. (3)Assumes maximum combined 43.83% federal and state
tax rate. Results for investors subject to lower tax rates
would not be so advantageous. For some investors, investment
income may also be subject to the federal Alternative Minimum
Tax. (4)Based only on investment income, calculated using SEC
guidelines.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
Recent times have provided an instability in the bond market
rarely experienced within such a brief time span. Your fund
began its current fiscal year during the waning days of a
three-year bond market rally. However, between the fiscal
year's start and its end on August 31, 1994, a fretful market
dissipated most of the prior year's gains.
Hints of the impending reversal first began to emerge last
fall, prompting Fund Manager Howard Manning to begin
positioning the portfolio more defensively. Then, in early
February of this year, the first in a series of increases in
short- term interest rates brought the market's sustained
advance to an unmistakable halt. While the resulting turbulence
dampened your fund's performance, the outcome might have been
far worse had Howard not anticipated the rally's end.
In the report that follows, Howard explains in greater detail
how your fund's management team responded to the challenges of
fiscal 1994 and what it sees in store for fiscal 1995.
Respectfully yours,
[Signature]
George Putnam
Chairman of the Trustees
October 19, 1994
<PAGE>
Report from the fund manager
Howard Manning
Municipal bonds experienced both feast and famine during the
fiscal year just ended. One of the most powerful bond market
rallies in recent memory peaked in October 1993, then turned
into one of the most pronounced drops. The decline became a
full retreat after the Federal Reserve Board initiated a series
of increases in short-term interest rates in February 1994.
Although the market was showing signs of regaining its balance
by period's end, further volatility remains likely.
The market's sharp decline had a negative effect on virtually
all fixed-income investments, including most municipal bonds.
Not surprisingly, Putnam Arizona Tax Exempt Income Fund's
results for the 12 months ended August 31, 1994, reflected the
market's drop; the fund's class A shares provided a -1.07%
total return at net asset value, somewhat behind the 0.14%
return of the Lehman Brothers Municipal Bond Index. See pages 8
and 9 for more performance details.
GROWING DEMAND WILL CHASE A SHRINKING SUPPLY
The fund's performance in this difficult environment should not
obscure what we see as its excellent potential for attractive
long- term total return. Arizona remains one of the nation's
fastest- growing states. A more favorable supply/demand
situation is shaping up in the state's municipal bond market.
Although future results can never be assured, we are applying
Putnam's extensive credit research capabilities to these two
positive factors to pinpoint promising investment opportunities
within Arizona so the fund can take advantage of them at their
earliest stage.
As we mentioned in the fund's semiannual report, there is a
limited supply of high-quality tax-free municipal bonds
available to meet current demand, not only in Arizona, but
nationwide. If anything, the situation has intensified as fewer
municipalities have opted to refinance their existing debt,
given today's higher interest rates.
The number of new-issue Arizona municipal bonds was down by
almost half of last year's level for the first five months of
1994. This is significantly greater shrinkage than the national
average, which dropped 38.3% from January through May, compared
with the same period in 1993. We believe this sharp reduction
in supply should work in concert with accelerating demand to
bring a gradual restoration of stability to municipal bond
prices.
MANAGING DURATION AND COUPON STRUCTURE
The driving forces behind most fixed-income returns are the
prevailing interest rate environment and the direction in which
rates are moving. Anticipating and responding to interest rate
movements in a way that can benefit the fund is our primary
challenge. It is also one of the most critical factors in fund
performance.
Overall, our strategy has been to shorten the duration of the
portfolio's holdings while seeking to increase the average
coupon or interest rate. Duration is a mathematical formula,
expressed in years, that indicates how much bond prices will
move up or down with each percentage-point shift in interest
rates. The shorter the duration, the less volatility you can
generally expect from the portfolio. In a rising interest rate
environment like the present one, keeping the portfolio's
duration relatively short can be instrumental in helping to
cushion the fund's net asset value against the impact of higher
rates.
TOP FIVE INDUSTRY SECOTRS*
- ---------------------------------------------------------------
- --
Health care 27.5%
Utilites 21.5%
Pollution control 9.9%
Transportation 9.7%
Housing 9.1%
- ---------------------------------------------------------------
- --
* Based on net assets on 8/31/94.
We used premium-coupon bonds to adjust the portfolio's average
duration. Prices of bonds tend to fall when interest rates
rise. This is especially true for bonds with coupons that are
lower than current interest rates and current-coupon bonds,
whose coupons are within half a percentage point of current
market rates. However, prices of premium-coupon bonds -- those
with coupons higher than current rates -- tend to be less
seriously affected. Their higher income stream represents a
greater portion of their return, and this provides at least a
temporary floor for their prices. Holding premium-coupon bonds
in a rising interest rate environment thus can help reduce
price volatility. Therefore, we sold some of the fund's
current-coupon bonds during the period and invested the
proceeds in premium-coupon securities. If rates decline, of
course, prices of premium-coupon bonds aren't as likely to rise
as far or as fast as lower-coupon bonds. There is also the risk
that they will be refinanced and have to be replaced by lower-
yielding investments.
PRIMARY FOCUS: HEALTH CARE, INDUSTRIAL REVENUE BONDS
The fund's sector strategy remains essentially unchanged.
Health care still plays a prominent role in performance, just
as it did when we reported to you at midyear. Our strategy is
to continue using Putnam's expertise in health care investing
to help identify promising opportunities within that growing
sector of the market.
Another part of our strategy is to seek out school districts
and other general obligation bonds in areas of the state where
there is economic strength. A notable addition in the past year
is the Scottsdale general obligation bond issue. It is a good
example of how our extensive credit research has enabled us to
capitalize on the stability of Arizona's government and its
strong and growing property tax base.
Top 10 Holdings (8/31/94)
- ---------------------------------------------------------------
- --
Arizona Health Facilities Authority Hospital System
revenue bonds
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- --
Tucson, Airport Authority, Inc.
special facility revenue bonds
- ---------------------------------------------------------------
- --
Gila County, Industrial Development Authority
pollution control revenue bonds
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- --
Salt River Project, Agricultural Improvement and
Power District electric revenue bonds
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- --
Phoenix, Civic Improvement Corp. Wastewater System
lease revenue bonds
- ---------------------------------------------------------------
- --
Maricopa County, Industrial Development Authority,
hospital facilities variable rate demand notes
- ---------------------------------------------------------------
- --
Pima County, Industrial Development Authority
revenue bonds
- ---------------------------------------------------------------
- --
Maricopa County, Industrial Development Authority
hospital facility revenue bonds
- ---------------------------------------------------------------
- --
Navajo County, Pollution Control Corp.
revenue bonds
- ---------------------------------------------------------------
- --
Tucson, water revenue bonds
- ---------------------------------------------------------------
- --
These holdings represent 38.4% of the fund's net assets.
Portfolio holdings are subject to change.
OUTLOOK: MORE SHORT-TERM VOLATILITY
Municipal bond prices will most likely remain somewhat
unsettled over the near term as investors watch the pace of
economic growth and the trend in interest rates. As investors
are able to put aside their fears of renewed inflation, they
should move back into the markets. We are convinced there is
much to be optimistic about in the municipal bond market, and
the market for tax-conscious Arizona investors is no exception.
Your fund is well positioned to take advantage of the
opportunities that will present themselves in the months ahead.
The views expressed about the issues mentioned in this report
are exclusively those of Putnam Management, and are not meant
as investment advice. Although the described holdings were
viewed favorably as of August 31, 1994, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your
fund's performance. Total return shows how the value of the
fund's shares changed over time, assuming you held the shares
through the entire period and reinvested all distributions back
into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might
have grown each year over varying periods. For comparative
purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 8/31/94
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LEHMAN
BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
- ---------------------------------------------------------------
- --
1 year -1.07% -5.75% -1.80% -6.46% 0.14% 2.90%
- ---------------------------------------------------------------
- --
Life of
class A(1) 30.63 24.49 -- -- 32.01 10.70
Annual average 7.73 6.29 -- -- 8.04 2.87
- ---------------------------------------------------------------
- --
Life of
class B(2) -- -- -0.36 -4.12 2.36 3.19
Annual average -- -- -0.32 -3.66 2.08 2.81
- ---------------------------------------------------------------
- --
</TABLE?
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
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- --
1 year -3.78% -8.39% -4.47% -9.01%
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- --
Life of class A(1) 28.69 22.64 -- --
Annual average 7.12 5.72 -- --
- ---------------------------------------------------------------
- --
Life of class B(2) -- -- -1.88 -5.57
Annual average -- -- -1.56 -4.63
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- --
<FN>
Fund performance data do not take into account any adjustment
for taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class
A distribution plan in 1993. (1)The fund began offering what
are now known as class A shares on 1/30/91. (2)Effective
7/15/93, the fund began offering class B shares. Performance
data represent past results and will differ for each class.
Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than
their original cost.
GROWTH OF A $10,000 INVESTMENT
[MOUNTAIN CHART]
Plot Points:
Fund's Lehman Bros. Consumer
Class A Municipal Price
Date/Year shares at POP Bond Index Index
- ---------------------------------------------------------------
- -
1/30/91 9525 10000 10000
8/31/91 10085 10569 10149
8/31/92 11281 11749 10468
8/31/93 12583 13183 10758
8/31/94 12434 13201 11070
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- -
Past performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on 7/15/93
would be valued at $9,964 by 8/31/94 ($9,588 with a redemption
at the end of the period).
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales
charge.
Class B shares may be subject to a sales charge upon
redemption.
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 class A share
plus the maximum sales charge levied at the time of purchase.
POP performance figures shown here assume the maximum 4.75%
sales charge.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares and assumes redemption at
the end of the period. Your fund's class B CDSC declines from a
5% maximum during the first year to 1% during the sixth year.
After the sixth year, the class B 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.
Consumer Price Index is a commonly used measure of inflation;
it does not represent an investment return.
<PAGE>
The Putnam Fund Selector(TM)
The Putnam Fund Selector shows the many opportunities for
investors within every investment strategy. All investors
should first accumulate a base of conservative, cash-equivalent
investments. Then, with the help of your investment advisor,
diversify your portfolio by investing in the Putnam Family of
Funds.
[Pyramid Artwork]
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds(+)
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios
that spread your money across a variety of stocks, bonds, and
money market investments to help maximize your return and
reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS(++)
Putnam money market funds:
Money Market Fund(S)
California Tax-Exempt Money Market Fund
Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts**
* Formerly Energy-Resources Trust.
(+) Not available in all states.
(++) Relative to above.
(S) Formerly Daily Dividend Trust.
** Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured, up to certain
limits, by federal/state agencies. Savings accounts may also be
insured up to certain limits.
Please call your financial advisor or Putnam to obtain a
prospectus for any Putnam fund. It contains more complete
information, including charges and expenses. Read it carefully
before you invest or send money.
<PAGE>
Report of independent accountants
For the fiscal year ended August 31, 1994
To the Trustees and Shareholders of
Putnam Arizona Tax Exempt Income Fund
We have audited the accompanying statement of assets and
liabilities of Putnam Arizona Tax Exempt Income Fund, including
the portfolio of investments owned, as of August 31, 1994, and
the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two
years in the period then ended and the "Financial Highlights"
for each of the three years in the period then ended and for
the period January 30, 1991 (commencement of operations) to
August 31, 1991 for class A shares and for the year ended
August 31, 1994 and the period July 15, 1993 (commencement of
operations) to August 31, 1993 for class B shares. These
financial statements and "Financial Highlights" are the
responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and
"Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements and "Financial Highlights" are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of August 31, 1994, by correspondence with
the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and "Financial
Highlights" referred to above present fairly, in all material
respects, the financial position of Putnam Arizona Tax Exempt
Income Fund as of August 31, 1994, and the results of its
operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and
the "Financial Highlights" for each of the three years in the
period then ended and for the period January 30, 1991
(commencement of operations) to August 31, 1991, for class A
shares and for the year ended August 31, 1994 and for the
period July 15, 1993 (commencement of operations) to August 31,
1993 for class B shares, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 18, 1994
<PAGE>
Portfolio of investments owned
August 31, 1994
</TABLE>
<TABLE><CAPTION>
MUNICIPAL BONDS AND NOTES (99.8%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
<C> <S> <C> <C>
Arizona (86.9%)
- ---------------------------------------------------------------
- --
$ 500,000 Apache Cnty., Pub. Fin.
Corp. Certif. of Participation,
5 1/2s, 5/1/10 A $451,875
AZ Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
1,965,000 (St. Luke's Hosp. Syst.),
Ser. A, 10 1/8s, 11/1/15 Ba 2,063,250
1,975,000 (Phoenix Mem. Hosp.),
8.2s, 6/1/21 BBB 2,115,719
1,500,000 (Phoenix Mem. Hosp.),
8 1/8s, 6/1/12 BBB 1,608,750
3,415,000 (St. Luke's Hlth. Syst.),
7 1/4s, 11/1/14 Ba 3,342,430
1,500,000 AZ State Certif. of
Participation Financial
Security Assurance Inc.
(FSA), 6 5/8s, 9/1/08 AAA 1,573,124
550,000 AZ State Muni. Fin.
Program Certif. of
Participation, Ser. 34,
Bond Investors Guaranty
Insurance, 7 1/4s, 8/1/09 AAA 618,062
2,500,000 AZ State Trans. Board Hwy.
Rev. Bonds, Ser. A,
6 1/2s, 7/1/11 Aaa 2,725,000
1,000,000 AZ State Wastewater Mgmt.
Auth. Rev. Bonds,
6.8s, 7/1/11 AA 1,062,500
1,500,000 AZ Student Loan Acquisition
Auth. Rev. Bonds, Ser. B,
6.6s, 5/1/10 A 1,505,624
2,140,000 Avondale, Muni. Dev. Corp.
Facs. Rev. Bonds, American
Municipal Bond Assurance
Corp., 8.85s, 7/1/13 AAA 2,257,700
1,000,000 Central AZ Wtr. Cons. Dist.
Contract Rev. Bonds (Central
AZ Project), Ser. A,
5 1/2s, 11/1/09 AA 956,250
500,000 Chandler, General Obligation
(G.O.) Bonds, Financial
Guaranty Insurance Co.
(FGIC), 7s, 7/1/12 AAA 545,625
750,000 Chandler, Wtr. & Swr. Rev.
Bonds, FGIC, 7s, 7/1/12 AAA 820,313
750,000 Cochise Cnty., U. School
Dist. No. 68 Rev. Bonds
(Sierra Vista), FGIC,
7 1/2s, 7/1/09 AAA 860,625
780,000 Douglas, Hsg. Fin. Corp.
Multi-Fam. Hsg. Rev. Bonds,
Ser. A, Federal Housing Auth.
(FHA), 7s, 1/1/24 AAA 804,375
6,880,000 Gila Cnty., Indl. Dev. Auth.
Poll. Control Rev. Bonds,
8.9s, 7/1/06 Baa 7,662,600
Gilbert, G.O. Bonds, Ser. C,
Municipal Bond Insurance Assn. (MBIA)
2,500,000 5 1/2s, 7/1/23 AAA 2,225,000
1,105,000 5 1/2s, 7/1/22 AAA 991,738
1,000,000 Gilbert, Wtr. & Swr. Rev.
Bonds, FGIC, 6 1/2s, 7/1/22 AAA 1,031,250
3,250,000 Greenlee Cnty., Indl. Dev.
Auth. Poll. Control Rev.
Bonds (Phelps Dodge Corp.
Project), 5.45s, 6/1/09 A 3,055,000
2,500,000 Maricopa Cnty., Indl.
Dev. Auth. Hlth. Fac.
Residual Interest Bonds
(RIBS), MBIA, 7.752s,
7/1/13 AAA 2,209,375
Maricopa Cnty., Indl. Dev.
Auth. Hlth. Fac. Rev. Bonds
(Catholic Healthcare),
MBIA, Ser. A
2,000,000 5 5/8s, 7/1/23 AAA 1,845,000
2,375,000 5 1/2s, 7/1/10 AAA 2,226,895
Maricopa Cnty., Indl. Dev.
Auth. Hosp. Fac. Rev. Bonds
600,000 (John C. Lincoln Hosp.),
FSA, 7 1/2s, 12/1/13 AAA 663,750
3,500,000 (Samaritan Hlth. Svcs.),
Ser. A, MBIA, 7s, 12/1/16 AAA 3,871,875
5,400,000 Maricopa Cnty., Indl. Dev.
Auth. Hosp. Fac. Variable Rate
Demand Notes (Samaritan Hlth.
Svcs. Hosp.), Ser. B2, MBIA,
3.15s, 12/1/08 VMIG1 5,400,000
1,670,000 Maricopa Cnty., Indl. Dev.
Auth. Multi-Fam. Hsg. Rev.
Bonds (Laguna Point Apt.
Project), 6 3/4s, 7/1/19 A 1,665,825
2,295,000 Maricopa Cnty., Indl. Dev.
Auth. Single Fam. Mtge. Rev.
Bonds, Ser. A, 7 1/2s,
8/1/12 AA 2,335,163
520,000 Maricopa Cnty., Poll.
Control Rev. Bonds (Pub. Svc.
Co. of New Mexico Palo-Verde),
7 3/4s, 11/1/09 BB 549,900
Mohave Cnty., Indl. Dev. Auth.
Hosp. Syst. Rev. Bonds
(Med. Environment Inc. &
Phoenix Hosp. & Med. Ctr.)
500,000 7s, 7/1/16 BAA 501,875
2,000,000 6 3/4s, 7/1/08 BAA 2,012,500
1,495,000 Mohave Cnty., Indl. Dev.
Auth. Multi-Fam. Rev. Bonds
(Copper Ridge Apts.), FHA,
7 3/8s, 4/1/32 AAA 1,592,175
365,000 Mohave Cnty., Indl. Dev.
Auth. Rev. Bonds
(Citizen Util. Project),
Ser. B, 7.05s, 8/1/20 AAA 394,200
5,000,000 Navajo Cnty., Poll. Control
Corp. Rev. Bonds (AZ Public
Svc. Co.), Ser. A, 5 7/8s,
8/15/28 Baa 4,468,750
1,000,000 Phoenix, Civic Impt. Corp.
Excise Tax Rev. Bonds
(Patriot Square Project),
FGIC, 5 1/2s, 7/1/08 AAA 968,750
Phoenix, Civic Impt. Corp.
Wastewater Syst. Lease Rev. Bonds
1,000,000 6 1/8s, 7/1/23 A 1,070,000
1,500,000 6s, 7/1/08 A 1,591,875
4,000,000 4 3/4s, 7/1/23 A 3,145,000
1,000,000 Phoenix, G.O. Bonds,
6 3/8s, 7/1/13 AA 1,025,000
Phoenix, Indl. Dev. Auth. Mtge.
Rev. Bonds (Chris Ridge Village
Project), FHA
2,150,000 6.8s, 11/1/25 AAA 2,184,938
400,000 6 3/4s, 11/1/12 AAA 409,500
1,000,000 Phoenix, Indl. Dev. Auth.
Rev. Bonds (Christian Care
Retirement Apts.), Ser. A,
10 1/4s, 1/1/18 B/P 1,055,000
1,000,000 Phoenix Indl. Dev. Auth.
Hosp. Rev. Bonds (John C.
Lincoln Hospital &
Healthcare), 6s, 12/1/14 BBB 920,000
2,525,000 Pima Cnty., Indl. Dev.
Auth. Hlth. Care Corp.
Rev. Bonds (Carondelet
Hlth. Care Corp.), MBIA,
5 1/4s, 7/1/11 AAA 2,307,219
1,345,000 Pima Cnty., Indl. Dev. Auth.
Multi-Fam. Rev. Bonds
(Rancho Mirage Project),
7.05s, 4/1/22 AA 1,387,031
5,000,000 Pima Cnty., Indl. Dev. Auth.
Rev. Bonds (Tucson Elec. Pwr.
Co., Irvington Project),
Ser. A, FSA, 7 1/4s,
7/15/10 AAA 5,393,750
1,000,000 Pima Cnty., School Dist.
No. 1 Rev. Bonds, FGIC,
7 1/2s, 7/1/08 AAA 1,162,500
Pinal Cnty., Certif. of Participation
750,000 7.9s, 6/1/01 BBB 770,625
2,000,000 6 1/2s, 6/1/09 AA 1,975,000
Pinal Cnty., Indl. Dev. Auth.
Rev. Bonds (Casa Grande Regl. Med. Ctr.)
2,040,000 9s, 12/1/13 BB/P 2,134,350
2,000,000 Ser. A, 8 1/8s, 12/1/22 BB/P 2,102,500
Salt River Project, Agricultural Impt. & Pwr.
Dist. Elec. Syst. Rev. Bonds
2,000,000 Ser. A, 6s, 1/1/31 AA 1,920,000
5,000,000 Ser. D, 5 3/4s, 1/1/19 AA 4,687,500
3,000,000 Salt River Project, Agricultural
Impt. & Pwr. Dist. Elec. Syst.
RIBS, 7.782s, 1/1/19
(acquired 3/16/93, cost
$3,015,719)(c) AA 2,692,500
2,250,000 Scottsdale, G.O. Bonds
(Projects of 1989),
Ser. E, 5 1/2s, 7/1/14 AA 2,075,625
1,000,000 Sedona, Certif. of
Participation,
7.2s, 4/1/12 BBB/P 1,001,250
Sierra Vista, Indl. Dev. Auth.
Hosp. Rev. Bonds (Sierra Vista
Cmnty. Hosp. Project)
1,800,000 8 3/4s, 12/1/16 BB/P 1,939,500
2,000,000 8 1/2s, 12/1/21 BBB/P 2,180,000
1,000,000 South Tucson, Muni. Property
Corp. Fac. Rev. Bonds,
8 1/2s, 6/1/05 BBB 1,120,000
1,025,000 Tucson & Pima Cntys., Indl.
Dev. Auths. Single Fam.
Mtge. Rev. Bonds,
9 3/8s, 2/1/14 BB 1,054,469
6,750,000 Tucson, Arpt. Auth. Inc.
Special Fac. Rev. Bonds
(Lockheed Aermod Ctr. Inc.),
8.7s, 9/1/19 A 7,720,313
725,000 Tucson, Certif. of
Participation, 6 3/8s,
7/1/09 AA 711,406
915,000 Tucson, Indl. Dev. Auth.
Multi-Fam. Rev. Bonds
(La Entrada), 7.4s, 7/1/26 AAA 967,613
1,500,000 Tucson, Street & Hwy. User
Rev. Bonds, Ser. B,
9 1/4s, 7/1/05 A 1,938,750
Tucson, Wtr. Rev. Bonds
300,000 Ser. D, FGIC, 9 3/4s,
7/1/10 AAA 412,875
1,500,000 6 1/2s, 7/1/16 A 1,545,000
2,500,000 Ser. A, 5 3/4s, 7/1/18 A 2,362,500
1,000,000 U. of AZ, Certif. of
Participation
(Telecommunications Syst.),
6 1/2s, 7/15/12 A 1,031,250
U. of AZ, Hosp. Rev. Bonds
(Med. Ctr. Corp.), MBIA
1,450,000 6 7/8s, 7/1/21 AAA 1,622,188
1,900,000 5s, 7/1/21 AAA 1,596,000
U. of AZ, Rev. Bonds
1,000,000 Ser. B, 6.9s, 6/1/16 AA 1,108,750
1,000,000 6 1/4s, 6/1/11 AA 1,023,750
------------
138,328,370
Guam (1.9%)
- ---------------------------------------------------------------
- --
$3,000,000 Guam Aprt. Auth. Rev.
Bonds, Ser. B, 6.6s,
10/1/10 BBB $3,018,750
Puerto Rico (7.6%)
- ---------------------------------------------------------------
- --
Cmnwlth. of Puerto Rico,
Aqueduct & Swr. Auth. Rev.
Bonds, Ser. A
300,000 7.9s, 7/1/07 A 334,500
2,500,000 7 7/8s, 7/1/17 A 2,778,125
2,700,000 Cmnwlth. of Puerto Rico,
RIBS, MBIA, 8.344s, 7/1/08 AAA 2,767,500
1,000,000 Puerto Rico, Elec. Pwr. Auth.
Rev. Bonds, 7s, 7/1/21 A 1,062,500
2,000,000 Puerto Rico, Hsg. Fin.
Corp. Single Fam. Mtge.
RIBS, Government National
Mortgage Assn. Coll.,
9.586s, 8/4/25 AAA 2,012,500
Puerto Rico, Pub. Bldg.
Auth. Ed. & Hlth. Fac. Rev. Bonds
1,375,000 Ser. H, 7 7/8s, 7/1/16 AAA 1,527,969
1,500,000 Ser. L, 6 7/8s, 7/1/21 AAA 1,695,000
----------
12,178,094
Virgin Islands (3.4%)
- ---------------------------------------------------------------
- --
5,100,000 Virgin Islands, Pub. Fin.
Auth. Rev. Bonds (Matching
Funds Loan Notes), Ser. A,
7 1/4s, 10/1/18 BBB/P 5,335,875
- ---------------------------------------------------------------
- --
Total Investments
(cost $158,204,624)(d) $158,861,089
- ---------------------------------------------------------------
- --
<FN>
(a) Percentages indicated are based on total net assets of
$159,197,146, which correspond to a net asset value per
share for class A and class B shareholders of $8.84 and
$8.83, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at August
31, 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 August 31, 1994. Securities rated by
Putnam are indicated by "/P" and are not publicly rated.
Ratings are not covered by the Report of Independent
Accountants.
(c) Restricted as to public resale. At the date of aquisition
this security was valued at cost. There were no
outstanding unrestricted securities of the same class as
those held. Total market value of restricted securities
owned at August 31, 1994 was $2,692,500 or 1.7% of net
assets.
(d) The aggregate identified cost for federal income tax
purposes is $158,437,894, resulting in gross unrealized
appreciation and depreciation of $4,259,784 and
$3,836,589, respectively, or net unrealized appreciation
of $423,195.
The rates shown on Variable Rate Demand Notes (VRDN) and
Residual Interest Bonds (RIBS) which are securities paying
variable interest rates that vary inversely to changes in
market interest rates, are the current interest rates at
August 31, 1994, which are subject to change based on the
term of the security.
The Fund had the following industry group concentrations
greater than 10% on August 31, 1994 (as a percentage of
net assets):
Health Care 27.5%
Utilities 21.5
</TABLE>
<PAGE>
Statement of assets and liabilities
August 31, 1994
<TABLE><CAPTION>
<S> <C>
Assets
- ---------------------------------------------------------------
- --
Investments in securities, at value
(identified cost $158,204,624) (Note 1) $158,861,089
Cash 459,193
Interest receivable 2,393,664
Receivable for shares of the fund sold 256,680
Receivable for securities sold 3,190,022
Unamortized organization expenses (Note 1) 16,223
Total assets $165,176,871
Liabilities
- ---------------------------------------------------------------
- --
Distributions payable to shareholders $218,266
Payable for securities purchased 5,157,295
Payable for shares of the fund repurchased 264,077
Payable for compensation of Manager (Note 2) 239,208
Payable for compensation of Trustees (Note 2) 2,143
Payable for investor servicing and
custodian fees (Note 2) 15,185
Payable for administrative services (Note 2) 1,501
Payable for distribution fees (Note 2) 61,184
Other accrued expenses 20,866
Total liabilities 5,979,725
Net assets $159,197,146
Represented by
- ---------------------------------------------------------------
- --
Paid-in capital (Notes 4 and 5) $160,898,650
Distributions in excess of net investment
income (Note 5) (5,215)
Accumulated net realized loss on
investment transactions and futures contracts (2,352,754)
Net unrealized appreciation of investments 656,465
- ---------------------------------------------------------------
- --
Total -- Representing net assets applicable
to capital shares outstanding $159,197,146
- ---------------------------------------------------------------
- --
Computation of net asset value and offering price
- ---------------------------------------------------------------
- --
Net asset value and redemption price of class A shares
($142,949,850 divided by 16,171,783 shares) $8.84
Offering price per share (100/95.25 of $8.84)* $9.28
Net asset value and redemption price of class B shares
($16,247,296 divided by 1,839,263 shares)+ $8.83
- ---------------------------------------------------------------
- --
<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.
</TABLE>
<PAGE>
Statement of operations
Year ended August 31, 1994
<TABLE><CAPTION>
<S> <C>
Tax exempt interest income $10,384,329
- ---------------------------------------------------------------
- --
Expenses:
- ---------------------------------------------------------------
- --
Compensation of Manager (Note 2) $952,641
Investor servicing and custodian fees (Note 2) 150,973
Compensation of Trustees (Note 2) 12,739
Reports to shareholders 11,001
Auditing 20,498
Legal 21,525
Administrative services (Note 2) 7,845
Postage 15,032
Registration fees 13,265
Distribution fees -- class A (Note 2) 298,388
Distribution fees -- class B (Note 2) 89,828
Amortization of organization expenses (Note 1) 10,669
Other 9,557
Total expenses 1,613,961
Net investment income 8,770,368
- ---------------------------------------------------------------
- --
Net realized loss on investments (Notes 1 and 3) (1,808,569)
Net realized loss on futures contracts (Notes 1 and 3) (5,022)
Net unrealized depreciation of investments and
futures contracts during the year (9,114,262)
Net loss on investments (10,927,853)
- ---------------------------------------------------------------
- --
Net decrease in net assets resulting from operations $(2,157,485)
- ---------------------------------------------------------------
- --
</TABLE>
<PAGE>
Statement of changes in net assets
- ---------------------------------------------------------------
- --
<TABLE><CAPTION>
<S> <C> <C>
Year ended August 31
- ---------------------------------------------------------------
- --
1994 1993
- ---------------------------------------------------------------
- --
Increase in net assets
- ---------------------------------------------------------------
- --
Operations:
Net investment income $8,770,368 $6,761,077
Net realized gain (loss) on
investments (1,808,569) 37,692
Net realized loss on futures
contracts (5,022) (5,991)
Net unrealized appreciation
(depreciation) of investments
and futures contracts (9,114,262) 6,344,925
- ---------------------------------------------------------------
- --
Net increase (decrease) in net assets
resulting from operations (2,157,485) 13,137,703
Distributions to shareholders from:
- ---------------------------------------------------------------
- --
Net investment income
Class A (8,146,391) (6,875,128)
Class B (518,597) (7,051)
Net realized gain on investments
Class A -- (611,999)
Class B -- --
In excess of net realized
gain on investments
- ---------------------------------------------------------------
- --
Class A (474,505) --
Class B (18,380) --
Increase from capital share
transactions (Note 4) 22,235,036 54,067,595
Total increase in net assets 10,919,678 59,711,120
Net assets
- ---------------------------------------------------------------
- --
Beginning of year 148,277,468 88,566,348
End of year (including distributions
in excess of net investment income
of $5,215 and $138,844, respectively) $159,197,146 $148,277,468
- ---------------------------------------------------------------
- --
</TABLE>
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
For the period
July 15, 1993
(commencement
Year ended of operations)
August 31 to August 31
- ---------------------------------------------------------------
- --
1994 1993
- ---------------------------------------------------------------
- --
Class B
- ---------------------------------------------------------------
- --
Net Asset Value, Beginning of Period $9.47 $9.39
- ---------------------------------------------------------------
- --
Investment Operations
Net Investment Income .45 .11
Net Realized and Unrealized Gain
(Loss) on Investments (.61) .03
- ---------------------------------------------------------------
- --
Total from Investment Operations (.16) .14
- ---------------------------------------------------------------
- --
Less Distributions from:
Net Investment Income (.45) (.06)
- ---------------------------------------------------------------
- --
Net Realized Gain on Investments -- --
- ---------------------------------------------------------------
- --
In excess of net realized gain
on investments (.03) --
- ---------------------------------------------------------------
- --
Total Distributions (.48) (.06)
- ---------------------------------------------------------------
- --
Net Asset Value, End of Period $8.83 $9.47
- ---------------------------------------------------------------
- --
Total Investment Return at
- ---------------------------------------------------------------
- --
Net Asset Value (%)(b) (1.80) 1.45(c)
- ---------------------------------------------------------------
- --
Net Assets, End of Period
(in thousands) $16,247 $2,974
- ---------------------------------------------------------------
- --
Ratio of Expenses to Average
Net Assets (%) 1.60 .19(c)
- ---------------------------------------------------------------
- --
Ratio of Net Investment
- ---------------------------------------------------------------
- --
Income to Average Net Assets (%) 4.82 .43(c)
Portfolio Turnover (%) 34.68 5.72
- ---------------------------------------------------------------
- --
<PAGE>
<C> <C> <C> <C>
For the period
January 30, 1991
(commencement
of operations)
Year ended August 31 to August 31
- ---------------------------------------------------------------
- --
1994 1993 1992 1991
- ---------------------------------------------------------------
- --
Class A
- ---------------------------------------------------------------
- --
$9.47 $9.07 $8.66 $8.50
- ---------------------------------------------------------------
- --
.51 .54(a) .57(a) .33(a)
(.61) .47 .42 .16
- ---------------------------------------------------------------
- --
(.10) 1.01 .99 .49
- ---------------------------------------------------------------
- --
(.50) (.55) (.57) (.33)
- ---------------------------------------------------------------
- --
-- (.06) (.01) --
- ---------------------------------------------------------------
- --
(.03) -- -- --
- ---------------------------------------------------------------
- --
(.53) (.61) (.58) (.33)
- ---------------------------------------------------------------
- --
$8.84 $9.47 $9.07 $8.66
- ---------------------------------------------------------------
- --
(1.07) 11.54 11.85 5.84(c)
- ---------------------------------------------------------------
- --
$142,950 $145,304 $88,566 $46,902
- ---------------------------------------------------------------
- --
.97 .89 .58(a) .16(a)(c)
- ---------------------------------------------------------------
- --
5.55 5.82 6.34(a) 3.91(a)(c)
34.68 5.72 31.84 12.46(c)
- ---------------------------------------------------------------
- --
<FN>
(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) Not annualized.
</TABLE>
<PAGE>
Notes to financial statements
August 31, 1994
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. 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 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 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 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. The amount and character of income and gains to
be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include treatment of amortization
of organizational costs and market discount. 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
August 31, 1994, the Fund reclassified $11,867 to decrease
distributions in excess of net investment income, $1,865 to
increase accumulated net realized loss, and $10,002 to decrease
paid in-capital.
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 and 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 any
excess over $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 year ended August 31, 1994,
the fund paid $7,845 for these services.
Trustees of the fund receive an annual Trustee's fee of $710
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 year ended August 31, 1994, amounted to $150,973.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended August 31, 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 the
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 year
ended August 31, 1994, the fund paid Putnam Mutual Funds Corp.
distribution fees of $298,388 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 year ended August 31,
1994, Putnam Mutual Funds Corp., acting as the underwriter,
received $1,639 on such redemptions.
During the year ended August 31, 1994, Putnam Mutual Funds
Corp., acting as an underwriter, received net commissions of
$59,472 from the sale of class A shares of the fund.
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 year ended August 31, 1994, the fund paid
Putnam Mutual Funds Corp. distribution fees of $89,828 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
$309,154 in any contingent deferred sales charges from such
redemptions during the year ended August 31, 1994.
Note 3
Purchases and sales of securities
During the year ended August 31, 1994, purchases and sales of
investment securities other than short-term municipal
obligations aggregated $101,294,051, and $78,170,836,
respectively. There were no purchases and sales of short-term
municipal obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on
the identified cost basis.{noteb}The following is a summary of
futures contracts activity during the year ended August 31,
1994.
<PAGE>
<TABLE><CAPTION>
<S> <C> <C>
Sales of Futures Contracts
- ---------------------------------------------------------------
- --
Number of Aggregate
Contracts Face Value
- ---------------------------------------------------------------
- --
Contracts opened 470 $47,879,650
Contracts closed (470) (47,879,650)
Open at end of year -- $--
- ---------------------------------------------------------------
- --
</TABLE>
Note 4
Capital shares
At August 31, 1994, there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, class
A and class B capital shares. Transaction in capital shares
were as follows:
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Year ended August 31
- ---------------------------------------------------------------
- --
1994 1993
- ---------------------------------------------------------------
- --
Class A Shares Amount Shares Amount
- ---------------------------------------------------------------
- --
Shares sold 3,092,943 $28,751,671 6,706,299 $61,485,594
Shares issued in
connection with
reinvestment of
distributions 464,189 4,269,836 367,991 3,386,744
- ---------------------------------------------------------------
- --
3,557,132 33,021,507 7,074,290 64,872,338
- ---------------------------------------------------------------
- --
Shares
repurchased (2,730,191) (24,893,724) (1,495,084) (13,752,962)
- ---------------------------------------------------------------
- --
Net increase 826,941 $8,127,783 5,579,206 $51,119,376
- ---------------------------------------------------------------
- --
July 15, 1993
Year ended (commencement of
August 31 operations) to
1994 August 31, 1993
- ---------------------------------------------------------------
- --
Class B Shares Amount Shares Amount
- ---------------------------------------------------------------
- --
Shares sold 1,640,165 $15,144,133 313,697 $2,945,774
Shares issued in
connection with
reinvestment of
distributions 31,774 288,584 302 2,845
- ---------------------------------------------------------------
- --
1,671,939 15,432,717 313,999 2,948,619
- ---------------------------------------------------------------
- --
Shares repurchased (146,633) (1,325,464) (42) (400)
- ---------------------------------------------------------------
- --
Net increase 1,525,306 $14,107,253 313,957 $2,948,219
- ---------------------------------------------------------------
- --
</TABLE>
Note 5
Reclassification of Capital Accounts
Effective September 1, 1993, the Putnam Arizona Tax Exempt
Income Fund has adopted the provisions of Statement of
Positions (SOP) 93-2 "Determination, Disclosure and Financial
Statement Presentation of Income, Capital Gain and Return of
Capital Distributions by Investment Companies." 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 cumulative amounts necessary to
report these balances through August 31, 1993, the close of the
fund's prior fiscal year end and for financial reporting and
tax purposes.
<PAGE>
Federal tax information
The fund has designated all dividends paid from net investment
income during the fiscal period as exempt-interest dividends.
Thus, 100% of these dividends are exempt from federal income
tax. For residents of Arizona, 100% of the fund's dividends are
also exempt from Arizona state income tax.
During the fiscal year, the fund distributed $0.03 for both
class A and class B shares from short-term capital gains
constituting "dividend income" for federal income tax purposes.
The Form 1099 you receive in January 1995 will show the tax
status of any taxable distributions paid to your account in
calendar 1994.
<PAGE>
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
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard K. Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
Paul M. 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, and the most
recent Putnam Quarterly Performance Summary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
855-235/14157
<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 names 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 symbols are omitted.
(6) Page Numbering is different.
