Putnam
Arizona
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
Putnam Arizona Tax Exempt Income Fund's recently concluded semiannual
period coincided with one of the more anxiety-driven times in recent
memory. Uncertainties generated by the Federal Reserve Board's
interest-rate policy, the slowing pace of the economy, and the aftermath
of the U.S. presidential election contributed to the general sense of
unease.
Typically, in such an environment, investors are drawn to the relative
security of fixed-income investments. In this case, they have also been
increasingly drawn to the tax advantages of municipal bonds, helping to
boost demand in the face of a diminishing supply. Consequently, your
fund, which had been under some pressure for much of its 2000 fiscal
year, begins fiscal 2001 with solid performance.
Seasoned investors realize that uncertainties such as we have recently
experienced are usually transitory. Your fund's manager, Susan
McCormack, successfully positioned the fund to benefit as the market
encountered a more favorable climate. We are confident that her
strategies will enable the fund to take full advantage of the
opportunities available in fiscal 2001.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 17, 2001
REPORT FROM FUND MANAGEMENT
Susan A. McCormack
The past six months have been difficult for investors in the stock
market, with an unprecedented amount of volatility sparked by a slowdown
in the economy. The municipal bond market anticipated the beginning of
the economy's slowdown and delivered significantly better performance to
fixed-income investors who maintained their positions. Putnam Arizona
Tax Exempt Income Fund was no exception. Throughout the six months ended
November 30, 2000, we remained focused on generating a high rate of
tax-exempt income, but also took advantage of opportunities to boost
the fund's total return.
Total return for 6 months ended 11/30/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
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6.38% 1.28% 6.15% 1.15% 6.33% 2.84%
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Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* ECONOMY MODERATES, FED SHIFTS STANCE
For the first five months of the year, the Federal Reserve Board was
absorbed in an agenda of raising interest rates in an effort to slow
economic growth. The last interest-rate hike came in May, when the
benchmark federal funds target rate on overnight loans among banks rose
by one-half of a percentage point. Since then, economic indicators have
shown that growth has slowed significantly and now appears to be running
at approximately 3% annually. In October, for example, factory orders
fell 3.3%, the first decline in three months, according to the U.S.
Commerce Department. Furthermore, there are some signs that unemployment
may be creeping upward, while productivity appears to be steady.
Just after the close of your fund's semiannual period, Fed Chairman Alan
Greenspan signaled a change in the Fed's stance on interest rates,
indicating that it was more concerned with the slowing economy than with
an outbreak in inflation. In January, in a surprise move, the Fed
lowered rates by one half of one percentage point, the first decrease in
almost two years.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/
health care 27.3%
Education 14.9%
Transportation 14.7%
Housing 10.5%
Pollution
control 9.4%
Footnote reads:
*Based on net assets as of 11/30/00. Holdings will vary over time.
* PERFORMANCE AND OPPORTUNITY
For much of 2000, the municipal bond market anticipated a slowdown in
the economy and consequently, delivered better performance despite the
Fed's string of interest-rate increases. Over much of the past six
months we began to see positive total returns as interest rates in the
municipal market have peaked and fallen. In tandem with declining
interest rates and strong demand for high-quality bonds, the AAA sector
of the municipal market has benefited the most. As a result, we
witnessed a dramatic difference in yield (known as yield spread)
between the highest-rated and lowest-rated municipal bonds.
As investors have moved into higher-quality municipal bonds, pushing up
their prices, the prices of lower-rated bonds have lagged. In the past,
we've stated that it has been our strategy to increase the lower-rated
holdings in your fund's portfolio. This price drop created an unusual
opportunity for us to invest in a greater number of lower-rated bonds at
attractive prices.
We still believe that the lower-rated sector is a good place to be
invested -- that the fall in lower-rated bond prices is not due to
rising defaults or a looming recession, but simply reflects earlier cash
flow out of municipal bond funds. When investors leave a market (such as
they did before the equity markets became troubled in March)
lower-credit securities are generally the first to be sold. However,
there is a positive aspect to waiting for lower-rated credit sectors to
perform better. Investors receive attractive income levels while they
wait. With better performance in the general municipal bond market,
extremely low valuations in the lower-rated sectors, and the return of
many investors to the municipal market, we have begun to see signs that
credit yield spreads have peaked and are beginning to narrow.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 56.5%
Aa/AA -- 11.1%
A -- 4.5%
Baa/BBB -- 18.8%
Ba/BB and under -- 9.1%
Footnote reads:
*As a percentage of market value as of 11/30/00. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
"For investors tired of seesawing in the stock market, some cautious
investment in bonds may be just the ticket."
-- Business Week, November 15, 2000
* PORTFOLIO STRATEGIES
Your fund is designed to seek a high level of tax-free income. In
pursuit of this objective, we have used two primary strategies over the
past six months. First, we continued to selectively add higher-yielding,
lower-rated bonds to the portfolio. Second, we opportunistically
purchased bonds that we believe will perform well when interest rates
start to decline.
When investing in the high-yield sector, Putnam's extensive research
capabilities help us to identify and carefully analyze such bonds,
allowing us to purchase with a higher degree of confidence undervalued
securities as well as securities whose current ratings may not
accurately reflect their performance potential. Putnam's in-depth
analytical expertise has become even more important to the fund's
management in recent months, since the economy's ongoing expansion has
severely limited new bond issuance and made it more challenging to
find appropriate additions for the portfolio.
In fact, virtually no new high-yield bond issues have come to market in
Arizona over the past year. In response to the lack of traditional
high-yield supply, we have uncovered a new source of higher-yielding
debt: insured bonds where the underlying credit may not be considered as
strong as the typical insured bond. For example, we recently purchased
bonds issued by the Tucson Industrial Development Authority for the
Christian Care Project, a company that operates senior-citizen housing
complexes. This particular project funded the purchase of a
six-hundred-unit apartment building that Christian Care then transformed
into an independent living center for seniors. The bonds, which carry an
AA rating from Standard & Poors, pay a 6% coupon, higher than the
yields typically offered by insured bonds.
"We continue to believe that the fund's higher-yielding holdings are well
positioned for price gains, especially as the Fed moves toward a more
bond-friendly stance. When interest rates begin to drop, more mutual fund
managers will reach for additional yield to keep up their portfolios'
income streams. This increase in demand should have a very favorable effect
on the high-yield end of the municipal market."
-- Susan McCormack, portfolio manager, Putnam Arizona Tax Exempt Income Fund
Another facet of our investment strategy was to purchase high-quality
bonds that mature further in the future. As investors' appetite for
higher-quality bonds continued to build, bonds with the highest credit
ratings strengthened. When it became clear that stock-market volatility
would not end soon, we searched for high-quality long-term bonds with
low or discount coupons and longer call dates. Discount coupon bonds,
those selling at prices below par or face value, tend to perform best
when interest rates are declining. The longer-term call structure of
these bonds offered your fund a greater measure of call protection.
Many bonds carry the option of being called back by the issuer at a
specific date, should interest rate levels favor such a move. For
example, the fund took a position in Phoenix general obligation bonds
rated AA1 by Moody's and AA+ by Standard & Poors. These bonds are paying
a healthy 5.25% rate of interest and do not mature until 2022. The
economy's long- running expansion has given municipal tax-backed bonds
like this one strong financial standing.
* CAUTIOUSLY OPTIMISTIC OUTLOOK
In the coming months, the Fed is likely to continue lowering rates if
the equity markets remain volatile and the economy continues to slow
down. As performance improves in the municipal bond market, the
investments in your fund, especially the bonds at the lower end of the
rating spectrum, offer the opportunity for increased tax-exempt income
and the potential for price appreciation.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/00, there is no guarantee the fund
will continue to hold these securities in the future.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you prefer to receive your own copy, please call
Putnam at 1-800-225-1581.
PERFORMANCE SUMMARY
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
Arizona Tax Exempt Income Fund is designed for investors seeking high
current income free from federal and Arizona income taxes, consistent
with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 11/30/00
Class A Class B Class M
(inception dates) (1/30/91) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
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6 months 6.38% 1.28% 6.15% 1.15% 6.33% 2.84%
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1 year 6.68 1.57 6.10 1.10 6.47 3.06
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5 years 23.15 17.30 19.64 17.72 21.45 17.51
Annual average 4.25 3.24 3.65 3.32 3.96 3.28
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Life of fund 80.20 71.72 68.35 68.35 74.56 68.90
Annual average 6.17 5.65 5.44 5.44 5.83 5.48
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/00
Lehman Brothers Consumer
Municipal Bond Index price index
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6 months 7.08% 1.57%
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1 year 8.18 3.44
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5 years 30.88 13.26
Annual average 5.53 2.52
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Life of fund 95.28 29.42
Annual average 7.04 2.66
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Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-year, 5- and
10-year, if available, and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B and class
M shares the higher operating expenses applicable to such shares. All
returns assume reinvestment of distributions at NAV. Investment return
and principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost. Performance
reflects an expense limitation currently or previously in effect. Had it
not been in effect, the fund's total returns would have been lower.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/00
Class A Class B Class M
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Distributions (number) 6 6 6
------------------------------------------------------------------------------
Income 1 $0.231222 $0.201877 $0.218011
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Capital gains 1 -- -- --
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Total $0.231222 $0.201877 $0.218011
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Share value: NAV POP NAV NAV POP
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5/31/00 $8.54 $8.97 $8.53 $8.55 $8.84
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11/30/00 8.85 9.29 8.85 8.87 9.17
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Current return (end of period)
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Current dividend rate 2 5.30% 5.05% 4.62% 5.00% 4.83%
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Taxable equivalent 3 9.24 8.80 8.05 8.72 8.42
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Current 30-day SEC yield 4 4.96 4.73 4.30 4.66 4.51
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Taxable equivalent 3 8.65 8.25 7.50 8.13 7.87
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1 Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may be
subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 42.64% federal and state combined tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/00 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (1/30/91) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
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6 months 5.96% 0.98% 5.73% 0.73% 5.91% 2.51%
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1 year 10.23 4.98 9.63 4.63 10.00 6.42
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5 years 24.45 18.57 20.77 18.83 22.60 18.63
Annual average 4.47 3.47 3.85 3.51 4.16 3.48
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Life of fund 84.07 75.41 71.87 71.87 78.25 72.47
Annual average 6.34 5.83 5.61 5.61 6.00 5.65
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Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Performance
reflects an expense limitation currently or previously in effect. Had it
not been in effect, the fund's total return would have been lower.
Investment returns and principal value will fluctuate so that an
investor's shares when sold may be worth more or less than their
original cost. See first page of performance section for performance
calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year, the
CDSC no longer applies.
COMPARATIVE BENCHMARKS
The Lehman Brothers Municipal Bond Index is an index of approximately
20,000 investment-grade, fixed-rate tax-exempt bonds. Securities indexes
assume reinvestment of all distributions and interest payments and do
not take into account brokerage fees or taxes. Securities in the fund do
not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
November 30, 1000 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
CLI Insd. -- Connie Lee Insurance Insured
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FHLMC Coll. -- Federal Home Loan Mortgage Corporation Collateralized
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.0%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Arizona (87.2%)
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AZ State Hlth. Fac. Auth. Hosp. Syst. Rev. Bonds
$ 975,000 (Phoenix Mem. Hosp.), 8.2s, 6/1/21 BB $ 970,125
1,500,000 (Phoenix Children's Hosp.), Ser. A, 6 1/8s,
11/15/22 A2 1,503,750
3,000,000 (Northern AZ Healthcare Syst.), AMBAC,
4 3/4s, 10/1/30 Aaa 2,561,250
AZ State Hlth. Fac. Auth. Rev. Bonds
(Bethesda Foundation), Ser. A
2,000,000 6.4s, 8/15/27 BB/P 1,762,500
1,315,000 6 3/8s, 8/15/15 BB/P 1,209,800
1,500,000 AZ State Student Loan Acquisition Auth. Rev.
Bonds, Ser. B, 6.6s, 5/1/10 Aa1 1,565,625
500,000 AZ State U. Rev. Bonds, FGIC, 5 7/8s, 7/1/25 Aaa 514,375
1,000,000 AZ State Wtr. Consv. Dist. Contract Rev. Bonds
(Central AZ Project), Ser. A, 5 1/2s, 11/1/10 AA- 1,056,250
1,450,000 Chandler, G.O. Bonds, FGIC, 8s, 7/1/10 Aaa 1,801,625
1,100,000 Chandler, St. & Hwy. Rev. Bonds, MBIA, 8s, 7/1/11 Aaa 1,383,250
2,150,000 Chandler, Wtr. & Swr. Rev. Bonds, FGIC, 8s, 7/1/14 (SEG) Aaa 2,741,250
Cochise Cnty., Indl. Dev. Rev. Bonds
1,995,000 (Sierra Vista Cmnty. Hosp.) Ser. B, 8 1/2s, 12/1/21 AAA 2,099,738
2,485,000 (Sierra Vista Cmnty. Hosp.) Ser. C, 8 1/4s, 12/1/14 AAA 2,668,269
1,100,000 (Sierra Vista Regl. Hlth.), Ser. A, 6.2s, 12/1/21 BBB-/P 963,875
Coconino Cnty., Poll. Control Rev. Bonds
(Nevada Power Co.)
4,000,000 6 3/8s, 10/1/36 BBB 3,885,000
3,000,000 Ser. B, 5.8s, 11/1/32 BBB 2,673,750
1,000,000 Gilbert, Wtr. & Swr. Rev. Bonds, FGIC, 6 1/2s,
7/1/22 Aaa 1,052,500
1,000,000 Glendale, Indl. Dev. Auth. Edl. Fac. Rev. Bonds,
CLI Insd., 7 1/8s, 7/1/20 AAA 1,115,000
1,250,000 Glendale, Wtr & Swr Rev. Bonds, FGIC,
5 3/4s, 7/1/10 Aaa 1,346,875
4,000,000 Maricopa Cnty., Hosp. Rev. Bonds (Sun Health
Corp.), 6 1/8s, 4/1/18 Baa1 3,870,000
3,500,000 Maricopa Cnty., Indl. Dev. Auth. Hosp. Fac. Rev.
Bonds (Samaritan Hlth. Svcs.), Ser. A, MBIA,
7s, 12/1/16 Aaa 4,138,750
Maricopa Cnty., Indl. Dev. Auth. Multi-Fam.
Hsg. Rev. Bonds
2,670,000 (Laguna Point Apt.), 6 3/4s, 7/1/19 A 2,813,513
1,000,000 (Villas at Augusta Project), GNMA Coll.,
5.95s, 10/20/40 Aaa 1,002,500
5,000,000 Maricopa Cnty., Poll. Control Rev. Bonds
(Public Service Co.), Ser. A, 6.3s, 12/1/26 Baa3 4,862,500
Maricopa Cnty., School Dist. G.O. Bonds
2,000,000 (Dist. No. 69 Paradise Valley), Ser. B, MBIA,
7s, 7/1/12 Aaa 2,367,500
1,500,000 (Dist. No. 69 Paradise Valley), MBIA, 6.35s, 7/1/10 Aaa 1,678,125
3,175,000 Ser. C, FSA, 6 1/4s, 7/1/14 Aaa 3,524,250
1,500,000 Mesa, Indl. Dev. Auth. Rev. Bonds (Discovery
Hlth. Syst.), Ser. A, 5 3/4s, 1/1/25 AAA 1,518,750
1,000,000 Mesa, Util. Syst. Rev. Bonds, FGIC, 7 1/4s, 7/1/12 Aaa 1,206,250
1,425,000 Mohave Cnty., Indl. Dev. Auth. Multi-Fam. Mtge.
Rev. Bonds (Coopers Ridge Apts.), FHA Insd.,
7 3/8s, 4/1/32 AAA 1,503,375
1,725,000 Northern AZ U. Rev. Bonds, FGIC, 6 1/2s, 6/1/09 Aaa 1,940,625
Phoenix, G.O. Bonds
1,000,000 6 3/8s, 7/1/13 Aa1 1,041,250
1,000,000 6s, 7/1/10 Aa1 1,075,000
1,000,000 5 3/8s, 7/1/25 Aa1 988,750
1,000,000 5 1/4s, 7/1/22 Aa1 976,250
1,300,000 4 3/4s, 7/1/23 Aa1 1,145,625
1,600,000 Phoenix, Hsg. Fin. Corp. Mtge. Rev. Bonds, Ser. A,
MBIA, 6.9s, 1/1/23 Aaa 1,640,000
Phoenix, Indl. Dev. Auth. Rev. Bonds
1,000,000 (Mission Place, Etc. Projects), Ser. A-1, GNMA
Coll. FHA Insd., 7 1/2s, 7/20/35 AAA 1,127,500
2,150,000 (Chris Ridge Village), FHA Insd., 6.8s, 11/1/25 AAA 2,211,813
3,845,000 Phoenix, Rev. Bonds (Civic Impt. Corp.), Ser. 405,
6.6s, 7/1/15 (acquired 8/7/98, cost $4,056,744) (RES) AAA/P 3,873,838
1,000,000 Phoenix, Wastewater Syst. Rev. Bonds
(Civic Impt. Corp.), FGIC, 6s, 7/1/24 Aaa 1,042,500
1,635,000 Pima Cnty., Indl. Dev. Auth. Single Fam. Mtge.
Rev. Bonds, FHLMC Coll., GNMA Coll.,
FNMA Coll., Ser. B, 6.95s, 11/1/23 AAA 1,716,750
700,000 Pima Cnty., Indl. Dev. Auth. VRDN
(Tucson Elec. Pwr. Co.-Irvington), Ser. A,
4.2s, 10/1/22 VMIG1 700,000
1,000,000 Pima Cnty., School Dist. No. 1 Rev. Bonds,
FGIC, 7 1/2s, 7/1/08 Aaa 1,180,000
2,000,000 Pinal Cnty., COP, 6 1/2s, 6/1/09 AA 2,077,500
2,000,000 Pinal Cnty., Indl. Dev. Auth. Rev. Bonds
(Casa Grande Regl. Med. Ctr.), Ser. A,
8 1/8s, 12/1/22 B/P 1,970,000
1,140,000 Scottsdale, G.O. Bonds, 5 1/2s, 7/1/12 Aa1 1,201,275
1,000,000 Scottsdale, Indl. Dev. Auth. Hosp. Rev. Bonds
(Scottsdale Memorial Hosp.), Ser. A,
AMBAC, 6 1/8s, 9/1/17 Aaa 1,050,000
4,000,000 Scottsdale, Indl. Dev. Auth. Rev. Bonds
(First Mtge. Westminster Village), Ser. A,
8 1/4s, 6/1/15 BB-/P 4,185,000
1,000,000 Sedona, COP, 7.2s, 4/1/12 BBB/P 1,010,000
4,000,000 Tucson, Arpt. Auth. Special Fac. Rev. Bonds
(Lockheed Aermod Ctr., Inc.), 8.7s, 9/1/19 Baa3 4,090,000
830,000 Tucson, Indl. Dev. Auth. Multi-Fam. Rev. Bonds
(La Entrada), FHA Insd., 7.4s, 7/1/26 AAA 859,930
1,000,000 Tuscon, Indl. Dev. Auth. Sr. Living Fac. Rev. Bonds
(Christian Care Project), Ser. A, 6s, 7/1/30 AA 995,000
2,000,000 Tuscon, St. & Hwy. User Rev. Bonds, MBIA,
6s, 7/1/10 Aaa 2,192,500
U. of AZ COP
1,000,000 (Telecommunications Syst.), 6 1/2s, 7/15/12 A2 1,048,750
2,000,000 (U. of AZ Parking & Student Hsg.), AMBAC,
5 3/4s, 6/1/24 AAA 2,037,497
1,000,000 U. of AZ Rev. Bonds, 6 1/4s, 6/1/11 AA 1,041,250
-------------
105,778,923
Guam (0.8%)
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1,000,000 Guam, Pwr. Auth. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 10/1/29 Aaa 958,750
Puerto Rico (10.0%)
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1,000,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 6 1/4s, 7/1/12 Aaa 1,142,500
5,470,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. 396, 7.1s, 7/1/09 (acquired 7/30/98,
cost $6,353,624) (RES) AAA/P 6,297,338
1,500,000 Cmnwlth. of PR, Pub. Bldg. Auth. Gtd. Ed. &
Hlth. Fac. Rev. Bonds, Ser. L, 6 7/8s, 7/1/21 Aaa 1,586,250
1,000,000 PR Indl. Tourist Edl. Med. & Env. Control Fac.
Rev. Bonds (Cogen Facs.--AES Project),
6 5/8s, 6/1/26 Baa2 1,046,250
2,000,000 PR Muni. Fin Agcy. G.O. Bonds, Ser. A, FSA,
5 1/2s, 8/1/23 AAA 2,025,000
-------------
12,097,338
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $117,564,245) (b) $ 118,835,011
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $121,234,153.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at November 30, 2000, 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 November 30, 2000. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $117,564,245,
resulting in gross unrealized appreciation and depreciation of
$3,626,484 and $2,355,718, respectively, or net unrealized appreciation
of $1,270,766.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 2000,
was $10,171,176 or 8.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at November 30, 2000.
The rates shown on VRDNs are the current interest rates at November 30, 2000.
The fund had the following industry group concentrations greater than 10% at November 30, 2000
(as a percentage of net assets):
Health care 27.3%
Education 14.9
Transportation 14.7
Housing 10.5
The fund had the following insurance concentrations greater than 10% at November 30, 2000
(as a percentage of net assets):
MBIA 12.8%
FGIC 10.1
------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
------------------------------------------------------------------------------
Muni Bond Index
(Short) $2,122,969 $2,082,309 Dec-00 $(40,660)
Muni Bond Index
(Short) 201,125 199,619 Mar-01 (1,506)
------------------------------------------------------------------------------
$(42,166)
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $117,562,760) (Note 1) $118,835,011
-------------------------------------------------------------------------------------------
Cash 174,548
-------------------------------------------------------------------------------------------
Interest and other receivables 2,713,111
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 102,261
-------------------------------------------------------------------------------------------
Total assets 121,824,931
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 13,585
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 153,546
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 166,946
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 151,690
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 20,240
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,448
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,291
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 49,892
-------------------------------------------------------------------------------------------
Other accrued expenses 20,140
-------------------------------------------------------------------------------------------
Total liabilities 590,778
-------------------------------------------------------------------------------------------
Net assets $121,234,153
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $122,428,270
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 467,576
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,891,778)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,230,085
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $121,234,153
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($97,244,646 divided by 10,982,047 shares) $8.85
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.85)* $9.29
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($23,259,480 divided by 2,629,129 shares) + $8.85
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($730,027 divided by 82,301 shares) $8.87
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.87)** $9.17
-------------------------------------------------------------------------------------------
* 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.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Six months ended November 30, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $3,790,649
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 304,877
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 65,924
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,622
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,724
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 92,615
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 120,426
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,911
-------------------------------------------------------------------------------------------
Other 29,801
-------------------------------------------------------------------------------------------
Total expenses 623,900
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (42,410)
-------------------------------------------------------------------------------------------
Net expenses 581,490
-------------------------------------------------------------------------------------------
Net investment income 3,209,159
-------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 60,954
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (51,851)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 4,290,513
-------------------------------------------------------------------------------------------
Net gain on investments 4,299,616
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,508,775
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
November 30 May 31
2000* 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 3,209,159 $ 6,736,738
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 9,103 (372,770)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 4,290,513 (9,950,451)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 7,508,775 (3,586,483)
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (2,428,185) (5,239,775)
--------------------------------------------------------------------------------------------------
Class B (650,078) (1,447,275)
--------------------------------------------------------------------------------------------------
Class M (18,928) (39,688)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (2,784,819) (12,334,418)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,626,765 (22,647,639)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 119,607,388 142,255,027
--------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $467,576 and $355,608, respectively) $121,234,153 $119,607,388
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.54 $9.22 $9.32 $9.03 $8.84 $9.01
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .24 .47 (c) .44 (c) .44 .46 .47
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.68) (.11) .29 .19 (.17)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .54 (.21) .33 .73 .65 .30
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.47) (.43) (.44) (.46) (.47)
------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.43) (.44) (.46) (.47)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.85 $8.54 $9.22 $9.32 $9.03 $8.84
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.38* (2.28) 3.57 8.28 7.52 3.38
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $97,245 $90,602 $108,205 $120,649 $122,743 $126,716
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .44* .86 (c) .84 (c) .99 .98 1.03
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.72* 5.34 (c) 4.71 (c) 4.76 5.11 5.20
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.48* 11.44 21.60 29.63 73.61 108.68
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $.01 per share for each class.
Expenses for the year ended May 31, 1999, reflect a reduction of $.02,
$.01 and $.01 per share for class A, class B and class M, respectively.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.53 $9.21 $9.30 $9.02 $8.82 $9.00
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .21 .41 (c) .38 (c) .38 .40 .41
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 (.68) (.10) .28 .20 (.18)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .52 (.27) .28 .66 .60 .23
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.41) (.37) (.38) (.40) (.41)
------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.41) (.37) (.38) (.40) (.41)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.85 $8.53 $9.21 $9.30 $9.02 $8.82
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.15* (2.93) 3.01 7.47 6.94 2.60
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,259 $28,157 $33,480 $32,046 $28,340 $24,050
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .76* 1.51 (c) 1.49 (c) 1.64 1.63 1.67
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.39* 4.69 (c) 4.09 (c) 4.10 4.44 4.52
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.48* 11.44 21.60 29.63 73.61 108.68
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $.01 per share for each class.
Expenses for the year ended May 31, 1999, reflect a reduction of $.02,
$.01 and $.01 per share for class A, class B and class M, respectively.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 July 3, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.55 $9.23 $9.33 $9.04 $8.85 $8.86
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .23 .44 (c) .41 (c) .41 .43(d) .41
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .31 (.68) (.11) .30 .19 (.02)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .54 (.24) .30 .71 .62 .39
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.44) (.40) (.42) (.43) (.40)
------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.40) (.42) (.43) (.40)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.87 $8.55 $9.23 $9.33 $9.04 $8.85
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.33* (2.57) 3.26 7.96 7.19 4.44*
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $730 $849 $570 $521 $503 $293
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .59* 1.16 (c) 1.14 (c) 1.29 1.28 1.09*
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.58* 5.08 (c) 4.44 (c) 4.47 4.75 4.28*
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.48* 11.44 21.60 29.63 73.61 108.68
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $.01 per share for each class.
Expenses for the year ended May 31, 1999, reflect a reduction of $.02,
$.01 and $.01 per share for class A, class B and class M, respectively.
(d) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
November 30, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Arizona Tax Exempt Income Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a non-diversified,
open-end management investment company. The fund seeks as high a level
of current income exempt from federal income tax and Arizona state
income tax as Putnam Investment Management, LLC ("Putnam Management"),
the fund's manager, a wholly-owned subsidiary of Putnam Investments,
Inc. believes, is consistent with preservation of capital by investing
primarily in a portfolio of Arizona tax exempt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is higher than class A but lower than
class B shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by an independent 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. Restricted securities are stated at fair value following
procedures approved by the Trustees. 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). Gains or losses on securities sold are determined
on the identified cost basis. Interest income is recorded on the accrual
basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended November 30, 2000, the fund had no borrowings against the line of
credit.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At May 31, 2000, the fund had a capital loss carryover of approximately
$1,691,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$199,000 May 31, 2003
351,000 May 31, 2004
184,000 May 31, 2005
957,000 May 31, 2008
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. 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.
G) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. Discounts on original
issue discount bonds are accreted according to the yield-to-maturity
basis.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the lesser of (i) an annual rate of 0.50%
of the average net assets of the fund or (ii) 0.60% of the first $500
million of average net assets, 0.50% of the next $500 million, 0.45% of
the next $500 million, 0.40% of the next $5 billion, 0.375% of the next
$5 billion, 0.355% of the next $5 billion, 0.34% of the next $5 billion
and 0.33% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2000, the fund's expenses were reduced by $42,410 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $496 has been allocated to the fund and an additional fee for each
Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, Inc., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Retail Management, Inc. at an annual rate up to
0.35%, 1.00% and 1.00% of the average net assets attributable to class
A, class B and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.20%, 0.85% and 0.50% of the
average net assets attributable to class A, class B and class M shares,
respectively.
For the six months ended November 30, 2000, Putnam Retail Management,
Inc., acting as underwriter received net commissions of $5,047 and $23
from the sale of class A and class M shares, respectively, and $21,135
in contingent deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions
of class A shares. For the six months ended November 30, 2000, Putnam
Retail Management, Inc., acting as underwriter received no monies on
class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $8,841,110 and $11,411,582, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 1,126,749 $ 9,941,646
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 137,728 1,214,950
---------------------------------------------------------------------------
1,264,477 11,156,596
Shares
repurchased (894,750) (7,869,739)
---------------------------------------------------------------------------
Net increase 369,727 $ 3,286,857
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 1,227,768 $ 10,748,677
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 289,722 2,532,446
---------------------------------------------------------------------------
1,517,490 13,281,123
Shares
repurchased (2,643,568) (23,099,427)
---------------------------------------------------------------------------
Net decrease (1,126,078) $ (9,818,304)
---------------------------------------------------------------------------
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 143,694 $ 1,271,694
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 38,010 325,591
---------------------------------------------------------------------------
181,704 1,597,285
Shares
repurchased (853,912) (7,519,987)
---------------------------------------------------------------------------
Net decrease (672,208) $(5,922,702)
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 548,388 $ 4,848,935
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 84,826 740,484
---------------------------------------------------------------------------
633,214 5,589,419
Shares
repurchased (967,670) (8,441,148)
---------------------------------------------------------------------------
Net decrease (334,456) $(2,851,729)
---------------------------------------------------------------------------
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,050 $ 9,159
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,700 15,009
---------------------------------------------------------------------------
2,750 24,168
Shares
repurchased (19,697) (173,142)
---------------------------------------------------------------------------
Net decrease (16,947) $(148,974)
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 38,588 $345,301
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,432 29,853
---------------------------------------------------------------------------
42,020 375,154
Shares
repurchased (4,481) (39,539)
---------------------------------------------------------------------------
Net increase 37,539 $335,615
---------------------------------------------------------------------------
Note 5
New accounting pronouncement
In November 2000, the AICPA issued a revised Audit and Accounting Guide,
Audits of Investment Companies, which is effective for fiscal years
beginning after December 15, 2000. The revised Guide will require the
fund to amortize premium and accrete discount on all fixed-income
securities, and classify as interest income gains and losses realized on
paydowns on mortgage-backed securities which are presently included in
realized gain/loss. Adopting these accounting principles will not affect
the fund's net asset value, but will change the classification of
certain amounts between interest income and realized and unrealized
gain/loss in the Statement of operations. The fund has not at this time
quantified the impact, if any, resulting from the adoption of this
principle on the financial statements.
Note 6
Change in independent
accountants (Unaudited)
Based on the recommendation of the Audit Committee of the fund, the
Board of Trustees has determined not to retain PricewaterhouseCoopers
LLP as this fund's independent accountants and voted to appoint KPMG LLP
for the fund's fiscal year which is to end on May 31, 2001. During the
two previous fiscal years, PricewaterhouseCoopers LLP audit reports
contained no adverse opinion or disclaimer of opinion; nor were its
reports qualified or modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two
previous fiscal years and through July 24, 2000, there were no
disagreements between the fund and PricewaterhouseCoopers LLP on any
matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused it to make
reference to the disagreements in its report on the financial statements
for such years.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Susan A. McCormack
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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 copy of Putnam's Quarterly Performance Summary
and Putnam's Quarterly Ranking Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site:
www.putnaminvestments.com.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA044-67677 855/235/2AA 1/01
