-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, BqHvAKolb/Zm1lXNJUeu32J8b+PJj4IdwRehDbHs6RojRL0wfdB/Mjuo+Z6wruF5 hlVDjqp+QHy6axKfTvVvwQ== 0000915707-94-000017.txt : 19941104 0000915707-94-000017.hdr.sgml : 19941104 ACCESSION NUMBER: 0000915707-94-000017 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940831 FILED AS OF DATE: 19941103 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM ARIZONA TAX EXEMPT INCOME FUND CENTRAL INDEX KEY: 0000869392 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 046665534 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06258 FILM NUMBER: 94557414 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQUARE CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 N-30D 1 Putnam Arizona Tax Exempt Income Fund ANNUAL REPORT August 31, 1994 [LOGO] BOSTON * LONDON * TOKYO 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
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 - --------------------------------------------------------------- - -- 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 - --------------------------------------------------------------- - -- Current return (end of period): NAV POP NAV - --------------------------------------------------------------- - -- 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 - --------------------------------------------------------------- - -- 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.
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 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 - --------------------------------------------------------------- - -- Tucson, Airport Authority, Inc. special facility revenue bonds - --------------------------------------------------------------- - -- Gila County, Industrial Development Authority pollution control revenue bonds - --------------------------------------------------------------- - -- Salt River Project, Agricultural Improvement and Power District electric revenue bonds - --------------------------------------------------------------- - -- 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. 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
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 - --------------------------------------------------------------- - --
CLASS A CLASS B NAV POP NAV CDSC - --------------------------------------------------------------- - -- 1 year -3.78% -8.39% -4.47% -9.01% - --------------------------------------------------------------- - -- 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 - --------------------------------------------------------------- - -- 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 - --------------------------------------------------------------- - - 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. 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] 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. 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 Portfolio of investments owned August 31, 1994
MUNICIPAL BONDS AND NOTES (99.8%)(a) PRINCIPAL AMOUNT RATINGS(b) VALUE 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 - --------------------------------------------------------------- - -- (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
Statement of assets and liabilities August 31, 1994
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 - --------------------------------------------------------------- - -- * 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.
Statement of operations Year ended August 31, 1994
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) - --------------------------------------------------------------- - --
Statement of changes in net assets - --------------------------------------------------------------- - --
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 - --------------------------------------------------------------- - --
Financial Highlights (For a share outstanding throughout the period)
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 - --------------------------------------------------------------- - -- 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) - --------------------------------------------------------------- - -- (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.
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.
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 -- $-- - --------------------------------------------------------------- - --
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:
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 - --------------------------------------------------------------- - --
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. 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. 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. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 Bulk Rate U.S. Postage PAID Putnam Investments 855-235/14157 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. -----END PRIVACY-ENHANCED MESSAGE-----