PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
SEMIANNUAL REPORT
August 31, 1994
[ARTWORK]
BOSTON * LONDON * TOKYO
<PAGE>
Performance highlights
The fund's class A shares have earned Morningstar's ranking of four
stars out of a possible five based on risk-adjusted 3-, 5-year
performance as of August 31, 1994.*
Performance should always be considered in light of a fund's
investment strategy. Putnam Pennsylvania Tax Exempt Income Fund is
designed for investors seeking a high level of current income free
from federal income taxes, consistent with capital preservation.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
Total return NAV POP NAV CDSC
6 months ended 8/31/94
(change in value during
period plus reinvested
distributions) -0.78% -5.51% -1.12% -5.93%
Share value NAV POP NAV
2/28/94 $9.39 $9.86 $9.38
8/31/94 9.05 9.50 9.04
Distributions No. Income Total
Class A 6 $0.262967 $0.262967
Class B 6 0.232410 0.232410
Current return NAV POP NAV
(end of period):
Current dividend rate(2) 5.73% 5.46% 5.08%
Taxable equivalent(3) 9.76 9.30 8.65
Current 30-day SEC
yield(4) 5.47 5.20 4.80
Taxable equivalent(3) 9.32 8.86 8.18
<FN>
Performance data represent past results and will differ for each
share class. For performance over longer periods, see page 8. POP
assumes 4.75% maximum sales charge. CDSC assumes 5% maximum
contingent deferred sales charge. (1)Capital gains, if any, are
taxable for federal and, in most cases, state purposes. (2)Income
portion of most recent distribution, annualized and divided by NAV
or POP at end of period. (3)Assumes maximum combined 41.29% federal
and state tax rate. Results for investors subject to lower tax rates
would not be as 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.
* Morningstar is an independent research firm that rates funds
relative to funds with similar objectives, based on risk-adjusted
performance, as applicable, and adjusted for sales charges. Ratings
are updated monthly. A four-star rating put the fund in the top
32.5% of rated funds. Ratings are updated monthly. Past performance
is not indicative of future results.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
Recent times have provided an instability in the bond market rarely
experienced within such a brief time span.
Your fund began its current fiscal year during the waning days of a
three-year bond market rally. However, between the fiscal year's
start and its midpoint 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 your fund's managers 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 Fund Manager Richard Wyke not
anticipated the rally's end.
In all likelihood, the bond market will continue to experience
ongoing volatility over the next few months. In the report that
follows, Rick explains in greater detail how your fund's management
team responded to the challenges of fiscal 1994 and what it sees in
store for fiscal 1995.
Respectfully yours,
[Signature]
George Putnam
Chairman of the Trustees
October 19, 1994
<PAGE>
Report from the fund manager
Richard P. Wyke
In a year that has been rather inhospitable to all fixed-income
investments, particularly single-state municipal bond funds, Putnam
Pennsylvania Tax Exempt Income Fund proved able to hold its own. The
fund's recent returns were slightly negative to modestly positive: -
0.78% for the first half of the fiscal year ended August 31, 1994,
and 0.50% for the 12 months ended on that date, both at net asset
value for class A shares (class B shares returned -1.12% for the
last six months and -0.20% for one year). However, both figures
compare favorably with the Lehman Brothers Municipal Bond Index
returns of -0.90% for the six months and 0.14% for the 12 months
ended August 31, 1994.
While the municipal bond market's performance was somewhat
disappointing, we believe there are several reasons to be optimistic
about these investments and your fund in particular. The portfolio
has been adjusted for a rising interest rate environment. General
market forces may play a part in the appreciation of existing
securities. The particular sectors your fund has always emphasized
currently offer some potential. Finally, Putnam's strong research
capabilities have already proven their effectiveness in enabling us
to identify securities with strong performance potential.
RESPONDING TO INTEREST RATE MOVEMENTS
One of the major factors in managing any fixed-income portfolio is
anticipating and reacting to changes in interest rates. We adjusted
the fund's portfolio to this year's rising interest rate environment
and, as a result, the fund has been able to maintain what we believe
is an attractive dividend.
In order to reduce the portfolio's volatility, we began to shorten
its duration. Duration is the measure of price sensitivity of a bond
or a portfolio of bonds to a given change in interest rates. In the
face of rising rates, keeping the portfolio's duration relatively
short can be instrumental in helping to protect its value. We
maintained an average duration that was approximately 10% shorter
than the market average.
We also used premium coupon bonds as another defensive measure.
These bonds, whose higher coupons tend to be less sensitive to
rising interest rates, may help to reduce volatility. Besides their
defensive advantages, these bonds also helped to provide
shareholders with competitive levels of dividend income.
STRONG MARKET TRENDS ARE PRESENT
Throughout most of this year, investors have watched the value of
their funds decline in an extremely choppy market. At the same time,
however, we have seen an almost 40% decrease in the supply of
municipal bonds, compared with last year's new issuances and
refinancings. While there can be no guarantees, we believe demand
will rise as more investors seek relief from higher taxes and
increasingly recognize the attractiveness of municipal bonds
relative to taxable Treasury bonds. Taken together, these factors
should continue to act as a strong price support for Pennsylvania
tax-exempt securities, although, of course, prices of fixed-income
securities are determined by many factors, including changes in
interest rates.
This environment also creates other opportunities. Specifically,
there are a number of undervalued securities present in the
secondary markets, many of which have high credit quality.
BOND RETURNS: MUNICIPALS VERSUS U.S. TREASURIES
[MOUNTAIN CHART]
Plot Points:
US Treasury US Treasury
Municipal Securities Securities
Date/Year Bonds before taxes after taxes
- ----------------------------------------------------------------
9/30/89 -0.30 0.42 0.14
9/30/90 6.49 7.24 3.38
9/30/91 20.53 23.75 15.48
9/30/92 33.15 39.88 26.74
9/30/93 50.10 55.36 37.05
8/31/94 48.63 51.20 30.24
- ----------------------------------------------------------------
Sources: Lehman Brothers Municipal Bond Index, Lehman Brothers
Treasury Bond Index. After-tax return based on maximum federal tax
bracket of 39.6%. Municipal bonds may be more volatile than
Treasuries.
<PAGE>
KEY SECTORS POISED FOR FUTURE APPRECIATION
Even though the fund has recently endured market volatility, we
believe that the portfolio's largest sectors may hold the key to the
fund's future. These include health care, education, and resource
recovery facilities that convert waste into energy.
Long before health care reform was debated on Capitol Hill, changes
had begun on the state level. There has been, and will continue to
be, a tremendous amount of cost cutting and consolidation in
Pennsylvania's health care industry. This tightening up has the
effect of creating more efficient and cost- effective institutions -
- - which, in turn, make the securities of these facilities more
attractive to investors. An example is the Nittany Valley
Rehabilitation Hospital project in State College.
Many of the fund's nonrated health care issuers have been acquired
by for-profit institutions. These securities, which continue to
enjoy tax-exempt status, reflect the issuer's dominant market
positions and competitive cost structures. Furthermore, they hold
the potential to benefit from the cost-cutting trends industry wide.
We also believe securities within Pennsylvania's education sector
remain undervalued. Although college enrollments are historically
low today, nationwide demographics indicate that enrollments should
increase substantially as the younger portion of Generation X
reaches college age. By virtue of their size, many of the state's
smaller institutions may benefit in the future.
Finally, we believe the full potential of the resource recovery
sector has yet to be realized. Like any new industry, this sector
represents a certain degree of risk for investors. However, in our
opinion, these businesses should become more valuable as the nation
becomes more environmentally conscious. Resource recovery projects
in York County, for example, show particular promise as investments.
SOLID RESEARCH UNCOVERS FUTURE OPPORTUNITIES
As with any fund, comprehensive research can help in evaluating the
potential of current holdings as well as uncovering future
opportunities. Extensive research in the Pennsylvania market has
helped us to identify hospitals with dominant market positions or
specific colleges that might benefit from emerging market trends.
TOP FIVE INDUSTRY SECTORS*
- ------------------------------------------------------------
Hospitals and health care 23.2%
Utilities, water ans sewer 13.6%
Education 12.6%
Transportation 7.7%
Waste management 7.3%
- ------------------------------------------------------------
*Based on a percentage of net assets on 8/31/94
In addition to identifying attractive purchases, our research can
help the fund avoid potential difficulties. Our analysts are
committed to thoroughly evaluating the area of the economy a
particular security operates in as well as its debt burden.
BOTTOM LINE: A POSITIVE OUTLOOK
Given the developments we have outlined here, we remain optimistic
about prospects for the municipal bond market. The fund's modest
holdings of Puerto Rican debt may help investors' after-tax yields
because, like Pennsylvania municipal securities, these bonds enjoy
double-tax-exempt status for Keystone State taxpayers. Looking
further ahead, we see an economy of slow but steady growth with
relatively low inflation. Although there can be no guarantees, with
properly balanced market and sector weightings, we believe the fund
continues to offer you strong potential for attractive tax-free
income and total return through the remainder of the fiscal year and
beyond.
The views expressed about the companies mentioned in this report are
exclusively those of Putnam Management, and not meant as investment
advice. Although the described holdings were viewed favorably as of
August 31, 1994, there is no guarantee the Fund will continue to
hold these securities in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show
total return in two ways: on a cumulative long-term basis and on
average how the fund might have grown each year over varying
periods. For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 8/31/94
<TABLE>
<CAPTION>
LEHMAN
BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months -0.78% -5.51% -1.12% -5.93% -0.90% 1.57%
1 year 0.50 -4.31 -0.20 -4.94 0.14 2.90
3 years 27.10 21.03 -- -- 24.90 9.08
Annual average 8.32 6.57 -- -- 7.69 2.94
Life of class A 49.44 42.41 -- -- 47.14 19.78
Annual average 8.18 7.16 -- -- 7.85 3.59
Life of class B -- -- 1.04 -2.78 2.36 3.19
Annual average -- -- 0.92 -2.46 2.08 2.81
- ----------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
CLASS A CLASS B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
6 months 1.28% -3.54% 0.94% -3.98%
1 year -2.25 -6.89 -2.91 -7.52
3 years 23.50 17.64 -- --
Annual average 7.29 5.56 -- --
Life of class A 47.07 40.15 -- --
Annual average 7.72 6.72 -- --
Life of class B -- -- 0.61 -4.35
Annual average -- -- -0.51 -3.61
- ---------------------------------------------------------------
</TABLE>
[FN]
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions or, for class A shares,
distribution fees prior to implementation of the class A
distribution plan in 1990. On 7/21/89 the fund began investment
operations, offering what are now class A shares. Effective 7/15/93,
the fund began offering class B shares. Performance of each share
class will differ. Performance data represent past results.
Investment returns and principal value will fluctuate so an
investor's shares, when sold, may be worth more or less than their
original cost.
<PAGE>
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 mutual fund 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 CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-
term fixed-rate investment-grade tax-exempt bonds representative of
the municipal bond market. The index does not take into account
brokerage commissions or other costs, may include bonds different
from those in the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
Life cycle investing
As we move through life, our investment needs change. As these needs
change, so does the way we allocate our assets. Here are some basic
rules for setting up and maintaining an investment program and some
examples of how assets might be allocated.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses, or
retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with
longer timelines and lower for older investors who may depend on
their investment for current income.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your
investable dollars should be allocated to each investment category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own
Putnam portfolio of funds as your financial needs change -- without
a service fee.*
Look at the facing page for some ways you can allocate your assets,
then turn the page to see how the Putnam Fund Selector(Trademark)
can help you make your choices.
* Putnam reserves the right to change or terminate the exchange
privilege. In some cases, a sales charge may apply. See prospectus
for details.
<PAGE>
Four ways to allocate assets
[PIE CHARTS]
SEEKING MAXIMUM GROWTH
30% - 40% Growth and income
40% - 50% Growth
5% - 20% Income or tax-free income
Risk tolerance: Generally investors with a higher risk tolerance
(often in their 20s and early 30s.)
SEEKING GROWTH AND SOME INCOME
40% - 50% Growth and income
30% - 40% Growth
10% - 30% Income or tax-free income
Risk tolerance: Generally investors with a high to moderate risk
tolerance (often in their late 30s and early 40s.)
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
30% - 40% Growth and income
25% - 60% Income or tax-free income
10% - 20% Growth
Risk tolerance: Generally investors with a moderate risk tolerance
(often in their late 40s and early 50s.)
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
20% - 30% Growth and income
5% - 10% Growth
40% - 70% Income or tax-free income
Risk tolerance: Generally investors with a low risk tolerance (often
over 60 and retired.)
<PAGE>
The Putnam Fund Selector(tm)
The Putnam Fund Selector shows the many opportunities for investors
within every investment strategy. All investors should first
accumulate a base of conservative, cash-equivalent investments.
Then, with the help of your investment advisor, diversify your
portfolio by investing in the Putnam Family of Funds.
[TRIANGLE 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(+++)
New York Tax 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.
+++ Formerly Daily Dividend Trust
** Not offered by Putnam Investments. Certificates of deposit offer
a fixed rate of return and may be insured, up to certain limits, by
federal/state agencies. Savings accounts may also be insured up to
certain limits.
Please call your financial advisor or Putnam to obtain a prospectus
for any Putnam fund. It contains more complete information,
including charges and expenses. Read it carefully before you invest
or send money.
<PAGE>
Portfolio of investments owned
August 31, 1994 (Unaudited)
MUNICIPAL BONDS AND NOTES (98.1%)(a)
<TABLE>
<C> <S> <C> <C>
PRINCIPAL AMOUNT RATINGS(b) VALUE
Pennsylvania (85.5%)
- --------------------------------------------------------------------
$1,000,000 Allegheny Cnty. Arpt. Rev.
Bonds (Pittsburgh Intl.
Arpt.), Ser. C, Municipal
Bond Insurance Assoc.
(MBIA), 8 1/4s, 1/1/16 AAA $1,106,250
1,000,000 Allegheny Cnty., Hosp. Dev.
Auth. Variable Rate Demand
Note (VRDN), (Presbyterian
Hlth. Ctr.), Ser. A, MBIA,
3.2s, 3/1/20 VMG1 1,000,000
2,000,000 Allegheny Cnty., Hosp. Dev.
Auth. Rev. Bonds (Southside
Hosp. Pittsburgh), Ser. A,
8 3/4s, 6/1/10 BBB 2,095,000
1,000,000 (St. Francis Med. Ctr. Project),
American Municipal Bond Assurance
Corp. (AMBAC), 8 1/8s, 6/1/13 AAA 1,082,500
700,000 Allegheny Cnty., Hosp. Dev.
Auth. VRDN, Ser. B, MBIA,
3.2s, 3/1/20 VMGI 700,000
2,000,000 Allegheny Cnty., Indl. Dev.
Auth. Med. Ctr. Rev. Bonds
(Presbyterian Med Ctr. of
Oakmont), Federal Housing
Administration (FHA), 6 3/4s,
2/1/26 AAA 2,015,000
1,000,000 Allegheny Cnty., General
Obligation (G.O.) Bonds,
Ser. 17, MBIA, 9 3/8s, 3/1/12 AAA 1,048,125
1,245,000 Allegheny Cnty., Indl. Dev.
Auth. Arpt. Special Fac.
Rev. Bonds (USAIR Inc.
Project), Ser. A, 8 7/8s,
3/1/21 B 1,266,788
600,000 Allegheny Cnty., Indl. Dev.
Auth. Rev. Bonds (Southwestern
Arpt. Cargo Fac.), 8 3/4s,
2/15/09 BB/P 634,500
1,000,000 Beaver Cnty., Indl. Dev.
Auth. Poll. Control Rev.
Bonds (OH Edison Co. --
Beaver Valley), Ser. A,
10 1/2s, 10/1/15 Baa 1,073,750
1,500,000 Blair Cnty., Hosp. Auth.
Rev. Bonds (Altoona Hosp.
Project), AMBAC, 6 1/2s, 7/1/22 AAA 1,560,000
Cambria Cnty., Indl. Dev. Auth.
Resource Recvy.Rev. Bonds
(Cambria Cogen Project)
1,100,000 Ser. F1, 7 3/4s, 9/1/19 A 1,142,625
400,000 Ser. F2, 7 3/4s, 9/1/19 A 415,500
Chichester School Dist. Rev.
Bonds Ser B, Financial Guaranty
Insurance Co. (FGIC)
1,180,000 zero %, 3/1/10 AAA 455,775
1,220,000 zero %, 3/1/09 AAA 503,250
960,000 College Township, Indl.
Dev. Auth. 1st Mtge. Hlth.
Facs. Rev. Bonds (Nittany
Valley Rehab. Hosp.
Project), 7 5/8s, 11/1/07 BBB/P 1,003,200
1,000,000 Dauphin Cnty., Indl. Dev.
Auth. Wtr. Rev. Bonds
(Dauphin Cons. Wtr. Supply),
Ser. A, 6.9s, 6/1/24 A 1,026,250
3,000,000 Delaware Cnty., Hlth. Care
Auth. Rev. Bonds (Mercy
Hlth. Corp., Southeastern),
Ser. A, Connie Lee Insd.,
5 1/8s, 11/15/12 AAA 2,673,750
1,000,000 Delaware Cnty., Hosp. Auth.
Rev. Rfdg. Bonds (Crozer-
Chester Med. Ctr.), Ser. A,
B, & C, 7 1/2s, 12/15/20 AAA 1,150,000
1,035,000 Delaware Cnty., Indl.
Dev. Auth. Rev. Bonds
(Resource Recvy. Project),
Ser. A, 8.1s, 12/1/13 A 1,106,156
2,900,000 Doylestown, Hosp. Auth.
Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB/P 2,776,750
3,000,000 Emmaus, General Auth. Rev.
Bonds (Local Govt. Bond
Pool), Ser. A, Bond Investors
Guaranty Insurance (BIGI),
8.15s, 5/15/18 AAA 3,311,250
6,500,000 Erie Cnty., Prison Auth.
Lease Rev. Bonds, MBIA,
6 5/8s, 11/1/14 AAA 7,109,375
1,150,000 Erie, Higher Edl. Bldg. Auth.
College Rev. Bonds (Mercyhurst
College Project) 7.85s,
9/15/19 AAA 1,299,500
1,000,000 Ser. A, 5 3/4s, 3/15/13 BBB 908,750
1,860,000 Ser. B, 5 3/4s, 3/15/13 BBB 1,690,275
2,000,000 Erie, Higher Edl. Bldg.
Auth. U. Rev. Bonds
(Gannon U. Project),
Ser. D, 5.85s, 6/1/15 Baa 1,800,000
1,360,000 Erie, Indl. Dev. Auth.
Rev. Rfdg. Bonds (Beverly
Enterprises), 6 5/8s, 5/1/02 BB/P 1,346,400
3,500,000 Erie, Wtr. Auth. Rev.
Bonds, 7 1/8s, 12/1/11 BBB 3,933,125
750,000 Erie-Western PA Port Auth.
Gen. Rev. Bonds, 8 5/8s,
6/15/10 BBB 804,375
Falls Township, Hosp. Auth.
Rev. Rfdg. Bonds (Delaware
Valley Med. Ctr. Project), FHA Insd.
3,000,000 7s, 8/1/22 AAA 3,135,000
2,525,000 6.9s, 8/1/11 AAA 2,739,625
1,660,000 Greene Cnty., Hosp. Auth.
Rev. Bonds (Greene Cnty.
Memorial Hosp.), 6 1/2s,
1/1/02 BBB/P 1,589,450
3,500,000 Harrisburg, Auth. Lease Rev.
Bonds (Green Cnty. Prison
Project), Capital Guaranty
Insurance Company (CGIC),
6 1/4s, 6/1/10 AAA 3,679,375
550,000 Jenkins Township, Sanitation
Auth. Swr. Rev. Bonds, 8s,
12/1/09 BBB/P 627,000
700,000 Lancaster Cnty., Solid Waste
Management Auth. Resource
Recvy. Systs., Rev. Bonds,
Ser. A, 8 1/2s, 12/15/10 A 736,750
900,000 Langhorne, St. Mary Hosp. Auth.
Rev. Bonds (Francisan Hlth. Sys.),
Ser. C, VRDN, 2.9s, 12/1/24 VMGI 900,000
2,200,000 Lebanon Cnty., Good Samaritan
Hosp. Auth. Rev. Bonds,
Ser. B, 8 1/4s, 11/1/18 BBB 2,563,000
595,000 Lehigh Cnty., G.O. Bonds,
Ser. A, AMBAC, zero %, 10/15/05 AAA 316,838
1,000,000 Lehigh Cnty., General Purpose
Auth. Rev. Bonds (Muhlenberg
Hosp.), Ser. A, 8.1s, 7/15/10 Baa 1,076,250
600,000 Lehigh Cnty., Indl. Dev. Auth.
Poll. Control Rev. Bonds
(PA Power and Light Co. Project),
Ser A, 9 3/8s, 7/1/15 A 633,000
2,000,000 Luzerne Cnty., Indl. Dev.
Auth. Rev. Bonds (Gas & Wtr.
Co. Project), Ser. B, 7 1/8s,
12/1/22 BBB 2,020,000
1,000,000 McKeesport, Hosp. Auth. Rev.
Bonds (McKeesport Hosp. Project),
6 1/4s, 7/1/03 Baa 981,250
Montgomery Cnty., Higher Edl.
& Hlth. Auth. Hosp. Rev. Bonds
3,000,000 (Sacred Heart Hosp. Norristown),
Ser. A, BIGI, 6.8s, 2/1/13 AAA 2,970,000
1,000,000 (UTD Hosp. Project), Ser. B,
7 1/2s, 11/1/12 Ba 1,002,500
1,325,000 Montgomery Cnty., Indl. Dev.
Auth. Poll. Control Rev.
Bonds (Philadelphia Elec. Co.)
Ser. A, 10 1/2s, 5/15/15 Baa 1,421,063
1,500,000 Ser. B, MBIA, 6.7s, 12/1/21 AAA 1,550,625
2,000,000 Montgomery Cnty., Higher Ed. &
Hlth. Auth. Hosp. Residual
Interest Bonds (RIBS),
10.045s, 6/1/11 AAA 2,160,000
3,000,000 New Morgan, Indl. Dev.
Auth. Solid Waste Disp. Rev.
Bonds (New Morgan Landfill Co.
Inc. Project), 6 1/2s, 4/1/19 A 2,977,500
1,000,000 Northeastern PA Hosp. & Edl.
Auth. College Rev. Bonds
(Kings College Project),
Ser. B, 6s, 7/15/11 BBB 923,750
1,750,000 PA State, Certif. of
Participation (COP) Financial
Security Assurance (FSA),
6 1/4s, 11/1/06 Aaa 1,809,063
2,000,000 PA Econ. Dev. Fin. Auth.
Resource Recvy. Rev. Bonds
(Northampton Generating),
Ser. A, 6 1/2s, 1/1/13 BB/P 1,882,500
10,100,000 PA State Fin. Auth. Rev. Bonds
(Muni. Capital Impt.Program),
6.6s, 11/1/09 A 10,352,495
PA State Higher Edl. Assistance
Agcy. Student Loan RIBS
2,400,000 Ser. B, MBIA, 11.326s, 3/1/20 AAA 2,691,000
3,850,000 Ser. B, AMBAC, 8.968s, 3/1/22 AAA 3,667,125
500,000 PA Higher Edl. Fac. Auth.
College & U. Rev. Bonds
9s, 11/1/09 A 537,500
2,500,000 (Duquesne U. Project), Ser. C,
MBIA, 6 3/4s, 4/1/20 AAA 2,575,000
1,500,000 (Duquesne U. Project), Ser. C,
MBIA, 6.35s, 1/15/17 Aaa 1,505,625
2,600,000 (Allegheny College Project),
Ser. B, 6 1/8s, 11/1/13 BBB 2,489,500
1,300,000 PA State Higher Edl. Fac. Auth.
Rev. Bonds (Med. College),
Ser. A 8 3/8s, 3/1/11 BBB 1,426,750
1,000,000 7 3/8s, 3/1/21 Baa 1,033,750
2,000,000 PA Hsg. Fin. Agcy. Rev. Bonds,
4s, stepped- coupon
(6.1s, 4/1/04) 10/1/13(c) AA 1,685,000
825,000 PA Hsg. Fin. Agcy. Single Fam.
Mtge. Rev. Bonds Ser. R,
8 1/8s, 10/1/19 AA 855,938
385,000 Ser. U, 7.8s, 10/1/20 AA 405,694
400,000 Ser. 29, 7 3/8s, 10/1/16 AA 419,000
2,000,000 Ser. 33, 6.9s, 4/1/17 AA 2,060,000
3,000,000 PA Intergovernmental Co-op.
Auth. Special Tax. Rev. Bonds,
Ser. A, MBIA, 5s, 6/15/22 AAA 2,467,500
2,700,000 PA State Rfdg. & Projects Rev.
Bonds Ser. 2, 5 1/4s, 6/15/13 AA 2,446,875
4,000,000 1st Ser., 5s, 4/15/07 AA 3,705,000
1,000,000 PA State Tpk. Comm. Rev. Bonds,
Ser. M, FGIC, 6 1/2s, 12/1/13 AAA 1,031,250
2,000,000 Penn Hills, G.O. Bonds,
AMBAC, 5 7/8s, 12/1/15 AAA 1,940,000
1,875,000 Pennsbury, School Dist. Rev.
Bonds, AMBAC, zero %, 1/15/04 AAA 1,108,594
4,000,000 Philadelphia Gas Works RIBS
FSA, 7.615s, 8/1/21(acquired
1/24/94, cost $3,747,680)(d) AAA 3,030,000
1,225,000 Philadelphia, Gas Works Rev.
Bonds, Ser. 13, 7.7s, 6/15/21 AAA 1,427,125
1,000,000 Philadelphia, G.O. Bonds, FGIC,
8 1/4s, 2/15/09 AAA 1,075,000
320,000 Philadelphia, Muni. Auth. Rev.
Bonds, FGIC 7.8s, 4/1/18 Rfdg.
Issue dated 08/15/93 AAA 357,600
3,130,000 7.8s, 4/1/18 Rfdg. Issue dated
07/01/91 AAA 3,560,375
1,000,000 Ser. B, 7 1/8s, 11/15/18 AAA 1,137,500
2,125,000 Ser. A, 5 5/8s, 11/15/14 AAA 1,997,500
1,000,000 Philadelphia, School. Dist.
Rev. Bonds, Ser. A, AMBAC,
zero %, 7/1/01 AAA 698,750
500,000 Philadelphia, Wtr. & Swr.
Linked Floater Annuity
FGIC, 4.8s, 6/15/05(e) AAA 242,500
3,250,000 Philadelphia, Wtr. & Swr.
Rev. Bonds, CGIC, Ser.
16, 7s, 8/1/21 AAA 3,660,313
3,000,000 Philadelphia, Wtr. & Wastewater
Rev. Bonds, CGIC, 5s, 6/15/16 AAA 2,595,000
2,000,000 Pittsburgh, G.O. Bonds,
Ser. D, AMBAC, 6 1/8s, 9/1/17 AAA 1,997,500
1,900,000 Schuylkill Cnty., Indl. Dev.
Auth. Res. Recvy. VRDN
(Westwood Energy Property
Project), 3.3s, 11/1/09 A1+ 1,900,000
1,000,000 Schuylkill Cnty., Indl. Dev.
Auth. Rev. Bonds (Schuylkill
Energy Res. Inc.) Ser. B,
6 1/2s,1/1/10 BB/P 950,000
1,000,000 Schuylkill Cnty., Redev. Auth.
Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 AAA 1,131,250
3,000,000 Scranton-Lackawanna, Hlth. &
Welfare Auth. Rev. Bonds
(Moses Taylor Hosp. Project),
Ser. B, 8 1/2s, 7/1/20 BB 3,198,750
1,000,000 Smithfield, Swr. Auth. Rev.
Gtd. Bonds, 8 5/8s, 1/15/11 BB/P 1,187,500
Somerset Cnty., Gen. Auth.
Cmnwlth. Lease Rev.
2,500,000 Bonds, FGIC, 6 1/4s, 10/15/11 AAA 2,678,125
2,470,000 Trafford School District Rev.
Bonds, MBIA, 6.6s,5/1/08 AAA 2,636,725
500,000 Washington Cnty., Indl. Dev.
Auth. 1st Mtge. Rev. Bonds
(AHF/Central States Inc.
Project), 10 1/4s, 11/1/19 B/P 485,000
1,800,000 Wilkins Area, Indl. Dev. Auth.
1st Mtge. Rev. Bonds
(Fairview Extended Care),
Ser. A, 10 1/4s, 1/1/21 BB/P 1,941,750
1,030,000 York Cnty., Hosp. Auth. Rev.
Bonds (Hlth. Ctr. Village at
Sprenkle Dr.), Ser. A,
7 3/4s, 4/1/21 BBB/P 1,069,913
1,925,000 York Cnty., Indl. Dev. Auth.
1st Mtge. Hlth. Fac. Rev.
Bonds (Rehabilitation Hosp.
of York Project), 7 1/2s,
9/1/07 BBB/P 1,992,375
York Cnty., Solid Waste &
Refuse Auth. Indl. Dev. Rev.
Bonds (Resource Recvy. Project)
650,000 Ser. A, 8.2s, 12/1/14 AA 708,500
890,000 Ser. C, 8.2s, 12/1/14 AA 970,100
300,000 Ser. B, 8.1s, 12/1/07 AA 327,750
173,093,255
Puerto Rico (11.9%)
- --------------------------------------------------------------------
Cmnwlth. of Puerto Rico, Pub. Impt. G.O. Bonds
$450,000 Ser. A, 7 3/4s, 7/1/17 AAA $514,125
200,000 Ser. A, 7 3/4s, 7/1/13 AAA 225,500
2,150,000 7.7s, 7/1/20 AAA 2,496,688
5,000,000 Cmnwlth. of Puerto Rico, Hwy.
& Trans. Auth. Rev. Bonds,
Ser. W, 5 1/4s, 7/1/20 A 4,293,750
Cmnwlth. of Puerto Rico,
Hwy. Auth. Rev. Bonds
200,000 Ser. P, 8 1/8s, 7/1/13 AAA 228,000
250,000 Ser. O, 8s, 7/1/05 AAA 283,438
900,000 Ser. Q, 7 3/4s, 7/1/16 AAA 1,047,375
2,500,000 Ser. Q, 7 3/4s, 7/1/10 AAA 2,900,000
1,000,000 Cmnwlth. of Puerto Rico, RIBS,
MBIA, 8.344s, 7/1/08 AAA 1,025,000
3,000,000 Cmnwlth. of Puerto Rico, Rfdg.
Rev. Bonds, MBIA, 5 1/4s, 7/1/18 AAA 2,677,500
575,000 Cmnwlth. of Puerto Rico, Urban
Renewal & Hsg. Corp.Rev. Bonds,
7 7/8s, 10/1/04 Baa 641,844
4,550,000 Puerto Rico Elec. Pwr. Auth.
Rev. Bonds, Ser. T, 6s, 7/1/16 A 4,396,438
1,200,000 Puerto Rico, Pub. Bldg. Auth.
Ed. & Hlth. Fac. Rev. Bonds
Ser. H, 7 7/8s, 7/1/16 AAA 1,333,500
2,000,000 Ser. M, 5 3/4s, 7/1/15 A 1,880,000
23,943,158
Total Investments (cost $192,450,280)(f) $197,036,413
<FN>
NOTES
(a) Percentages indicated are based on net assets of $200,824,994
which correspond to a net asset value per class A and class B
share of $9.05 and $9.04 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.
(c) The interest rate and date shown parenthetically represent the
next interest rate to be paid and the date the fund will begin
receiving interest at this rate.
(d) Restricted as to public resale. At the date of acquisition,
these securities were 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 $3,030,000 or 1.5% of net assets.
(e) Linked Floater Annuities represents the right to receive
monthly interest payments on the underlying Municipal Bond. No
payments on principal are passed on to the Linked Floater
Annuity holders.
(f) The aggregate identified cost on a tax basis is $192,450,279,
resulting in gross unrealized appreciation and depreciation of
$8,173,221, and $3,587,087, respectively, or net unrealized
appreciation of $4,586,134.
The rates shown on Residual Interest Bonds (RIBS), Inverse Rate
Floaters (I/F) and Linked Floater Annuities, which are
securities paying variable interest rates that vary to changes
in market interest rates, Floating Rate Notes and Variable Rate
Demand Notes (VRDN) are the current interest rates at August
31, 1994, which are subject to change based on the terms of the
security.
The Fund had the following industry group concentrations
greater than 10% on August 31, 1994 (as a percentage of net
assets):
Hospitals/Health Care 23.2%
Utilities, Water & Sewer 13.6
Education 12.6
The fund had the following insurance concentrations greater
than 10% on August 31, 1994, as a percentage of net assets:
MBIA 14.6%
</TABLE>
<PAGE>
Statement of assets and liabilities
August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments in securities, at value
(identified cost $192,450,279) (Note 1) $197,036,413
Cash 629,200
Interest receivable 3,439,277
Receivable for shares of the fund sold 880,876
Total assets $201,985,766
Liabilities
Payable for shares of the Fund repurchased $ 166,781
Payable for compensation of Manager (Note 2) 293,694
Distributions payable to shareholders 551,082
Payable for administrative services (Note 2) 198
Payable for compensation of Trustees (Note 2) 740
Payable for investor servicing and custodian fees (Note 2) 30,691
Payable for distribution fees (Note 2) 78,351
Other accrued expenses 39,235
Total liabilities 1,160,772
Net assets $200,824,994
Represented by
Paid-in capital (Note 4) $196,000,474
Distributions in excess of net investment income (49,285)
Accumulated net realized gain on investments 287,672
Net unrealized appreciation of investments 4,586,133
Total -- Representing net assets applicable to
capital shares outstanding $200,824,994
Computation of net asset value
Net asset value and redemption price per class A share
($173,057,766 divided by 19,126,579 shares) $9.05
Offering price per class A share (100/95.25 of $9.05)* $9.50
Net asset value and offering price per class B share
($27,767,228 divided by 3,071,216 shares)+ $9.04
<FN>
* On single retail sales of less than $25,000. On sales of
$25,000 or more and on group sales the offering price is
reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
<PAGE>
Statement of operations
Six months ended August 31, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Tax exempt interest income $6,342,658
Expenses:
Compensation of Manager (Note 2) 572,245
Investor servicing and custodian fees (Note 2) 61,264
Compensation of Trustees (Note 2) 5,898
Auditing 10,528
Postage 11,090
Reports to shareholders 10,082
Legal 10,082
Administrative services (Note 2) 3,529
Distribution fees -- class A (Note 2) 170,472
Distribution fees -- class B (Note 2) 84,756
Registration fees 7,940
Amortization of organization expenses (Note 1) 11,066
Other 6,893
Total expenses 965,845
Net investment income 5,376,813
Net realized gain on investments (Notes 1 and 3) 130,426
Net realized loss on futures contracts (12,524)
Net unrealized depreciation of investments
during the period (6,750,946)
Net loss on investments (6,633,044)
Net decrease in net assets resulting from operations $(1,256,231)
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
<S> <C> <C>
Six months ended Year ended
August 31 February 28
1994* 1994
Increase in net assets
Operations:
Net investment income $ 5,376,813 $ 9,157,267
Net realized gain on investments 130,426 579,413
Net realized gain (loss)
on futures contracts (12,524) 2,082
Net unrealized depreciation of
investments (6,750,946) (643,257)
Net increase (decrease) in net
assets resulting from operations (1,256,231) 9,095,505
Distributions to shareholders from:
Net investment income:
Class A (4,918,903) (9,026,558)
Class B (502,397) (170,225)
Net realized gain on investments
Class A -- (438,817)
Class B -- (15,999)
Increase from capital share
transactions (Note 4) 23,113,155 40,571,165
Total increase in net assets 16,435,624 40,015,071
Net assets
Beginning of period 184,389,370 144,374,299
End of period (including
distributions in excess
of and undistributed net
investment income of
$49,285 and $4,404, respectively) $200,824,994 $184,389,370
<FN>
* Unaudited.
</TABLE>
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the period
July 15, 1993
Six months (commencement of Six months
ended operations) to ended
August 31 February 28 August 31
- --------------------------------------------------------------------
1994* 1994 1994*
- --------------------------------------------------------------------
Class B
Net Asset Value,
Beginning of Period $9.38 $9.48 $9.39
Investment operations
Net Investment Income .23 .28 .26
Net Realized and
Unrealized Gain
(Loss) on Investments (.34) (.08) (.34)
Total from Investment
Operations (.11) .20 (.08)
Less Distributions from:
Net Investment Income (.23) (.28) (.26)
Net Realized Gain
on Investments -- (.02) --
Total Distributions (.23) (.30) (.26)
Net Asset Value,
End of Period $9.04 $9.38 $9.05
Total Investment
Return at Net Asset
Value (%)(b) (1.12)(c) 2.18(c) (.78)(c)
Net Assets,
End of Period
(in thousands) $27,767 $12,633 $173,058
Ratio of Expenses
to Average
Net Assets (%) .79 1.00 .48
Ratio of Net
Investment Income to
Average Net Assets (%) 2.48 2.90 2.88
Portfolio Turnover (%) 8.11(c) 15.65 8.11(c)
</TABLE>
<PAGE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
For the period
July 21, 1989
(commencement of
operations) to
Year ended February 28 February 28
- --------------------------------------------------------------------
1994 1993 1992 1991 1990
- --------------------------------------------------------------------
Class A
- --------------------------------------------------------------------
$9.40 $8.76 $8.42 $8.36 $8.50
.54 .57(a) .61(a) .62(a) .36(a)
.01 .65 .34 .06 (14)
.55 1.22 .95 .68 .22
(.54) (.57) (.61) (.62) (.36)
(.02) (.01) -- -- --
(.56) (.58) (.61) (.62) (.36)
$9.39 $9.40 $8.76 $8.42 $8.36
5.93 14.34 11.65 8.53 2.62(c)
$171,757 $144,374 $93,086 $47,112 $19,203
.91 .72(a) .52(a) .41(a) .48(a)(c)
5.36 6.31(a) 6.98(a) 7.43(a)4.25(a)(c)
15.65 12.26 3.30 9.01 4.41(c)
<FN>
* Unaudited.
(a) Reflects a voluntary expense limitation. As a result, net
investment income for the year ended February 28, 1993, the
year ended February 29, 1992, the year ended February 28, 1991
and the period ended February 28, 1990 reflects expense
reductions of approximately $0.01, $0.04, $0.06 and $0.05 per
share, respectively.
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994 (UNAUDITED)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The Fund seeks as high a level of current income exempt from federal
income tax and Pennsylvania personal income tax as Putnam Management
believes is consistent with preservation of capital by investing
primarily in a diversified portfolio of Pennsylvania tax-exempt
securities.
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 and index futures
A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. An index futures
contract is a contract to buy or sell units of an index at a
specified future date at a price agreed upon when the contract is
made. 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 futures
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 recorded daily by the Fund and are distributed
monthly. Capital gains distributions, if any, are recorded on the ex-
dividend date and paid annually or as necessary to meet the
distribution requirements described above.
F) Amortization of bond premium and discount
Any premium resulting from the purchase of securities in excess of
maturity value is amortized using the effective yield method for
bonds issued after September 27, 1985, and on a straight-line basis
for bonds issued prior thereto. The premium in excess of the call
price, if any, is amortized to the call date: thereafter, the
remaining excess premium is amortized to maturity 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 shares
aggregated $60,484. These expenses were 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.
(formerly known as The Putnam Companies, 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 and 0.4% of any amount over $1.5
billion subject to reduction in any year to the extent of certain
brokerage commissions and fees (less expenses) received by
affiliates of the Manager on the Fund's portfolio transactions.
The Fund also reimburses the Manager for the compensation and
related expenses of certain officers of the Fund and their staff who
provide administrative services to the Fund. The aggregate amount of
all such reimbursements is determined annually by the Trustees. For
the six months ended August 31, 1994, the Fund paid $3,529 for these
services.
Trustees of the Fund receive an annual Trustee's fee of $730 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Manager and who serve on committees of
the Trustees receive additional fees for attendance at certain
committee meetings.
Custodial functions for the Fund are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC. Fees paid for these investor servicing
and custodial functions for the six months ended August 31, 1994
amounted to $61,264. Investor servicing and custodian fees reported
in the Statement of operations for the six months
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 the fund's average net assets attributable to class A
shares. For the six months ended August 31, 1994, the fund paid
$170,472 in distribution fees for class A shares.
During the six months ended August 31, 1994, Putnam Mutual Funds
Corp. (formerly known as Putnam Financial Services, Inc.), a wholly-
owned subsidiary of Putnam Investments, Inc., acting as an
underwriter, received net commissions of $36,030 from the sale of
class A shares of the Fund.
A deferred sales charge of up to 1.00% is assessed on certain
redemptions of class A shares purchased as part of an investment of
$1 million or more. For the six months ended August 31, 1994, Putnam
Mutual Funds Corp., acting as underwriter, received no monies in
contingent deferred sales charges on such redemptions.
The Fund has adopted a 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 up to 0.85% of the Fund's average net assets
attributable to class B shares. For the six months ended August 31,
1994 the fundpaid Putnam Mutual Funds Corp. distribution fees of
$84,756 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the
contingent deferred sales charges on its class B share redemptions
within six years of purchase. The charge is based on declining
rates, which begin at 5.00% of the net asset value of the redeemed
shares. For the six months ended August 31, 1994, Putnam Mutual
Funds, acting as an underwriter, received $29,771 in contingent
deferred sales charges from redemptions.
<PAGE>
Note 3
Purchases and sales of securities
During the six months ended August 31, 1994, purchases and sales of
investment securities other than short-term investments, aggregated
$36,538,057 and $14,809,643, respectively. Purchases and sales of
short-term municipal obligations aggregated $8,900,000 and
$8,500,000 respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At 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. Transactions in capital shares were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six months ended August 31 Year ended February 28
1994 1994
Class A Shares Amount Shares Amount
Shares sold 2,765,115 $ 25,014,130 4,612,523 $ 43,626,301
Shares issued in
connection with
reinvestment of
distributions 292,259 2,642,172 554,144 5,240,173
3,057,374 27,656,302 5,166,667 48,866,474
Shares repurchased(2,226,859)(20,129,787) (2,227,002) (21,139,190)
Net increase 830,515 $ 7,526,515 2,939,665 $ 27,727,284
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
July 15, 1993 (commencement
of
Six months ended August 31 operations) to February 28
1994 1994
Class B Shares Amount Shares Amount
Shares sold 1,835,398$16,583,776 1,365,905 $13,030,991
Shares issued in
connection with
reinvestment of
distributions 31,326 282,652 10,492 99,743
1,866,724 16,866,428 1,376,397 13,130,734
Shares repurchased (141,803)(1,279,788) (30,102) (286,853)
Net increase 1,724,921$15,586,640 1,346,295 $12,843,881
</TABLE>
<PAGE>
Note 5
Reclassification of Capital Accounts
Effective March 1, 1993, Putnam Pennsylvania Tax Exempt Income Fund
has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions, by
Investment Companies (SOP)." The purpose of this SOP is to report
the accumulated net investment income (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 $10,782 reducing
distributions in excess of net investment income and decreasing
additional paid-in capital.
These adjustments represent the cumulative amounts necessary to
report these balances through February 28, 1993, the close of the
Fund's most recent fiscal year end, for financial reporting and tax
purposes.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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 Putnam
Pennsylvania 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 prolicies of the fund, and the most recent copy of
Putnam's quarterly Performance Summary.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
047/226/14153
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed differently
in this filing.
(5) Bullet points and similar graphic symbols are omitted.
(6) Page Numbering is different.
