As filed with the Securities and Exchange Commission on
June 20, 1995
Registration No. 33-28321
811-5802
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 7 / X /
and ----
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940 ----
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Amendment No. 8 / X /
(Check appropriate box or boxes) ----
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PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
(Exact name of registrant as specified in charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(617) 292-1000
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It is proposed that this filing will become effective
(check appropriate box)
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/ / immediately upon filing pursuant to paragraph (b)
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/ X / on July 1, 1995 pursuant to paragraph (b)
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/ / 60 days after filing pursuant to paragraph
(a) (1)
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/ / on (date) pursuant to paragraph (a) (1)
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/ / 75 days after filing pursuant to paragraph (a)(2)
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/ / on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
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/ / this post-effective amendment designates a new
- ---- effective date for a previously filed post-effective
amendment.
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JOHN R. VERANI, Vice President
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
One Post Office Square
Boston, Massachusetts 02109
(Name and address of agent for service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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The Registrant has registered an indefinite number or
amount of securities under the Securities Act of 1933 pursuant to
Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended
February 28, 1995 was filed on April 27, 1995 .
<PAGE>
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 481(A))
PART A
N - 1A ITEM NO. LOCATION
1. Cover Page . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . Expenses summary
3. Condensed Financial Information Financial
highlights;
How performance
is shown
4. General Description of
Registrant . . . . . . . . . . . Objective; How
objective is
pursued; Organization
and history
5. Management of the Fund . . . . . Expenses summary;
How the Fund is
managed; About Putnam
Investments, Inc.
5A . . . . . . . . . . . . . . . . . Management's
Discussion of Fund
Performance . . . . . . . . . . (Contained in the
Annual Report of
the
Registrant)
6. Capital Stock and Other
Securities . . . . . . . . . . . Cover Page;
Organization and
history; How
distributions are
made; tax information
7. Purchase of Securities Being
Offered . . . . . . . . . . . . How to buy shares;
Distribution
Plans; How to sell
shares; How to
exchange shares; How
the Fund values its
shares
8. Redemption or Repurchase . . . . How to buy shares;
How to sell
shares; How to
exchange shares;
Organization and
history
9. Pending Legal Proceedings . . . Not Applicable
<PAGE>
PART B
N - 1A ITEM NO. LOCATION
10. Cover Page . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . Cover Page
12. General Information and History Organization and
history (Part A)
13. Investment Objectives and
Policies . . . . . . . . . . . . How objective
is pursued (Part
A); Investment
Restrictions of the
Fund; Miscellaneous
Investment Practices
14. Management of the Registrant . . Management of the
Fund (Trustees;
Officers); Additional
Officers of the Fund
15. Control Persons and Principal. . . . . Management of
the
Holders of Securities Fund (Trustees;
Officers); Fund
Charges and Expenses
(Ownership of Fund
Shares)
16. Investment Advisory and Other. . . . . Management of
the
Services Fund (Trustees;
Officers; The
Management Contract;
Principal
Underwriter ;
Investor Servicing
Agent and
Custodian) ; Fund
Charges and Expenses;
Distribution
Plan ;
Independent
Accountants and
Financial Statements
17. Brokerage Allocation . . . . . . Management of the
Fund (Portfolio
Transactions); Fund
Charges and Expenses<PAGE>
18. Capital Stock and Other
Securities . . . . . . . . . . . Organization and
history (Part A);
How distributions are
made; tax information
(Part A); Suspension
of Redemptions
19. Purchase, Redemption , and Pricing How to buy
shares
of Securities Being Offered (Part A); How to sell
shares (Part A); How
to exchange shares
(Part A); How to Buy
Shares; Determination
of Net Asset Value;
Suspension of
Redemptions
20. Tax Status . . . . . . . . . . . How distributions
are made; tax
information (Part A);
Taxes
21. Underwriters . . . . . . . . . . Management of the
Fund (Principal
Underwriter); Fund
Charges and Expenses
22. Calculation of Performance Data How performance is
shown (Part A);
Investment
Performance of the
Fund; Standard
Performance Measures
23. Financial Statements . . . . . . Independent
Accountants and
Financial Statements
PART C
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C of the
Registration Statement.
<PAGE>
PROSPECTUS
JULY 1,
1995
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
CLASS A , B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED
This Prospectus explains concisely what you should know before
investing in Class A , B or M shares of Putnam
Pennsylvania Tax Exempt Income Fund (the "Fund") . Please
read it carefully and keep it for future reference. You can find
more detailed information about the Fund in the July 1,
1995 Statement of Additional Information, as amended from
time to time. For a free copy of the Statement or other
information , call Putnam Investor Services at 1-800-225-1581.
The Statement has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
BOSTON * LONDON * TOKYO
<PAGE>
ABOUT THE FUND
Expenses summary
. .........................................................
..... 3
Financial highlights
. .........................................................
..... 4
Objective
. .........................................................
..... 6
How objective is pursued
. .........................................................
..... 6
Risk factors
............................................................... 10
How performance is shown
. .........................................................
....16
How the Fund is managed
. .........................................................
..... 17
Organization and history
. .........................................................
..... 17
ABOUT YOUR INVESTMENT
Alternative sales arrangements
. .........................................................
....19
How to buy shares
. .........................................................
....20
Distribution Plans
. .........................................................
....25
How to sell shares
. .........................................................
....27
How to exchange shares
. .........................................................
....28
How the Fund values its shares
. .........................................................
....29
How distributions are made; tax information
. .........................................................
....29
ABOUT PUTNAM INVESTMENTS, INC. 32
APPENDIX
Securities ratings
33
ABOUT THE FUND
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in the Fund.
The following table summarizes your maximum transaction costs from investing in
the Fund and expenses incurred by the Fund based on its most recent fiscal year.
The Examples show the cumulative expenses attributable to a hypothetical
$1,000 investment over specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Charge
Imposed on Purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred Sales Charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE**
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average
net assets)
Management Fees 0.60% 0.60% 0.60%
12b-1 Fees 0.20% 0.85% 0.50%
Other Expenses 0.12% 0.12% 0.12%
Total Fund Operating
Expenses 0.92% 1.57% 1.22%
The table is provided to help you understand the expenses of investing in the
Fund and your share of the operating expenses which the Fund incurs. The
12b-1 fees for Class M shares shown in the table reflect the
amount to which the Trustees currently limit payments under the
Class M Distribution Plan. For Class M shares, management fees
and "Other expenses" are based on the operating expenses for the
Fund's Class A shares.
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and redemption at the end of each
period:
1 3 5 10
year years years years
Class A $56 $75 $ 96 $155
Class B $66 $80 $106 $187***
Class M $45 $70 $ 97 $176
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return but no redemption:
1 3 5 10
year years years years
Class A $56 $75 $96 $155
Class B $16 $50 $86
$187***
Class M $45 $70 $97 $176
The Examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown.
Federal regulations require the Examples to assume a 5%
annual return, but actual annual return has varied.
* The higher 12b-1 fees borne by Class B and Class M
shares may cause long-term shareholders to pay more than
the economic equivalent of the maximum permitted front-end
sales charge on Class A shares .
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of Class A shares that were purchased
without an initial sales charge as part of an investment of
$1 million or more. See "How to buy shares - Class A
shares."
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "How to buy shares - Class B shares -
Conversion of Class B shares."
<PAGE>
FINANCIAL HIGHLIGHTS
The table on the following page presents per share financial
information for Class A and B shares. No Class M shares were
outstanding during these periods . This information has been
audited and reported on by the Fund's independent accountants.
The Report of Independent Accountants and financial statements
included in the Fund's Annual Report to shareholders for the
1995 fiscal year are incorporated by reference into this
Prospectus. The Fund's Annual Report, which contains additional
unaudited performance information, is available without
charge upon request.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT
OF OPERATIONS) TO
YEAR ENDED FEBRUARY 28
FEBRUARY 28 1995 1994 1995
CLASS B
NET ASSET VALUE, BEGINNING OF PERIOD $9.38 $9.48 $9.39
INVESTMENT OPERATIONS
NET INVESTMENT INCOME .47 .28 .53
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (.40) (.08) (.40)
TOTAL FROM INVESTMENT OPERATIONS .07 .20 .13
LESS DISTRIBUTIONS FROM:
NET INVESTMENT INCOME (.47) (.28) (.53)
NET REALIZED GAIN ON INVESTMENTS (.01) (.02) (.01)
IN EXCESS OF REALIZED
GAINS ON INVESTMENTS -- -- --
TOTAL DISTRIBUTIONS (.48) (.30) (.54)
NET ASSET VALUE, END OF PERIOD $8.97 $9.38 $8.98
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(B) 0.93 2.18(C) 1.60
NET ASSET VALUE, END OF PERIOD
(IN THOUSANDS) $36,670 $12,633 $171,568
RATIO OF EXPENSES TO AVERAGE
NET ASSETS (%) 1.57 1.00(C) .92
RATIO OF NET INVESTMENT INCOME TO AVERAGE
NET ASSETS (%) 5.23 2.90(C) 5.94
PORTFOLIO TURNOVER (%) 26.09 15.65(C) 26.09
PAGE>
</TABLE
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE><CAPTION>
<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)
</TABLE>
(A) REFLECTS AN 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.<PAGE>
OBJECTIVE
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND SEEKS AS HIGH A
LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND
PENNSYLVANIA PERSONAL INCOME TAX AS PUTNAM INVESTMENT
MANAGEMENT , INC., THE FUND'S INVESTMENT MANAGER ("PUTNAM
MANAGEMENT"), BELIEVES IS CONSISTENT WITH PRESERVATION OF
CAPITAL. The Fund is not intended to be a complete investment
program, and there is no assurance it will achieve its objective.
HOW OBJECTIVE IS PURSUED
BASIC INVESTMENT STRATEGY
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND SEEKS ITS OBJECTIVE BY
FOLLOWING THE FUNDAMENTAL INVESTMENT POLICY OF INVESTING AT LEAST
80% OF ITS NET ASSETS IN PENNSYLVANIA TAX EXEMPT SECURITIES,
EXCEPT WHEN INVESTING FOR DEFENSIVE PURPOSES DURING TIMES OF
ADVERSE MARKET CONDITIONS. Under current law, to the extent
distributions by the Fund are derived from interest on
Pennsylvania Tax Exempt Securities (which are described below)
and are designated as such, they are exempt from federal and
Pennsylvania personal income taxes. The Fund may also invest in
taxable obligations, as described below, to the extent permitted
by its investment policies, or hold its assets in money market
instruments or in cash. Putnam Management expects the
Fund will generally invest in Pennsylvania Tax Exempt Securities
of longer maturities (10 years or more), but the Fund may invest
in Pennsylvania Tax Exempt Securities having a broad range of
maturities.
The Fund's investments in Pennsylvania Tax Exempt
Securities and taxable obligations will be limited to
securities rated at the time of purchase not lower than the five
highest grades assigned by Moody's Investors Service, Inc.
("Moody's")(Aaa, Aa, A, Baa or Ba) or Standard & Poor's
Corporation ("S&P")(AAA, AA, A, BBB or BB), or unrated securities
which Putnam Management determines are of comparable quality.
The Fund will not purchase a Pennsylvania Tax Exempt Security
rated both Ba by Moody's and BB by S&P at the time of purchase,
or, if unrated, determined by Putnam Management to be of
comparable quality if, as a result, more than 25% of the
Fund's total assets would be of that quality. The rating
services' descriptions of the five highest grades of debt
securities are included in the Appendix to this Prospectus.
Pennsylvania Tax Exempt Securities rated Ba or BB are
considered to have speculative elements, with large uncertainties
or major risk exposures to adverse conditions. INVESTORS SHOULD
CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE RISKS OF OWNING
SHARES OF A MUTUAL FUND WHICH MAY INVEST IN SECURITIES IN CERTAIN
OF THE LOWER RATING CATEGORIES .
TO THE EXTENT THAT THE FUND EARNS INTEREST INCOME
FROM CERTAIN TYPES OF PENNSYLVANIA TAX EXEMPT SECURITIES ,
INDIVIDUAL AND CORPORATE SHAREHOLDERS MAY BE SUBJECT TO
FEDERAL ALTERNATIVE MINIMUM TAX ON THAT PART OF THE
FUND'S DISTRIBUTIONS ATTRIBUTABLE TO SUCH INCOME. More
generally, corporations may be subject to alternative minimum tax
on a portion of the exempt-interest dividends they receive from
the Fund. For purposes of measuring compliance with the
Fund's fundamental 80% policy on investments in Pennsylvania Tax
Exempt Securities, the Fund will exclude securities the interest
from which may be subject to federal alternative minimum tax.
Under the Fund's investment policies, Putnam Management will not
trade the Fund's securities for the purpose of seeking profits.
It is a fundamental policy of the Fund that its portfolio
securities may be varied only (i) to eliminate unsafe investments
and investments not consistent with the preservation of the
Fund's capital or the tax status of the Fund's investments; (ii)
to honor redemption orders and meet anticipated redemption
requirements and negate gains from discount purchases; (iii) to
reinvest the earnings from securities in like securities; or (iv)
to defray normal administrative expenses. For purposes of this
fundamental policy, the Fund may vary its portfolio securities if
(i) there has been an adverse change in a security's credit
rating or in that of its issuer or in Putnam Management's credit
analysis of the security or its issuer; (ii) there has been, in
the opinion of Putnam Management, a deterioration or anticipated
deterioration in general economic or market conditions affecting
issuers of Pennsylvania Tax Exempt Securities, or a change or
anticipated change in interest rates; (iii) adverse changes or
anticipated changes in market conditions or economic or other
factors temporarily affecting the issuers of one or more
portfolio securities make necessary or desirable the sale of such
security or securities in anticipation of the Fund's repurchase
of the same or comparable securities at a later date; or (iv)
Putnam Management engages in the alternative investment practices
described below. In addition, for purposes of this fundamental
policy, the Fund may purchase or sell financial futures contracts
and related options and options on securities and securities
indices for hedging purposes. As a result of these limitations,
the Fund may have less flexibility than other mutual funds in
responding to market or interest rate changes and to new
investment opportunities.
At times Putnam Management may judge that conditions in the
markets for Pennsylvania Tax Exempt Securities make pursuing the
Fund's basic investment strategy inconsistent with the best
interests of its shareholders. At such times Putnam Management
may temporarily use alternative strategies, primarily designed to
reduce fluctuations in the value of the Fund's assets. In
implementing these "defensive" strategies, the Fund may invest
without limit in taxable obligations, including:
obligations of the U.S. government, its agencies or
instrumentalities; obligations issued by governmental issuers in
other states, the interest on which would be exempt from federal
income tax; other debt securities rated within the four highest
grades by either Moody's or S&P ; commercial paper
rated in the highest grade by either rating service (Prime-1 or
A-1+, respectively); certificates of deposit and bankers'
acceptances; repurchase agreements; or any other securities that
Putnam Management considers consistent with such defensive
strategies. It is impossible to predict when, or for how long,
the Fund will use such alternative strategies. The limitations
described above on the ability of the Fund to vary its portfolio
securities may limit the Fund's use of these alternative
investment strategies.
PENNSYLVANIA TAX EXEMPT SECURITIES
PENNSYLVANIA TAX EXEMPT SECURITIES INCLUDE OBLIGATIONS OF
THE COMMONWEALTH OF PENNSYLVANIA , ITS POLITICAL
SUBDIVISIONS , AND THEIR AGENCIES ,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE INTEREST WITH
RESPECT TO WHICH, IN THE OPINION OF BOND COUNSEL, IS EXEMPT FROM
FEDERAL INCOME TAX AND PENNSYLVANIA PERSONAL INCOME TAX. These
securities are issued to obtain funds for various public
purposes, such as the construction of public facilities, the
payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or
private institutions for the construction of housing, educational
or medical facilities , and may also include certain types
of industrial development bonds, private activity bonds or notes
issued by public authorities to finance privately owned or
operated facilities , or to fund short-term cash
requirements. Short-term Pennsylvania Tax Exempt Securities
may be issued as interim financing in anticipation of tax
collections, revenue receipts or bond sales to finance various
public purposes. Pennsylvania Tax Exempt Securities may
also include obligations issued by certain other
governmental entities , such as U.S. territories,
if such obligations generate interest income which is
exempt from federal income tax and Pennsylvania personal income
tax.
THE TWO PRINCIPAL CLASSIFICATIONS OF PENNSYLVANIA TAX EXEMPT
SECURITIES ARE GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR
SPECIAL REVENUE OBLIGATION) SECURITIES. GENERAL OBLIGATION
securities involve a pledge of the credit of an issuer possessing
taxing power and are payable from the issuer's general
unrestricted revenues. Their payment may depend on an
appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation
securities vary according to the law applicable to the particular
issuer. SPECIAL OBLIGATION (or SPECIAL REVENUE OBLIGATION)
securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted
revenues of the issuer. Industrial development bonds and
private activity bonds are in most cases special obligation
securities, the credit quality of which is directly related to
the private user of the facilities.
The Fund may also invest in securities representing interests in
Pennsylvania Tax Exempt Securities, known as "inverse floating
obligations" or "residual interest bonds," which pay
interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or
an index of short-term tax exempt securities. The interest rates
on inverse floating obligations or residual interest bonds will
typically decline as short-term market interest rates increase
and increase as short-term market rates decline. Such securities
have the effect of providing a degree of investment leverage,
since they will generally increase or decrease in value in
response to changes in market interest rates at a rate which is a
multiple (typically two) of the rate at which fixed-rate long-
term tax exempt securities increase or decrease in response to
such changes. As a result, the market values of inverse floating
obligations and residual interest bonds will generally be more
volatile than the market values of fixed-rate tax exempt
securities.
INVESTMENTS IN PREMIUM SECURITIES.
During a period of declining interest rates, many of the Fund's
portfolio investments will likely bear coupon rates which are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry market values greater than the
principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values
of such "premium" securities tend to approach the
principal amount as they approach maturity (or call price in the
case of securities approaching their first call date). As a
result, an investor who purchases shares of the Fund during such
periods would initially receive higher monthly distributions
(derived from the higher coupon rates payable on the Fund's
investments) than might be available from alternative investments
bearing current market interest rates, but may face an increased
risk of capital loss as these higher coupon securities approach
maturity (or first call date). In evaluating the potential
performance of an investment in the Fund, investors may find it
useful to compare the Fund's current dividend rate with the
Fund's "yield," which is computed on a yield-to-maturity basis in
accordance with SEC regulations and which reflects amortization
of market premiums. See "How performance is shown."
RISK FACTORS
THE VALUES OF PENNSYLVANIA TAX EXEMPT SECURITIES FLUCTUATE
IN RESPONSE TO CHANGES IN INTEREST RATES . A decrease in
interest rates will generally result in an increase in the
value of the Fund's assets . Conversely, during periods of
rising interest rates, the value of the Fund's assets will
generally decline. The magnitude of these fluctuations generally
is greater for securities with longer maturities. However, the
yields on such securities are also generally higher. In
addition, the values of such securities are affected by
changes in general economic conditions and business conditions
affecting the specific industries of their issuers . Changes
by recognized rating services in their ratings of a tax-
exempt security and in the ability of an issuer to make
payments of interest and principal may also affect the
value of these investments. Changes in the value of portfolio
securities generally will not affect income
derived from such securities , but will affect the
Fund's net asset value. The Fund will not necessarily dispose
of a security when its rating is reduced below its rating at the
time of purchase, although Putnam Management will monitor the
investment to determine whether continued investment in the
security will assist in meeting its investment objective.
THE FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED
PENNSYLVANIA TAX EXEMPT SECURITIES. The values of lower-rated
securities generally fluctuate more than those of
higher-rated securities . In addition, the lower rating
reflects a greater possibility that the financial condition of
the issuer, adverse changes in general economic conditions, or an
unanticipated rise in interest rates may impair the ability of
the issuer to make payments of income and principal.
<PAGE>
The table below shows the percentages of the Fund's assets
invested during fiscal 1995 in securities assigned to the
various rating categories by S&P and in unrated
securities determined by Putnam Management to be of
comparable quality :
UNRATED SECURITIES
RATED SECURITIES,OF COMPARABLE
QUALITY ,
AS PERCENTAGE OFAS PERCENTAGE OF
RATING FUND'S ASSETS FUND'S ASSETS
"AAA" 55.11% 0.24%
"AA" 7.10% ---
"A" 11.91% ---
"BBB" 15.53% 3.54%
"BB" 1.90% 4.12%
"B" 0.30% 0.25%
------ -----
91.85% 8.15%
====== =====
Putnam Management seeks to minimize the risks of investing
in lower-rated securities through careful investment
analysis. However, the amount of information about the financial
condition of an issuer of Pennsylvania Tax Exempt Securities may
not be as extensive as that which is made available by
corporations whose securities are publicly traded. When the Fund
invests in Pennsylvania Tax Exempt Securities in the lower
rating categories, the achievement of the Fund's goals is more
dependent on Putnam Management's ability than would be the
case if the Fund were investing in Pennsylvania Tax Exempt
Securities in the higher rating categories.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, the Fund could find it more difficult to
sell such securities when Putnam Management believes it advisable
to do so or may be able to sell such securities only at prices
lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the
fair value of such securities for purposes of computing the
Fund's net asset value. In order to enforce its rights in the
event of a default under such securities, the Fund may be
required to take possession of and manage assets securing the
issuer's obligations on such securities, which may increase the
Fund's operating expenses and adversely affect the Fund's net
asset value. Any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt.
Certain securities held by the Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
The Fund may invest in so-called "zero-coupon" bonds whose
values are subject to greater fluctuation in response to changes
in market interest rates than bonds which pay interest currently.
Zero-coupon bonds are issued at a significant discount from face
value and pay interest only at maturity rather than at intervals
during the life of the security. Zero-coupon bonds allow an
issuer to avoid the need to generate cash to meet current
interest payments. Accordingly, such bonds may involve greater
credit risks than bonds paying interest currently. The Fund is
required to accrue and distribute income from zero-coupon bonds
on a current basis, even though it does not receive that income
currently in cash. Thus, the Fund may have to sell other
investments to obtain cash needed to make income distributions.
The secondary market for Pennsylvania Tax Exempt Securities is
generally less liquid than that for taxable fixed-income
securities, particularly in the lower rating categories. Thus it
may be more difficult to value or buy and sell certain securities
from time to time.
Certain investment grade Pennsylvania Tax Exempt Securities in
which the Fund may invest share some of the risk factors
discussed above with respect to lower-rated Pennsylvania Tax
Exempt Securities.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTMENT BY THE FUND IN SECURITIES IN THE LOWER RATING
CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION.
SINCE THE FUND INVESTS PRIMARILY IN PENNSYLVANIA TAX EXEMPT
SECURITIES, THE VALUE OF ITS SHARES MAY BE ESPECIALLY AFFECTED BY
FACTORS PERTAINING TO THE PENNSYLVANIA ECONOMY AND OTHER FACTORS
SPECIFICALLY AFFECTING THE ABILITY OF ISSUERS OF PENNSYLVANIA TAX
EXEMPT SECURITIES TO MEET THEIR OBLIGATIONS. As a result, the
value of the Fund's shares may fluctuate more widely than the
value of shares of a portfolio investing in securities relating
to a number of different states. The ability of state, county,
or local governments to meet their obligations will depend
primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental
issuers of Pennsylvania Tax Exempt Securities may be affected
from time to time by economic, political, and demographic
conditions within Pennsylvania . In addition,
constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of
federal, state, and local aid to issuers of Pennsylvania Tax
Exempt Securities may also affect their ability to meet their
obligations. Payments of principal and interest on
special obligation securities will depend on the economic
condition of the facility or specific revenue source from whose
revenues the payments will be made, which in turn could be
affected by economic, political, and demographic conditions in
the state. Any reduction in the actual or perceived ability of
an issuer of Pennsylvania Tax Exempt Securities to meet its
obligations (including a reduction in the rating of its
outstanding securities) would likely affect adversely the market
value and marketability of its obligations and could affect
adversely the values of other Pennsylvania Tax Exempt Securities
as well.
THE FUND IS A "DIVERSIFIED" INVESTMENT COMPANY UNDER THE
INVESTMENT COMPANY ACT OF 1940. This means that with respect to
75% of its total assets the Fund may not invest more than 5% of
its total assets in the securities of any one issuer (except U.S.
government securities). The other 25% of the Fund's total assets
may be invested in the securities of any one issuer. Because of
the relatively small number of issuers of Pennsylvania Tax Exempt
Securities, the Fund is more likely to invest a higher percentage
of its assets in the securities of a single issuer than an
investment company which invests in a broad range of tax-exempt
securities. This practice involves an increased risk of loss to
the Fund if the issuer is unable to make interest or principal
payments or if the market value of such securities declines.
THE FUND WILL NOT INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN ANY
ONE INDUSTRY. Governmental issuers of Pennsylvania Tax
Exempt Securities are not considered part of any "industry."
However, Pennsylvania Tax Exempt Securities backed only by the
assets and revenues of nongovernmental users may for this purpose
be deemed to be issued by such nongovernmental users .
Thus, the 25% limitation would apply to such obligations.
It is nonetheless possible that the Fund may invest more than 25%
of its assets in a broader segment of the market for Pennsylvania
Tax Exempt Securities, such as revenue obligations of hospitals
and other health care facilities, housing revenue
obligations, or airport revenue obligations. This would
be the case only if Putnam Management determined that the yields
available from obligations in a particular segment of the market
justified the additional risks associated with such
concentration. Although such obligations could be supported by
the credit of governmental users or by the credit of
nongovernmental users engaged in a number of industries,
economic, business, political and other developments generally
affecting the revenues of such issuers (for example,
proposed legislation or pending court decisions affecting the
financing of such projects and market factors affecting the
demand for their services or products) may have a general adverse
effect on all Pennsylvania Tax Exempt Securities in such a market
segment.
The Fund reserves the right to invest more than 25% of its assets
in industrial development bonds and private activity
securities.
PORTFOLIO TURNOVER
The length of time the Fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by the Fund is known as "portfolio turnover."
As a result of the Fund's investment policies, under certain
market conditions the Fund's portfolio turnover rate may be
higher than that of other mutual funds. Portfolio turnover
generally involves some expense to the Fund, including brokerage
commissions or dealer mark-ups and other transaction costs on the
sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains.
Portfolio turnover rates for the life of the Fund are shown in
the section "Financial highlights."
FINANCIAL FUTURES AND OPTIONS
THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS FOR
HEDGING PURPOSES. Futures contracts on a Municipal Bond Index
are traded on the Chicago Board of Trade. This Index is intended
to represent a numerical measure of market performance for
long-term tax-exempt bonds. An "index future" is a contract to
buy or sell units of a particular securities index at an agreed
price on a specified future date. Depending on the change in
value of the index between the time when the Fund enters into and
terminates an index futures contract, the Fund realizes a gain or
loss. The Fund may purchase and sell futures contracts on the
Index (or any other tax-exempt bond index approved for trading by
the Commodity Futures Trading Commission) to hedge against
general changes in market values of Pennsylvania Tax Exempt
Securities which the Fund owns or expects to purchase. The Fund
may also purchase and sell put and call options on index futures
or on the indices directly, in addition to or as an alternative
to purchasing and selling index futures .
The Fund may also , for hedging purposes , purchase
and sell futures contracts and related options with respect to
U.S. Treasury securities, including U.S. Treasury bills, notes
and bonds ("U.S. Government Securities") and options directly on
U.S. Government Securities. U.S. Government Securities futures
and options would be used in a way similar to the Fund's use of
index futures and options.
In addition, the Fund may purchase put and call options on, or
warrants to purchase, Pennsylvania Tax Exempt Securities, either
directly or through custodial arrangements in which the Fund and
other investors own an interest in one or more options on
Pennsylvania Tax Exempt Securities.
THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND
MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS.
FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN
LOSSES. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of
financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or of the
Pennsylvania Tax Exempt Securities which are the subject of the
hedge. The successful use of futures and options further depends
on Putnam Management's ability to forecast interest rate
movements correctly. Other risks arise from the Fund's potential
inability to close out its futures or related options positions,
and there can be no assurance that a liquid secondary market will
exist for any futures contract or option at a particular time.
Certain provisions of the Internal Revenue Code and certain
regulatory requirements may limit the Fund's ability to engage in
futures and options transactions.
A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS
TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN
THE STATEMENT OF ADDITIONAL INFORMATION.
OTHER INVESTMENT PRACTICES
THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING
INVESTMENT PRACTICES, EACH OF WHICH MAY RESULT IN TAXABLE
INCOME OR CAPITAL GAINS AND INVOLVES CERTAIN SPECIAL
RISKS. THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE
DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS
DESIGNED TO REDUCE THESE RISKS.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. The Fund may
enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times.
The Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involves a risk
of loss if the value of the securities declines prior to the
settlement date. These transactions involve some risk to the
Fund if the other party should default on its obligation and the
Fund is delayed or prevented from recovering the collateral or
completing the transaction.
LIMITING INVESTMENT RISK
SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT
RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND
FROM INVESTING MORE THAN: (a) (with respect to 75% of its total
assets) 5% of its total assets in the securities of any one
issuer, other than U.S. government securities;* (b) 5% of its net
assets in securities of any issuer if the party responsible for
payment, together with any predecessor, has been in operation for
less than three years (except obligations of the U.S. government
or agencies or instrumentalities and obligations backed by the
faith, credit and taxing power of any person authorized to issue
Pennsylvania Tax Exempt Securities); (c) 15% of its net assets in
securities restricted as to resale, excluding securities
determined by the Fund's Trustees (or the person designated by
the Fund's Trustees to make such determinations) to be readily
marketable;* and (d) 15% of its net assets in any combination of
securities that are not readily marketable, in securities
restricted as to resale (excluding securities determined by the
Fund's Trustees (or the person designated by the Fund's Trustees
to make such determinations) to be readily marketable), and in
repurchase agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the Statement of
Additional Information for the full text of these policies and
the Fund's other fundamental investment policies. Except
for investment policies designated as fundamental in this
Prospectus or the Statement, the investment policies described in
this Prospectus and in the Statement are not fundamental
investment policies. The Trustees may change any
non-fundamental investment policies without shareholder approval.
As a matter of policy, the Trustees would not materially change
the Fund's investment objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of such class on the last
day of that period. For this purpose, net investment income is
calculated in accordance with SEC regulations and may differ from
net investment income as determined for financial
reporting purposes. SEC regulations require that net investment
income be calculated on a "yield-to-maturity" basis, which has
the effect of amortizing any premiums or discounts in the current
market value of fixed-income securities. The current
dividend rate is based on net investment income as
determined for tax purposes, which may not reflect
amortization in the same manner. See "How objective is pursued -
- - Investments in premium securities." Yield reflects the
deduction of the maximum initial sales charge in the case of
Class A and Class M shares, but does not reflect the
deduction of any contingent deferred sales charge in the case of
Class B shares. "Tax-equivalent" yield for each class of shares
shows the effect on performance of the tax-exempt status of
distributions received from the Fund. It reflects the
approximate yield that a taxable investment must earn for
shareholders at stated income levels to produce an after-tax
yield equivalent to a tax-exempt yield.
"Total return" for the one- , five - and ten -year
periods (or for the life of a class, if shorter)
through the most recent calendar quarter represents the average
annual compounded rate of return on an investment of $1,000 in
the Fund invested at the maximum public offering price (in the
case of Class A and Class M shares) or reflecting the
deduction of any applicable contingent deferred sales charge (in
the case of Class B shares). Total return may also be presented
for other periods or based on investment at reduced sales charge
levels . Any quotation of investment performance
not reflecting the maximum initial sales charge or contingent
deferred sales charge would be reduced if such sales
charge were used.
ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES
NOT PREDICT FUTURE PERFORMANCE. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of the Fund's portfolio, the Fund's operating
expenses and which class of shares you purchase. Investment
performance also often reflects the risks associated with the
Fund's investment objective and policies. These factors should
be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles.
Quotations of investment performance for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. The Fund's performance may be
compared to various indices. See the Statement of Additional
Information.
HOW THE FUND IS MANAGED
THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING
THE CONDUCT OF THE FUND'S BUSINESS. Subject to such policies as
the Trustees may determine, Putnam Management furnishes a
continuing investment program for the Fund and makes investment
decisions on its behalf. Subject to the control of the Trustees,
Putnam Management also manages the Fund's other affairs and
business. Richard P. Wyke, Senior Vice President of Putnam
Management and Vice President of the Fund, has had primary
responsibility for the day-to-day management of the Fund's
portfolio since 1990. Mr. Wyke has been employed by
Putnam Management since 1987 .
The Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing and shareholder reporting expenses, and payments under
its Distribution Plans (which are in turn allocated to the
relevant class of shares). The Fund also reimburses Putnam
Management for the compensation and related expenses of certain
officers of the Fund and their staff who provide administrative
services to the Fund. The total reimbursement is determined
annually by the Trustees.
Putnam Management places all orders for purchases and sales of
the Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of the Fund (and, if permitted by law, of the
other Putnam funds) as a factor in the selection of
broker-dealers.
ORGANIZATION AND HISTORY
Putnam Pennsylvania Tax Exempt Income Fund is a Massachusetts
business trust organized on April 20, 1989. A copy of the
Agreement and Declaration of Trust, which is governed by
Massachusetts law, is on file with the Secretary of State of The
Commonwealth of Massachusetts.
The Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of the Fund may, without shareholder
approval, be divided into two or more series of shares
representing separate investment portfolios. Any such series of
shares may be divided without shareholder approval into
two or more classes of shares having such preferences and special
or relative rights and privileges as the Trustees determine. The
Fund's shares are not currently divided into series.
The Fund's shares are currently divided into three classes.
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when required by law or as determined by the
Trustees. Shares are freely transferable, are entitled to
dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net assets of the Fund. The Fund
may suspend the sale of shares at any time and may refuse any
order to purchase shares. Although the Fund is not required to
hold annual meetings of its shareholders, shareholders holding at
least 10% of the outstanding shares entitled to vote have the
right to call a meeting to elect or remove Trustees, or to take
other actions as provided in the Agreement and Declaration
of Trust.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), the Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before the Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. The Fund
may also redeem shares if you own shares above a maximum amount
set by the Trustees. There is presently no maximum, but the
Trustees may establish one at any time, which could apply to both
present and future shareholders.
THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE
CHAIRMAN. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter
Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American
Management Corp. ; JOHN A. HILL, Principal and Managing
Director, First Reserve Corporation; ELIZABETH T. KENNAN,
President Emeritus and Professor , Mount Holyoke College;
LAWRENCE J. LASSER,* Vice President of the Putnam funds.
President, Chief Executive Officer and Director of Putnam
Investments, Inc. and Putnam Management. Director, Marsh &
McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice
President, Cabot Partners Limited Partnership; DONALD S.
PERKINS, * Chairman of the Board and Director of Kmart
Corporation and Director of various corporations, including
AT&T and Time Warner Inc.; GEORGE PUTNAM, III,* President,
New Generation Research, Inc. ; ELI SHAPIRO, Alfred P. Sloan
Professor of Management, Emeritus, Alfred P. Sloan School of
Management, M.I.T. ; A.J.C. SMITH,* Chairman, Chief Executive
Officer and Director, Marsh & McLennan Companies, Inc.; and W.
NICHOLAS THORNDIKE, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and
Eastern Utilities Associates. The Fund's Trustees are also
Trustees of the other Putnam funds. Those marked with an
asterisk (*) are or may be deemed to be "interested
persons" of the Fund, Putnam Management or Putnam Mutual Funds.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This Prospectus offers investors three classes of
shares which bear sales charges in different forms and amounts
and which bear different levels of expenses:
CLASS A SHARES . An investor who purchases Class A shares
pays a sales charge at the time of purchase. As a result, Class
A shares are not subject to any charges when they are redeemed
(except for sales at net asset value in excess of $1 million
which are subject to a contingent deferred sales charge).
Certain purchases of Class A shares qualify for reduced sales
charges. Class A shares currently bear a 12b-1 fee at the annual
rate of 0.20% of the Fund's average net assets attributable to
Class A shares. See "How to buy shares -- Class A shares."
CLASS B SHARES . Class B shares are sold without an
initial sales charge, but are subject to a contingent deferred
sales charge of up to 5% if redeemed within six years. Class B
shares also bear a higher 12b-1 fee than Class A shares,
currently at the annual rate of 0.85% of the Fund's average net
assets attributable to Class B shares. Class B shares will
automatically convert into Class A shares, based on relative net
asset value, approximately eight years after purchase. Class B
shares provide an investor the benefit of putting all of the
investor's dollars to work from the time the investment is made,
but (until conversion) will have a higher expense ratio and pay
lower dividends than Class A shares due to the higher 12b-1 fee.
See "How to buy shares -- Class B shares."
CLASS M SHARES. An investor who purchases Class M shares pays
a sales charge at the time of purchase which is lower than the
sales charge applicable to Class A shares. Class M shares are
not subject to any contingent deferred sales charge when they are
redeemed. Certain purchases of Class M shares qualify for
reduced sales charges. Class M shares currently bear a 12b-1 fee
at the annual rate of 0.50% of the Fund's average net assets
attributable to Class M shares. See "How to buy shares -- Class
M shares."
WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
or Class M shares. Investors who prefer not to pay an
initial sales charge might consider Class B shares. Orders for
Class B shares for $250,000 or more will be treated as orders for
Class A shares or declined. For more information about these
sales arrangements, consult your investment dealer or Putnam
Investor Services. Sales personnel may receive different
compensation depending on which class of shares they sell.
Shares may only be exchanged for shares of the same class of
another Putnam fund. See "How to exchange shares."
HOW TO BUY SHARES
You can open a Fund account with as little as $500 and make
additional investments at any time with as little as $50. You
can buy Fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order
form and return it with a check payable to the Fund to Putnam
Mutual Funds, which will act as your agent in purchasing shares
through your designated investment dealer.
BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
CLASS A SHARES
The public offering price of Class A shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------ ----- REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE
AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $ 25,000 4.99% 4.75% 4.50%
$ 25,000 but less than 100,000 4.71 4.50 4.25
100,000 but less than 250,000 3.90 3.75 3.50
250,000 but less than 500,000 3.09 3.00 2.75
500,000 but less than 1,000,000 2.04 2.00 1.85
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to dealers.
The Staff of the Securities and Exchange Commission has
indicated that dealers who receive more than 90% of the
sales charge may be considered underwriters.
There is no initial sales charge on purchases of Class A shares
of $1 million or more. However, a contingent deferred sales
charge ("CDSC") of 1.00% or 0.50%, respectively, is imposed on
redemptions of such shares within the first or second year after
purchase, based on the lower of the shares' cost and current net
asset value. Any shares acquired by reinvestment of
distributions will be redeemed without a CDSC. In addition,
shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission as described
below are not subject to the CDSC. In determining whether
a CDSC is payable, the Fund will first redeem shares not subject
to any charge. Putnam Mutual Funds receives the entire amount of
any CDSC you pay. See the Statement of Additional Information
for more information about the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during the one-year period beginning with the date of the initial
purchase at net asset value . Each subsequent one-year
measuring period for these purposes will begin with
the first net asset value purchase following the end of the prior
period. Such commissions are paid at the rate of 1.00% of the
amount under $3 million, 0.50% of the next $47 million and 0.25%
thereafter. On sales at net asset value to a participant-
directed qualified retirement plan initially investing less than
$20 million in Putnam funds and other investments managed by
Putnam Management or its affiliates (including a plan sponsored
by an employer with more than 750 employees), Putnam Mutual Funds
pays commissions on cumulative purchases during the life of the
account at the rate of 1.00% of the amount under $3 million and
0.50% thereafter. On sales at net asset value to all other
participant-directed qualified retirement plans, Putnam Mutual
Funds pays commissions on the initial investment and on
subsequent net quarterly sales at the rate of 0.15%.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within six years of
purchase. The following types of shares may be redeemed without
charge at any time: (i) shares acquired by reinvestment of
distributions and (ii) shares otherwise exempt from the CDSC, as
described in "How to buy shares-General" below. For
other shares , the amount of the charge is determined as a
percentage of the lesser of the current market value or the cost
of the shares being redeemed. The amount of the CDSC
will depend on the number of years since you invested and the
dollar amount being redeemed, according to the following table:
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF
YEARS SINCE PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
- ------------------- -------------------
0-1.................................. 5.0%
1-2.................................. 4.0%
2-3.................................. 3.0%
3-4.................................. 3.0%
4-5.................................. 2.0%
5-6.................................. 1.0%
6 and thereafter..................... NONE
In determining whether a CDSC is payable on any redemption, the
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period. For this
purpose, the amount of any increase in a share's value above its
initial purchase price is not regarded as a share exempt from the
CDSC. Thus, when a share that has appreciated in value is
redeemed during the six-year period, a CDSC is assessed on its
initial purchase price. For information on how sales charges
are calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CONVERSION OF CLASS B SHARES. Class B shares will automatically
convert into Class A shares at the end of the month eight years
after the purchase date, except as noted below. Class B shares
acquired by exchanging Class B shares of another Putnam
fund will convert into Class A shares based on the time of the
initial purchase. Class B shares acquired through reinvestment
of distributions will convert into Class A shares based on the
date of the initial purchase to which such shares relate. For
this purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling
or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue
to be subject to higher expenses than Class A shares for an
indefinite period.
CLASS M SHARES
The public offering price of Class M shares is the net asset
value plus a sales charge. The Fund receives the net asset
value. The sales charge varies depending on the size of your
purchase and is allocated between your investment dealer and
Putnam Mutual Funds. The current sales charges are:
<PAGE>
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF: AMOUNT OF SALES
---------------- CHARGE REALLOWED
NET TO DEALERS
AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE*
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Less than $ 50,000 3.36% 3.25% 3.00%
$ 50,000 but less than 100,000 2.30 2.25 2.00
100,000 but less than 250,000 1.52 1.50 1.25
250,000 but less than 500,000 1.01 1.00 1.00
500,000 and above None None None
- ----------------------------------------------------------------------------
</TABLE>
<PAGE>
* At the discretion of Putnam Mutual Funds, however, the
entire sales charge may at times be reallowed to
dealers. The Staff of the Securities and Exchange
Commission has indicated that dealers who receive more
than 90% of the sales charge may be considered
underwriters.
Class M shares do not convert into any other class of shares.
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES
AT REDUCED SALES CHARGES. Consult your investment dealer or
Putnam Mutual Funds for details about Putnam's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention,
Group Sales Plan, Employee Benefit Plans and other plans.
Descriptions are also included in the order form and in the
Statement of Additional Information. In addition, sales charges
will not apply to Class M shares purchased with redemption
proceeds received within the prior ninety days from non-Putnam
mutual funds on which the investor paid a front-end sales charge
or CDSC.
The Fund may sell Class A , Class B and Class M
shares at net asset value without an initial sales charge or a
CDSC to the Fund's current and retired Trustees (and their
families), current and retired employees (and their families) of
Putnam Management and affiliates, registered representatives and
other employees (and their families) of broker-dealers having
sales agreements with Putnam Mutual Funds, employees (and their
families) of financial institutions having sales agreements with
Putnam Mutual Funds (or otherwise having an arrangement with a
broker-dealer or financial institution with respect to sales of
Fund shares), financial institution trust departments investing
an aggregate of $1 million or more in Putnam funds, clients of
certain administrators of tax-qualified plans, employee benefit
plans of companies with more than 750 employees, tax-qualified
plans when proceeds from repayments of loans to participants are
invested (or reinvested) in Putnam funds, "wrap accounts" for the
benefit of clients of broker-dealers, financial institutions or
financial planners adhering to certain standards established by
Putnam Mutual Funds, and investors meeting certain requirements
who sold shares of certain Putnam closed-end funds pursuant to a
tender offer by the closed-end fund. In addition, the Fund may
sell shares at net asset value without an initial sales charge or
a CDSC in connection with the acquisition by the Fund of assets
of an investment company or personal holding company, and the
CDSC will be waived on redemptions of shares arising out of death
or disability or in connection with certain withdrawals from IRA
or other retirement plans. Up to 12% of the value of Class B
shares subject to a Systematic Withdrawal Plan may also be
redeemed each year without a CDSC. See the Statement of
Additional Information.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the Fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise the Fund
may delay payment until the purchase price of those shares has
been collected or, if you redeem by telephone, until 15 calendar
days after the purchase date.
To eliminate the need for safekeeping, the Fund will not issue
certificates for your shares unless you request them. Putnam
Mutual Funds will from time to time at its expense
provide additional promotional incentives or payments to dealers
that sell shares of the Putnam funds. Such incentives or
payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or
payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares. Certain dealers may not
sell all classes of shares.
DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The Class A Plan provides for
payments by the Fund to Putnam Mutual Funds at the annual rate of
up to 0.35% of the Fund's average net assets attributable to
Class A shares . The Trustees currently limit
payments under the Class A Plan to the annual rate of
0.20% of such assets . Should the Trustees decide in the
future to approve payments in excess of this amount, shareholders
will be notified and this Prospectus will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares and the maintenance of
shareholder accounts, Putnam Mutual Funds makes quarterly
payments to qualifying dealers based on the average net asset
value of Class A shares of the Fund which are attributable to
shareholders for whom the dealers are designated as the dealer of
record. This calculation excludes until one year after purchase
shares purchased at net asset value by shareholders
investing $1 million or more and by participant-directed
qualified retirement plans sponsored by employers with more than
750 employees ("NAV Shares"), except for shares owned by certain
investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.15% of
such average net asset value for Class A shares outstanding as of
July 8, 1993 and 0.20% of such average net asset value of
shares acquired after that date (including shares acquired
through reinvestment of distributions). For participant-directed
qualified retirement plans initially investing less than $20
million in Putnam funds and other investments managed by Putnam
Management or its affiliates, Putnam Mutual Funds' payments to
qualifying dealers on NAV Shares are 100% of the rate stated
above if average plan assets in Putnam funds (excluding money
market funds) during the quarter are less than $20 million, 60%
of the stated rate if average plan assets are at least $20
million but less than $30 million, and 40% of the stated rate if
average plan assets are $30 million or more. For all other
participant-directed qualified retirement plans purchasing NAV
Shares, Putnam Mutual Funds makes quarterly payments to
qualifying dealers at the annual rate of 0.10% of the average net
asset value of such shares.
CLASS B AND CLASS M DISTRIBUTION PLANS . The Class
B and the Class M Plans provide for payments by the Fund
to Putnam Mutual Funds at the annual rate of up to 1.00% of the
Fund's average net assets attributable to Class B shares and
Class M shares, as the case may be. The Trustees
currently limit payments under the Class M Plan to the
annual rate of 0.50% of such assets . The Trustees currently
limit payments under the Class B Plan to the annual rate of 0.85%
of such assets. Should the Trustees decide in the future to
approve payments in excess of these amounts , shareholders
will be notified and this Prospectus will be revised.
Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 4.00% of the
amount invested (including a prepaid service fee of 0.20% of the
amount invested) to dealers who sell Class B shares. These
commissions are not paid on exchanges from other Putnam funds and
sales to investors exempt from the CDSC. The amount paid to
dealers at the time of the sale of Class M shares is set forth
above under "How to buy shares -- Class M shares." In
addition, in order to further compensate dealers (including, for
this purpose, certain financial institutions) for services
provided in connection with sales of Class B shares and Class
M shares and the maintenance of shareholder accounts, Putnam
Mutual Funds makes quarterly payments to qualifying dealers based
on the average net asset value of Class B shares and Class M
shares which are attributable to shareholders for whom the
dealers are designated as the dealer of record, except for the
first year's service fees for Class B shares , which are
prepaid as described above. Putnam Mutual Funds makes such
payments at an annual rate of 0.20% of such average net asset
value of Class B shares and Class M shares, as the case
may be. Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of Class M shares, 0.20% of
such average net asset value of Class M shares . For Class
M shares, the total annual payment to dealers equals 0.40% of
such average net asset value.
GENERAL. Payments under the Plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of the Fund's shares, including
the payments to dealers mentioned above. Putnam Mutual Funds
may suspend or modify such payments to dealers
. Such payments are also subject to the
continuation of the relevant Distribution Plan ,
the terms of Service Agreements between dealers and Putnam Mutual
Funds, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to the Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your
investment dealer. The Fund will only redeem shares for
which it has received payment.
SELLING SHARES DIRECTLY TO THE FUND. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after the Fund receives your request in proper form
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange. If you sell shares having a net asset value of
$100,000 or more, the signatures of registered owners or their
legal representatives must be guaranteed by a bank, broker-dealer
or certain other financial institutions. See the Statement of
Additional Information for more information about where to obtain
a signature guarantee. Stock power forms are available from your
investment dealer, Putnam Investor Services and many commercial
banks. If you want your redemption proceeds sent to an address
other than your address as it appears on Putnam's records, a
signature guarantee is required. Putnam Investor Services
usually requires additional documentation for the sale of shares
by a corporation, partnership, agent or fiduciary, or a surviving
joint owner. Contact Putnam Investor Services for details.
THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS
DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances,
the Fund may suspend redemptions , or postpone payment for
more than seven days, as permitted by federal securities law.
<PAGE>
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam
Investor Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone in which case you may wish
to submit a written redemption request, as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares which remain outstanding.
The Telephone Redemption Privilege may be modified or terminated
without notice.
SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge
you for its services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase. Not all Putnam funds offer all classes of
shares. If you exchange shares subject to a CDSC, the
transaction will not be subject to the CDSC. However, when you
redeem the shares acquired through the exchange, the redemption
may be subject to the CDSC, depending upon when you originally
purchased the shares and using the schedule of any fund into or
from which you have exchanged your shares that would result in
your paying the highest CDSC applicable to your class of shares.
For purposes of computing the CDSC, the length of time you have
owned your shares will be measured from the date of original
purchase and will not be affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange
Privilege is not available if you were issued certificates for
shares which remain outstanding. Ask your investment dealer or
Putnam Investor Services for prospectuses of other Putnam funds.
Shares of certain Putnam funds are not available to residents of
all states.
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where Putnam Management or the
Trustees believe doing so would be in the best interests of
the Fund, the Fund reserves the right to revise or terminate the
exchange privilege, limit the amount or number of exchanges or
reject any exchange. Shareholders would be notified of any such
action to the extent required by law. Consult Putnam Investor
Services before requesting an exchange. See the Statement of
Additional Information to find out more about the exchange
privilege.
HOW THE FUND VALUES ITS SHARES
THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS
BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY
THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF
THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH
DAY THE EXCHANGE IS OPEN. Tax - exempt securities
(including Pennsylvania Tax Exempt Securities) 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 Fund believes that reliable
market quotations generally are not readily
available for purposes of valuing its portfolio securities. As a
result, it is likely that most of the valuations provided by such
pricing service will be based upon fair value determined on the
basis of the factors listed above. Non-tax-exempt securities for
which market quotations are readily available are valued
at market value. Short-term investments that will mature in 60
days or less are valued at amortized cost, which
approximates market value. All other securities and assets are
valued at their fair value following procedures approved by the
Trustees.
<PAGE>
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
THE FUND DECLARES ALL OF ITS NET INVESTMENT INCOME AS A
DISTRIBUTION ON EACH DAY IT IS OPEN FOR BUSINESS. Net investment
income consists of interest accrued on portfolio investments of
the Fund, less accrued expenses, computed in each case since the
most recent determination of net asset value. Normally, the Fund
pays distributions of net investment income monthly. The Fund
will distribute at least annually all net realized capital gains,
if any, after applying any available capital loss carryovers.
Distributions paid by the Fund with respect to Class A shares
will generally be greater than those paid with respect to Class B
and Class M shares because expenses attributable to Class
B and Class M shares will generally be higher.
You begin earning distributions on the business day after
Putnam Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment
promptly.
YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all
distributions in additional Fund shares without a sales charge;
(2) receive distributions from net investment income in
cash while reinvesting capital gains distributions in additional
shares without a sales charge; or (3) receive all distributions
in cash. You can change your distribution option by notifying
Putnam Investor Services in writing. If you do not select an
option when you open your account, all distributions will be
reinvested. All distributions not paid in cash will be
reinvested in shares of the class on which the distributions
are paid. You will receive a statement confirming
reinvestment of distributions in additional Fund shares (or in
shares of other Putnam funds for Dividends Plus accounts)
promptly following the quarter in which the reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in the Fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in the Fund. Similarly, if
correspondence sent by the Fund or Putnam Investor Services is
returned as "undeliverable," Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.
FEDERAL TAXES
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of
federal taxes on income and gains it distributes to shareholders.
The Fund will distribute substantially all of its ordinary income
and capital gain net income on a current basis.
Distributions designated by the Fund as "exempt-interest
dividends" are not generally subject to federal income tax.
However, if you receive Social Security or railroad
retirement benefits, you should consult your tax adviser to
determine what effect, if any, an investment in the Fund may have
on the taxation of your benefits. In addition, an investment in
the Fund may result in liability for federal alternative minimum
tax and for state and local taxes, both for individual and
corporate shareholders.
The Fund may at times purchase Pennsylvania Tax Exempt
Securities at a discount from the price at which they were
originally issued, especially during periods of rising interest
rates. For federal income tax purposes, some or all of this
market discount will be included in the Fund's ordinary income
and will be taxable to shareholders as such when it is
distributed to them.
All Fund distributions other than exempt-interest dividends will
be taxable to you as ordinary income, except that any
distributions of net long-term capital gains will be taxable
as such, regardless of how long you have held the
shares. Distributions will be taxable as described above whether
received in cash or in shares through the reinvestment of
distributions.
PENNSYLVANIA TAX
Distributions paid by the Fund will not be subject to the
Pennsylvania personal income tax or to the Philadelphia School
District investment net income tax to the extent that
the distributions are attributable to interest
received by the Fund from its investments in Pennsylvania
Tax Exempt Securities and obligations of the
United States, its territories and certain of its agencies and
instrumentalities . Distributions by the Fund to a
Pennsylvania resident that are attributable to other sources may
be subject to the Pennsylvania personal income tax and (for
residents of Philadelphia) to the Philadelphia School District
investment net income tax whether paid in cash or reinvested in
additional shares. Distributions paid by the Fund which are
excludable as exempt income for federal tax purposes are not
subject to the Pennsylvania corporate net income tax. For a
more detailed description of Pennsylvania corporate income tax
see the Statement of Additional Information.
Individual shareholders of the Fund who are subject to
the personal property taxes levied by certain Pennsylvania
counties, cities and school districts will be exempt from such
tax on their shares of the Fund to the extent that the Fund's
portfolio consists of Pennsylvania Tax Exempt Securities and
obligations of the United States, its territories and certain of
its agencies and instrumentalities. Corporations are not subject
to Pennsylvania personal property taxes.
GENERAL
The foregoing is a summary of certain federal and Pennsylvania
income tax consequences of investing in the Fund. You
should consult your tax adviser to determine the precise effect
of an investment in the Fund on your particular tax situation
(including possible liability for alternative minimum tax and
state and local taxes ). Early in each year the Fund
will notify you of the amount and tax status of distributions
paid to you by the Fund for the preceding year.
ABOUT PUTNAM INVESTMENTS, INC.
PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937.
Putnam Mutual Funds is the principal underwriter of the Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is the
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is the Fund's investor servicing and
transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly owned by Marsh & McLennan Companies, Inc., a publicly -
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.<PAGE>
APPENDIX
SECURITIES RATINGS
THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS
FOLLOWS:
MOODY'S INVESTORS SERVICE, INC.
BONDS
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high-grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.<PAGE>
STANDARD & POOR'S CORPORATION
BONDS
AAA -- Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only
in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
BB -- Debt rated BB is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
<PAGE>
GLOSSARY OF TERMS
BOND An IOU issued by a government or corporation that
usually pays interest.
- -----------------------------------------------------------------
CAPITAL A profit or loss on the sale of securities (stocks
GAIN/LOSS or bonds).
- -----------------------------------------------------------------
CLASS A, B, Types of shares, each class offering investors a
M SHARES different choice about how to pay sales charges
and distribution fees. A fund's prospectus
explains the availability and attributes of each
type.
- -----------------------------------------------------------------
COMMON A unit of ownership of a corporation.
STOCK
- -----------------------------------------------------------------
DISTRIBUTION A payment from a mutual fund to shareholders. It
may include interest from bonds and dividends from
stocks (dividend distributions). It may also
include profits from the sale of securities from
the fund's portfolio (capital gains
distributions).
- -----------------------------------------------------------------
NET ASSET The basic value of one share of a mutual fund
VALUE (NAV) without regard to sales charges. Some bond funds
aim for a steady NAV, representing stability; most
stock funds work to raise NAV, representing growth
in the value of an investment.
- -----------------------------------------------------------------
PUBLIC The purchase price of one class A share or class M
OFFERING share of a mutual fund, including the applicable
PRICE (POP) up-front sales charge.
- -----------------------------------------------------------------
TOTAL RETURN A measure of performance showing change in the
value of an investment over a given period,
assuming all earnings are invested back into the
fund.
- -----------------------------------------------------------------
YIELD The percentage rate at which a fund's portfolio
earns income from its investments.
<PAGE>
MAKE THE MOST OF YOUR PUTNAM PRIVILEGES
As a Putnam mutual fund shareholder, you have access to a number
of services that can help you build a more effective and flexible
financial program. Here are some of the ways you can use these
privileges to make the most of your Putnam mutual fund
investment.
SYSTEMATIC INVESTMENT PLAN
Invest as much as you wish ($25 or more) on any day of the month
except for the 29th, 30th, or 31st. The amount will be
automatically transferred from your checking or savings account.
SYSTEMATIC WITHDRAWAL
Make regular withdrawals of $50 or more monthly, quarterly, or
semiannually from an account valued at $10,000 or more. You may
establish your withdrawal on any day of the month except for the
29th, 30th, or 31st.
SYSTEMATIC EXCHANGE
Transfer assets automatically from one Putnam account to another
on a regular, prearranged basis. There is no additional charge
for this service.
FREE EXCHANGE PRIVILEGE
Exchange money between Putnam funds in the same class of shares
without charge. The exchange privilege allows you to adjust your
investments as your objectives change. A signature guarantee is
required for exchanges of more than $500,000.
DIVIDENDS PLUS
Diversify your portfolio by investing dividends and other
distributions from one Putnam fund automatically into another at
net asset value.
STATEMENT OF INTENTION
To reduce a front-end sales charge, you agree to invest a minimum
dollar amount over 13 months. Depending on your fund, the
minimum is $25,000, $50,000, or $100,000. Whenever you make an
investment under this arrangement, you or your investment advisor
should notify Putnam that a Statement of Intention is in effect.
Investors may not maintain, within the same fund, simultaneous
plans for systematic investment or exchange and systematic
withdrawal or exchange. These privileges are subject to change
or termination.
<PAGE>
For more information about any of these services and privileges,
call your investment advisor or a Putnam customer service
representative toll-free at 1-800-225-1581.<PAGE>
PUTNAM FAMILY OF FUNDS
PUTNAM GROWTH FUNDS
Putnam Asia Pacific Growth Fund
Putnam Diversified Equity Trust
Putnam Europe Growth Fund
Putnam Global Growth Fund
Putnam Health Sciences Trust
Putnam Investors Fund
Putnam Natural Resources Fund
Putnam New Opportunities Fund
Putnam OTC Emerging Growth Fund
Putnam Overseas Growth Fund
Putnam Vista Fund
Putnam Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Putnam Balanced Retirement Fund*
Putnam Convertible Income-Growth Trust
Putnam Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Putnam Growth and Income Fund II
Putnam Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Putnam Adjustable Rate U.S. Government Fund
Putnam American Government Income Fund
Putnam Diversified Income Trust
Putnam Federal Income Trust
Putnam Global Governmental Income Trust
Putnam High Yield Advantage Fund
Putnam High Yield Trust
Putnam Income Fund
Putnam Intermediate U.S. Government Fund
Putnam Preferred Income Fund
Putnam U.S. Government Income Trust
<PAGE>
PUTNAM TAX-FREE INCOME FUNDS
Putnam Intermediate Tax Exempt Fund
Putnam Municipal Income Fund
Putnam Tax Exempt Income Fund
Putnam Tax-Free High Yield Fund
Putnam Tax-Free Insured Fund
Putnam 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 seeking to help maximize your return and
reduce your risk.
THE THREE PORTFOLIOS:
Balanced Portfolio
Conservative Portfolio
Growth Portfolio
PUTNAM MONEY MARKET FUNDS
Putnam Money Market Fund
Putnam California Tax Exempt Money Market Fund
Putnam New York Tax Exempt Money Market Fund
Putnam Tax Exempt Money Market Fund
*Formerly Putnam Managed Income Trust
+Not available in all states.
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>
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
One Post Office Square
Boston, MA 02109
FUND INFORMATION:
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office
Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary Trust Company
One Post Office
Square
Boston, MA
02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA
02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
<PAGE>
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
FORM N-1A
PART B
STATEMENT OF ADDITIONAL INFORMATION
JULY 1,
1995
This Statement of Additional Information is not a Prospectus and
is only authorized for distribution when accompanied or preceded
by the Prospectus of the Fund dated July 1, 1995 , as
revised from time to time. This Statement contains information
which may be useful to investors but which is not included in the
Prospectus. If the Fund has more than one form of current
Prospectus, each reference to the Prospectus in this Statement
shall include all the Fund's Prospectuses, unless otherwise
noted. The Statement should be read together with the applicable
Prospectus. Investors may obtain a free copy of the applicable
Prospectus from Putnam Investor Services, Mailing address: P.O.
Box 41203, Providence, RI 02940-1203.
Part I of this Statement contains specific information about the
Fund. Part II includes information about the Fund and the other
Putnam funds.
<PAGE>
TABLE OF CONTENTS
PART I
PENNSYLVANIA TAX EXEMPT SECURITIES. . . . . . . . . . . . . I- 4
PENNSYLVANIA CORPORATE NET INCOME TAX . . . . . . . . . I -6
^
INVESTMENT RESTRICTIONS OF THE FUND . . . . . . . . . . . . . .I-7
FUND CHARGES AND EXPENSES . . . . . . . . . . . . . . .I-
9
INVESTMENT PERFORMANCE OF THE FUND. . . . . . . . . . I- 13
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIESI- 20
ADDITIONAL OFFICERS OF THE FUND . . . . . . . . . . . I- 21
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . . I- 21
PART II
MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . . . . II-1
TAXES . . . . . . . . . . . . . . . . . . . . . .II- 22
MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . II- 27
DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . II- 36
HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . II- 38
DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . II- 49
INVESTOR SERVICES . . . . . . . . . . . . . . . . . . II- 49
SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . II- 55
SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . II- 55
SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . II- 55
STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . II- 56
COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . II- 57
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . II- 62
<PAGE>
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
PART I
PENNSYLVANIA TAX EXEMPT SECURITIES
GENERAL DESCRIPTION. As used in the Prospectus and in this
Statement, the term "Pennsylvania Tax Exempt Securities" includes
debt obligations issued by The Commonwealth of Pennsylvania
, its political subdivisions (for example,
counties, cities, towns, villages, districts and
authorities) and their agencies, instrumentalities or other
governmental units, the interest from which is, in the
opinion of bond counsel, exempt from federal income tax
and Pennsylvania personal income tax. Such obligations are
issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities, such as
airports, bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works.
Other public purposes for which Pennsylvania Tax Exempt
Securities may be issued include the refunding of outstanding
obligations or obtaining funds for general operating expenses.
Short-term Pennsylvania Tax Exempt Securities are generally
issued by state and local governments and public authorities as
interim financing in anticipation of tax collections, revenue
receipts, or bond sales to finance such public proposes. In
addition, certain types of "private activity" bonds may be issued
by public authorities to finance such projects as privately
operated housing facilities and certain local facilities for
water supply, gas, electricity or sewage or solid waste disposal,
student loans, or the obtaining of funds to lend to public
or private institutions for the construction of facilities such
as educational, hospital and housing facilities. Such
obligations are included within the term Pennsylvania Tax Exempt
Securities if the interest paid thereon is, in the opinion of
bond counsel, exempt from federal income tax (such interest may,
however, be subject to federal alternative minimum tax) and
Pennsylvania personal income tax. Other types of private
activity bonds, the proceeds of which are used for the
construction, repair or improvement of, or to obtain equipment
for, privately operated industrial or commercial facilities, may
constitute Pennsylvania Tax Exempt Securities, although the
current federal tax laws place substantial limitations on the
size of such issues. Pennsylvania Tax Exempt Securities also
include short-term discount notes (tax-exempt commercial paper),
which are promissory notes issued by municipalities to enhance
their cash flows.
STAND-BY COMMITMENTS. When the Fund purchases
Pennsylvania Tax Exempt Securities, it has the authority to
acquire stand-by commitments from banks and broker-dealers with
respect to those Pennsylvania Tax Exempt Securities. A stand-by
commitment may be considered a security independent of the
Pennsylvania Tax Exempt Security to which it relates. The amount
payable by a bank or dealer during the time a stand-by commitment
is exercisable, absent unusual circumstances, would be
substantially the same as the market value of the underlying
Pennsylvania Tax Exempt Security to a third party at any time.
The Fund expects that stand-by commitments generally will
be available without the payment of direct or indirect
consideration. The Fund does not expect to assign any
value to stand-by commitments.
YIELDS. The yields on Pennsylvania Tax Exempt Securities depend
on a variety of factors, including general money market
conditions, effective marginal tax rates, the financial condition
of the issuer, general conditions of the Pennsylvania Tax Exempt
Security market, the size of a particular offering, the maturity
of the obligation and the rating of the issue. The ratings of
Moody's Investors Service, Inc. and Standard & Poor's Corporation
represent their opinions as to the quality of the Pennsylvania
Tax Exempt Securities which they undertake to rate. It should be
emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, Pennsylvania Tax
Exempt Securities with the same maturity and interest rate
but with different ratings may have the same yield. Yield
disparities may occur for reasons not directly related to the
investment quality of particular issues or the general movement
of interest rates, due to such factors as changes in the overall
demand or supply of various types of Pennsylvania Tax Exempt
Securities or changes in the investment objectives of investors.
Subsequent to purchase by the Fund, an issue of Pennsylvania Tax
Exempt Securities or other investments may cease to be rated or
its rating may be reduced below the minimum rating required for
purchase by the Fund. Neither event will require the elimination
of an investment from the Fund's portfolio, but Putnam Management
will consider such an event in its determination of whether the
Fund should continue to hold an investment in its portfolio.
"MORAL OBLIGATION" BONDS. The Fund does not currently intend to
invest in so-called "moral obligation" bonds, where repayment is
backed by a moral commitment of an entity other than the issuer,
unless the credit of the issuer itself, without regard to the
"moral obligation , " meets the investment criteria
established for investments by the Fund.
ADDITIONAL RISKS. Securities in which the Fund may invest,
including Pennsylvania Tax Exempt Securities, are subject to the
provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal Bankruptcy
Code, and laws, if any, which may be enacted by Congress
or state legislatures extending the time for payment of
principal or interest, or both, or imposing other constraints
upon enforcement of such obligations. There is also the
possibility that as a result of litigation or other conditions
the power or ability of issuers to meet their obligations for the
payment of interest and principal on their Pennsylvania Tax
Exempt Securities may be materially affected.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income
tax exemption for interest on debt obligations issued by states
and their political subdivisions. Federal tax laws limit the
types and amounts of tax-exempt bonds issuable for certain
purposes, especially industrial development bonds and
private activity bonds . Such limits may affect
the future supply and yields of these types of Pennsylvania Tax
Exempt Securities. Further proposals limiting the issuance of
tax-exempt bonds may well be introduced in the future. If it
appeared that the availability of Pennsylvania Tax Exempt
Securities for investment by the Fund and the value of the Fund's
portfolio could be materially affected by such changes in law,
the Trustees of the Fund would reevaluate its investment
objective and policies and consider changes in the structure of
the Fund or its dissolution.
PENNSYLVANIA CORPORATE NET INCOME TAX
Distributions paid by the Fund which are excludable as exempt
income for federal tax purposes are not subject to the
Pennsylvania corporate net income tax. An additional deduction
from Pennsylvania taxable income is permitted for the amount of
distributions paid by the Fund attributable to interest received
by the Fund from its investments in Pennsylvania Tax Exempt
Securities and obligations of the United States, its territories
and certain of its agencies and instrumentalities to the extent
included in federal taxable income, but such a deduction is
reduced by any interest on indebtedness incurred to carry the
securities and other expenses incurred in the production of such
interest income, including expenses deducted on the federal
income tax return that would not have been allowed under the
Internal Revenue Code if the interest were exempt from federal
income tax. Distributions by the Fund attributable to most other
sources may be subject to the Pennsylvania corporate net income
tax. It is the current position of the Pennsylvania Department
of Revenue that Fund shares are considered exempt assets (with a
pro rata exclusion based on the value of the Fund attributable to
its investments in Pennsylvania Tax Exempt Securities and
obligations of the United States, its territories and certain of
its agencies and instrumentalities) for purposes of determining a
corporation's capital stock value subject to the Commonwealth's
capital stock or franchise tax.
<PAGE>
INVESTMENT RESTRICTIONS OF THE FUND
AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED
WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING
SECURITIES, THE FUND MAY NOT AND WILL NOT:
(1) Borrow money in excess of 10% of the value (taken at the
lower of cost or current value) of its total assets (not
including the amount borrowed) at the time the borrowing is made,
and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might
otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such
borrowings will be repaid before any additional investments are
purchased.
(2) Pledge, hypothecate, mortgage or otherwise encumber its
assets in excess of 15% of its total assets (taken at current
value) in connection with borrowings permitted by restriction 1
above.
(3) Purchase securities on margin, except such short-term
credits as may be necessary for the clearance of purchases and
sales of securities, and except that it may make margin payments
in connection with futures contracts and related options.
(4) Make short sales of securities or maintain a short sale
position for the account of the Fund unless at all times when a
short position is open it owns an equal amount of such securities
or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short.
(5) Underwrite securities issued by other persons except to the
extent that, in connection with the disposition of its portfolio
investments, it may be deemed to be an underwriter under certain
federal securities laws.
(6) Purchase or sell real estate, although it may purchase or
sell securities which are secured by or represent interests in
real estate.
(7) Purchase or sell commodities or commodity contracts, except
that the Fund may write and purchase financial futures contracts
and related options.
(8) Make loans, except by purchase of debt obligations in which
the Fund may invest consistent with its investment policies, or
by entering into repurchase agreements with respect to not more
than 25% of its total assets (taken at current value).
(9) Invest in securities of any issuer if, to the knowledge of
the Fund, officers and Trustees of the Fund and officers and
directors of Putnam Management who beneficially own more than
0.5% of the shares or securities of that issuer together own more
than 5%.
(10) With respect to 75% of its total assets, invest in
securities of any issuer if, immediately after such investment,
more than 5% of the total assets of the Fund (taken at current
value) would be invested in the securities of such issuer;
provided that this limitation does not apply to obligations
issued or guaranteed as to interest and principal by the U.S.
government or its agencies or instrumentalities.
(11) Acquire more than 10% of the voting securities of any
issuer.
(12) Purchase securities (other than securities of the U.S.
government, its agencies or instrumentalities and Pennsylvania
Tax Exempt Securities, except obligations backed only by the
assets and revenues of nongovernmental issuers) if as a result of
such purchase more than 25% of the Fund's total assets would be
invested in any one industry.
(13) Purchase securities restricted as to resale, if, as a
result, such investments would exceed 15% of the value of the
Fund's net assets, excluding restricted securities that have been
determined by the Trustees of the Fund (or the person designated
by them to make such determinations) to be readily marketable.
(14) Buy or sell oil, gas or other mineral leases, rights or
royalty contracts.
(15) Make investments for the purpose of gaining control of a
company's management.
(16) Issue any class of securities which is senior to the Fund's
shares of beneficial interest.
IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL, TO:
(1) Invest in (a) securities which at the time of such
investment are not readily marketable, (b) securities restricted
as to resale (excluding securities determined by the Fund's
Trustees (or the person designated by the Fund's Trustees to make
such determinations) to be readily marketable), and (c)
repurchase agreements maturing in more than seven days, if, as a
result, more than 15% of the Fund's net assets (taken at current
value) would then be invested in the aggregate in securities
described in (a), (b) and (c) above.
(2) Invest in warrants (other than warrants acquired by the Fund
as part of a unit or attached to securities at the time of
purchase).
(3) Invest in securities of any issuer if the party responsible
for payment, together with any predecessors, has been in
operation for less than three consecutive years and, as a result
of the investment, the aggregate of such investments would exceed
5% of the value of the Fund's net assets; provided, however, that
this restriction shall not apply to any obligation of the United
States or its agencies or instrumentalities, or to any obligation
for the payment of which is pledged the faith, credit and taxing
power of any person authorized to issue Pennsylvania Tax Exempt
Securities.
(4) Invest in the securities of other registered open-end
investment companies, except as they may be acquired as part of a
merger or consolidation or acquisition of assets.
Although certain of the Fund's fundamental investment
restrictions permit the Fund to borrow money to a limited extent,
the Fund does not currently intend to do so and did not do so
last year.
---------------------
All percentage limitations on investments will apply at the time
of the making of an investment and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of such investment.
The Investment Company Act of 1940 provides that a "vote of a
majority of the outstanding voting securities" of the Fund means
the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares
present at a meeting if more than 50% of the outstanding shares
are represented at the meeting in person or by proxy.
FUND CHARGES AND EXPENSES
MANAGEMENT FEES
Under a Management Contract dated July 11, 1991, the Fund pays a
fee to Putnam Management based on the average net assets of the
Fund, as determined at the close of each business day during the
quarter, at an annual rate of 0.60% of the first $500 million of
average net assets, 0.50% of the next $500 million, 0.45% of the
next $500 million and 0.40% of any amount over $1.5 billion. For
its 1993 fiscal year , pursuant to the Management
Contract, the Fund incurred fees of $555,516,
reflecting a reduction of $138,932 pursuant to
an expense limitation in effect during that
period . The expense limitation expired September 15, 1992.
For its 1994 and 1995 fiscal years , the Fund
incurred fees of $990,690 and $1,155,995, respectively ,
pursuant to the Management Contract.
BROKERAGE COMMISSIONS
Most purchases and sales of portfolio investments are with
underwriters of or dealers in Pennsylvania Tax Exempt Securities
and other tax-exempt securities, acting as principal.
Accordingly, the Fund does not ordinarily pay significant
brokerage commissions on agency transactions. During fiscal
1993, the Fund incurred no brokerage commissions on
agency transactions. During fiscal 1994 and 1995 , the
Fund incurred brokerage commissions of $11,715 and
$2,612 , respectively, on agency transactions. In fiscal
1993, 1994 and 1995, the Fund incurred underwriting commissions
aggregating $154,238, $652,200 and $155,926, respectively, on
underwritten transactions.
ADMINISTRATIVE EXPENSE REIMBURSEMENT
The Fund reimbursed Putnam Management $8,865 for
administrative services in fiscal 1995, including
$8,110 for the compensation of certain officers of the
Fund and their staff and contributions to the Putnam Investments,
Inc. Profit Sharing Retirement Plan for their benefit.
TRUSTEE FEES
The Fund pays each Trustee a fee for his or her
services. Each Trustee also receives fees for serving as Trustee
of other Putnam funds. The Trustees periodically review
their fees to assure that such fees continue to be appropriate in
light of their responsibilities as well as in relation to fees
paid to trustees of other mutual fund complexes. The Trustees
meet monthly over a two-day period, except in August. The
Compensation Committee, which consists solely of Trustees not
affiliated with Putnam Management and is responsible for
recommending Trustee compensation, estimates that Committee and
Trustee meeting time together with the appropriate preparation
requires the equivalent of at least three business days per
Trustee meeting. The fees paid to each Trustee by the Fund and
by all of the Putnam funds are shown below:
<TABLE>
<CAPTION>
Year first Retirement
elected as benefits Total
a Trustee Aggregate accrued as compensation
of the compensation part of Fund's from all
Trustees Putnam funds from the Fund* expenses Putnam funds**
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jameson A. Baxter 1994 $826 $0 $135,850
Hans H. Estin 1972 $818 0 141,850
John A. Hill 1985 $818 0 143,850
Elizabeth T. Kennan 1992 $810 0 141,850
Lawrence J. Lasser 1992 $818 0 141,850
Robert E. Patterson 1984 $826 0 144,850
Donald S. Perkins 1982 $810 0 139,850
William F. Pounds 1971 $818 0 143,850
George Putnam 1957 $818 0 141,850
George Putnam, III 1984 $818 0 141,850
Eli Shapiro*** 1995 N/A 0 N/A
A.J.C. Smith 1986 $802 0 137,850
W. Nicholas Thorndike 1992 $826 0 144,850
- ----------------------------------------------------------------------------------
* Reflects amounts paid by the Fund for its fiscal year ended February 28, 1995.
Includes an annual retainer and an attendance fee for each meeting attended.
** Reflects total payments received from all Putnam funds in the most recent calendar
year. As of December 31, 1994, there were 86 funds in the Putnam family.
*** Elected Trustee in April 1995. For the calendar year ended December
31, 1994, Dr. Shapiro received $38,577 in retirement benefits from the
Putnam funds in respect of his prior service as a Trustee from 1984 to
1990, which benefits terminated at the end of 1994.
/TABLE
<PAGE>
The Fund's Trustees have approved Retirement Guidelines for
Trustees of the Putnam funds. These guidelines provide generally
that a Trustee who retires after reaching age 72 and who has at
least 10 years of continuous service will be eligible to receive
a retirement benefit from each Putnam fund for which he or she
served as a Trustee. The amount and form of such benefit is
subject to determination annually by the Trustees and, unless
otherwise determined by the Trustees, will be an annual cash
benefit payable for life equal to one-half of the Trustee
retainer fees paid by the Fund at the time of retirement.
Several retired Trustees are currently receiving benefits
pursuant to the Guidelines and it is anticipated that the current
Trustees of the Fund will receive similar benefits upon their
retirement. A Trustee who retired in the most recent calendar
year and was eligible to receive benefits under these Guidelines
would have received an annual benefit of $60,425, based upon the
aggregate retainer fees paid by the Putnam funds for such year.
The Trustees of the Fund reserve the right to amend or terminate
such Guidelines and the related payments at any time, and may
modify or waive the foregoing eligibility requirements when
deemed appropriate.
For additional information concerning the Fund's Trustees, see
"Management of the Fund" in Part II of this Statement of
Additional Information.
OWNERSHIP OF FUND SHARES
At May 31, 1995 the officers and Trustees of the Fund as a
group owned less than 1% of the outstanding shares of any
class of the Fund, and to the knowledge of the Fund no person
owned of record or beneficially 5% or more of the shares of
any class of the Fund , except that Merrill Lynch,
Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive, Jacksonville,
FL 32246, owned of record 6.40% of the Class B shares of the
Fund. No Class M shares were outstanding at May 31, 1995 .
CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES AND 12B-
1 FEES
During fiscal 1993 , 1994 and 1995 , Putnam
Mutual Funds received $1,999,642 , $1,283,881
and $1,113,142 , respectively, in sales charges on sales of
Class A shares of the Fund, of which it retained $105,599
, $75,566 and $71,739 , respectively, after
allowance of dealer concessions. During fiscal 1993
and 1995 , Putnam Mutual Funds did not receive any
contingent deferred sales charges upon redemptions of Class A
shares of the Fund. During fiscal 1994, Putnam Mutual Funds
received $640 in contingent deferred sales charges upon
redemptions of Class A shares of the Fund. During fiscal
1995 , the Fund incurred $334,268 in 12b-1 fees to
Putnam Mutual Funds pursuant to the Fund's Class A Distribution
Plan.
CLASS B CONTINGENT DEFERRED SALES CHARGES AND 12B-1 FEES
During fiscal 1994 and 1995 , Putnam Mutual Funds received
$2,473 and $69,280, respectively, in contingent deferred
sales charges upon redemptions of Class B shares of the Fund.
During fiscal 1995 , the Fund incurred $215,603 in
12b-1 fees to Putnam Mutual Funds pursuant to the Fund's Class B
Distribution Plan.
INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES
During the 1995 fiscal year, the Fund incurred
$135,312 in fees and out-of-pocket expenses for investor
servicing and custody services provided by Putnam Fiduciary Trust
Company.
INVESTMENT PERFORMANCE OF THE FUND
STANDARD PERFORMANCE MEASURES
The tax-exempt yield for Class A shares for the
thirty-day period ended February 28, 1995 was 5.41%. A
shareholder in a 41.29% combined federal/Pennsylvania tax bracket
would have to earn 9.21% from a taxable investment to
produce an after-tax yield equal to a tax-exempt yield of
5.41%. The average annual total return
(compounded annually) for Class A shares for the one- and
five- year periods ended February 28, 1995 and
the life of the class through February 28, 1995 was -
3.25%, 7.26% and 6.96%, respectively. Investment performance is
adjusted to reflect the deduction of the maximum sales charge of
4.75%. The tax-exempt yield for Class B shares for the thirty-
day period ended February 28, 1995 was 5.03%. A shareholder in
a 41.29% combined federal/Pennsylvania tax bracket would have to
earn 8.57% from a taxable investment to produce an after-tax
yield equal to a tax-exempt yield of 5.03%. The average annual
total return (compounded annually) for Class B shares for the
one-year period ended February 28, 1995 and for the life of the
class through February 28, 1995 was -3.85% and -0.40% ,
respectively, adjusted to reflect deduction of
the applicable contingent deferred sales charge . The
maximum contingent deferred sales charge is 5.0%. See "Other
Performance Information" below for the inception date of
each class. No Class M shares were outstanding at February
28, 1995 . See "Standard Performance Measures" in Part II
of this Statement for information on how the Fund's
investment return is calculated.
PERFORMANCE RATINGS
For the 1995 fiscal year, the Class A shares were
ranked 10 of 46 Pennsylvania Municipal Debt funds
by Lipper Analytical Services, Inc. and 206 of 862
Municipal Single State funds by CDA/Wiesenberger's Management
Results. As of the end of the fiscal year, Class A shares were
given a 4-star rating (out of 5-stars) by Morningstar, Inc. For
the 1995 fiscal year, the Class B shares of the Fund were
ranked 20 of 46 Pennsylvania Municipal Debt funds by Lipper
Analytical Services, Inc. and 376 of 862 Municipal Single State
funds by CDA/Wiesenberger's Management Results. The Class B
shares of the Fund were not rated by Morningstar, Inc. No Class
M shares were outstanding during fiscal 1995 . See
"Comparison of Portfolio Performance" in Part II of this
Statement for information about how these rankings and
ratings are determined. Past performance is no guarantee of
future results.
OTHER PERFORMANCE INFORMATION
The tables below show total return (capital changes plus
reinvestment of all distributions) on a hypothetical investment
in one share of the Fund during the life of the Fund. This was a
period of fluctuating tax-exempt bond prices. The tables do not
project the future performance of the Fund. No Class M shares
were outstanding during these periods.
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES
CUMULATIVE
MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUE
FISCAL OFFERING VALUE ----------------- - AT YEAR-END
YEAR PRICE AT ------------------ FROM FROM WITH ALL
ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
FEBRUARY 28/29 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED
- -----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1990(1) $8.92 $8.50 $8.36 $0.36 $ --- $ 8.72
1991 8.78 8.36 8.42 0.62 --- 9.47
1992 8.84 8.42 8.76 0.61 ---10.57
1993 9.20 8.76 9.40 0.57 0.00512.09
1994 9.87 9.40 9.39 0.54 0.024 12.80
1995 9.86 9.39 8.98 0.53 0.013 13.01
---- -------
Total distributions $3.23 $0.042
(1) Investment operations began July 21, 1989.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
-------------------------------------------
FISCAL MAXIMUM OFFERING NET ASSET VALUE LEHMAN
YEAR PRICE TO NET TO NET BROTHERS MUNICIPAL CONSUMER
ENDED ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX
FEBRUARY CUMULA- CUMULA- CUMULA- CUMULA-
28/29 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1990(1) --- -2.2% --- +2.6% --- +2.9% --- +2.9%
1991 +3.3% +6.1 +8.5% +11.4 +9.2% +12.4 +5.3% +8.4
1992 +6.4 +18.5 +11.7 +24.4 +10.0 +23.7 +2.8 +11.4
1993 +8.9 +35.5 +14.3 +42.2 +13.8 +40.7 +3.3 +15.0
1994 +0.9 +43.5 +5.9 +50.6 +5.5 +48.5 +2.5 +17.9
1995 -3.3 +45.8 +1.6 +53.0 +1.9 +51.3 +2.9 +21.3
(1) Investment operations began July 21, 1989.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CLASS B SHARES
CUMULATIVE
FISCAL NET ASSET DISTRIBUTIONS NET ASSET VALUE
YEAR VALUE ---------------------- AT YEAR-END
ENDED ----------------- FROM FROM WITH ALL
FEBRUARY BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS
28 OF PERIOD PERIOD INCOME GAINS REINVESTED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994(1) $9.48 $9.38 $0.28 $.024 $9.69
1995 9.38 8.97 0.47 .013 9.78
----- -----
Total distributions
$0.75 $.037
======= ======
(1) Class B shares were offered beginning July 15, 1993.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES
PUTNAM PENNSYLVANIA TAX
EXEMPT INCOME FUND
-----------------------
FISCAL NET ASSET VALUE LEHMAN BROTHERS
YEAR TO NET MUNICIPAL CONSUMER
ENDED ASSET VALUE BOND INDEX PRICE INDEX
FEBRUARY CUMULA- CUMULA- CUMULA-
28 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE
- --------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1994(1) -- 2.18% -- 3.28% -- 1.59%
1995 0.93% 3.13 1.88% 5.23 2.86% 4.50
(1) Class B shares were offered beginning July 15, 1993.
/TABLE
<PAGE>
The tables are not adjusted for any payment under the Fund's
Class A Distribution Plan prior to its implementation in fiscal
1994 or taxes payable on reinvested distributions or for any
contingent deferred sales charges which would be applied upon
redemption of Class B shares . The total values for the Fund
as of the end of each period reflect reinvestment of all
distributions and all changes in net asset value.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 20,000 investment-grade, fixed-rate, tax-exempt
bonds. The average quality of bonds held in the index may differ
from the average quality of those bonds in which the Fund
invests. The index does not include bonds in certain of the
lower-rating classifications in which the Fund may invest. The
performance figures for the index reflect changes of market
prices and reinvestment of all interest payments. Because the
Fund is a managed portfolio investing primarily in Pennsylvania
Tax Exempt Securities, the tax-exempt securities it owns will not
match those in the index.
The Consumer Price Index, prepared by the U.S. Bureau of Labor
Statistics, is a commonly used measure of the rate of inflation.
The index shows the average change in the cost of selected
consumer goods and services and does not represent a return on an
investment vehicle.<PAGE>
<TABLE>
<CAPTION>
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES
The table below shows the effect of the tax status of Pennsylvania Tax Exempt Securities on the effective yield received
by their individual holders under the federal income tax and Pennsylvania personal income tax laws currently in effect
for 1995 . It gives the approximate yield a taxable security must earn at various income levels to produce
after-tax yields equivalent to those of Pennsylvania Tax Exempt Securities yielding from 2% to 9%.
1995
COMBINED MARGINAL
TAXABLE INCOME* PENNSYLVANIA TAX- EXEMPT YIELD :
------------------------ AND ------------------------------------------------------
FEDERAL TAX
SINGLE JOINT RATE** 2% 3% 4% 5% 6% 7% 8% 9%
- ------------------------------------------------------------------------------------------------------------------------
EQUIVALENT TAXABLE YIELD IF DOUBLE TAX-EXEMPT :
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0- $23,350 $0- 39,000 17.38% 2.42% 3.63% 4.84% 6.05% 7.26% 8.47%
9.68% 10.89%
$23,351-$56,550 $39,001-$94,250 30.02 2.86 4.29 5.72 7.14 8.57 10.00 11.4312.86
$56,551-$117,950***$94,251-$143,600*** 32.93 2.98 4.47 5.96 7.45 8.95 10.4411.9313.42
$117,951-$256,500***$143,601-$256,500*** 37.79 3.21 4.82 6.43 8.04 9.64 11.2512.8614.47
over $256,501*** over $256,501*** 41.29 3.41 5.11 6.81 8.52 10.22 11.9213.6315.33
- -----------------------------------------------------------------------------------------------------------------------
* This amount represents "taxable income" as defined in the Internal Revenue Code of 1986, as amended (the
"Code")and the Pennsylvania income tax law . Pennsylvania taxable income may differ due to differences in
exemptions, itemized deductions, and other items.
** For federal income tax purposes these combined rates reflect the marginal rates on taxable income currently in
effect for 1995 . For Pennsylvania personal income tax purposes the combined rates reflect tax rates for
1995 . (These combined rates reflect the effect of deducting state taxes on the Federal return.)
*** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the
limitation on itemized deductions under the Code.
/TABLE
<PAGE>
Of course, there is no assurance that the Fund will achieve any
specific tax-exempt yield. While it is expected that the Fund
will invest principally in obligations which pay interest exempt
from federal income tax and Pennsylvania personal income tax,
other income received by the Fund may be taxable. The table does
not take into account any state or local taxes payable on Fund
distributions except for Pennsylvania personal income tax. The
tax rates shown above do not apply to corporate tax payers.
ADDITIONAL OFFICERS OF THE FUND
In addition to the persons listed as officers of the Fund in Part
II of this Statement, the following persons are also officers of
the Fund. Officers of Putnam Management hold the same offices in
Putnam Management's parent company, Putnam Investments, Inc.
GARY N. COBURN, Vice President. Senior Managing Director of
Putnam Management . Director, Putnam Investments,
Inc. Vice President of certain of the Putnam funds.
JAMES E. ERICKSON, Vice President. Managing Director of Putnam
Management . Vice President of certain of the
Putnam funds.
RICHARD P. WYKE, Vice President. Senior Vice President of Putnam
Management . Vice President of certain of the
Putnam funds.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP, 160 Federal Street, Boston, MA 02110,
are the Fund's independent accountants, providing audit
services, tax return review and other tax consulting services and
assistance and consultation in connection with the review of
various Securities and Exchange Commission filings. The Report
of Independent Accountants and financial statements included in
the Fund's Annual Report for the fiscal year ended February 28,
1995 , filed electronically on May 10, 1995 (811-
5802), are incorporated by reference into this Statement
of Additional Information. The financial highlights in
the Prospectus and the financial statements incorporated by
reference into the Prospectus and the Statement of
Additional Information have been so included and incorporated in
reliance upon the report of the independent accountants, given on
their authority as experts in auditing and accounting.
<PAGE>
<PAGE>
TABLE OF CONTENTS
MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1
TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36
HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38
DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49
SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-55
SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-55
SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-55
STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-56
COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-57
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-62
<PAGE>
THE PUTNAM FUNDS
STATEMENT OF ADDITIONAL INFORMATION ("SAI")
PART II
The following information applies generally to your Fund and to
the other Putnam funds. In certain cases the discussion applies
to some but not all of the funds or their shareholders, and you
should refer to your Prospectus to determine whether the matter
is applicable to you or your Fund. You will also be referred to
Part I for certain information applicable to your particular
Fund. Shareholders who purchase shares at net asset value
through employer-sponsored defined contribution plans should also
consult their employer for information about the extent to which
the matters described below apply to them.
MISCELLANEOUS INVESTMENT PRACTICES
YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT
PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS
AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT
NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD
DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN
THE PROSPECTUS.
SHORT-TERM TRADING
In seeking the Fund's objective, Putnam Management will buy or
sell portfolio securities whenever Putnam Management believes it
appropriate to do so. In deciding whether to sell a portfolio
security, Putnam Management does not consider how long the Fund
has owned the security. From time to time the Fund will buy
securities intending to seek short-term trading profits. A
change in the securities held by the Fund is known as "portfolio
turnover" and generally involves some expense to the Fund. These
expenses may include brokerage commissions or dealer mark-ups and
other transaction costs on both the sale of securities and the
reinvestment of the proceeds in other securities. If sales of
portfolio securities cause the Fund to realize net short-term
capital gains, such gains will be taxable as ordinary income. As
a result of the Fund's investment policies, under certain market
conditions the Fund's portfolio turnover rate may be higher than
that of other mutual funds. Portfolio turnover rate for a fiscal
year is the ratio of the lesser of purchases or sales of
portfolio securities to the monthly average of the value of
portfolio securities -- excluding securities whose maturities at
acquisition were one year or less. The Fund's portfolio turnover
rate is not a limiting factor when Putnam Management considers a
change in the Fund's portfolio.
<PAGE>
LOWER-RATED SECURITIES
The Fund may invest in lower-rated fixed-income securities
(commonly known as "junk bonds"), to the extent described in the
Prospectus. The lower ratings of certain securities held by the
Fund reflect a greater possibility that adverse changes in the
financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and principal. The inability (or perceived inability) of issuers
to make timely payment of interest and principal would likely
make the values of securities held by the Fund more volatile and
could limit the Fund's ability to sell its securities at prices
approximating the values the Fund had placed on such securities.
In the absence of a liquid trading market for securities held by
it, the Fund may be unable at times to establish the fair value
of such securities. The rating assigned to a security by Moody's
Investors Service, Inc. or Standard & Poor's Corporation (or by
any other nationally recognized securities rating organization)
does not reflect an assessment of the volatility of the
security's market value or the liquidity of an investment in the
security. See the Prospectus or Part I of this Statement for a
description of security ratings.
Like those of other fixed-income securities, the values of
lower-rated securities fluctuate in response to changes in
interest rates. Thus, a decrease in interest rates will
generally result in an increase in the value of the Fund's
assets. Conversely, during periods of rising interest rates, the
value of the Fund's assets will generally decline. In addition,
the values of such securities are also affected by changes in
general economic conditions and business conditions affecting the
specific industries of their issuers. Changes by recognized
rating services in their ratings of any fixed-income security and
in the ability of an issuer to make payments of interest and
principal may also affect the value of these investments.
Changes in the value of portfolio securities generally will not
affect cash income derived from such securities, but will affect
the Fund's net asset value. The Fund will not necessarily
dispose of a security when its rating is reduced below its rating
at the time of purchase, although Putnam Management will monitor
the investment to determine whether its retention will assist in
meeting the Fund's investment objective.
At times, a substantial portion of the Fund's assets may be
invested in securities as to which the Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of
such securities. Although Putnam Management generally considers
such securities to be liquid because of the availability of an
institutional market for such securities, it is possible that,
under adverse market or economic conditions or in the event of
adverse changes in the financial condition of the issuer, the
Fund could find it more difficult to sell such securities when
Putnam Management believes it advisable to do so or may be able
to sell such securities only at prices lower than if such
securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such
securities for purposes of computing the Fund's net asset value.
In order to enforce its rights in the event of a default under
such securities, the Fund may be required to take possession of
and manage assets securing the issuer's obligations on such
securities, which may increase the Fund's operating expenses and
adversely affect the Fund's net asset value. In the case of
tax-exempt funds, any income derived from the Fund's ownership or
operation of such assets would not be tax-exempt. In addition,
the Fund's intention to qualify as a "regulated investment
company" under the Internal Revenue Code may limit the extent to
which the Fund may exercise its rights by taking possession of
such assets.
Certain securities held by the Fund may permit the issuer at its
option to "call", or redeem, its securities. If an issuer were
to redeem securities held by the Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
If the Fund's Prospectus describes so-called "zero-coupon" bonds
and "payment-in-kind" bonds as possible investments, the Fund may
invest without limit in such bonds unless otherwise specified in
the Prospectus. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate investments in order to satisfy
its dividend requirements.
The amount of information about the financial condition of an
issuer of tax exempt securities may not be as extensive as that
which is made available by corporations whose securities are
publicly traded. Therefore, to the extent the Fund invests in
tax exempt securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on Putnam
Management's investment analysis than would be the case if the
Fund were investing in securities in the higher rating
categories.
INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES
Unless otherwise specified in the Prospectus or elsewhere in this
SAI, if the Fund may invest in inverse floating obligations,
premium securities, or interest-only or principal-only classes of
mortgage-backed securities, it may do so without limit. The
Fund, however, currently does not intend to invest more than 15%
of its assets in inverse floating obligations under normal market
conditions.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities, on
either a short-term or long-term basis, amounting to not more
than 25% of its total assets, thereby realizing additional
income. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in recovery of
the securities or possible loss of rights in the collateral
should the borrower fail financially. As a matter of policy,
securities loans are made to broker-dealers pursuant to
agreements requiring that loans be continuously secured by
collateral consisting of cash or short-term debt obligations at
least equal at all times to the value of the securities on loan,
"marked-to-market" daily. The borrower pays to the Fund an
amount equal to any dividends or interest received on securities
lent. The Fund retains all or a portion of the interest received
on investment of the cash collateral or receives a fee from the
borrower. Although voting rights, or rights to consent, with
respect to the loaned securities pass to the borrower, the Fund
retains the right to call the loans at any time on reasonable
notice, and it will do so to enable the Fund to exercise voting
rights on any matters materially affecting the investment. The
Fund may also call such loans in order to sell the securities.
FORWARD COMMITMENTS
The Fund may enter into contracts to purchase securities for a
fixed price at a future date beyond customary settlement time
("forward commitments") if the Fund holds, and maintains until
the settlement date in a segregated account, cash or high-grade
debt obligations in an amount sufficient to meet the purchase
price, or if the Fund enters into offsetting contracts for the
forward sale of other securities it owns. In the case of to-be-
announced ("TBA") purchase commitments, the unit price and the
estimated principal amount are established when the Fund enters
into a contract, with the actual principal amount being within a
specified range of the estimate. Forward commitments may be
considered securities in themselves, and involve a risk of loss
if the value of the security to be purchased declines prior to
the settlement date, which risk is in addition to the risk of
decline in the value of the Fund's other assets. Where such
purchases are made through dealers, the Fund relies on the dealer
to consummate the sale. The dealer's failure to do so may result
in the loss to the Fund of an advantageous yield or price.
Although the Fund will generally enter into forward commitments
with the intention of acquiring securities for its portfolio or
for delivery pursuant to options contracts it has entered into,
the Fund may dispose of a commitment prior to settlement if
Putnam Management deems it appropriate to do so. The Fund may
realize short-term profits or losses upon the sale of forward
commitments.
The Fund may enter into TBA sale commitments to hedge its
portfolio positions or to sell mortgage-backed securities it owns
under delayed delivery arrangements. Proceeds of TBA sale
commitments are not received until the contractual settlement
date. During the time a TBA sale commitment is outstanding,
equivalent deliverable securities, or an offsetting TBA purchase
commitment deliverable on or before the sale commitment date, are
held as "cover" for the transaction. Unsettled TBA sale
commitments are valued at current market value of the underlying
securities. If the TBA sale commitment is closed through the
acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss on the commitment without regard to any
unrealized gain or loss on the underlying security. If the Fund
delivers securities under the commitment, the Fund realizes a
gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements up to the limit
specified in the Prospectus. A repurchase agreement is a
contract under which the Fund acquires a security for a
relatively short period (usually not more than one week) subject
to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the
Fund's cost plus interest). It is the Fund's present intention
to enter into repurchase agreements only with commercial banks
and registered broker-dealers and only with respect to
obligations of the U.S. government or its agencies or
instrumentalities. Repurchase agreements may also be viewed as
loans made by the Fund which are collateralized by the securities
subject to repurchase. Putnam Management will monitor such
transactions to ensure that the value of the underlying
securities will be at least equal at all times to the total
amount of the repurchase obligation, including the interest
factor. If the seller defaults, the Fund could realize a loss on
the sale of the underlying security to the extent that the
proceeds of sale including accrued interest are less than the
resale price provided in the agreement including interest. In
addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Fund may incur delay and costs in
selling the underlying security or may suffer a loss of principal
and interest if the Fund is treated as an unsecured creditor and
required to return the underlying collateral to the seller's
estate.
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund may transfer uninvested cash
balances into a joint account, along with cash of other Putnam
funds and certain other accounts. These balances may be invested
in one or more repurchase agreements and/or short-term money
market instruments.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options
and covered put options on optionable securities held in its
portfolio, when in the opinion of Putnam Management such
transactions are consistent with the Fund's investment objectives
and policies. Call options written by the Fund give the
purchaser the right to buy the underlying securities from the
Fund at a stated exercise price; put options give the purchaser
the right to sell the underlying securities to the Fund at a
stated price.
The Fund may write only covered options, which means that, so
long as the Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option (or
comparable securities satisfying the cover requirements of
securities exchanges). In the case of put options, the Fund will
hold cash and/or high-grade short-term debt obligations equal to
the price to be paid if the option is exercised. In addition,
the Fund will be considered to have covered a put or call option
if and to the extent that it holds an option that offsets some or
all of the risk of the option it has written. The Fund may write
combinations of covered puts and calls on the same underlying
security.
The Fund will receive a premium from writing a put or call
option, which increases the Fund's return on the underlying
security in the event the option expires unexercised or is closed
out at a profit. The amount of the premium reflects, among other
things, the relationship between the exercise price and the
current market value of the underlying security, the volatility
of the underlying security, the amount of time remaining until
expiration, current interest rates, and the effect of supply and
demand in the options market and in the market for the underlying
security. By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option
but continues to bear the risk of a decline in the value of the
underlying security. By writing a put option, the Fund assumes
the risk that it may be required to purchase the underlying
security for an exercise price higher than its then-current
market value, resulting in a potential capital loss unless the
security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction, in
which it purchases an offsetting option. The Fund realizes a
profit or loss from a closing transaction if the cost of the
transaction (option premium plus transaction costs) is less or
more than the premium received from writing the option. Because
increases in the market price of a call option generally reflect
increases in the market price of the security underlying the
option, any loss resulting from a closing purchase transaction
may be offset in whole or in part by unrealized appreciation of
the underlying security owned by the Fund.
If the Fund writes a call option but does not own the underlying
security, and when it writes a put option, the Fund may be
required to deposit cash or securities with its broker as
"margin", or collateral, for its obligation to buy or sell the
underlying security. As the value of the underlying security
varies, the Fund may have to deposit additional margin with the
broker. Margin requirements are complex and are fixed by
individual brokers, subject to minimum requirements currently
imposed by the Federal Reserve Board and by stock exchanges and
other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to
protect its portfolio holdings in an underlying security against
a decline in market value. Such protection is provided during
the life of the put option since the Fund, as holder of the
option, is able to sell the underlying security at the put
exercise price regardless of any decline in the underlying
security's market price. In order for a put option to be
profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the
premium and transaction costs. By using put options in this
manner, the Fund will reduce any profit it might otherwise have
realized from appreciation of the underlying security by the
premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to
hedge against an increase in the price of securities that the
Fund wants ultimately to buy. Such hedge protection is provided
during the life of the call option since the Fund, as holder of
the call option, is able to buy the underlying security at the
exercise price regardless of any increase in the underlying
security's market price. In order for a call option to be
profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and
transaction costs.
RISK FACTORS IN OPTIONS TRANSACTIONS
The successful use of the Fund's options strategies depends on
the ability of Putnam Management to forecast correctly interest
rate and market movements. For example, if the Fund were to
write a call option based on Putnam Management's expectation that
the price of the underlying security would fall, but the price
were to rise instead, the Fund could be required to sell the
security upon exercise at a price below the current market price.
Similarly, if the Fund were to write a put option based on Putnam
Management's expectation that the price of the underlying
security would rise, but the price were to fall instead, the Fund
could be required to purchase the security upon exercise at a
price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will
lose its entire investment in the option in a relatively short
period of time, unless the Fund exercises the option or enters
into a closing sale transaction before the option's expiration.
If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent
sufficient to cover the option premium and transaction costs, the
Fund will lose part or all of its investment in the option. This
contrasts with an investment by the Fund in the underlying
security, since the Fund will not realize a loss if the
security's price does not change.
The effective use of options also depends on the Fund's ability
to terminate option positions at times when Putnam Management
deems it desirable to do so. There is no assurance that the Fund
will be able to effect closing transactions at any particular
time or at an acceptable price.
If a secondary market in options were to become unavailable, the
Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the
market for particular options or series of options. A market may
discontinue trading of a particular option or options generally.
In addition, a market could become temporarily unavailable if
unusual events -- such as volume in excess of trading or clearing
capability -- were to interrupt its normal operations.
A market may at times find it necessary to impose restrictions on
particular types of options transactions, such as opening
transactions. For example, if an underlying security ceases to
meet qualifications imposed by the market or the Options Clearing
Corporation, new series of options on that security will no
longer be opened to replace expiring series, and opening
transactions in existing series may be prohibited. If an options
market were to become unavailable, the Fund as a holder of an
option would be able to realize profits or limit losses only by
exercising the option, and the Fund, as option writer, would
remain obligated under the option until expiration or exercise.
Disruptions in the markets for the securities underlying options
purchased or sold by the Fund could result in losses on the
options. If trading is interrupted in an underlying security,
the trading of options on that security is normally halted as
well. As a result, the Fund as purchaser or writer of an option
will be unable to close out its positions until options trading
resumes, and it may be faced with considerable losses if trading
in the security reopens at a substantially different price. In
addition, the Options Clearing Corporation or other options
markets may impose exercise restrictions. If a prohibition on
exercise is imposed at the time when trading in the option has
also been halted, the Fund as purchaser or writer of an option
will be locked into its position until one of the two
restrictions has been lifted. If the Options Clearing
Corporation were to determine that the available supply of an
underlying security appears insufficient to permit delivery by
the writers of all outstanding calls in the event of exercise, it
may prohibit indefinitely the exercise of put options. The Fund,
as holder of such a put option, could lose its entire investment
if the prohibition remained in effect until the put option's
expiration.
Special risks are presented by internationally-traded options.
Because of time differences between the United States and various
foreign countries, and because different holidays are observed in
different countries, foreign options markets may be open for
trading during hours or on days when U.S. markets are closed. As
a result, option premiums may not reflect the current prices of
the underlying interest in the United States.
Over-the-counter ("OTC") options purchased by the Fund and assets
held to cover OTC options written by the Fund may, under certain
circumstances, be considered illiquid securities for purposes of
any limitation on the Fund's ability to invest in illiquid
securities.
FUTURES CONTRACTS AND RELATED OPTIONS
Subject to applicable law, and unless otherwise specified in the
Prospectus, the Fund may invest without limit in the types of
futures contracts and related options identified in the
Prospectus. A financial futures contract sale creates an
obligation by the seller to deliver the type of financial
instrument called for in the contract in a specified delivery
month for a stated price. A financial futures contract purchase
creates an obligation by the purchaser to take delivery of the
type of financial instrument called for in the contract in a
specified delivery month at a stated price. The specific
instruments delivered or taken, respectively, at settlement date
are not determined until on or near that date. The determination
is made in accordance with the rules of the exchange on which the
futures contract sale or purchase was made. Futures contracts
are traded in the United States only on commodity exchanges or
boards of trade -- known as "contract markets" -- approved for
such trading by the Commodity Futures Trading Commission (the
"CFTC"), and must be executed through a futures commission
merchant or brokerage firm which is a member of the relevant
contract market.
Although futures contracts (other than index futures) by their
terms call for actual delivery or acceptance of commodities or
securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery.
Closing out a futures contract sale is effected by purchasing a
futures contract for the same aggregate amount of the specific
type of financial instrument or commodity with the same delivery
date. If the price of the initial sale of the futures contract
exceeds the price of the offsetting purchase, the seller is paid
the difference and realizes a gain. Conversely, if the price of
the offsetting purchase exceeds the price of the initial sale,
the seller realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the purchaser's entering
into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the purchaser realizes a gain, and if
the purchase price exceeds the offsetting sale price, he realizes
a loss. In general 40% of the gain or loss arising from the
closing out of a futures contract traded on an exchange approved
by the CFTC is treated as short-term gain or loss, and 60% is
treated as long-term gain or loss.
Unlike when the Fund purchases or sells a security, no price is
paid or received by the Fund upon the purchase or sale of a
futures contract. Upon entering into a contract, the Fund is
required to deposit with its custodian in a segregated account in
the name of the futures broker an amount of cash and/or U.S.
Government Securities. This amount is known as "initial margin."
The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures
contract margin does not involve the borrowing of funds to
finance the transactions. Rather, initial margin is similar to a
performance bond or good faith deposit which is returned to the
Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied. Futures contracts
also involve brokerage costs.
Subsequent payments, called "variation margin" or "maintenance
margin", to and from the broker (or the custodian) are made on a
daily basis as the price of the underlying security or commodity
fluctuates, making the long and short positions in the futures
contract more or less valuable, a process known as "marking to
the market." For example, when the Fund has purchased a futures
contract on a security and the price of the underlying security
has risen, that position will have increased in value and the
Fund will receive from the broker a variation margin payment
based on that increase in value. Conversely, when the Fund has
purchased a security futures contract and the price of the
underlying security has declined, the position would be less
valuable and the Fund would be required to make a variation
margin payment to the broker.
The Fund may elect to close some or all of its futures positions
at any time prior to their expiration in order to reduce or
eliminate a hedge position then currently held by the Fund. The
Fund may close its positions by taking opposite positions which
will operate to terminate the Fund's position in the futures
contracts. Final determinations of variation margin are then
made, additional cash is required to be paid by or released to
the Fund, and the Fund realizes a loss or a gain. Such closing
transactions involve additional commission costs.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write
call and put options on futures contracts it may buy or sell and
enter into closing transactions with respect to such options to
terminate existing positions. Options on future contracts give
the purchaser the right in return for the premium paid to assume
a position in a futures contract at the specified option exercise
price at any time during the period of the option. The Fund may
use options on futures contracts in lieu of writing or buying
options directly on the underlying securities or purchasing and
selling the underlying futures contracts. For example, to hedge
against a possible decrease in the value of its portfolio
securities, the Fund may purchase put options or write call
options on futures contracts rather than selling futures
contracts. Similarly, the Fund may purchase call options or
write put options on futures contracts as a substitute for the
purchase of futures contracts to hedge against a possible
increase in the price of securities which the Fund expects to
purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying
investments.
As with options on securities, the holder or writer of an option
may terminate his position by selling or purchasing an offsetting
option. There is no guarantee that such closing transactions can
be effected.
The Fund will be required to deposit initial margin and
maintenance margin with respect to put and call options on
futures contracts written by it pursuant to brokers' requirements
similar to those described above in connection with the
discussion of futures contracts.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS.
Successful use of futures contracts by the Fund is subject to
Putnam Management's ability to predict movements in the direction
of interest rates and other factors affecting securities markets.
For example, if the Fund has hedged against the possibility of
decline in the values of its investments and the values of its
investments increase instead, the Fund will lose part or all of
the benefit of the increase through payments of daily maintenance
margin. The Fund may have to sell investments at a time when it
may be disadvantageous to do so in order to meet margin
requirements.
Compared to the purchase or sale of futures contracts, the
purchase of call or put options on futures contracts involves
less potential risk to the Fund because the maximum amount at
risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the purchase of
a call or put option on a futures contract would result in a loss
to the Fund when the purchase or sale of a futures contract would
not, such as when there is no movement in the prices of the
hedged investments. The writing of an option on a futures
contract involves risks similar to those risks relating to the
sale of futures contracts.
There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render
certain market clearing facilities inadequate, and thereby result
in the institution by exchanges of special procedures which may
interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the
Fund may seek to close out a position. The ability to establish
and close out positions will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop or continue to exist for a particular
futures contract or option. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there
may be insufficient trading interest in certain contracts or
options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of contracts or
options, or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not
at all times be adequate to handle current trading volume; or
(vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the
trading of contracts or options (or a particular class or series
of contracts or options), in which event the secondary market on
that exchange for such contracts or options (or in the class or
series of contracts or options) would cease to exist, although
outstanding contracts or options on the exchange that had been
issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with
their terms.
U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the
Fund invests in tax-exempt securities issued by a governmental
entity, the Fund may purchase and sell futures contracts and
related options on U.S. Treasury securities when, in the opinion
of Putnam Management, price movements in Treasury security
futures and related options will correlate closely with price
movements in the tax-exempt securities which are the subject of
the hedge. U.S. Treasury security futures contracts require the
seller to deliver, or the purchaser to take delivery of, the type
of U.S. Treasury security called for in the contract at a
specified date and price. Options on U.S. Treasury security
futures contracts give the purchaser the right in return for the
premium paid to assume a position in a U.S. Treasury security
futures contract at the specified option exercise price at any
time during the period of the option.
Successful use of U.S. Treasury security futures contracts by the
Fund is subject to Putnam Management's ability to predict
movements in the direction of interest rates and other factors
affecting markets for debt securities. For example, if the Fund
has sold U.S. Treasury security futures contracts in order to
hedge against the possibility of an increase in interest rates
which would adversely affect tax-exempt securities held in its
portfolio, and the prices of the Fund's tax-exempt securities
increase instead as a result of a decline in interest rates, the
Fund will lose part or all of the benefit of the increased value
of its securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to
sell securities to meet daily maintenance margin requirements at
a time when it may be disadvantageous to do so.
There is also a risk that price movements in U.S. Treasury
security futures contracts and related options will not correlate
closely with price movements in markets for tax-exempt
securities. For example, if the Fund has hedged against a
decline in the values of tax-exempt securities held by it by
selling Treasury security futures and the values of Treasury
securities subsequently increase while the values of its
tax-exempt securities decrease, the Fund would incur losses on
both the Treasury security futures contracts written by it and
the tax-exempt securities held in its portfolio. Putnam
Management will seek to reduce this risk by monitoring movements
in markets for U.S. Treasury security futures and options and for
tax-exempt securities closely. The Fund will only purchase or
sell Treasury security futures or related options when, in the
opinion of Putnam Management, price movements in Treasury
security futures and related options will correlate closely with
price movements in tax-exempt securities in which the Fund
invests.
INDEX FUTURES CONTRACTS. 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. Entering into a
contract to buy units of an index is commonly referred to as
buying or purchasing a contract or holding a long position in
the index. Entering into a contract to sell units of an index is
commonly referred to as selling a contract or holding a short
position. A unit is the current value of the index. The Fund
may enter into stock index futures contracts, debt index futures
contracts, or other index futures contracts appropriate to its
objective. The Fund may also purchase and sell options on index
futures contracts.
For example, the Standard & Poor's Composite 500 Stock Price
Index ("S&P 500") is composed of 500 selected common stocks, most
of which are listed on the New York Stock Exchange. The S&P 500
assigns relative weightings to the common stocks included in the
Index, and the value fluctuates with changes in the market values
of those common stocks. In the case of the S&P 500, contracts
are to buy or sell 500 units. Thus, if the value of the S&P 500
were $150, one contract would be worth $75,000 (500 units x
$150). The stock index futures contract specifies that no
delivery of the actual stocks making up the index will take
place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the
difference between the contract price and the actual level of the
stock index at the expiration of the contract. For example, if
the Fund enters into a futures contract to buy 500 units of the
S&P 500 at a specified future date at a contract price of $150
and the S&P 500 is at $154 on that future date, the Fund will
gain $2,000 (500 units x gain of $4). If the Fund enters into a
futures contract to sell 500 units of the stock index at a
specified future date at a contract price of $150 and the S&P 500
is at $152 on that future date, the Fund will lose $1,000 (500
units x loss of $2).
There are several risks in connection with the use by the Fund of
index futures as a hedging device. One risk arises because of
the imperfect correlation between movements in the prices of the
index futures and movements in the prices of securities which are
the subject of the hedge. Putnam Management will, however,
attempt to reduce this risk by buying or selling, to the extent
possible, futures on indices the movements of which will, in its
judgment, have a significant correlation with movements in the
prices of the securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes
is also subject to Putnam Management's ability to predict
movements in the direction of the market. It is possible that,
where the Fund has sold futures to hedge its portfolio against a
decline in the market, the index on which the futures are written
may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose
money on the futures and also experience a decline in value in
its portfolio securities. It is also possible that, if the Fund
has hedged against the possibility of a decline in the market
adversely affecting securities held in its portfolio and
securities prices increase instead, the Fund will lose part or
all of the benefit of the increased value of those securities it
has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it is
disadvantageous to do so.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the
index futures and the portion of the portfolio being hedged, the
prices of index futures may not correlate perfectly with
movements in the underlying index due to certain market
distortions. First, all participants in the futures market are
subject to margin deposit and maintenance requirements. Rather
than meeting additional margin deposit requirements, investors
may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and
futures markets. Second, margin requirements in the futures
market are less onerous than margin requirements in the
securities market, and as a result the futures market may attract
more speculators than the securities market does. Increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortions in the futures market and also because of the
imperfect correlation between movements in the index and
movements in the prices of index futures, even a correct forecast
of general market trends by Putnam Management may still not
result in a successful hedging transaction over a short time
period.
OPTIONS ON STOCK INDEX FUTURES. Options on index futures are
similar to options on securities except that options on index
futures give the purchaser the right, in return for the premium
paid, to assume a position in an index futures contract (a long
position if the option is a call and a short position if the
option is a put) at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to
the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which
represents the amount by which the market price of the index
futures contract, at exercise, exceeds (in the case of a call) or
is less than (in the case of a put) the exercise price of the
option on the index future. If an option is exercised on the
last trading day prior to its expiration date, the settlement
will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index
on which the future is based on the expiration date. Purchasers
of options who fail to exercise their options prior to the
exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES
As an alternative to purchasing call and put options on index
futures, the Fund may purchase and sell call and put options on
the underlying indices themselves. Such options would be used in
a manner identical to the use of options on index futures.
INDEX WARRANTS
The Fund may purchase put warrants and call warrants whose values
vary depending on the change in the value of one or more
specified securities indices ("index warrants"). Index warrants
are generally issued by banks or other financial institutions and
give the holder the right, at any time during the term of the
warrant, to receive upon exercise of the warrant a cash payment
from the issuer based on the value of the underlying index at the
time of exercise. In general, if the value of the underlying
index rises above the exercise price of the index warrant, the
holder of a call warrant will be entitled to receive a cash
payment from the issuer upon exercise based on the difference
between the value of the index and the exercise price of the
warrant; if the value of the underlying index falls, the holder
of a put warrant will be entitled to receive a cash payment from
the issuer upon exercise based on the difference between the
exercise price of the warrant and the value of the index. The
holder of a warrant would not be entitled to any payments from
the issuer at any time when, in the case of a call warrant, the
exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than
the value of the underlying index. If the Fund were not to
exercise an index warrant prior to its expiration, then the Fund
would lose the amount of the purchase price paid by it for the
warrant.
The Fund will normally use index warrants in a manner similar to
its use of options on securities indices. The risks of the
Fund's use of index warrants are generally similar to those
relating to its use of index options. Unlike most index options,
however, index warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only
by the credit of the bank or other institution which issues the
warrant. Also, index warrants generally have longer terms than
index options. Although the Fund will normally invest only in
exchange-listed warrants, index warrants are not likely to be as
liquid as certain index options backed by a recognized clearing
agency. In addition, the terms of index warrants may limit the
Fund's ability to exercise the warrants at such time, or in such
quantities, as the Fund would otherwise wish to do.
FOREIGN SECURITIES
Under its current policy, which may be changed without
shareholder approval, the Fund may invest up to the limit of its
total assets specified in its Prospectus in securities
principally traded in markets outside the United States.
Eurodollar certificates of deposit are excluded for purposes of
this limitation. Foreign investments can be affected favorably
or unfavorably by changes in currency exchange rates and in
exchange control regulations. There may be less publicly
available information about a foreign company than about a U.S.
company, and foreign companies may not be subject to accounting,
auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Securities of
some foreign companies are less liquid or more volatile than
securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United
States. Investments in foreign securities can involve other
risks different from those affecting U.S. investments, including
local political or economic developments, expropriation or
nationalization of assets and imposition of withholding taxes on
dividend or interest payments. To hedge against possible
variations in foreign exchange rates, the Fund may purchase and
sell forward foreign currency contracts. These represent
agreements to purchase or sell specified currencies at specified
dates and prices. The Fund will only purchase and sell forward
foreign currency contracts in amounts Putnam Management deems
appropriate to hedge existing or anticipated portfolio positions
and will not use such forward contracts for speculative purposes.
Foreign securities, like other assets of the Fund, will be held
by the Fund's custodian or by a subcustodian.
FOREIGN CURRENCY TRANSACTIONS
Unless otherwise specified in the Prospectus, the Fund may engage
without limit in currency exchange transactions, as well as
foreign currency forward and futures contracts, to protect
against uncertainty in the level of future currency exchange
rates. In addition, the Fund may write covered call and put
options on foreign currencies for the purpose of increasing its
current return.
Generally, the Fund may engage in both "transaction hedging" and
"position hedging". When it engages in transaction hedging, the
Fund enters into foreign currency transactions with respect to
specific receivables or payables, generally arising in connection
with the purchase or sale of portfolio securities. The Fund will
engage in transaction hedging when it desires to "lock in" the
U.S. dollar price of a security it has agreed to purchase or
sell, or the U.S. dollar equivalent of a dividend or interest
payment in a foreign currency. By transaction hedging the Fund
will attempt to protect itself against a possible loss resulting
from an adverse change in the relationship between the U.S.
dollar and the applicable foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is earned, and the date
on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the
settlement of transactions in portfolio securities denominated in
that foreign currency. The Fund may also enter into contracts to
purchase or sell foreign currencies at a future date ("forward
contracts") and purchase and sell foreign currency futures
contracts.
For transaction hedging purposes the Fund may also purchase
exchange-listed and over-the-counter call and put options on
foreign currency futures contracts and on foreign currencies. A
put option on a futures contract gives the Fund the right to
assume a short position in the futures contract until the
expiration of the option. A put option on a currency gives the
Fund the right to sell the currency at an exercise price until
the expiration of the option. A call option on a futures
contract gives the Fund the right to assume a long position in
the futures contract until the expiration of the option. A call
option on a currency gives the Fund the right to purchase the
currency at the exercise price until the expiration of the
option.
When it engages in position hedging, the Fund enters into foreign
currency exchange transactions to protect against a decline in
the values of the foreign currencies in which its portfolio
securities are denominated (or an increase in the value of
currency for securities which the Fund expects to purchase, when
the Fund holds cash or short-term investments). In connection
with position hedging, the Fund may purchase put or call options
on foreign currency and on foreign currency futures contracts and
buy or sell forward contracts and foreign currency futures
contracts. The Fund may also purchase or sell foreign currency
on a spot basis.
The precise matching of the amounts of foreign currency exchange
transactions and the value of the portfolio securities involved
will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of
market movements in the value of those securities between the
dates the currency exchange transactions are entered into and the
dates they mature.
It is impossible to forecast with precision the market value of
portfolio securities at the expiration or maturity of a forward
or futures contract. Accordingly, it may be necessary for the
Fund to purchase additional foreign currency on the spot market
(and bear the expense of such purchase) if the market value of
the security or securities being hedged is less than the amount
of foreign currency the Fund is obligated to deliver and a
decision is made to sell the security or securities and make
delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security or securities if
the market value of such security or securities exceeds the
amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in
the underlying prices of the securities which the Fund owns or
intends to purchase or sell. They simply establish a rate of
exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk
of loss due to a decline in the value of the hedged currency,
they tend to limit any potential gain which might result from the
increase in value of such currency.
The Fund may seek to increase its current return or to offset
some of the costs of hedging against fluctuations in current
exchange rates by writing covered call options and covered put
options on foreign currencies. The Fund receives a premium from
writing a call or put option, which increases the Fund's current
return if the option expires unexercised or is closed out at a
net profit. The Fund may terminate an option that it has written
prior to its expiration by entering into a closing purchase
transaction in which it purchases an option having the same terms
as the option written.
The Fund's currency hedging transactions may call for the
delivery of one foreign currency in exchange for another foreign
currency and may at times not involve currencies in which its
portfolio securities are then denominated. Putnam Management
will engage in such "cross hedging" activities when it believes
that such transactions provide significant hedging opportunities
for the Fund. Cross hedging transactions by the Fund involve the
risk of imperfect correlation between changes in the values of
the currencies to which such transactions relate and changes in
the value of the currency or other asset or liability which is
the subject of the hedge.
CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign
currency contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number
of days from the date of the contract as agreed by the parties,
at a price set at the time of the contract. In the case of a
cancelable forward contract, the holder has the unilateral right
to cancel the contract at maturity by paying a specified fee.
The contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage
for trades. A foreign currency futures contract is a
standardized contract for the future delivery of a specified
amount of a foreign currency at a future date at a price set at
the time of the contract. Foreign currency futures contracts
traded in the United States are designed by and traded on
exchanges regulated by the CFTC, such as the New York Mercantile
Exchange.
Forward foreign currency exchange contracts differ from foreign
currency futures contracts in certain respects. For example, the
maturity date of a forward contract may be any fixed number of
days from the date of the contract agreed upon by the parties,
rather than a predetermined date in a given month. Forward
contracts may be in any amounts agreed upon by the parties rather
than predetermined amounts. Also, forward foreign exchange
contracts are traded directly between currency traders so that no
intermediary is required. A forward contract generally requires
no margin or other deposit.
At the maturity of a forward or futures contract, the Fund either
may accept or make delivery of the currency specified in the
contract, or at or prior to maturity enter into a closing
transaction involving the purchase or sale of an offsetting
contract. Closing transactions with respect to forward contracts
are usually effected with the currency trader who is a party to
the original forward contract. Closing transactions with respect
to futures contracts are effected on a commodities exchange; a
clearing corporation associated with the exchange assumes
responsibility for closing out such contracts.
Positions in the foreign currency futures contracts may be closed
out only on an exchange or board of trade which provides a
secondary market in such contracts. Although the Fund intends to
purchase or sell foreign currency futures contracts only on
exchanges or boards of trade where there appears to be an active
secondary market, there is no assurance that a secondary market
on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be
possible to close a futures position and, in the event of adverse
price movements, the Fund would continue to be required to make
daily cash payments of variation margin.
FOREIGN CURRENCY OPTIONS. In general, options on foreign
currencies operate similarly to options on securities and are
subject to many similar risks. Foreign currency options are
traded primarily in the over-the-counter market, although options
on foreign currencies have recently been listed on several
exchanges. Options are traded not only on the currencies of
individual nations, but also on the European Currency Unit
("ECU"). The ECU is composed of amounts of a number of
currencies, and is the official medium of exchange of the
European Community's European Monetary System.
The Fund will only purchase or write foreign currency options
when Putnam Management believes that a liquid secondary market
exists for such options. There can be no assurance that a liquid
secondary market will exist for a particular option at any
specific time. Options on foreign currencies are affected by all
of those factors which influence foreign exchange rates and
investments generally.
The value of any currency, including U.S. dollars and foreign
currencies, may be affected by complex political and economic
factors applicable to the issuing country. In addition, the
exchange rates of foreign currencies (and therefore the values
of foreign currency options) may be affected significantly,
fixed, or supported directly or indirectly by U.S. and foreign
government actions. Government intervention may increase risks
involved in purchasing or selling foreign currency options, since
exchange rates may not be free to fluctuate in response to other
market forces.
The value of a foreign currency option reflects the value of an
exchange rate, which in turn reflects relative values of two
currencies, the U.S. dollar and the foreign currency in question.
Because foreign currency transactions occurring in the interbank
market involve substantially larger amounts than those that may
be involved in the exercise of foreign currency options,
investors may be disadvantaged by having to deal in an odd lot
market for the underlying foreign currencies in connection with
options at prices that are less favorable than for round lots.
Foreign governmental restrictions or taxes could result in
adverse changes in the cost of acquiring or disposing of foreign
currencies.
There is no systematic reporting of last sale information for
foreign currencies and there is no regulatory requirement that
quotations available through dealers or other market sources be
firm or revised on a timely basis. Available quotation
information is generally representative of very large round-lot
transactions in the interbank market and thus may not reflect
exchange rates for smaller odd-lot transactions (less than $1
million) where rates may be less favorable. The interbank market
in foreign currencies is a global, around-the-clock market. To
the extent that options markets are closed while the markets for
the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be
reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the
Fund's investments in foreign securities and to the Fund's
foreign currency exchange transactions may be more complex than
settlements with respect to investments in debt or equity
securities of U.S. issuers, and may involve certain risks not
present in the Fund's domestic investments. For example,
settlement of transactions involving foreign securities or
foreign currency may occur within a foreign country, and the Fund
may be required to accept or make delivery of the underlying
securities or currency in conformity with any applicable U.S. or
foreign restrictions or regulations, and may be required to pay
any fees, taxes or charges associated with such delivery. Such
investments may also involve the risk that an entity involved in
the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers
do not charge a fee for currency conversion, they do realize a
profit based on the difference (the "spread") between prices at
which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.
RESTRICTED SECURITIES
The SEC Staff currently takes the view that any designation by
the Trustees of the authority to determine that a restricted
security is readily marketable (as described in the investment
restrictions of the Funds) must be pursuant to written procedures
established by the Trustees. It is the present intention of the
Funds' Trustees that, if the Trustees decide to delegate such
determinations to Putnam Management or another person, they would
do so pursuant to written procedures, consistent with the Staff's
position. Should the Staff modify its position in the future,
the Trustees would consider what action would be appropriate in
light of the Staff's position at that time.
TAXES
TAXATION OF THE FUND. The Fund intends to qualify each year as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). In order so to
qualify and to qualify for the special tax treatment accorded
regulated investment companies and their shareholders, the Fund
must, among other things:
(a) Derive at least 90% of its gross income from dividends,
interest, payments with respect to certain securities loans, and
gains from the sale of stock, securities and foreign currencies,
or other income (including but not limited to gains from options,
futures, or forward contracts) derived with respect to its
business of investing in such stock, securities, or currencies;
(b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward
contracts and foreign currencies) held for less than three
months;
(c) distribute with respect to each taxable year at least 90% of
the sum of its taxable net investment income, its net tax-exempt
income, and the excess, if any, of net short-term capital gains
over net long-term capital losses for such year; and
(d) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's
assets is represented by cash and cash items, U.S. Government
securities, securities of other regulated investment companies,
and other securities limited in respect of any one issuer to a
value not greater than 5% of the value of the Fund's total assets
and to not more than 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities (other than those of the
U.S. Government or other regulated investment companies) of any
one issuer or of two or more issuers which the Fund controls and
which are engaged in the same, similar, or related trades or
businesses.
If the Fund qualifies as a regulated investment company that is
accorded special tax treatment, the Fund will not be subject to
federal income tax on income paid to its shareholders in the form
of dividends (including capital gain dividends).
If the Fund failed to qualify as a regulated investment company
accorded special tax treatment in any taxable year, the Fund
would be subject to tax on its taxable income at corporate rates,
and all distributions from earnings and profits, including any
distributions of net tax-exempt income and net long-term capital
gains, would be taxable to shareholders as ordinary income. In
addition, the Fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial
distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially
all of its ordinary income for such year and substantially all of
its capital gain net income for the one-year period ending
October 31 (or later if the Fund is permitted so to elect and so
elects), plus any retained amount from the prior year, the Fund
will be subject to a 4% excise tax on the undistributed amounts.
A dividend paid to shareholders by the Fund in January of a year
generally is deemed to have been paid by the Fund on December 31
of the preceding year, if the dividend was declared and payable
to shareholders of record on a date in October, November or
December of that preceding year. The Fund intends generally to
make distributions sufficient to avoid imposition of the 4%
excise tax.
EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay
exempt-interest dividends to its shareholders only if, at the
close of each quarter of the Fund's taxable year, at least 50% of
the total value of the Fund's assets consists of obligations the
interest on which is exempt from federal income tax.
Distributions that the Fund properly designates as exempt-
interest dividends are treated by shareholders as interest
excludable from their gross income for federal income tax
purposes but may be taxable for federal alternative minimum tax
purposes and for state and local purposes. If the Fund intends
to be qualified to pay exempt-interest dividends, the Fund may be
limited in its ability to enter into taxable transactions
involving forward commitments, repurchase agreements, financial
futures, and options contracts on financial futures, tax-exempt
bond indices, and other assets.
Part or all of the interest on indebtedness, if any, incurred or
continued by a shareholder to purchase or carry shares of a Fund
paying exempt-interest dividends is not deductible. The portion
of interest that is not deductible is equal to the total interest
paid or accrued on the indebtedness, multiplied by the percentage
of the Fund's total distributions (not including distributions
from net long-term capital gains) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal
Revenue Service for determining when borrowed funds are
considered used for the purpose of purchasing or carrying
particular assets, the purchase of shares may be considered to
have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
In general, exempt-interest dividends, if any, attributable to
interest received on certain private activity obligations and
certain industrial development bonds will not be tax-exempt to
any shareholders who are "substantial users" of the facilities
financed by such obligations or bonds or who are "related
persons" of such substantial users.
A Fund which is qualified to pay exempt-interest dividends will
inform investors within 60 days of the Fund's fiscal year-end of
the percentage of its income distributions designated as
tax-exempt. The percentage is applied uniformly to all
distributions made during the year. The percentage of income
designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income
that was tax-exempt during the period covered by the
distribution.
HEDGING TRANSACTIONS. If the Fund engages in transactions,
including hedging transactions in options, futures contracts, and
straddles, or other similar transactions, it will be subject to
special tax rules (including mark-to-market, straddle, wash sale,
and short sale rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments
in the holding periods of the Fund's securities, or convert
short-term capital losses into long-term capital losses. These
rules could therefore affect the amount, timing and character of
distributions to shareholders. The Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interests of the Fund.
Under the 30% of gross income test described above (see "Taxation
of the Fund"), the Fund will be restricted in selling assets held
or considered under Code rules to have been held for less than
three months, and in engaging in certain hedging transactions
(including hedging transactions in options and futures) that in
some circumstances could cause certain Fund assets to be treated
as held for less than three months.
Certain of the Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign
currency-denominated instruments) are likely to produce a
difference between its book income and its taxable income. If
the Fund's book income exceeds its taxable income, the
distribution (if any) of such excess will be treated as a
dividend to the extent of the Fund's remaining earnings and
profits (including earnings and profits arising from tax-exempt
income), and thereafter as a return of capital or as gain from
the sale or exchange of a capital asset, as the case may be. If
the Fund's book income is less than its taxable income, the Fund
could be required to make distributions exceeding book income to
qualify as a regulated investment company that is accorded
special tax treatment.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a
distribution to you in excess of its current and accumulated
"earnings and profits" in any taxable year, the excess
distribution will be treated as a return of capital to the extent
of your tax basis in your shares, and thereafter as capital gain.
A return of capital is not taxable, but it reduces your tax basis
in your shares, thus reducing any loss or increasing any gain on
a subsequent taxable disposition by you of your shares.
SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's
investment in securities issued at a discount and certain other
obligations will (and investments in securities purchased at a
discount may) require the Fund to accrue and distribute income
not yet received. In order to generate sufficient cash to make
the requisite distributions, the Fund may be required to sell
securities in its portfolio that it otherwise would have
continued to hold.
CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any
capital loss carryovers available to the Fund are shown in Note 1
(Federal income taxes) to the financial statements included in
Part I of this Statement or incorporated by reference into this
Statement.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING
TRANSACTIONS. The Fund's transactions in foreign currencies,
foreign currency-denominated debt securities and certain foreign
currency options, futures contracts, and forward contracts (and
similar instruments) may give rise to ordinary income or loss to
the extent such income or loss results from fluctuations in the
value of the foreign currency concerned.
If more than 50% of the Fund's assets at year end consists of the
debt and equity securities of foreign corporations, the Fund may
elect to permit shareholders to claim a credit or deduction on
their income tax returns for their pro rata portion of qualified
taxes paid by the Fund to foreign countries. In such a case,
shareholders will include in gross income from foreign sources
their pro rata shares of such taxes. A shareholder's ability to
claim a foreign tax credit or deduction in respect of foreign
taxes paid by the Fund may be subject to certain limitations
imposed by the Code, as a result of which a shareholder may not
get a full credit or deduction for the amount of such taxes.
Shareholders who do not itemize on their federal income tax
returns may claim a credit (but no deduction) for such foreign
taxes.
Investment by the Fund in certain "passive foreign investment
companies" could subject the Fund to a U.S. federal income tax or
other charge on the proceeds from the sale of its investment in
such a company; however, this tax can be avoided by making an
election to mark such investments to market annually or to treat
the passive foreign investment company as a "qualified electing
fund."
SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption
of Fund shares may give rise to a gain or loss. In general, any
gain or loss realized upon a taxable disposition of shares will
be treated as long-term capital gain or loss if the shares have
been held for more than 12 months, and otherwise as short-term
capital gain or loss. However, if a shareholder sells shares at
a loss within six months of purchase, any loss will be disallowed
for Federal income tax purposes to the extent of any exempt-
interest dividends received on such shares. In addition, any
loss (not already disallowed as provided in the preceding
sentence) realized upon a taxable disposition of shares held for
six months or less will be treated as long-term, rather than
short-term, to the extent of any long-term capital gain
distributions received by the shareholder with respect to the
shares. All or a portion of any loss realized upon a taxable
disposition of Fund shares will be disallowed if other Fund
shares are purchased within 30 days before or after the
disposition. In such a case, the basis of the newly purchased
shares will be adjusted to reflect the disallowed loss.
SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules
apply to investments though defined contribution plans and other
tax-qualified plans. Shareholders should consult their tax
adviser to determine the suitability of shares of a fund as an
investment through such plans and the precise effect of an
investment on their particular tax situation.
BACKUP WITHHOLDING. The Fund generally is required to withhold
and remit to the U.S. Treasury 31% of the taxable dividends and
other distributions paid to any individual shareholder who fails
to furnish the Fund with a correct taxpayer identification number
(TIN), who has underreported dividends or interest income, or who
fails to certify to the Fund that he or she is not subject to
such withholding. Shareholders who fail to furnish their currect
TIN are subject to a penalty of $50 for each such failure unless
the failure is due to reasonable cause and not wilful neglect.
An individual's taxpayer identification number is his or her
social security number.
MANAGEMENT OF THE FUND
TRUSTEES
*+GEORGE PUTNAM, Chairman and President. Chairman and Director
of Putnam Management and Putnam Mutual Funds. Director, The
Boston Company, Inc., Boston Safe Deposit and Trust Company,
Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin
Company, Marsh & McLennan Companies, Inc. and Rockefeller Group,
Inc.
+WILLIAM F. POUNDS, Vice Chairman. Professor of Management,
Alfred P. Sloan School of Management, Massachusetts Institute of
Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX,
M/A-COM, Inc., and Sun Company, Inc.
JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc.
(consultants to management). Director of Avondale Federal Savings
Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of
the Board of Trustees, Mount Holyoke College.
+HANS H. ESTIN, Trustee. Vice Chairman, North American
Management Corp. (a registered investment adviser). Director of
The Boston Company, Inc. and Boston Safe Deposit and Trust
Company.
ELIZABETH T. KENNAN, Trustee. President Emeritus and Professor,
Mount Holyoke College. Director, the Kentucky Home Life
Insurance Companies, NYNEX Corporation, Northeast Utilities and
Talbots and Trustee of the University of Notre Dame.
*LAWRENCE J. LASSER, Trustee and Vice President. President,
Chief Executive Officer and Director of Putnam Investments, Inc.
and Putnam Investment Management, Inc. Director of Marsh &
McLennan Companies, Inc. Vice President of the Putnam funds.
JOHN A. HILL, Trustee. Chairman and Managing Director, First
Reserve Corporation (a registered investment adviser). Director,
Lantana Corporation, Maverick Tube Corporation, Snyder Oil
Corporation and various First Reserve Funds.
+ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot
Partners Limited Partnership (a registered investment adviser).
*DONALD S. PERKINS, Trustee. Chairman of the Board and Director,
Kmart Corporation. Director of various corporations, including
American Telephone & Telegraph Company, AON Corp., Cummins Engine
Company, Inc., Illinois Power Company, Inland Steel Industries,
Inc., LaSalle Street Fund, Inc., Springs Industries, Inc., TBG,
Inc. and Time Warner Inc.
*#GEORGE PUTNAM, III, Trustee. President, New Generation
Research, Inc. (publisher of bankruptcy information). Director,
World Environment Center.
ELI SHAPIRO, Trustee. Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology. Director of Nomura Dividend Fund, Inc.
(a privately held registered investment company managed by Putnam
Management) and former Trustee of the Putnam funds (1984-1990).
*A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and
Director, Marsh & McLennan Companies, Inc.
W. NICHOLAS THORNDIKE, Trustee. Director of various corporations
and charitable organizations, including Courier Corporation and
Providence Journal Co. Also, Trustee and President of
Massachusetts General Hospital and Trustee of Bradley Real Estate
Trust and Eastern Utilities Associates.
<PAGE>
OFFICERS
CHARLES E. PORTER, Executive Vice President. Managing Director
of Putnam Investments, Inc. and Putnam Investment Management,
Inc. Executive Vice President of the Putnam funds.
PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice
President of Putnam Investments, Inc. and Putnam Investment
Management, Inc.
WILLIAM N. SHIEBLER, Vice President. Director and Senior
Managing Director of Putnam Investments, Inc. President, Chief
Operating Officer and Director of Putnam Mutual Funds. Vice
President of the Putnam funds.
GORDON H. SILVER, Vice President. Senior Managing Director of
Putnam Investments, Inc. and Putnam Investment Management, Inc.
Director, Putnam Investments, Inc. and Putnam Investment
Management, Inc. Vice President of the Putnam funds.
JOHN R. VERANI, Vice President. Senior Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
PAUL M. O'NEIL, Vice President. Vice President of Putnam
Investments, Inc. and Putnam Investment Management, Inc. Vice
President of the Putnam funds.
JOHN D. HUGHES, Vice President and Treasurer. Vice President and
Treasurer of the Putnam funds.
KATHERINE HOWARD, Assistant Vice President. Assistant Vice
President of the Putnam funds.
BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and
Assistant Treasurer of the Putnam funds.
*Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the Fund,
Putnam Management or Putnam Mutual Funds.
+Members of the Executive Committee of the Trustees. The
Executive Committee meets between regular meetings of the
Trustees as may be required to review investment matters and
other affairs of the Fund and may exercise all of the powers of
the Trustees.
#George Putnam, III is the son of George Putnam.
-----------------
Certain other officers of Putnam Management are officers of your
Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS
STATEMENT. The mailing address of each of the officers and
Trustees is One Post Office Square, Boston, Massachusetts 02109.
Except as stated below, the principal occupations of the officers
and Trustees for the last five years have been with the employers
as shown above, although in some cases they have held different
positions with such employers. Prior to January, 1992, Ms.
Baxter was Vice President and Principal, Regency Group, Inc. and
Consultant, The First Boston Corporation. Prior to May, 1991,
Dr. Pounds was Senior Advisor to the Rockefeller Family and
Associates, Chairman of Rockefeller Trust Company and Director of
Rockefeller Group, Inc. During the past five years Dr. Shapiro
has provided economic and financial consulting services to
various clients. Prior to November, 1990, Mr. Shiebler was
President and Chief Operating Officer of the Intercapital
Division of Dean Witter Reynolds, Inc., Vice President of the
Dean Witter Funds and Director of Dean Witter Trust Company.
Each Trustee of the Fund receives an annual fee and an additional
fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance
at certain committee meetings and for special services rendered
in that connection. All of the Trustees are Trustees of all the
Putnam funds and each receives fees for his or her services. FOR
DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT.
The Agreement and Declaration of Trust of the Fund provides that
the Fund will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the
Fund, except if it is determined in the manner specified in the
Agreement and Declaration of Trust that they have not acted in
good faith in the reasonable belief that their actions were in
the best interests of the Fund or that such indemnification would
relieve any officer or Trustee of any liability to the Fund or
its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of his or her duties. The
Fund, at its expense, provides liability insurance for the
benefit of its Trustees and officers.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., a holding
company which is in turn wholly owned by Marsh & McLennan
Companies, Inc., a publicly owned holding company whose principal
operating subsidiaries are international insurance and
reinsurance brokers, investment managers and management
consultants.
Trustees and officers of the Fund who are also officers of Putnam
Management or its affiliates or who are stockholders of Marsh &
McLennan Companies, Inc. will benefit from the advisory fees,
sales commissions, distribution fees (if any), custodian fees and
transfer agency fees paid or allowed by the Fund.
PUTNAM MANAGEMENT
Putnam Management is one of America's oldest and largest money
management firms. Putnam Management's staff of experienced
portfolio managers and research analysts selects securities and
constantly supervises the Fund's portfolio. By pooling an
investor's money with that of other investors, a greater variety
of securities can be purchased than would be the case
individually; the resulting diversification helps reduce
investment risk. Putnam Management has been managing mutual funds
since 1937. Today, the firm serves as the investment manager for
the funds in the Putnam Family, with over $67 billion in assets
in over 4.1 million shareholder accounts at December 31, 1994.
An affiliate, The Putnam Advisory Company, Inc., manages domestic
and foreign institutional accounts and mutual funds, including
the accounts of many Fortune 500 companies. Another affiliate,
Putnam Fiduciary Trust Company, provides investment advice to
institutional clients under its banking and fiduciary powers. At
December 31, 1994, Putnam Management and its affiliates managed
over $95 billion in assets, including over $15 billion in tax
exempt securities and over $36 billion in retirement plan assets.
THE MANAGEMENT CONTRACT
Under a Management Contract between the Fund and Putnam
Management, subject to such policies as the Trustees may
determine, Putnam Management, at its expense, furnishes
continuously an investment program for the Fund and makes
investment decisions on behalf of the Fund. Subject to the
control of the Trustees, Putnam Management also manages,
supervises and conducts the other affairs and business of the
Fund, furnishes office space and equipment, provides bookkeeping
and clerical services (including determination of the Fund's net
asset value, but excluding shareholder accounting services) and
places all orders for the purchase and sale of the Fund's
portfolio securities. Putnam Management may place Fund portfolio
transactions with broker-dealers which furnish Putnam Management,
without cost to it, certain research, statistical and quotation
services of value to Putnam Management and its affiliates in
advising the Fund and other clients. In so doing, Putnam
Management may cause the Fund to pay greater brokerage
commissions than it might otherwise pay.
FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE
MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF
THIS STATEMENT. Putnam Management's compensation under the
Management Contract may be reduced in any year if the Fund's
expenses exceed the limits on investment company expenses imposed
by any statute or regulatory authority of any jurisdiction in
which shares of the Fund are qualified for offer or sale. The
term "expenses" is defined in the statutes or regulations of such
jurisdictions, and generally, excludes brokerage commissions,
taxes, interest, extraordinary expenses and, if the Fund has a
Distribution Plan, payments made under such Plan. The only such
limitation as of the date of this Statement (applicable to any
Fund registered for sale in California) was 2.5% of the first $30
million of average net assets, 2% of the next $70 million and
1.5% of any excess over $100 million.
Under the Management Contract, Putnam Management may reduce its
compensation to the extent that the Fund's expenses exceed such
lower expense limitation as Putnam Management may, by notice to
the Fund, declare to be effective. The expenses subject to this
limitation are exclusive of brokerage commissions, interest,
taxes, deferred organizational and extraordinary expenses and,
if the Fund has a Distribution Plan, payments required under such
Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN
EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS
STATEMENT.
In addition to the fee paid to Putnam Management, the Fund
reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their assistants who
provide certain administrative services for the Fund and the
other funds in the Putnam Family, each of which bears an
allocated share of the foregoing costs. The aggregate amount of
all such payments and reimbursements is determined annually by
the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S
MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND
EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays
all other salaries of officers of the Fund. The Fund pays all
expenses not assumed by Putnam Management including, without
limitation, auditing, legal, custodial, investor servicing and
shareholder reporting expenses. The Fund pays the cost of
typesetting for its Prospectuses and the cost of printing and
mailing any Prospectuses sent to its shareholders. Putnam Mutual
Funds pays the cost of printing and distributing all other
Prospectuses.
The Management Contract provides that Putnam Management shall not
be subject to any liability to the Fund or to any shareholder of
the Fund for any act or omission in the course of or connected
with rendering services to the Fund in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of
its duties on the part of Putnam Management.
The Management Contract may be terminated without penalty by vote
of the Trustees or the shareholders of the Fund, or by Putnam
Management, on 30 days' written notice. It may be amended only
by a vote of the shareholders of the Fund. The Management
Contract also terminates without payment of any penalty in the
event of its assignment. The Management Contract provides that
it will continue in effect only so long as such continuance is
approved at least annually by vote of either the Trustees or the
shareholders, and, in either case, by a majority of the Trustees
who are not "interested persons" of Putnam Management or the
Fund. In each of the foregoing cases, the vote of the
shareholders is the affirmative vote of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. Investment decisions for the Fund and for
the other investment advisory clients of Putnam Management and
its affiliates are made with a view to achieving their respective
investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular
client involved. Thus, a particular security may be bought or
sold for certain clients even though it could have been bought or
sold for other clients at the same time. Likewise, a particular
security may be bought for one or more clients when one or more
other clients are selling the security. In some instances, one
client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously
purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged
as to price and allocated between such clients in a manner which
in Putnam Management's opinion is equitable to each and in
accordance with the amount being purchased or sold by each.
There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on
other clients.
BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock
exchanges, commodities markets and futures markets and other
agency transactions involve the payment by the Fund of negotiated
brokerage commissions. Such commissions vary among different
brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the
transaction. Transactions in foreign investments often involve
the payment of fixed brokerage commissions, which may be higher
than those in the United States. There is generally no stated
commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Fund usually
includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the
underwriter or dealer. It is anticipated that most purchases and
sales of securities by funds investing primarily in tax-exempt
securities and certain other fixed-income securities will be with
the issuer or with underwriters of or dealers in those
securities, acting as principal. Accordingly, those funds would
not ordinarily pay significant brokerage commissions with respect
to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS
PAID BY THE FUND.
It has for many years been a common practice in the investment
advisory business for advisers of investment companies and other
institutional investors to receive brokerage and research
services (as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act")) from broker-dealers that execute
portfolio transactions for the clients of such advisers and from
third parties with which such broker-dealers have arrangements.
Consistent with this practice, Putnam Management receives
brokerage and research services and other similar services from
many broker-dealers with which Putnam Management places the
Fund's portfolio transactions and from third parties with which
these broker-dealers have arrangements. These services include
such matters as general economic and market reviews, industry and
company reviews, evaluations of investments, recommendations as
to the purchase and sale of investments, newspapers, magazines,
pricing services, quotation services, news services and personal
computers utilized by Putnam Management's managers and analysts.
Where the services referred to above are not used exclusively by
Putnam Management for research purposes, Putnam Management, based
upon its own allocations of expected use, bears that portion of
the cost of these services which directly relates to their
non-research use. Some of these services are of value to Putnam
Management and its affiliates in advising various of their
clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The
management fee paid by the Fund is not reduced because Putnam
Management and its affiliates receive these services even though
Putnam Management might otherwise be required to purchase some of
these services for cash.
Putnam Management places all orders for the purchase and sale of
portfolio investments for the Fund and buys and sells investments
for the Fund through a substantial number of brokers and dealers.
In so doing, Putnam Management uses its best efforts to obtain
for the Fund the most favorable price and execution available,
except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable
price and execution, Putnam Management, having in mind the Fund's
best interests, considers all factors it deems relevant,
including, by way of illustration, price, the size of the
transaction, the nature of the market for the security or other
investment, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the
reputation, experience and financial stability of the
broker-dealer involved and the quality of service rendered by the
broker-dealer in other transactions.
As permitted by Section 28(e) of the 1934 Act, and by the
Management Contract, Putnam Management may cause the Fund to pay
a broker-dealer which provides "brokerage and research services"
(as defined in the 1934 Act) to Putnam Management an amount of
disclosed commission for effecting securities transactions on
stock exchanges and other transactions for the Fund on an agency
basis in excess of the commission which another broker-dealer
would have charged for effecting that transaction. Putnam
Management's authority to cause the Fund to pay any such greater
commissions is also subject to such policies as the Trustees may
adopt from time to time. Putnam Management does not currently
intend to cause the Fund to make such payments. It is the
position of the staff of the Securities and Exchange Commission
that Section 28(e) does not apply to the payment of such greater
commissions in "principal" transactions. Accordingly Putnam
Management will use its best effort to obtain the most favorable
price and execution available with respect to such transactions,
as described above.
The Management Contract provides that commissions, fees,
brokerage or similar payments received by Putnam Management or an
affiliate in connection with the purchase and sale of portfolio
investments of the Fund, less any direct expenses approved by the
Trustees, shall be recaptured by the Fund through a reduction of
the fee payable by the Fund under the Management Contract.
Putnam Management seeks to recapture for the Fund soliciting
dealer fees on the tender of the Fund's portfolio securities in
tender or exchange offers. Any such fees which may be recaptured
are likely to be minor in amount.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and such other
policies as the Trustees may determine, Putnam Management may
consider sales of shares of the Fund (and, if permitted by law,
of the other Putnam funds) as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
PRINCIPAL UNDERWRITER
Putnam Mutual Funds is the principal underwriter of shares of the
Fund and the other continuously offered Putnam funds. Putnam
Mutual Funds is not obligated to sell any specific amount of
shares of the Fund and will purchase shares for resale only
against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN
PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND
OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS.
INVESTOR SERVICING AGENT AND CUSTODIAN
Putnam Investor Services, a division of Putnam Fiduciary Trust
Company ("PFTC"), is the Fund's investor servicing agent
(transfer, plan and dividend disbursing agent), for which it
receives fees which are paid monthly by the Fund as an expense of
all its shareholders. The fee paid to Putnam Investor Services
is determined by the Trustees taking into account the number of
shareholder accounts and transactions. Putnam Investor Services
has won the DALBAR Quality Tested Service Seal every year since
the award's 1990 inception. Over 10,000 tests of 38 separate
shareholders service components demonstrated that Putnam Investor
Services exceeded the industry standard in all categories.
PFTC is the custodian of the Fund's assets. In carrying out its
duties under its custodian contract, PFTC may employ one or more
subcustodians whose responsibilities will include safeguarding
and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and
dividends on the Fund's investments. PFTC and any subcustodians
employed by it have a lien on the securities of the Fund (to the
extent permitted by the Fund's investment restrictions) to secure
charges and any advances made by such subcustodians at the end of
any day for the purpose of paying for securities purchased by the
Fund. The Fund expects that such advances will exist only in
unusual circumstances. Neither PFTC nor any subcustodian
determines the investment policies of the Fund or decides which
securities the Fund will buy or sell. PFTC pays the fees and
other charges of any subcustodians employed by it. The Fund may
from time to time pay custodial expenses in full or in part
through the placement by Putnam Management of the Fund's
portfolio transactions with the subcustodians or with a third-
party broker having an agreement with the subcustodians. The
Fund pays PFTC an annual fee based on the Fund's assets,
securities transactions and securities holdings and reimburses
PFTC for certain out-of-pocket expenses incurred by it or any
subcustodian employed by it in performing custodial services.
SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR
INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND
CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS
ALLOWED BY PFTC.
DETERMINATION OF NET ASSET VALUE
The Fund determines the net asset value per share of each class
of shares once each day the New York Stock Exchange (the
"Exchange") is open. Currently, the Exchange is closed
Saturdays, Sundays and the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, the Fourth of July,
Labor Day, Thanksgiving and Christmas. The Fund determines net
asset value as of the close of regular trading on the Exchange,
currently 4:00 p.m. However, equity options held by the Fund are
priced as of the close of trading at 4:10 p.m., and futures
contracts on U.S. Government securities and index options held by
the Fund are priced as of their close of trading at 4:15 p.m.
Securities for which market quotations are readily available are
valued at prices which, in the opinion of the Trustees or Putnam
Management, most nearly represent the market values of such
securities. Currently, such prices are determined using the last
reported sale price or, if no sales are reported (as in the case
of some securities traded over-the-counter), the last reported
bid price, except that certain U.S. Government securities are
stated at the mean between the last reported bid and asked
prices. Short-term investments having remaining maturities of 60
days or less are stated at amortized cost, which approximates
market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
Liabilities are deducted from the total, and the resulting amount
is divided by the number of shares of the class outstanding.
Reliable market quotations are not considered to be readily
available for long-term corporate bonds and notes, certain
preferred stocks, tax-exempt securities, and certain foreign
securities. These investments are stated at fair value on the
basis of valuations furnished by pricing services approved by the
Trustees, which determine valuations for normal,
institutional-size trading units of such securities using methods
based on market transactions for comparable securities and
various relationships between securities which are generally
recognized by institutional traders.
If any securities held by the Fund are restricted as to resale,
Putnam Management determines their fair value following
procedures approved by the Trustees. The fair value of such
securities is generally determined as the amount which the Fund
could reasonably expect to realize from an orderly disposition of
such securities over a reasonable period of time. The valuation
procedures applied in any specific instance are likely to vary
from case to case. However, consideration is generally given to
the financial position of the issuer and other fundamental
analytical data relating to the investment and to the nature of
the restrictions on disposition of the securities (including any
registration expenses that might be borne by the Fund in
connection with such disposition). In addition, specific factors
are also generally considered, such as the cost of the
investment, the market value of any unrestricted securities of
the same class, the size of the holding, the prices
of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the
issuer.
Generally, trading in certain securities (such as foreign
securities) is substantially completed each day at various times
prior to the close of the Exchange. The values of these
securities used in determining the net asset value of the Fund's
shares are computed as of such times. Also, because of the
amount of time required to collect and process trading
information as to large numbers of securities issues, the values
of certain securities (such as convertible bonds, U.S. Government
securities, and tax-exempt securities) are determined based on
market quotations collected earlier in the day at the latest
practicable time prior to the close of the Exchange.
Occasionally, events affecting the value of such securities may
occur between such times and the close of the Exchange which will
not be reflected in the computation of the Fund's net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities will
be valued at their fair value following procedures approved by
the Trustees.
Money market funds generally value their portfolio securities at
amortized cost according to Rule 2a-7 under the Investment
Company Act of 1940.
HOW TO BUY SHARES
General
The Prospectus contains a general description of how investors
may buy shares of the Fund and states whether the Fund offers
more than one class of shares. This Statement contains
additional information which may be of interest to investors.
Class A shares and Class M shares are sold with a sales charge
payable at the time of purchase (except for Class A shares and
Class M shares of money market funds). As used in this Statement
and unless the context requires otherwise, the term "Class A
shares" includes shares of Funds that offer only one class of
shares. The Prospectus contains a table of applicable sales
charges. For information about how to purchase Class A shares of
a Putnam fund at net asset value through an employer's defined
contribution plan, please consult your employer. Certain
purchases of Class A shares and Class M shares may be exempt from
a sales charge or, in the case of Class A shares, may be subject
to a contingent deferred sales charge ("CDSC"). See "General--
Sales without sales charges or contingent deferred sales
charges", "Additional Information About Class A and Class M
Shares", and "Contingent Deferred Sales Charges--Class A shares".
Class B shares and Class C shares are sold subject to a CDSC
payable upon redemption within a specified period after purchase.
The Prospectus contains a table of applicable CDSCs.
Class Y shares, which are available only to employer-sponsored
defined contribution plans initially investing at least $250
million in a combination of Putnam funds and other investments
managed by Putnam Management or its affiliates, are not subject
to sales charges or a CDSC.
Certain purchase programs described below are not available to
defined contribution plans. Consult your employer for
information on how to purchase shares through your plan.
The Fund is currently making a continuous offering of its shares.
The Fund receives the entire net asset value of shares sold. The
Fund will accept unconditional orders for shares to be executed
at the public offering price based on the net asset value per
share next determined after the order is placed. In the case of
Class A shares and Class M shares, the public offering price is
the net asset value plus the applicable sales charge, if any. No
sales charge is included in the public offering price of other
classes of shares. In the case of orders for purchase of shares
placed through dealers, the public offering price will be based
on the net asset value determined on the day the order is placed,
but only if the dealer receives the order before the close of
regular trading on the Exchange. If the dealer receives the
order after the close of the Exchange, the price will be based on
the net asset value next determined. If funds for the purchase
of shares are sent directly to Putnam Investor Services, they
will be invested at the public offering price based on the net
asset value next determined after receipt. Payment for shares of
the Fund must be in U.S. dollars; if made by check, the check
must be drawn on a U.S. bank.
Initial and subsequent purchases must satisfy the minimums stated
in the Prospectus, except that (i) individual investments under
certain employee benefit plans or Tax Qualified Retirement Plans
may be lower, (ii) persons who are already shareholders may make
additional purchases of $50 or more by sending funds directly to
Putnam Investor Services (see "Your Investing Account" below),
and (iii) for investors participating in systematic investment
plans and military allotment plans, the initial and subsequent
purchases must be $25 or more. Information about these plans is
available from investment dealers or from Putnam Mutual Funds.
As a convenience to investors, shares may be purchased through a
systematic investment plan. Preauthorized monthly bank drafts
for a fixed amount (at least $25) are used to purchase Fund
shares at the applicable public offering price next determined
after Putnam Mutual Funds receives the proceeds from the draft
(normally the 20th of each month, or the next business day
thereafter). Further information and application forms are
available from investment dealers or from Putnam Mutual Funds.
Except for Putnam funds that declare a distribution daily,
distributions to be reinvested are reinvested without a sales
charge in shares of the same class as of the ex-dividend date
using the net asset value determined on that date, and are
credited to a shareholder's account on the payment date.
Dividends for Putnam money market funds are credited to a
shareholder's account on the payment date. Distributions for
Putnam Tax-Free Income Trust and Putnam Preferred Income Fund are
reinvested without a sales charge as of the last day of the
period for which distributions are paid using the net asset value
determined on that date, and are credited to a shareholder's
account on the payment date. Distributions for all other Putnam
funds that declare a distribution daily are reinvested without a
sales charge as of the next day following the period for which
distributions are paid using the net asset value determined on
that date, and are credited to a shareholder's account on the
payment date.
PAYMENT IN SECURITIES. In addition to cash, the Fund may accept
securities as payment for Fund shares at the applicable net asset
value. Generally, the Fund will only consider accepting
securities to increase its holdings in a portfolio security, or
if Putnam Management determines that the offered securities are a
suitable investment for the Fund and in a sufficient amount for
efficient management.
While no minimum has been established, it is expected that the
Fund would not accept securities with a value of less than
$100,000 per issue as payment for shares. The Fund may reject in
whole or in part any or all offers to pay for purchases of Fund
shares with securities, may require partial payment in cash for
such purchases to provide funds for applicable sales charges, and
may discontinue accepting securities as payment for Fund shares
at any time without notice. The Fund will value accepted
securities in the manner described in the section "Determination
of Net Asset Value" for valuing shares of the Fund. The Fund
will only accept securities which are delivered in proper form.
The Fund will not accept options or restricted securities as
payment for shares. The acceptance of securities by certain
Funds in exchange for Fund shares are subject to additional
requirements. In the case of Putnam American Government Income
Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation
Funds: Balanced Portfolio, Putnam Asset Allocation Funds:
Conservative Portfolio, Putnam Asset Allocation Funds: Growth
Portfolio, Putnam Capital Appreciation Fund, Putnam Preferred
Income Fund, Putnam Diversified Equity Trust, Putnam Equity
Income Fund, Putnam Europe Growth Fund, The Putnam Fund for
Growth & Income, Putnam Global Governmental Income Trust, Putnam
Growth and Income Fund II, Putnam High Yield Advantage Fund,
Putnam Investment Funds, Putnam Intermediate Tax Exempt Fund,
Putnam Investment-Grade Bond Fund, Putnam Municipal Income Fund,
Putnam Natural Resources Fund, Putnam OTC Emerging Growth Fund,
Putnam Overseas Growth Fund, Putnam Tax Exempt Income Fund and
Putnam Tax-Free Income Trust, transactions involving the issuance
of Fund shares for securities or assets other than cash will be
limited to a bona-fide re-organization or statutory merger and to
other acquisitions of portfolio securities that meet all the
following conditions: (a) such securities meet the investment
objectives and policies of the Fund; (b) such securities are
acquired for investment and not for resale; (c) such securities
are liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (d) such securities
have a value which is readily ascertainable, as evidenced by a
listing on the American Stock Exchange, the New York Stock
Exchange or NASDAQ. In addition, Putnam Global Governmental
Income Trust may accept only investment grade bonds with prices
regularly stated in publications generally accepted by investors,
such as the London Financial Times and the Association of
International Bond Dealers manual, or securities listed on the
New York or American Stock Exchanges or with NASDAQ, and Putnam
Diversified Income Trust may accept only bonds with prices
regularly stated in publications generally accepted by investors.
For federal income tax purposes, a purchase of Fund shares with
securities will be treated as a sale or exchange of such
securities on which the investor will realize a taxable gain or
loss. The processing of a purchase of Fund shares with
securities involves certain delays while the Fund considers the
suitability of such securities and while other requirements are
satisfied. For information regarding procedures for payment in
securities, contact Putnam Mutual Funds. Investors should not
send securities to the Fund except when authorized to do so and
in accordance with specific instructions received from Putnam
Mutual Funds.
SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES.
The Fund may sell shares without a sales charge or CDSC to:
(i) current and retired Trustees of the Fund; officers of
the Fund; directors and current and retired U.S. full-time
employees of Putnam Management, Putnam Mutual Funds, their
parent corporations and certain corporate affiliates;
family members of and employee benefit plans for the
foregoing; and partnerships, trusts or other entities in
which any of the foregoing has a substantial interest;
(ii) employee benefit plans, for the repurchase of shares
in connection with repayment of plan loans made to plan
participants (if the sum loaned was obtained by redeeming
shares of a Putnam fund sold with a sales charge) (not
offered by tax-exempt funds);
(iii) clients of administrators of tax-qualified employee
benefit plans which have entered into agreements with
Putnam Mutual Funds (not offered by tax-exempt funds);
(iv) registered representatives and other employees of
broker-dealers having sales agreements with Putnam Mutual
Funds; employees of financial institutions having sales
agreements with Putnam Mutual Funds or otherwise having an
arrangement with any such broker-dealer or financial
institution with respect to sales of Fund shares; and
their spouses and children under age 21 (Putnam Mutual
Funds is regarded as the dealer of record for all such
accounts);
(v) investors meeting certain requirements who sold shares
of certain Putnam closed-end funds pursuant to a tender
offer by such closed-end fund;
(vi) a trust department of any financial institution
purchasing shares of the Fund in its capacity as trustee
of any trust, if the value of the shares of the Fund and
other Putnam funds purchased or held by all such trusts
exceeds $1 million in the aggregate; and
(vii) "wrap accounts" maintained for clients of broker-
dealers, financial institutions or financial planners who
have entered into agreements with Putnam Mutual Funds with
respect to such accounts.
In addition, the Fund may issue its shares at net asset value in
connection with the acquisition of substantially all of the
securities owned by other investment companies or personal
holding companies.
PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense,
pay concessions in addition to the payments disclosed in the
Prospectus to dealers which satisfy certain criteria established
from time to time by Putnam Mutual Funds relating to increasing
net sales of shares of the Putnam funds over prior periods, and
certain other factors.
ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES
The underwriter's commission is the sales charge shown in the
Prospectus less any applicable dealer discount. Putnam Mutual
Funds will give dealers ten days' notice of any changes in the
dealer discount. Putnam Mutual Funds retains the entire sales
charge on any retail sales made by it.
Putnam Mutual Funds offers several plans by which an investor may
obtain reduced sales charges on purchases of Class A shares and
Class M shares. The variations in sales charges reflect the
varying efforts required to sell shares to separate categories of
purchasers. These plans may be altered or discontinued at any
time.
COMBINED PURCHASE PRIVILEGE. The following persons may qualify
for the sales charge reductions or eliminations shown in the
Prospectus by combining into a single transaction the purchase of
Class A shares or Class M shares with other purchases of any
class of shares:
(i) an individual, or a "company" as defined in Section
2(a)(8) of the Investment Company Act of 1940 (which
includes corporations which are corporate affiliates of
each other);
(ii) an individual, his or her spouse and their children
under twenty-one, purchasing for his, her or their own
account;
(iii) a trustee or other fiduciary purchasing for a single
trust estate or single fiduciary account (including a
pension, profit-sharing, or other employee benefit trust
created pursuant to a plan qualified under Section 401 of
the Internal Revenue Code);
(iv) tax-exempt organizations qualifying under Section
501(c)(3) of the Internal Revenue Code (not including
403(b) plans); and
(v) employee benefit plans of a single employer or of
affiliated employers, other than 403(b) plans.
A combined purchase currently may also include shares of any
class of other continuously offered Putnam funds (other than
money market funds) purchased at the same time through a single
investment dealer, if the dealer places the order for such shares
directly with Putnam Mutual Funds.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A
purchaser of Class A shares or Class M shares may qualify for a
cumulative quantity discount by combining a current purchase (or
combined purchases as described above) with certain other shares
of any class of Putnam funds already owned. The applicable sales
charge is based on the total of:
(i) the investor's current purchase; and
(ii) the maximum public offering price (at the close of
business on the previous day) of:
(a) all shares held by the investor in all of the
Putnam funds (except money market funds); and
(b) any shares of money market funds acquired by
exchange from other Putnam funds; and
(iii) the maximum public offering price of all shares
described in paragraph (ii) owned by another shareholder
eligible to participate with the investor in a "combined
purchase" (see above).
To qualify for the combined purchase privilege or to obtain the
cumulative quantity discount on a purchase through an investment
dealer, when each purchase is made the investor or dealer must
provide Putnam Mutual Funds with sufficient information to verify
that the purchase qualifies for the privilege or discount. The
shareholder must furnish this information to Putnam Investor
Services when making direct cash investments.
STATEMENT OF INTENTION. Investors may also obtain the reduced
sales charges for Class A shares or Class M shares shown in the
Prospectus for investments of a particular amount by means of a
written Statement of Intention, which expresses the investor's
intention to invest that amount (including certain "credits," as
described below) within a period of 13 months in shares of any
class of the Fund or any other continuously offered Putnam fund
(excluding money market funds). Each purchase of Class A shares
or Class M shares under a Statement of Intention will be made at
the public offering price applicable at the time of such purchase
to a single transaction of the total dollar amount indicated in
the Statement. A Statement of Intention may include purchases of
shares made not more than 90 days prior to the date that an
investor signs a Statement; however, the 13-month period during
which the Statement is in effect will begin on the date of the
earliest purchase to be included.
An investor may receive a credit toward the amount indicated in
the Statement equal to the maximum public offering price as of
the close of business on the previous day of all shares he or she
owns on the date of the Statement which are eligible for purchase
under a Statement (plus any shares of money market funds acquired
by exchange of such eligible shares). Investors do not receive
credit for shares purchased by the reinvestment of distributions.
Investors qualifying for the "combined purchase privilege" (see
above) may purchase shares under a single Statement of Intention.
The Statement of Intention is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount, and must be invested immediately. Class A shares or
Class M shares purchased with the first 5% of such amount will be
held in escrow to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased. When the full amount indicated has
been purchased, the escrow will be released. If an investor
desires to redeem escrowed shares before the full amount has been
purchased, the shares will be released from escrow only if the
investor pays the sales charge that, without regard to the
Statement of Intention, would apply to the total investment made
to date.
To the extent that an investor purchases more than the dollar
amount indicated on the Statement of Intention and qualifies for
a further reduced sales charge, the sales charge will be adjusted
for the entire amount purchased at the end of the 13-month
period, upon recovery from the investor's dealer of its portion
of the sales charge adjustment. Once received from the dealer,
which may take a period of time or may never occur, the sales
charge adjustment will be used to purchase additional shares at
the then current offering price applicable to the actual amount
of the aggregate purchases. These additional shares will not be
considered as part of the total investment for the purpose of
determining the applicable sales charge pursuant to the Statement
of Intention. No sales charge adjustment will be made unless and
until the investor's dealer returns any excess commissions
previously received.
To the extent that an investor purchases less than the dollar
amount indicated on the Statement of Intention within the 13-
month period, the sales charge will be adjusted upward for the
entire amount purchased at the end of the 13-month period. This
adjustment will be made by redeeming shares from the account to
cover the additional sales charge, the proceeds of which will be
paid to the investor's dealer and Putnam Mutual Funds in
accordance with the Prospectus. If the account exceeds an amount
that would otherwise qualify for a reduced sales charge, that
reduced sales charge will be applied.
Statements of Intention are not available for certain employee
benefit plans.
Statement of Intention forms may be obtained from Putnam Mutual
Funds or from investment dealers. Interested investors should
read the Statement of Intention carefully.
REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES.
Members of qualified groups may purchase Class A shares of the
Fund at a group sales charge rate of 4.5% of the public offering
price (4.71% of the net amount invested). The dealer discount on
such sales is 3.75% of the offering price.
To receive the group rate, group members must purchase Class A
shares through a single investment dealer designated by the
group. The designated dealer must transmit each member's initial
purchase to Putnam Mutual Funds, together with payment and
completed application forms. After the initial purchase, a
member may send funds for the purchase of Class A shares directly
to Putnam Investor Services. Purchases of Class A shares are
made at the public offering price based on the net asset value
next determined after Putnam Mutual Funds or Putnam Investor
Services receives payment for the shares. The minimum investment
requirements described above apply to purchases by any group
member. Only Class A shares are included in calculating the
purchased amount.
Qualified groups include the employees of a corporation or a sole
proprietorship, members and employees of a partnership or
association, or other organized groups of persons (the members of
which may include other qualified groups) provided that: (i) the
group has at least 25 members of which at least 10 members
participate in the initial purchase; (ii) the group has been in
existence for at least six months; (iii) the group has some
purpose in addition to the purchase of investment company shares
at a reduced sales charge; (iv) the group's sole organizational
nexus or connection is not that the members are credit card
holders of a company, policy holders of an insurance company,
customers of a bank or broker-dealer, clients of an investment
adviser or security holders of a company; (v) the group agrees to
provide its designated investment dealer access to the group's
membership by means of written communication or direct
presentation to the membership at a meeting on not less
frequently than an annual basis; (vi) the group or its investment
dealer will provide annual certification in form satisfactory to
Putnam Investor Services that the group then has at least 25
members and that at least ten members participated in group
purchases during the immediately preceding 12 calendar months;
and (vii) the group or its investment dealer will provide
periodic certification in form satisfactory to Putnam Investor
Services as to the eligibility of the purchasing members of the
group.
Members of a qualified group include: (i) any group which meets
the requirements stated above and which is a constituent member
of a qualified group; (ii) any individual purchasing for his or
her own account who is carried on the records of the group or on
the records of any constituent member of the group as being a
good standing employee, partner, member or person of like status
of the group or constituent member; or (iii) any fiduciary
purchasing shares for the account of a member of a qualified
group or a member's beneficiary. For example, a qualified group
could consist of a trade association which would have as its
members individuals, sole proprietors, partnerships and
corporations. The members of the group would then consist of the
individuals, the sole proprietors and their employees, the
members of the partnerships and their employees, and the
corporations and their employees, as well as the trustees of
employee benefit trusts acquiring Class A shares for the benefit
of any of the foregoing.
A member of a qualified group may, depending upon the value of
Class A shares of the Fund owned or proposed to be purchased by
the member, be entitled to purchase Class A shares of the Fund at
non-group sales charge rates shown in the Prospectus which may be
lower than the group sales charge rate, if the member qualifies
as a person entitled to reduced non-group sales charges. Such a
group member will be entitled to purchase at the lower rate if,
at the time of purchase, the member or his or her investment
dealer furnishes sufficient information for Putnam Mutual Funds
or Putnam Investor Services to verify that the purchase qualifies
for the lower rate.
Interested groups should contact their investment dealer or
Putnam Mutual Funds. The Fund reserves the right to revise the
terms of or to suspend or discontinue group sales at any time.
EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term
"employee benefit plan" means any plan or arrangement, whether or
not tax-qualified, which provides for the purchase of Class A
shares. The term "affiliated employer" means employers who are
affiliated with each other within the meaning of Section
2(a)(3)(C) of the Investment Company Act of 1940. The term
"individual account plan" means any employee benefit plan whereby
(i) Class A shares are purchased through payroll deductions or
otherwise by a fiduciary or other person for the account of
participants who are employees (or their spouses) of an employer,
or of affiliated employers, and (ii) a separate Investing Account
is maintained in the name of such fiduciary or other person for
the account of each participant in the plan.
The table of sales charges in the Prospectus applies to sales to
employee benefit plans, except that the Fund may sell Class A
shares at net asset value to employee benefit plans, including
individual account plans, of employers or of affiliated employers
which have at least 750 employees to whom such plan is made
available, in connection with a payroll deduction system of plan
funding (or other system acceptable to Putnam Investor Services)
by which contributions or account information for plan
participation are transmitted to Putnam Investor Services by
methods acceptable to Putnam Investor Services. The Fund may
also sell Class A shares at net asset value to employee benefit
plans of employers or of affiliated employers which have at least
750 employees, if such plans are qualified under Section 401 of
the Internal Revenue Code.
Additional information about employee benefit plans and
individual account plans is available from investment dealers or
from Putnam Mutual Funds.
<PAGE>
CONTINGENT DEFERRED SALES CHARGES
CLASS A SHARES. Class A shares purchased at net asset value by
shareholders investing $1 million or more, including purchases
pursuant to any Combined Purchase Privilege, Right of
Accumulation or Statement of Intention, are subject to a CDSC of
1.00% or 0.50%, respectively, if redeemed within the first or
second year after purchase. The Class A CDSC is imposed on the
lower of the cost and the current net asset value of the shares
redeemed. The CDSC does not apply to shares sold without a sales
charge through participant-directed qualified retirement plans
and shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases of
such shares, including purchases pursuant to any Combined
Purchase Privilege, Right of Accumulation or Statement of
Intention, during the one-year period beginning with the date of
the initial purchase at net asset value and each subsequent one-
year period beginning with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter. On sales at net asset
value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales (gross
sales minus gross redemptions during the quarter) at the rate of
0.15%. Money market fund shares are excluded from all commission
calculations, except for determining the amount initially
invested by a participant-directed qualified retirement plan.
Commissions on sales at net asset value to such plans are subject
to Putnam Mutual Funds' right to reclaim such commissions if the
shares are redeemed within two years.
Different CDSC and commission rates may apply to shares purchased
before April 1, 1994.
CLASS B AND CLASS C SHARES. Investors who set up an Automatic
Cash Withdrawal Plan (ACWP) for a Class B and Class C share
account (see "Plans Available To Shareholders -- Automatic Cash
Withdrawal Plan") may withdraw through the ACWP up to 12% of the
net asset value of the account (calculated as set forth below)
each year without incurring any CDSC. Shares not subject to a
CDSC (such as shares representing reinvestment of distributions)
will be redeemed first and will count toward the 12% limitation.
If there are insufficient shares not subject to a CDSC, shares
subject to the lowest CDSC liability will be redeemed next until
the 12% limit is reached. The 12% figure is calculated on a pro
rata basis at the time of the first payment made pursuant to a
ACWP and recalculated thereafter on a pro rata basis at the time
of each ACWP payment. Therefore, shareholders who have chosen a
ACWP based on a percentage of the net asset value of their
account of up to 12% will be able to receive ACWP payments
without incurring a CDSC. However, shareholders who have chosen
a specific dollar amount (for example, $100 per month from a fund
that pays income distributions monthly) for their periodic ACWP
payment should be aware that the amount of that payment not
subject to a CDSC may vary over time depending on the net asset
value of their account. For example, if the net asset value of
the account is $10,000 at the time of payment, the shareholder
will receive $100 free of the CDSC (12% of $10,000 divided by 12
monthly payments). However, if at the time of the next payment
the net asset value of the account has fallen to $9,400, the
shareholder will receive $94 free of any CDSC (12% of $9,400
divided by 12 monthly payments) and $6 subject to the lowest
applicable CDSC. This ACWP privilege may be revised or
terminated at any time.
ALL SHARES. No CDSC is imposed on shares of any class subject to
a CDSC ("CDSC Shares") to the extent that the CDSC Shares
redeemed (i) are no longer subject to the holding period
therefor, (ii) resulted from reinvestment of distributions on
CDSC Shares, or (iii) were exchanged for shares of another Putnam
fund, provided that the shares acquired in such exchange or
subsequent exchanges (including shares of a Putnam money market
fund) will continue to remain subject to the CDSC, if applicable,
until the applicable holding period expires. In determining
whether the CDSC applies to each redemption of CDSC Shares, CDSC
Shares not subject to a CDSC are redeemed first.
The Fund will waive any CDSC on redemptions, in the case of
individual or Uniform Transfers to Minors Act accounts, in case
of death or disability or for the purpose of paying benefits
pursuant to tax-qualified retirement plans. Such payments
currently include, without limitation, (1) distributions from an
IRA due to death or disability, (2) a return of excess
contributions to an IRA or 401(k) plan, and (3) distributions
from retirement plans qualified under section 401(a) or section
403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986,
as amended (the "Code"), due to death, disability, retirement or
separation from service. The Fund will also waive any CDSC in
the case of the death of one joint tenant. These waivers may be
changed at any time. Additional waivers may apply to IRA
accounts opened prior to February 1, 1994.
<PAGE>
DISTRIBUTION PLAN
If the Fund or a class of shares of the Fund has adopted a
Distribution Plan, the Prospectus describes the principal
features of the Plan. This Statement contains additional
information which may be of interest to investors.
Continuance of a Plan is subject to annual approval by a vote of
the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect
interest in the Plan or related arrangements (the "Qualified
Trustees"), cast in person at a meeting called for that purpose.
All material amendments to a Plan must be likewise approved by
the Trustees and the Qualified Trustees. No Plan may be amended
in order to increase materially the costs which the Fund may bear
for distribution pursuant to such Plan without also being
approved by a majority of the outstanding voting securities of
the Fund or the relevant class of the Fund, as the case may be.
A Plan terminates automatically in the event of its assignment
and may be terminated without penalty, at any time, by a vote of
a majority of the Qualified Trustees or by a vote of a majority
of the outstanding voting securities of the Fund or the relevant
class of the Fund, as the case may be.
If Plan payments are made to reimburse Putnam Mutual Funds for
payments to dealers based on the average net asset value of Fund
shares attributable to shareholders for whom the dealers are
designated as the dealer of record, "average net asset value"
attributable to a shareholder account means the product of (i)
the Fund's average daily share balance of the account and (ii)
the Fund's average daily net asset value per share (or the
average daily net asset value per share of the class, if
applicable). For administrative reasons, Putnam Mutual Funds may
enter into agreements with certain dealers providing for the
calculation of "average net asset value" on the basis of assets
of the accounts of the dealer's customers on an established day
in each quarter.
Financial institutions receiving payments from Putnam Mutual
Funds as described above may be required to comply with various
state and federal regulatory requirements, including among others
those regulating the activities of securities brokers or dealers.
INVESTOR SERVICES
SHAREHOLDER INFORMATION
Each time shareholders buy or sell shares, they will receive a
statement confirming the transaction and listing their current
share balance. (Under certain investment plans, a statement may
only be sent quarterly.) Shareholders will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs. To help shareholders take full advantage of
their Putnam investment, they will receive a Welcome Kit and a
periodic publication covering many topics of interest to
investors. The Fund also sends annual and semiannual reports
that keep shareholders informed about its portfolio and
performance, and year-end tax information to simplify their
recordkeeping. Easy-to-read, free booklets on special subjects
such as the Exchange Privilege and IRAs are available from Putnam
Investor Services. Shareholders may call Putnam Investor
Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m.
and 7:00 p.m. Boston time for more information, including account
balances.
YOUR INVESTING ACCOUNT
The following information provides more detail concerning the
operation of a Putnam Investing Account. For further information
or assistance, investors should consult Putnam Investor Services.
Shareholders who purchase shares through a defined contribution
plan should note that not all of the services or features
described below may be available to them, and they should contact
their employer for details.
A shareholder may reinvest a recent cash distribution without a
front-end sales charge or without the reinvested shares being
subject to a CDSC, as the case may be, by delivering to Putnam
Investor Services the uncashed distribution check, endorsed to
the order of the Fund. Putnam Investor Services must receive the
properly endorsed check within 30 days after the date of the
check. Upon written notice to shareholders, the Fund may permit
shareholders who receive cash distributions to reinvest amounts
representing returns of capital without a sales charge or without
being subject to the CDSC.
The Investing Account also provides a way to accumulate shares of
the Fund. In most cases, after an initial investment of $500, a
shareholder may send checks to Putnam Investor Services for $50
or more, made payable to the Fund, to purchase additional shares
at the applicable public offering price next determined after
Putnam Investor Services receives the check. For Putnam
Preferred Income Fund, the minimum initial investment is $25,000
and the minimum subsequent investment is $5,000. Checks must be
drawn on a U.S. bank and must be payable in U.S. dollars.
Putnam Investor Services acts as the shareholder's agent whenever
it receives instructions to carry out a transaction on the
shareholder's account. Upon receipt of instructions that shares
are to be purchased for a shareholder's account, shares will be
purchased through the investment dealer designated by the
shareholder. Shareholders may change investment dealers at any
time by written notice to Putnam Investor Services, provided the
new dealer has a sales agreement with Putnam Mutual Funds.
Shares credited to an account are transferable upon written
instructions in good order to Putnam Investor Services and may be
sold to the Fund as described under "How to buy shares, sell
shares and exchange shares" in the Prospectus. Money market
funds and certain other funds will not issue share certificates.
A shareholder may send any certificates which have been
previously issued to Putnam Investor Services for safekeeping at
no charge to the shareholder.
Putnam Mutual Funds, at its expense, may provide certain
additional reports and administrative material to qualifying
institutional investors with fiduciary responsibilities to assist
these investors in discharging their responsibilities.
Institutions seeking further information about this service
should contact Putnam Mutual Funds, which may modify or terminate
this service at any time.
Putnam Investor Services may make special services available to
shareholders with investments exceeding $1,000,000. Contact
Putnam Investor Services for details.
The Fund pays Putnam Investor Services' fees for maintaining
Investing Accounts.
REINSTATEMENT PRIVILEGE
An investor who has redeemed shares to the Fund may reinvest
(within 1 year) the proceeds of such sale in shares of the same
class of the Fund, or may be able to reinvest (within 1 year) the
proceeds in shares of the same class of one of the other
continuously offered Putnam funds (through the Exchange Privilege
described in the Prospectus), including, in the case of shares
subject to a CDSC, the amount of CDSC charged on the redemption.
Any such reinvestment would be at the net asset value of the
shares of the fund(s) the investor selects, next determined after
Putnam Mutual Funds receives a Reinstatement Authorization. The
time that the previous investment was held will be included in
determining any applicable CDSC due upon redemptions and, in the
case of Class B shares, the eight-year period for conversion to
Class A shares. Shareholders will receive from Putnam Mutual
Funds the amount of any CDSC paid at the time of redemption as
part of the reinstated investment, which may be treated as
capital gains to the shareholder for tax purposes. Exercise of
the Reinstatement Privilege does not alter the federal income tax
treatment of any capital gains realized on a sale of Fund shares,
but to the extent that any shares are sold at a loss and the
proceeds are reinvested in shares of the Fund, some or all of the
loss may be disallowed as a deduction. Consult your tax adviser.
Investors who desire to exercise this Privilege should contact
their investment dealer or Putnam Investor Services.
EXCHANGE PRIVILEGE
Except as otherwise set forth in this section, by calling Putnam
Investor Services, investors may exchange shares valued up to
$500,000 between accounts with identical registrations, provided
that no certificates are outstanding for such shares and no
address change has been made within the preceding 15 days.
During periods of unusual market changes and shareholder
activity, shareholders may experience delays in contacting Putnam
Investor Services by telephone to exercise the Telephone Exchange
Privilege.
Putnam Investor Services also makes exchanges promptly after
receiving a properly completed Exchange Authorization Form and,
if issued, share certificates. If the shareholder is a
corporation, partnership, agent, or surviving joint owner, Putnam
Investor Services will require additional documentation of a
customary nature. Because an exchange of shares involves the
redemption of Fund shares and reinvestment of the proceeds in
shares of another Putnam fund, completion of an exchange may be
delayed under unusual circumstances if the Fund were to suspend
redemptions or postpone payment for the Fund shares being
exchanged, in accordance with federal securities laws. Exchange
Authorization Forms and prospectuses of the other Putnam funds
are available from Putnam Mutual Funds or investment dealers
having sales contracts with Putnam Mutual Funds. The prospectus
of each fund describes its investment objective(s) and policies,
and shareholders should obtain a prospectus and consider these
objectives and policies carefully before requesting an exchange.
Shares of certain Putnam funds are not available to residents of
all states. The Fund reserves the right to change or suspend the
Exchange Privilege at any time. Shareholders would be notified
of any change or suspension. Additional information is available
from Putnam Investor Services.
Shares of the Fund must be held at least 15 days by the
shareholder requesting an exchange. There is no holding period
if the shareholder acquired the shares to be exchanged through
reinvestment of distributions, transfer from another shareholder,
prior exchange or certain employer-sponsored defined contribution
plans. In all cases, the shares to be exchanged must be
registered on the records of the Fund in the name of the
shareholder requesting the exchange.
Shareholders of other Putnam funds may also exchange their shares
at net asset value for shares of the Fund, as set forth in the
current prospectus of each fund.
For federal income tax purposes, an exchange is a sale on which
the investor generally will realize a capital gain or loss
depending on whether the net asset value at the time of the
exchange is more or less than the investor's basis. The Exchange
Privilege may be revised or terminated at any time. Shareholders
would be notified of any such change or suspension.
DIVIDENDS PLUS
Shareholders may invest the Fund's distributions of net
investment income or distributions combining net investment
income and short-term capital gains in shares of the same class
of another continuously offered Putnam fund (the "receiving
fund") using the net asset value per share of the receiving fund
determined on the date the Fund's distribution is payable. No
sales charge or CDSC will apply to the purchased shares unless
the Fund is a money market fund. The prospectus of each fund
describes its investment objective(s) and policies, and
shareholders should obtain a prospectus and consider these
objective(s) and policies carefully before investing their
distributions in the receiving fund. Shares of certain Putnam
funds are not available to residents of all states.
The minimum account size requirement for the receiving fund will
not apply if the current value of your account in this Fund is
more than $5,000.
Shareholders of other Putnam funds (except for money market
funds, whose shareholders must pay a sales charge or become
subject to a CDSC) may also use their distributions to purchase
shares of the Fund at net asset value.
For federal tax purposes, distributions from the Fund which are
reinvested in another fund are treated as paid by the Fund to the
shareholder and invested by the shareholder in the receiving fund
and thus, to the extent comprised of taxable income and deemed
paid to a taxable shareholder, are taxable.
The Dividends PLUS program may be revised or terminated at any
time.
PLANS AVAILABLE TO SHAREHOLDERS
The Plans described below are fully voluntary and may be
terminated at any time without the imposition by the Fund or
Putnam Investor Services of any penalty. All Plans provide for
automatic reinvestment of all distributions in additional shares
of the Fund at net asset value. The Fund, Putnam Mutual Funds or
Putnam Investor Services may modify or cease offering these Plans
at any time.
AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys
shares of the Fund valued at $10,000 or more at the current
public offering price may open a Withdrawal Plan and have a
designated sum of money ($50 or more) paid monthly, quarterly,
semi-annually or annually to the investor or another person.
(Payments from the Fund can be combined with payments from other
Putnam funds into a single check through a Designated Payment
Plan.) Shares are deposited in a Plan account, and all
distributions are reinvested in additional shares of the Fund at
net asset value (except where the Plan is utilized in connection
with a charitable remainder trust). Shares in a Plan account are
then redeemed at net asset value to make each withdrawal payment.
Payment will be made to any person the investor designates;
however, if shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary,
except in the case of a profit-sharing or pension plan where
payment will be made to a designee. As withdrawal payments may
include a return of principal, they cannot be considered a
guaranteed annuity or actual yield of income to the investor.
The redemption of shares in connection with a Withdrawal Plan
generally will result in a gain or loss for tax purposes. Some
or all of the losses realized upon redemption may be disallowed
pursuant to the so-called wash sale rules if shares of the same
fund from which shares were redeemed are purchased (including
through the reinvestment of fund distributions) within a period
beginning 30 days before, and ending 30 days after, such
redemption. In such a case, the basis of the replacement shares
will be increased to reflect the disallowed loss. Continued
withdrawals in excess of income will reduce and possibly exhaust
invested principal, especially in the event of a market decline.
The maintenance of a Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous to the
investor because of the sales charge payable on such purchases.
For this reason, the minimum investment accepted while a
Withdrawal Plan is in effect is $1,000, and an investor may not
maintain a Plan for the accumulation of shares of the Fund (other
than through reinvestment of distributions) and a Withdrawal Plan
at the same time. The cost of administering these Plans for the
benefit of those shareholders participating in them is borne by
the Fund as an expense of all shareholders. The Fund, Putnam
Mutual Funds or Putnam Investor Services may terminate or change
the terms of the Withdrawal Plan at any time. A Withdrawal Plan
will be terminated if communications mailed to the shareholder
are returned as undeliverable.
Investors should consider carefully with their own financial
advisers whether the Plan and the specified amounts to be
withdrawn are appropriate in their circumstances. The Fund and
Putnam Investor Services make no recommendations or
representations in this regard.
TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT
OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.)
Investors may purchase shares of the Fund through the following
Tax Qualified Retirement Plans, available to qualified
individuals or organizations:
Standard and variable profit-sharing (including 401(k))
and money purchase pension plans; and
Individual Retirement Account Plans (IRAs).
Each of these Plans has been qualified as a prototype plan by the
Internal Revenue Service. Putnam Investor Services will furnish
services under each plan at a specified annual cost. Putnam
Fiduciary Trust Company serves as trustee under each of these
Plans.
Forms and further information on these Plans are available from
investment dealers or from Putnam Mutual Funds. In addition,
specialized professional plan administration services are
available on an optional basis; contact Putnam Defined
Contribution Plan Services at 1-800-225-2465, extension 8600.
A 403(b) Retirement Plan is available for employees of public
school systems and organizations which meet the requirements of
Section 501(c)(3) of the Internal Revenue Code. Forms and
further information on the 403(b) Plan are also available from
investment dealers or from Putnam Mutual Funds. Shares of the
Fund may also be used in simplified employee pension (SEP) plans.
For further information on the Putnam prototype SEP plan, contact
an investment dealer or Putnam Mutual Funds.
Consultation with a competent financial and tax adviser regarding
these Plans and consideration of the suitability of Fund shares
as an investment under the Employee Retirement Income Security
Act of 1974, or otherwise, is recommended.
SIGNATURE GUARANTEES
Redemption requests for shares having a net asset value of
$100,000 or more must be signed by the registered owners or their
legal representatives and must be guaranteed by a bank,
broker/dealer, municipal securities dealer or broker, government
securities dealer or broker, credit union, national securities
exchange, registered securities association, clearing agency,
savings association or trust company, provided such institution
is acceptable under and conforms with Putnam Fiduciary Trust
Company's signature guarantee procedures. A copy of such
procedures is available upon request. If you want your
redemption proceeds sent to an address other than your address as
it appears on Putnam's records, you must provide a signature
guarantee. Putnam Investor Services usually requires additional
documentation for the sale of shares by a corporation,
partnership, agent or fiduciary, or a surviving joint owner.
Contact Putnam Investor Services for details.
SUSPENSION OF REDEMPTIONS
The Fund may not suspend shareholders' right of redemption, or
postpone payment for more than seven days, unless the New York
Stock Exchange is closed for other than customary weekends or
holidays, or if permitted by the rules of the Securities and
Exchange Commission during periods when trading on the Exchange
is restricted or during any emergency which makes it
impracticable for the Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other
period permitted by order of the Commission for protection of
investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Fund. However, the Agreement and Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Fund and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by
the Fund or the Trustees. The Agreement and Declaration of Trust
provides for indemnification out of Fund property for all loss
and expense of any shareholder held personally liable for the
obligations of the Fund. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund would be unable to
meet its obligations. The likelihood of such circumstances is
remote.
STANDARD PERFORMANCE MEASURES
Yield and total return data for the Fund may from time to time be
presented in Part I of this Statement and in advertisements. In
the case of funds with more than one class of shares, all
performance information is calculated separately for each class.
The data is calculated as follows.
Total return for one-, five- and ten-year periods (or for such
shorter periods as the Fund has been in operation or shares of
the relevant class have been outstanding) is determined by
calculating the actual dollar amount of investment return on a
$1,000 investment in the Fund made at the beginning of the
period, at the maximum public offering price for Class A shares
and Class M shares and net asset value for other classes of
shares, and then calculating the annual compounded rate of return
which would produce that amount. Total return for a period of
one year is equal to the actual return of the Fund during that
period. Total return calculations assume deduction of the Fund's
maximum sales charge or CDSC, if applicable, and reinvestment of
all Fund distributions at net asset value on their respective
reinvestment dates.
The Fund's yield is presented for a specified thirty-day period
(the "base period"). Yield is based on the amount determined by
(i) calculating the aggregate amount of dividends and interest
earned by the Fund during the base period less expenses accrued
for that period, and (ii) dividing that amount by the product of
(A) the average daily number of shares of the Fund outstanding
during the base period and entitled to receive dividends and (B)
the per share maximum public offering price for Class A shares or
Class M shares, as appropriate and net asset value for other
classes of shares on the last day of the base period. The result
is annualized on a compounding basis to determine the yield. For
this calculation, interest earned on debt obligations held by the
Fund is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their
market values (or, in the case of receivables-backed securities
such as GNMA's, based on cost). Dividends on equity securities
are accrued daily at their stated dividend rates.
If the Fund is a money market fund, yield is computed by
determining the percentage net change, excluding capital changes,
in the value of an investment in one share over the seven-day
period for which yield is presented (the "base period"), and
multiplying the net change by 365/7 (or approximately 52 weeks).
Effective yield represents a compounding of the yield by adding 1
to the number representing the percentage change in value of the
investment during the base period, raising that sum to a power
equal to 365/7, and subtracting 1 from the result.
If the Fund is a tax-exempt fund, the tax-equivalent yield during
the base period may be presented for shareholders in one or more
stated tax brackets. Tax-equivalent yield is calculated by
adjusting the tax-exempt yield by a factor designed to show the
approximate yield that a taxable investment would have to earn to
produce an after-tax yield equal, for that shareholder, to the
tax-exempt yield. The tax-equivalent yield will differ for
shareholders in other tax brackets.
At times, Putnam Management may reduce its compensation or assume
expenses of the Fund in order to reduce the Fund's expenses. The
per share amount of any such fee reduction or assumption of
expenses during the Fund's past ten fiscal years (or for the life
of the Fund, if shorter) is reflected in the table in the section
entitled "Financial history" in the Prospectus. Any such fee
reduction or assumption of expenses would increase the Fund's
yield and total return during the period of the fee reduction or
assumption of expenses.
All data are based on past performance and do not predict future
results.
COMPARISON OF PORTFOLIO PERFORMANCE
Independent statistical agencies measure the Fund's investment
performance and publish comparative information showing how the
Fund, and other investment companies, performed in specified time
periods. Three agencies whose reports are commonly used for such
comparisons are set forth below. From time to time, the Fund may
distribute these comparisons to its shareholders or to potential
investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED
ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED
PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION.
LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund
rankings monthly. The rankings are based on total return
performance calculated by Lipper, reflecting generally
changes in net asset value adjusted for reinvestment of
capital gains and income dividends. They do not reflect
deduction of any sales charges. Lipper rankings cover a
variety of performance periods, for example year-to-date,
1-year, 5-year, and 10-year performance. Lipper
classifies mutual funds by investment objective and asset
category.
MORNINGSTAR, INC. distributes mutual fund ratings twice a
month. The ratings are divided into five groups:
highest, above average, neutral, below average and lowest.
They represent a fund's historical risk/reward ratio
relative to other funds with similar objectives. The
performance factor is a weighted-average assessment of the
Fund's 3-year, 5-year, and 10-year total return
performance (if available) reflecting deduction of
expenses and sales charges. Performance is adjusted using
quantitative techniques to reflect the risk profile of the
fund. The ratings are derived from a purely quantitative
system that does not utilize the subjective criteria
customarily employed by rating agencies such as Standard &
Poor's Corporation and Moody's Investor Service, Inc.
CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual
fund rankings and is distributed monthly. The rankings
are based entirely on total return calculated by
Weisenberger for periods such as year-to-date, 1-year,
3-year, 5-year and 10-year. Mutual funds are ranked in
general categories (e.g., international bond,
international equity, municipal bond, and maximum capital
gain). Weisenberger rankings do not reflect deduction of
sales charges or fees.
Independent publications may also evaluate the Fund's
performance. Certain of those publications are listed below, at
the request of Putnam Mutual Funds, which bears full
responsibility for their use and the descriptions appearing
below. From time to time the Fund may distribute evaluations by
or excerpts from these publications to its shareholders or to
potential investors. The following illustrates the types of
information provided by these publications.
BUSINESS WEEK publishes mutual fund rankings in its
Investment Figures of the Week column. The rankings are
based on 4-week and 52-week total return reflecting
changes in net asset value and the reinvestment of all
distributions. They do not reflect deduction of any sales
charges. Funds are not categorized; they compete in a
large universe of over 2000 funds. The source for
rankings is data generated by Morningstar, Inc.
INVESTOR'S BUSINESS DAILY publishes mutual fund rankings
on a daily basis. The rankings are depicted as the top 25
funds in a given category. The categories are based
loosely on the type of fund, e.g., growth funds, balanced
funds, U.S. government funds, GNMA funds, growth and
income funds, corporate bond funds, etc. Performance
periods for sector equity funds can vary from 4 weeks to
39 weeks; performance periods for other fund groups vary
from 1 year to 3 years. Total return performance reflects
changes in net asset value and reinvestment of dividends
and capital gains. The rankings are based strictly on
total return. They do not reflect deduction of any sales
charges. Performance grades are conferred from A+ to E.
An A+ rating means that the fund has performed within the
top 5% of a general universe of over 2000 funds; an A
rating denotes the top 10%; an A- is given to the top 15%,
etc.
BARRON'S periodically publishes mutual fund rankings. The
rankings are based on total return performance provided by
Lipper Analytical Services. The Lipper total return data
reflects changes in net asset value and reinvestment of
distributions, but does not reflect deduction of any sales
charges. The performance periods vary from short-term
intervals (current quarter or year-to-date, for example)
to long-term periods (five-year or ten-year performance,
for example). Barron's classifies the funds using the
Lipper mutual fund categories, such as Capital
Appreciation Funds, Growth Funds, U.S. Government Funds,
Equity Income Funds, Global Funds, etc. Occasionally,
Barron's modifies the Lipper information by ranking the
funds in asset classes. "Large funds" may be those with
assets in excess of $25 million; "small funds" may be
those with less than $25 million in assets.
THE WALL STREET JOURNAL publishes its Mutual Fund
Scorecard on a daily basis. Each Scorecard is a ranking
of the top-15 funds in a given Lipper Analytical Services
category. Lipper provides the rankings based on its total
return data reflecting changes in net asset value and
reinvestment of distributions and not reflecting any sales
charges. The Scorecard portrays 4-week, year-to-date,
one-year and 5-year performance; however, the ranking is
based on the one-year results. The rankings for any given
category appear approximately once per month.
FORTUNE magazine periodically publishes mutual fund
rankings that have been compiled for the magazine by
Morningstar, Inc. Funds are placed in stock or bond fund
categories (for example, aggressive growth stock funds,
growth stock funds, small company stock funds, junk bond
funds, Treasury bond funds, etc.), with the top-10 stock
funds and the top-5 bond funds appearing in the rankings.
The rankings are based on 3-year annualized total return
reflecting changes in net asset value and reinvestment of
distributions and not reflecting sales charges.
Performance is adjusted using quantitative techniques to
reflect the risk profile of the fund.
MONEY magazine periodically publishes mutual fund rankings
on a database of funds tracked for performance by Lipper
Analytical Services. The funds are placed in 23 stock or
bond fund categories and analyzed for five-year risk
adjusted return. Total return reflects changes in net
asset value and reinvestment of all dividends and capital
gains distributions and does not reflect deduction of any
sales charges. Grades are conferred (from A to E): the
top 20% in each category receive an A, the next 20% a B,
etc. To be ranked, a fund must be at least one year old,
accept a minimum investment of $25,000 or less and have
had assets of at least $25 million as of a given date.
FINANCIAL WORLD publishes its monthly Independent
Appraisals of Mutual Funds, a survey of approximately 1000
mutual funds. Funds are categorized as to type, e.g.,
balanced funds, corporate bond funds, global bond funds,
growth and income funds, U.S. government bond funds, etc.
To compete, funds must be over one year old, have over $1
million in assets, require a maximum of $10,000 initial
investment, and should be available in at least 10 states
in the United States. The funds receive a composite past
performance rating, which weighs the intermediate- and
long-term past performance of each fund versus its
category, as well as taking into account its risk, reward
to risk, and fees. An A+ rated fund is one of the best,
while a D-rated fund is one of the worst. The source for
Financial World rating is Schabacker investment management
in Rockville, MD.
FORBES magazine periodically publishes mutual fund ratings
based on performance over at least two bull and bear
market cycles. The funds are categorized by type,
including stock and balanced funds, taxable bond funds,
municipal bond funds, etc. Data sources include Lipper
Analytical Services and CDA Investment Technologies. The
ratings are based strictly on performance at net asset
value over the given cycles. Funds performing in the top
5% receive an A+ rating; the top 15% receive an A rating;
and so on until the bottom 5% receive an F rating. Each
fund exhibits two ratings, one for performance in "up"
markets and another for performance in "down" markets.
KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing
Times), periodically publishes rankings of mutual funds
based on one-, three- and five-year total return
performance reflecting changes in net asset value and
reinvestment of dividends and capital gains and not
reflecting deduction of any sales charges. Funds are
ranked by tenths: a rank of 1 means that a fund was among
the highest 10% in total return for the period; a rank of
10 denotes the bottom 10%. Funds compete in categories of
similar funds--aggressive growth funds, growth and income
funds, sector funds, corporate bond funds, global
governmental bond funds, mortgage-backed securities funds,
etc. Kiplinger's also provides a risk-adjusted grade in
both rising and falling markets. Funds are graded against
others with the same objective. The average weekly total
return over two years is calculated. Performance is
adjusted using quantitative techniques to reflect the risk
profile of the fund.
U.S. NEWS AND WORLD REPORT periodically publishes mutual
fund rankings based on an overall performance index (OPI)
devised by Kanon Bloch Carre & Co., a Boston research
firm. Over 2000 funds are tracked and divided into 10
equity, taxable bond and tax-free bond categories. Funds
compete within the 10 groups and three broad categories.
The OPI is a number from 0-100 that measures the relative
performance of funds at least three years old over the
last 1, 3, 5 and 10 years and the last six bear markets.
Total return reflects changes in net asset value and the
reinvestment of any dividends and capital gains
distributions and does not reflect deduction of any sales
charges. Results for the longer periods receive the most
weight.
THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by
Gordon K. Williamson. The author's list of funds is
divided into 12 equity and bond fund categories, and the
100 funds are determined by applying four criteria.
First, equity funds whose current management teams have
been in place for less than five years are eliminated.
(The standard for bond funds is three years.) Second, the
author excludes any fund that ranks in the bottom 20
percent of its category's risk level. Risk is determined
by analyzing how many months over the past three years the
fund has underperformed a bank CD or a U.S. Treasury bill.
Third, a fund must have demonstrated strong results for
current three-year and five-year performance. Fourth, the
fund must either possess, in Mr. Williamson's judgment,
"excellent" risk-adjusted return or "superior" return with
low levels of risk. Each of the 100 funds is ranked in
five categories: total return, risk/volatility,
management, current income and expenses. The rankings
follow a five-point system: zero designates "poor"; one
point means "fair"; two points denote "good"; three points
qualify as a "very good"; four points rank as "superior";
and five points mean "excellent."
In addition, Putnam Mutual Funds may distribute to shareholders
or prospective investors illustrations of the benefits of
reinvesting tax-exempt or tax-deferred distributions over
specified time periods, which may include comparisons to fully
taxable distributions. These illustrations use hypothetical
rates of tax-advantaged and taxable returns and are not intended
to indicate the past or future performance of any fund.
<PAGE>
DEFINITIONS
"Putnam Management" -- Putnam Investment Management,
Inc., the Fund's investment
manager.
"Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the
Fund's principal underwriter.
"Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company,
Company" the Fund's custodian.
"Putnam Investor Services" -- Putnam Investor Services, a
division of Putnam Fiduciary
Trust Company, the Fund's
investor servicing agent.
<PAGE>
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Index to Financial Statements and Supporting Schedules:
(1) Financial Statements:
Statement of assets and liabilities -- February 28,
1995(a) .
Statement of operations -- year ended February 28,
1995(a) .
Statement of changes in net assets -- years ended
February 28, 1995 and February 28,
1994(a) .
Financial highlights (a)(b).
Notes to financial statements(a).
(2) Supporting Schedules:
Schedule I - Portfolio of investments owned -
February 28, 1995(a) .
Schedules II through IX omitted because the required
matter is not present.
--------------------------
(a) Incorporated by reference into Parts A and B.
(b) Included in Part A.
(b) Exhibits:
1. Agreement and Declaration of Trust dated April 1,
1989 - - Incorporated by reference to the
Registrant's Initial Registration Statement.
2. By-Laws, as amended through February 1, 1994
- -
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement.
3. Not applicable.
4a. Class A Specimen share certificate - -
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement.
4b. Class B Specimen share certificate - -
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration
Statement.
4c. Class M Specimen share certificate -- Exhibit 1.
4d. Portions of Agreement and Declaration of Trust
Relating to Shareholders' Rights - -
Incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's
Registration Statement.
4e . Portions of By-Laws Relating to Shareholders'
Rights - - Incorporated by reference to Post-
Effective Amendment No. 6 to the Registrant's
Registration Statement.
5. Copy of Management Contract dated July 11, 1991 -
-Incorporated by reference to Post-Effective
Amendment No . 4 to the Registrant's
Registration Statement.
6a. Copy of Distributor's Contract dated May 6, 1994
-- Exhibit 2 .
6b. Copy of Specimen Dealer Sales Contract - -
Exhibit 3 .
6c. Copy of Specimen Financial Institution Sales
Contract - - Exhibit 4 .
7. Not applicable.
8. Copy of Custodian Agreement with Putnam Fiduciary
Trust Company dated May 3, 1991, as amended July 13,
1992 - - Incorporated by reference to Post-
Effective Amendment No. 6 to the Registrant's
Registration Statement.
9. Copy of Investor Servicing Agreement dated June 3,
1991 with Putnam Fiduciary Trust Company - -
Incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration
Statement.
10. Opinion of Ropes & Gray, including consent - -
Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement.
11. Not applicable.
12. Not applicable.
13a. Investment Letter for Class A shares from Putnam
Financial Services, Inc. to the Registrant - -
Incorporated by reference to Pre-Effective Amendment
No. 1 to the Registrant's Registration Statement.
14. Not applicable.
15a. Copy of Class A Distribution Plan and Agreement
dated July 8, 1993 - - Incorporated by reference
to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement.<PAGE>
15b. Copy of Class B Distribution Plan and Agreement
dated July 15, 1993 - - Incorporated by reference
to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement.
15c. Form of Class M Distribution Plan and Agreement --
Exhibit 5 .
15d . Copy of Specimen Dealer Service Agreement -
-
Exhibit 6 .
15e . Copy of Specimen Financial Institution
Service
Agreement - - Exhibit 7 .
16. Schedules for computation of performance quotations
- Exhibit 8 .
17a. Financial Data Schedule for Class A shares --
Exhibit 9.
17b. Financial Data Schedule for Class B shares --Exhibit
10.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of May 31, 1995, there were 5,348 and
1,765 holders , respectively, of the
Registrant's Class A and Class B shares
of beneficial interest. No Class M shares were
outstanding as of that date.
ITEM 27. INDEMNIFICATION
The information required by this item is incorporated
herein by reference from the Registrant's Initial Registration
Statement on Form N-1A under the Investment Company Act of 1940
(File No. 811-5802).
<PAGE>
<PAGE>
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
Except as set forth below, the directors and officers
of the Registrant's investment adviser have been engaged during
the past two fiscal years in no business, vocation or employment
of a substantial nature other than as directors or officers of
the investment adviser or certain of its corporate affiliates.
Certain officers of the investment adviser serve as officers of
some or all of the Putnam funds. The address of the investment
adviser, its corporate affiliates and the Putnam Funds is One
Post Office Square, Boston, Massachusetts 02109.
NAME NON-PUTNAM BUSINESS AND OTHER
CONNECTIONS
John V. Adduci Prior to July, 1993, Human Resources
Assistant Vice President Manager, First Security Services, 80
Main St., Reading, MA 01867
Gail S. Attridge Prior to November, 1993, International
Vice President Analyst, Keystone Custodian Funds,
200 Berkeley Street, Boston, MA
02116
James D. Babcock Prior to June, 1994, Interest
Assistant Vice President Supervisor, Salomon Brothers, Inc.
7 World Trade Center, New York, NY
10048
Prior to June, 1993, Audit Manager,
Coopers & Lybrand, One Sylvan Way,
Parsipanny, NJ 07054
Robert K. Baumbach Prior to August, 1994, Vice President
Vice President and Analyst, Keystone Custodian
Funds, 200 Berkeley St., Boston, MA
02110
Sharon A. Berka Prior to January, 1994, Vice
Vice President President - Compensation Manager,
BayBanks, Inc., 175 Federal Street,
Boston, MA 02110
Matthew G. Bevin Prior to February, 1995, Consultant,
Assistant Vice President SEI Corporation, 680 East Swedesford
Road, Wayne, PA 19807
Thomas Bogan Prior to November, 1994, Analyst
Senior Vice President Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153
<PAGE>
Michael F. Bouscaren Prior to May, 1994, President and
Senior Vice President Chairman of the Board of Directors
at Salomon Series Funds, Inc. and a
Director of Salomon Brothers Asset
Management, 7 World Trade Center,
New York, NY 10048
Brett Browchuk Prior to April, 1994, Managing
Managing Director Director, Fidelity Investments, 82
Devonshire St., Boston, MA 02109
Carolyn S. Bunten Prior to July, 1993, Assistant Trader,
Assistant Vice President Scudder Stevens & Clark, Inc., 175
Federal St., Boston, MA 02110
Andrea Burke Prior to August, 1994, Vice President
Vice President and Portfolio Manager, Back Bay
Advisors, 399 Boylston St., Boston,
MA 02116
Peter Carman Prior to August, 1993, Chief
Senior Managing Director Investment Officer, Chairman, U.S.
Equity Investment Policy Committee,
Member of Board of Directors,
Sanford C. Bernstein & Co., Inc.,
767 Fifth Avenue, New York, NY 10153
Joseph M. Carrabes Prior to June, 1993, Senior Financial
Vice President Services Officer, The Boston
Company, Inc., One Boston Place,
Boston, MA
Steven Cheshire Prior to January, 1994, Assistant
Vice President Vice President, Wellington
Management, 75 State Street, Boston,
MA 02109
Kenneth L. Daly Prior to August, 1993, Vice
Senior Vice President President, Fidelity Investments,
82 Devonshire St., Boston, MA 02109
John A. DeTore Prior to January, 1994, Director of
Managing Director Quantitative Portfolio Management,
Wellington Management, 75 State
Street, Boston, MA 02109
Theodore J. Deutz Prior to January, 1995, Senior Vice
Vice President President, Metropolitan West
Securities, Inc. 10880 Wilshire
Blvd., Suite 200, Los Angeles, CA
90024
Michael G. Dolan Prior to February, 1994, Senior
Assistant Vice President Financial Analyst, General Electric
Company, 1000 Western Ave., Lynn, MA
01905
Joseph J. Eagleeye Prior to August, 1994, Associate,
Assistant Vice President David Taussig & Associates, 424
University Ave., Sacramento, CA
95813
Michael T. Fitzgerald Prior to September, 1994, Senior
Senior Vice President Vice President, Vantage Global
Advisers, 1201 Morningside Dr.,
Manhattan Beach, CA 90266
Roland Gillis Prior to March, 1995, Vice President
Senior Vice President and Senior Portfolio Manager,
Keystone Group, Inc., 200 Berkeley
St., Boston, MA 02116
Mark D. Goodwin Prior to May, 1994, Manager, Audit &
Assistant Vice President Operations Analysis, Mitre
Corporation, 202 Burlington Rd.,
Bedford, MA 01730
Stephen A. Gorman Prior to July, 1994, Financial
Assistant Vice President Analyst, Boston Harbor Trust
Company, 100 Federal St., Boston, MA
02110
Jill Grossberg Prior to March, 1995, Associate
Assistant Vice President Counsel, 440 Financial Group of
and Associate Counsel Worcester, Inc., 440 Lincoln St.,
Worcester, MA 01653; Prior to
November, 1993, Counsel, Berman
DeValerio & Pease, One Liberty
Square, Boston, MA 02109
Deborah R. Healey Prior to June, 1994, Senior Equity
Senior Vice President Trader, Fidelity Management &
Research Company, 82 Devonshire St.,
Boston, MA 02109
Lisa A. Heitman Prior to July, 1994, Securities
Senior Vice President Analyst, Lord, Abbett & Company, 767
Fifth Ave., New York, NY 10153
Michael F. Hotchkiss Prior to May, 1994, Vice President,
Vice President Massachusetts Financial Services,
500 Boylston St., Boston, MA 02116
<PAGE>
Walter Hunnewell, Jr. Prior to April, 1994, Managing
Vice President Director, Veronis, Suhler &
Associates, 350 Park Avenue, New
York, NY 10022
Joseph Joseph Prior to October, 1994, Managing
Vice President Director, Vert Independent Capital
Research, 53 Wall St., New York, NY
10052
Prior to August, 1993, Manager,
Price Waterhouse, 6th Avenue, New
York, NY 10036
Mary E. Kearney Prior to February, 1995, Partner,
Managing Director Price Waterhouse, 160 Federal St.,
Boston, MA 02110
D. William Kohli Prior to September, 1994, Executive
Senior Vice President Vice President and Co-Director of
Global Bond Management; Prior to
1993, Portfolio Manager, Franklin
Advisors/Templeton Investment
Counsel, 777 Mariners Island Blvd.,
San Mateo, CA 94404
Karen R. Korn Prior to June, 1994, Vice President,
Vice President Assistant to the President, Designs,
Inc. 1244 Boylston St., Chestnut
Hill, MA 02167
Peter B. Krug Prior to January, 1995, Owner and
Vice President Director, Griswold Special Care, 42
Ethan Allen Drive, Acton, MA 01720
Lawrence J. Lasser Director, Marsh & McLennan Companies,
President, Director Inc., 1221 Avenue of the Americas,
and Chief Executive New York, NY 10020
Officer Director, INROADS/Central New England,
Inc., 99 Bedford St., Boston,
MA 02111
Jeffrey R. Lindsey Prior to April, 1994, Vice President
Vice President and Board Member, Strategic
Portfolio Management, 900 Ashwood
Parkway, Suite 290, Atlanta, GA
30338
James W. Lukens Prior to February, 1995, Vice
Senior Vice President President of Institutional
Marketing, Keystone Group, Inc., 200
Berkeley St., Boston, MA 02116
Michael Martino Prior to January, 1994, Executive
Managing Director Vice President and Chief Investment
Officer until 1992
Susan A. McCormack Prior to May, 1994, Associate
Vice President Investment Banker, Merrill Lynch &
Co., 350 South Grand Ave., Suite
2830, Los Angeles, CA 90071
Carol McMullen Prior to June, 1995, Senior Vice,
Managing Director President and Senior Portfolio
Manager, Baring Asset Management,
125 High Street, Boston, MA 02110
Maziar Minovi Prior to January, 1995, Associate
Vice President Privatization Specialist, The
International Bank for
Reconstruction and Development, 1818
H St. N.W., Washington, DC 20433
Michael J. Mufson Prior to June, 1993, Senior Equity
Senior Vice President Analyst, Stein Roe & Farnham,
One South Wacker Drive, Chicago, IL
60606
Paul G. Murphy Prior to January, 1995, Section
Assistant Vice President Manager, First Data Corp., 53 State
Street, Boston, MA 02109
Warren S. Naphtal Prior to January, 1994, Managing
Senior Vice President Director, Continental Bank, 231
So. Lasalle St., Chicago, IL 60697
C. Patrick O'Donnell, Jr. Prior to May, 1994, President,
Managing Director Exeter Research, Inc., 163 Water
Street, Exeter, New Hampshire, 03833
Brian O'Keefe Prior to December, 1993, Vice
Vice President President - Foreign Exchange Trader,
Bank of Boston, 100 Federal Street,
Boston, MA 02109
Margaret Pietropaolo Prior to January, 1994, Data Base/
Assistant Vice President Production Analyst, Wellington
Management, 75 State Street, Boston,
MA 02109
Jane E. Price Prior to February, 1995, Associate
Assistant Vice President ERISA Attorney, Hale & Dorr,
60 State St., Boston, MA 02109
George Putnam Chairman and Director, Putnam Mutual
Chairman and Director Funds Corp.
Director, The Boston Company, Inc.,
One Boston Place, Boston, MA 02108
Director, Boston Safe Deposit and
Trust Company, One Boston Place,
Boston, MA 02108
Director, Freeport-McMoRan, Inc., 200
Park Avenue, New York, NY 10166
Director, General Mills, Inc., 9200
Wayzata Boulevard, Minneapolis,
MN 55440
Director, Houghton Mifflin Company,
One Beacon Street, Boston, MA 02108
Director, Marsh & McLennan Companies,
Inc., 1221 Avenue of the Americas,
New York, NY 10020
Director, Rockefeller Group, Inc.,
1230 Avenue of the Americas,
New York, NY 10020
Thomas Rosalanko Prior to February, 1995, Senior
Senior Vice President Account Manager, SEI Corporation,
680 East Swedesford Road, Wayne, PA
19807
Michael Scanlon Prior to February, 1995, Senior
Assistant Vice President Financial Analyst, Massachusetts
Financial Services, 500 Boylston
St., Boston, MA 02116
Robert M. Shafto Prior to January, 1995, Account
Assistant Vice President Manager, IBM Corporation, 404 Wyman
St., Waltham, MA 02254
Mark J. Siegel Prior to June, 1993, Vice President,
Senior Vice President Salomon Brothers International,
Ltd., Victoria Plaza, 111 Buckingham
Palace Road, London SW1W 0SB,
England
Karen F. Smith Prior to May, 1994, Consultant and
Assistant Vice President Portfolio Manager, Wyatt Asset
Services, Inc., 1211 W.W. 5th Ave.,
Portland, OR 97204
Joanne Soja Prior to June, 1993, Managing
Senior Vice President Director/Portfolio Manager,
Chancellor Capital Management,
153 East 53rd Street, New York, NY
10002
Steven Spiegel Prior to December, 1994, Managing
Senior Managing Director Director/Retirement, Lehman
Brothers, Inc., 200 Vesey St., World
Financial Center, New York, NY 10285
George W. Stairs Prior to July, 1994, Equity Research
Vice President Analyst, ValueQuest Limited,
Roundy's Hill, Marblehead, MA 01945
Roger Sullivan Prior to December, 1994, Vice
Senior Vice President President, State Street Research &
Management Co., One Financial
Center, Boston, MA 02111
Jerry H. Tempelman Prior to May, 1994, Senior Money
Assistant Vice President Market Trader, State Street Bank &
Trust Co., 225 Franklin, Street,
Boston, MA 02110
Hillary F. Till Prior to May, 1994, Fixed-Income
Vice President Derivative Trader, Bank of Boston,
100 Federal Street, Boston, MA 02109
Prior to December, 1993, Equity
Analyst, Harvard Management Company,
600 Atlantic St., Boston, MA 02109
Elizabeth A. Underhill Prior to August, 1994, Vice President
Senior Vice President and Senior Equity Analyst, State
Street Bank and Trust Company, 225
Franklin St., Boston, MA 02110
Charles C. Van Vleet Prior to August, 1994, Vice President
Senior Vice President and Fixed-Income Manager, Alliance
Capital Management, 1345 Avenue of
the Americas, New York, NY 10105
Francis P. Walsh Prior to November, 1994, Research
Vice President Analyst, Furman, Selz, Inc. 230 Park
Avenue, New York, NY 10169
Prior to December, 1993, Strategic
Marketing Analyst, Lotus
Development, Corporation 55
Cambridge Parkway, Cambridge, MA
02142
Michael R. Weinstein Prior to March, 1994, Management
Vice President Consultant, Arthur D. Little, Acorn
Park, Cambridge, MA 02140
<PAGE>
Item 29. Principal Underwriter
(a) Putnam Mutual Funds Corp. is the principal underwriter for
each of the following investment companies, including the
Registrant:
Putnam Adjustable Rate U.S. Government Fund, Putnam American
Government Income Fund, Putnam Arizona Tax Exempt Income Fund,
Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds,
Putnam Balanced Retirement Fund, Putnam California Tax Exempt
Income Trust, Putnam California Tax Exempt Money Market Fund,
Putnam Capital Appreciation Fund, Putnam Capital Manager Trust,
Putnam Convertible Income-Growth Trust, Putnam Diversified Equity
Trust, Putnam Diversified Income Trust, Putnam Dividend Growth
Fund, Putnam Equity Income Fund, Putnam Europe Growth Fund,
Putnam Federal Income Trust, Putnam Florida Tax Exempt Income
Fund, The Putnam Fund for Growth and Income, The George Putnam
Fund of Boston, Putnam Global Governmental Income Trust, Putnam
Global Growth Fund, Putnam Growth Fund, Putnam Growth and Income
Fund II, Putnam Health Sciences Trust, Putnam High Yield Trust,
Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam
Intermediate Tax Exempt Income Fund, Putnam Intermediate U.S.
Government Income Fund, Putnam Investment Funds, Putnam
Investment-Grade Bond Fund, Putnam Investors Fund, Putnam
Massachusetts Tax Exempt Income Fund II, Putnam Michigan Tax
Exempt Income Fund II, Putnam Minnesota Tax Exempt Income Fund
II, Putnam Money Market Fund, Putnam Municipal Income Fund,
Putnam Natural Resources Fund, Putnam New Jersey Tax Exempt
Income Fund, Putnam New Opportunities Fund, Putnam New York Tax
Exempt Income Trust, Putnam New York Tax Exempt Money Market
Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio
Tax Exempt Income Fund II, Putnam OTC Emerging Growth Fund,
Putnam Overseas Growth Fund, Putnam Pennsylvania Tax Exempt
Income Fund, Putnam Preferred Income Fund, Putnam Tax Exempt
Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free
Income Trust, Putnam U.S. Government Income Trust, Putnam
Utilities Growth and Income Fund, Putnam Vista Fund, Putnam
Voyager Fund
<TABLE>
<CAPTION>
(b) The directors and officers of the Registrant's principal underwriter are:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
<C> <C> <C>
John V. Adduci Assistant Vice President None
Christopher S. Alpaugh Vice President None
Paulette C. Amisano Vice President None
Ronald J. Anwar Vice President None
Karen M. Apatow Assistant Vice President None
Steven E. Asher Senior Vice President None
Scott A. Avery Vice President None
Hallie L. Baron Assistant Vice President None
Ira G. Baron Senior Vice President None
John L. Bartlett Senior Vice President None
Steven M. Beatty Vice President None
Matthew F. Beaudry Vice President None
John J. Bent Vice President None
Thomas A. Beringer Vice President None
Sharon A. Berka Vice President None
Suzanne J. Bessett Vice President None
Maureen L. Boisvert Vice President None
Keith R. Bouchard Vice President None
Linda M. Brady Assistant Vice President None
Leslee R. Bresnahan Senior Vice President None
James D. Brockelman Senior Vice President None
Scott C. Brown Vice President None
Gail D. Buckner Senior Vice President None
Robert W. Burke Senior Managing Director None
Susan Dwyer Cabana Vice President None
Ellen S. Callahan Vice President None
Thomas C. Callahan Assistant Vice President None
Peter J. Campagna Vice President None
William A. Campagna Senior Vice President None
Charles A. Carey Vice President None
Patricia A. Cartwright Assistant Vice President None
Janet Casale-Sweeney Vice President None
Stephen J. Chaput Assistant Vice President None
Daniel J. Church Vice President None
James E. Clinton Assistant Vice President None
Kathleen M. Collman Managing Director None
Mark L. Coneeny Vice President None
Donald A. Connelly Senior Vice President None
Anna Coppola Vice President None
F. Nicholas Corvinus Senior Vice President None
Chad H. Cristo Assistant Vice President None
Lisa M. D'Allesandro Assistant vice President None
Jessica E. Dahill Vice President None
Kenneth L. Daly Senior Vice President None
Edward H. Dane Vice President None
Nancy M. Days Assistant Vice President None
Pamela De Oliveira-Smith Assistant Vice President None
Joseph C. DeSimone Assistant Vice President None
Daniel J. Delianedis Vice President None
Teresa F. Dennehy Assistant Vice President None
J. Thomas Despres Senior Vice President None
Michael G. Dolan Assistant Vice President None
Scott M. Donaldson Vice President None
Emily J. Durbin Vice President None
David B. Edlin Senior Vice President None
James M. English Senior Vice President None
Vincent Esposito Managing Director None
Mary K. Farrell Assistant Vice President None
Michael J. Fechter Vice President None
Susan H. Feldman Vice President None
Paul F. Fichera Senior Vice President None
C. Nancy Fisher Senior Vice President None
Mitchell B. Fishman Senior Vice President None
Joseph C. Fiumara Vice President None
Patricia C. Flaherty Senior Vice President None
Judy P. Frodigh Vice President None
Samuel F. Gagliardi Vice President None
Judy S. Gates Vice President None
Richard W. Gauger Assistant Vice President None
Joseph P. Gennaco Vice President None
Stephen E. Gibson Managing Director None
Mark P. Goodfellow Assistant Vice President None
Robert Goodman Managing Director None
Mark D. Goodwin Assistant Vice President None
Anthony J. Grace Assistant Vice President None
Linda K. Grace Assistant Vice President None
Robert G. Greenly Vice President None
Jill Grossberg Assistant Vice President None
Jeffrey P. Gubala Vice President None
James E. Halloran Vice President None
Thomas W. Halloran Vice President None
Bruce D. Harrington Assistant Vice President None
Marilyn M. Hausammann Senior Vice President None
Howard W. Hawkins, III Vice President None
Deanna R. Hayes-Castro Vice President None
Paul P. Heffernan Vice President None
Susan M. Heimanson Vice President None
Joanne Heyman Assistant Vice President None
Bess J.M. Hochstein Vice President None
Maureen A. Holmes Assistant Vice President None
Paula J. Hoyt Assistant Vice President None
William J. Hurley Senior Vice President None
Gregory E. Hyde Senior Vice President None
Dwight D. Jacobsen Senior Vice President None
Douglas B. Jamieson Senior Managing Director, Director None
Jay M. Johnson Vice President None
Kevin M. Joyce Senior Vice President None
Karen R. Kay Senior Vice President None
Mary E. Kearney Managing Director None
John P. Keating Vice President None
A. Siobahn Kelly Assistant Vice President None
Brian J. Kelly Vice President None
Deborah H. Kirk Senior Vice President None
Jill A. Koontz Assistant Vice President None
Linda G. Kraunelis Assistant Vice President None
Howard H. Kreutzberg Senior Vice President None
Marjorie B. Krieger Assistant Vice President None
Charles Lacasia Assistant Vice President None
Arthur B. Laffer, Jr. Vice President None
James D. Lathrop Vice President None
Edward V. Lewandowski Senior Vice President None
Edward V. Lewandowski, Jr. Vice President None
Samuel L. Lieberman Vice President None
David M. Lifsitz Assistant Vice President None
Ann Marie Linehan Assistant Vice President None
Maura A. Lockwood Vice President None
Rufino R. Lomba Vice President None
Robert F. Lucey Senior Managing Director, Director None
Kathryn A. Lucier Assistant Vice President None
Alana Madden Vice President None
Ann Malatos Assistant Vice President None
Renee L. Maloof Assistant Vice President None
Frederick S. Marius Assistant Vice President None
Karen E. Marotta Vice President None
Kathleen M. McAnulty Assistant Vice President None
Anne B. McCarthy Assistant Vice President None
Paul McConville Vice President None
Marla J. McDougall Assistant Vice President None
Walter S. McFarland Vice President None
Mark J. McKenna Senior Vice President None
Gregory J. McMillan Vice President None
Robert E. McMurtrie Vice President None
Claye A. Metelmann Vice President None
J. Chris Meyer Senior Vice President None
Douglas W. Miller Vice President None
Jeffery M. Miller Senior Vice President None
Ronald K. Mills Vice President None
Peter M. Moore Assistant Vice President None
Timothy P. Moran Treasurer None
Mitchell Moret Senior Vice President None
Donald E. Mullen Vice President None
Paul G. Murphy Assistant Vice President None
Brendan R. Murray Vice President None
Robert Nadherny Vice President None
Alexander L. Nelson Managing Director None
Jane M. Nickodemus Vice President None
John P. Nickodemus Vice President None
Michael C. Noonis Assistant Vice President None
Kristen P. O'Brien Vice President None
Kevin L. O'Shea Senior Vice President None
Nathan D. O'Steen Assistant Vice President None
Joseph R. Palombo Managing Director None
Scott A. Papes Vice President None
Cynthia O. Parr Vice President None
John D. Pataccoli Vice President None
John G. Phoenix Vice President None
Joseph Phoenix Senior Vice President None
Jeffrey E. Place Senior Vice President None
Keith Plapinger Vice President None
Jane E. Price Assistant Vice President None
Douglas H. Powell Vice President None
Susannah Psomas Vice President None
George Putnam Director Chairman & President
Debra V. Rothman Vice President None
Robert B. Rowe Vice President None
Kevin A. Rowell Senior Vice President None
Thomas C. Rowley Vice President None
Charles A. Ruys de Perez Senior Vice President None
Deborah A. Ryan Assistant Vice President None
Robert M. Santosuosso Assistant Vice President None
Debra J. Sarkisian Assistant Vice President None
Catherine A. Saunders Senior Vice President None
Robbin L. Saunders Assistant Vice President None
Karl W. Saur Vice President None
Michael Scanlon Assistant Vice President None
Christine A. Scordato Vice President None
Joseph W. Scott Assistant Vice President None
John B. Shamburg Vice President None
Kathleen G. Sharpless Managing Director None
John F. Sharry Managing Director None
Vincent P. Sheehan Vice President None
Stuart D. Sheppard Assistant Vice President None
William N. Shiebler Director and President Vice President
Daniel S. Shore Vice President None
Mark J. Siebold Assistant Vice President None
Gordon H. Silver Senior Managing Director Vice President
John Skistimas, Jr. Assistant Vice President None
Barry Sommers Vice President None
Steven Spiegel Senior Managing Director None
Nicholas T. Stanojev Senior Vice President None
Brian L. Sullivan Vice President None
Kevin J. Sullivan Vice President None
Moira Sullivan Vice President None
James S. Tambone Managing Director None
B. Iris Tanner Assistant Vice President None
Louis Tasiopoulos Managing Director None
David S. Taylor Vice President None
John R. Telling Vice President None
Richard B. Tibbetts Senior Vice President None
Patrice M. Tirado Vice President None
Janet E. Tosi Assistant Vice President None
John C. Tredinnick Vice President None
Bonnie L. Troped Vice President None
Christine M. Twigg Assistant Vice Presient None
Larry R. Unger Vice President None
Douglas J. Vander Linde Senior Vice President None
Edward F. Whalen Vice President None
Robert J. Wheeler Senior Vice President None
John B. White Vice President None
Kirk E. Williamson Senior Vice President None
Leigh T. Williamson Vice President None
Benjamin I. Woloshin Vice President None
William H. Woolverton Senior Vice President None
Timothy R. Young Vice President None
SooHee L. Zebedee Vice President None
Laura J. Zografos Vice President None
</TABLE>
<PAGE>
The principal business address of each person listed above is One
Post Office Square, Boston, MA 02109, except for:
Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303
Mr. Anwar, 3000 Valley Forge Circle, King of Prussia, PA 19406
Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511
Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667
Mr. Bartlett, 7 Fairfield St., Boston, MA 02116
Mr. Beringer, 3722 West 50th St., Edina,MN 55410
Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610
Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401
Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044
Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237
Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033
Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080
Ms. Castro, 26 Gould Road, Andover, MA 01810
Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211
Mr. Cristo, 11 Schenck Ave., Great Neck, NY 11021
Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238
Mr. Corvinus, 208 Water St., Newburyport, MA 01950
Ms. Dahill, 270-1C Iven Ave., St David's, PA 19087
Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660
Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807
Mr. English, 1184 Pintail Circle, Boulder, CO 80303
Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807
Mr. Gubala, 490 Beacon Knoll Lane, Ft. Mill, SC 29715
Mr. J. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362
Mr. T. Halloran, 19449 Misty Lake Dr., Strongsville, OH 44136
Mr. Hyde, 3305 Sulky, Marietta, GA 30067
Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017
Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923
Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206
Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202
Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017
Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010
Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266
Mr. Lieberman, 200 Roy St., Seattle, WA 98199
Ms. Madden, 8649 North Himes Avenue, Tampa, FL 33614
Mr. McConville, 515 S. Arlington Heights Rd., Arlington
Heights, IL 6005
Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421
Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063
Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223
Mr. Miller, 70 Williams St., Greenwich, CT 06830
Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558
Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866
Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117
Mr. and Mrs. Nickodemus, 463 Village Oaks Court, Ann Arbor,
MI 48103
Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817
Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103
Mr. Pataccoli, 1500 Bay Rd., Miami, FL 33139
Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093
Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075
Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowe, 109 Shore Drive, Longwood, FL 32779
Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660
Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122
Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538
Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260
Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204
Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, GA 30305
Mr. Sommers, 397 North Little Tour, New City, NY 10956
Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243
Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574
Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945
Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433
Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110
Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301
Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216
Mr. Unger, 212 E. Broadway, New York, NY 10002
Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850
Mr. Williamson, 640-4 Tete L'Ours, Mandeville, LA 70471
Mr. White, 10 Mannion Place, Littleton, MA 01460
Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Persons maintaining physical possession of accounts,
books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules
promulgated thereunder are Registrant's Clerk, Beverly Marcus;
Registrant's investment adviser, Putnam Investment Management,
Inc.; Registrant's principal underwriter, Putnam Mutual Funds
Corp.; Registrant's custodian, Putnam Fiduciary Trust Company
("PFTC"); and Registrant's transfer and dividend disbursing
agent, Putnam Investor Services, a division of PFTC. The address
of the Clerk, investment adviser, principal underwriter,
custodian and transfer and dividend disbursing agent is One Post
Office Square, Boston, Massachusetts 02109.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
The Registrant undertakes to furnish to each person to
whom a prospectus of the Registrant is delivered a copy of the
Registrant's latest annual report to shareholders, upon request
and without charge.
----------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information constituting
parts of this Post-Effective Amendment No. 7 to the
Registration Statement on Form N-1A (File No. 33-28321) (the
"Registration Statement") of our report dated April 17,
1995 , relating to the financial statements and financial
highlights appearing in the February 28, 1995 Annual
Report of Putnam Pennsylvania Tax Exempt Income Fund, which
financial statements and financial highlights are also
incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading
"Independent Accountants and Financial Statements" in such
Statement of Additional Information and under the heading
"Financial highlights" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
June 19, 1995<PAGE>
POWER OF ATTORNEY
I, the undersigned Trustee of Putnam Pennsylvania Tax Exempt
Income Fund, hereby severally constitute and appoint George
Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin,
Timothy W. Diggins and John W. Gerstmayr, and each of them
singly, my true and lawful attorneys, with full power to them and
each of them, to sign for me, and in my name and in the capacity
indicated below, the Registration Statement on Form N-1A of
Putnam Pennsylvania Tax Exempt Income Fund and any and all
amendments (including post-effective amendments) to said
Registration Statement and to file the same with all exhibits
thereto, and other documents in connection therewith , with
the Securities and Exchange Commission, granting unto my said
attorneys, and each of them acting alone, full power and
authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to
all intents and purposes as he might or could do in
person, and hereby ratify and confirm all that said attorneys or
any of them may lawfully do or cause to be done by virtue
thereof.
WITNESS my hand and seal on the date set forth below.
SIGNATURE TITLE DATE
/s/ Eli Shapiro
- --------------------- Trustee April 19,
1995
Eli Shapiro
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Putnam
Pennsylvania Tax Exempt Income Fund is on file with the Secretary
of State of The Commonwealth of Massachusetts and notice is
hereby given that this instrument is executed on behalf of the
Registrant by an officer of the Registrant as an officer and not
individually and the obligations of or arising out of this
instrument are not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the assets
and property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston,
and The Commonwealth of Massachusetts, on the 19th day of
June, 1995 .
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME
FUND
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement of Putnam
Pennsylvania Tax Exempt Income Fund has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title
George Putnam President and Chairman of the
Board; Principal Executive Officer;
Trustee
William F. Pounds Vice Chairman; Trustee
John D. Hughes Vice President; Treasurer and
Principal Financial Officer
Paul G. Bucuvalas Assistant Treasurer and Principal
Accounting Officer
Jameson A. Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
Eli Shapiro Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver,
as Attorney-in-Fact
June 19, 1995
PUTNAM INVESTMENTS
(Logo)
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
Class M Shares
Trust Certificate
Account No. Certificate No. Shares
CUSIP 746852 30 0
THIS CERTIFIES THAT
is the owner of Class M shares of
beneficial interest in Putnam Pennsylvania Tax Exempt Income
Fund, fully paid and nonassessable, the said shares being issued,
received and held under and subject to the terms and provisions
of the Agreement and Declaration of Trust dated as of April 20,
1989, establishing Putnam Pennsylvania Tax Exempt Income Fund,
and all amendments thereto, copies of which are on file with the
Secretary of State of The Commonwealth of Massachusetts. The
said owner by accepting this certificate agrees to and is bound
by all of the said terms and provisions. The shares represented
hereby are transferable in writing by the owner thereof in person
or by attorney upon surrender of this certificate to the Trustees
properly endorsed for transfer. This certificate is executed on
behalf of the Trustees as Trustees and not individually and the
obligations hereof are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Trust. This certificate is not valid unless
countersigned by the Investor Servicing Agent.
In Witness Whereof the Trustees of Putnam Pennsylvania Tax
Exempt Income Fund have caused the following facsimile signatures
to be affixed to this certificate.
Dated: COUNTERSIGNED:
PUTNAM INVESTOR SERVICES
a division of Putnam Fiduciary
Trust Company
INVESTOR SERVICING AGENT
BY
FOR THE TRUSTEES AUTHORIZED SIGNATURE
A24-28
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
DISTRIBUTOR'S CONTRACT
Distributor's Contract dated May 6, 1994, by and between
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND, a Massachusetts
business trust (the "Fund"), and PUTNAM MUTUAL FUNDS CORP., a
Massachusetts corporation ("Putnam").
WHEREAS, the Fund and Putnam are desirous of entering into
this agreement to provide for the distribution by Putnam of
shares of the Fund;
NOW, THEREFORE, in consideration of the mutual agreements
contained in the Terms and Conditions of Distributor's Contract
attached to and forming a part of this Contract (the "Terms and
Conditions"), the Fund hereby appoints Putnam as a distributor of
shares of the Fund, and Putnam hereby accepts such appointment,
all as set forth in the Terms and Conditions.
A copy of the Agreement and Declaration of Trust of the Fund
is on file with the Secretary of State of The Commonwealth of
Massachusetts and notice is hereby given that this instrument is
executed on behalf of the Trustees of the Fund as Trustees and
not individually, and that the obligations of or arising out of
this instrument are not binding upon any of the Trustees or
shareholders individually but are binding only upon the assets
and property of the Fund.
IN WITNESS WHEREOF, PUTNAM PENNSYLVANIA TAX EXEMPT INCOME
FUND and PUTNAM MUTUAL FUNDS CORP. have each caused this
Distributor's Contract to be signed in duplicate in its behalf,
all as of the day and year first above written.
PUTNAM PENNSYLVANIA TAX EXEMPT
INCOME FUND
/s/ Charles E. Porter
By: -----------------------------
Executive Vice President
PUTNAM MUTUAL FUNDS CORP.
/s/ William N. Shiebler
By: -----------------------------
President<PAGE>
TERMS AND CONDITIONS
OF
DISTRIBUTOR'S CONTRACT
1. RESERVATION OF RIGHT NOT TO SELL. The Fund reserves the
right to refuse at any time or times to sell any of its shares of
beneficial interest ("shares") hereunder for any reason deemed
adequate by it.
2. PAYMENTS TO PUTNAM. In connection with the distribution of
shares of the Fund, Putnam will be entitled to receive: (a)
payments pursuant to any Distribution Plan and Agreement from
time to time in effect between the Fund and Putnam with respect
to the Fund or any particular class of shares of the Fund, (b)
any contingent deferred sales charges applicable to the
redemption of shares of the Fund or of any particular class of
shares of the Fund, determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund and (c) subject to the provisions of Section 3 below,
any front-end sales charges applicable to the sale of shares of
the Fund or of any particular class of shares of the Fund, less
any applicable dealer discount.
3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will
have the right, as principal, to sell shares of the Fund to
investment dealers against orders therefor (a) at the public
offering price (calculated as described below) less a discount
determined by Putnam, which discount shall not exceed the amount
of the sales charge referred to below, or (b) at net asset value.
Upon receipt of an order to purchase Fund shares from an
investment dealer with whom Putnam has a Sales Contract, Putnam
will promptly purchase shares from the Fund to fill such order.
The public offering price of a class of shares shall be the net
asset value of such shares then in effect, plus any applicable
front-end sales charge determined in the manner set forth in the
then current Prospectus and Statement of Additional Information
of the Fund or as permitted by the Investment Company Act of
1940, as amended, and the Rules and Regulations of the Securities
and Exchange Commission promulgated thereunder. In no event
shall the public offering price exceed 1000/915ths of such net
asset value, and in no event shall any applicable sales charge
exceed 8 1/2% of the public offering price. The net asset value
of the shares shall be determined in the manner provided in the
Agreement and Declaration of Trust of the Fund as then amended
and when determined shall be applicable to transactions as
provided for in the then current Prospectus and Statement of
Additional Information of the Fund.
Putnam will also have the right, as principal, to purchase
shares from the Fund at their net asset value and to sell such
shares to the public against orders therefor at the public
offering price or at net asset value.
Putnam will also have the right, as principal, to sell
shares at their net asset value and not subject to a contingent
deferred sales charge to such persons as may be approved by the
Trustees of the Fund, all such sales to comply with the
provisions of the Investment Company Act of 1940, as amended, and
the Rules and Regulations of the Securities and Exchange
Commission promulgated thereunder.
Putnam will also have the right, as agent for the Fund, to
sell shares at the public offering price or at net asset value to
such persons and upon such conditions as the Trustees of the Fund
may from time to time determine.
On every sale the Fund shall receive the applicable net
asset value of the shares. Putnam will reimburse the Fund for
any increased issue tax paid on account of sales charges. Upon
receipt of registration instructions in proper form and payment
for shares, Putnam will transmit such instructions to the Fund or
its agent for registration of the shares purchased.
4. SALES OF SHARES BY THE FUND. The Fund reserves the right to
issue shares at any time directly to its shareholders as a stock
dividend or stock split and to sell shares to its shareholders or
to other persons approved by Putnam at not less than net asset
value.
5. REPURCHASE OF SHARES. Putnam will act as agent for the Fund
in connection with the repurchase of shares by the Fund upon the
terms and conditions set forth in the then current Prospectus and
Statement of Additional Information of the Fund.
6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its
best efforts to place shares sold by it on an investment basis.
Putnam does not agree to sell any specific number of shares.
Shares will be sold by Putnam only against orders therefor.
Putnam will not purchase shares from anyone other than the Fund
except in accordance with Section 5, and will not take "long" or
"short" positions in shares contrary to the Agreement and
Declaration of Trust of the Fund.
7. RULES OF NASD, ETC. Putnam will conform to the Rules of
Fair Practice of the National Association of Securities Dealers,
Inc. and the sale of securities laws of any jurisdiction in which
it sells, directly or indirectly, any shares. Putnam also agrees
to furnish to the Fund sufficient copies of any agreements or
plans it intends to use in connection with any sales of shares in
adequate time for the Fund to file and clear them with the proper
authorities before they are put in use, and not to use them until
so filed and cleared.
8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an
independent contractor and neither Putnam nor any of its officers
or employees as such is or shall be an employee of the Fund.
Putnam is responsible for its own conduct and the employment,
control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents or
employees. Putnam assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all
employer taxes thereunder.
Putnam will maintain at its own expense insurance against
public liability in such an amount as the Trustees of the Fund
may from time to time reasonably request.
9. EXPENSES. Putnam will pay all expenses of qualifying shares
of the Fund for sale under the so-called "Blue Sky" laws of any
state (except expenses of any action by the Fund relating to its
Agreement and Declaration of Trust or other matters in which the
Fund has a direct concern), and expenses of preparing, printing
and distributing advertising and sales literature (apart from
expenses of registering shares under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended,
and the preparation and printing of Prospectuses and Statements
of Additional Information and reports as required by said Acts
and the direct expenses of the issue of shares, except that
Putnam will pay the cost of the preparation and printing of
Prospectuses and Statements of Additional Information and
shareholders' reports used by it and by others in the sale of
Fund shares to the extent such cost is not paid by others).
10. INDEMNIFICATION OF FUND. Putnam agrees to indemnify and
hold harmless the Fund and each person who has been, is, or may
hereafter be a Trustee of the Fund against expenses reasonably
incurred by any of them in connection with any claim or in
connection with any action, suit or proceeding to which any of
them may be a party, which arises out of or is alleged to arise
out of any misrepresentation or omission to state a material
fact, or out of any alleged misrepresentation or omission to
state a material fact, on the part of Putnam or any agent or
employee of Putnam or any other person for whose acts Putnam is
responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished by the Fund. Putnam also agrees likewise
to indemnify and hold harmless the Fund and each such person in
connection with any claim or in connection with any action, suit
or proceeding which arises out of or is alleged to arise out of
Putnam's (or an affiliate of Putnam's) failure to exercise
reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, automatic
withdrawal and other plans for shares. The term "expenses"
includes amounts paid in satisfaction of judgments or in
settlements which are made with Putnam's consent. The foregoing
rights of indemnification shall be in addition to any other
rights to which the Fund or a Trustee may be entitled as a matter
of law.
11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS
CONTRACT. This Contract shall automatically terminate, without
the payment of any penalty, in the event of its assignment. This
Contract may be amended only if such amendment be approved either
by action of the Trustees of the Fund or at a meeting of the
shareholders of the Fund by the affirmative vote of a majority of
the outstanding shares of the Fund, and by a majority of the
Trustees of the Fund who are not interested persons of the Fund
or of Putnam by vote cast in person at a meeting called for the
purpose of voting on such approval.
12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This
Contract shall take effect upon the date first above written and
shall remain in full force and effect continuously (unless
terminated automatically as set forth in Section 11) until
terminated:
(a) Either by the Fund or Putnam by not more
than sixty (60) days' nor less than ten (10) days'
written notice delivered or mailed by registered
mail, postage prepaid, to the other party; or
(b) If the continuance of this Contract after
January 31, 1995 is not specifically approved at
least annually by the Trustees of the Fund or the
shareholders of the Fund by the affirmative vote of a
majority of the outstanding shares of the Fund, and
by a majority of the Trustees of the Fund who are not
interested persons of the Fund or of Putnam by vote
cast in person at a meeting called for the purpose of
voting on such approval.
Action by the Fund under (a) above may be taken either (i) by
vote of its Trustees or (ii) by the affirmative vote of a
majority of the outstanding shares of the Fund. The requirement
under (b) above that continuance of this Contract be
"specifically approved at least annually" shall be construed in a
manner consistent with the Investment Company Act of 1940, as
amended, and the Rules and Regulations thereunder.
Termination of this Contract pursuant to this Section 12
shall be without the payment of any penalty.
13. CERTAIN DEFINITIONS. For the purposes of this
Contract, the "affirmative vote of a majority of the outstanding
shares of the Fund" means the affirmative vote, at a duly called
and held meeting of shareholders of the Fund, (a) of the holders
of 67% or more of the shares of the Fund present (in person or by
proxy) and entitled to vote at such meeting, if the holders of
more than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the
Fund entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested
person" and "assignment" shall have the meanings defined in the
Investment Company Act of 1940, as amended, subject, however, to
such exemptions as may be granted by the Securities and Exchange
Commission under said Act.
S:\shared\discon1
DEALER SALES CONTRACT
Between: PUTNAM MUTUAL FUNDS CORP. and
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
As general distributor of The Putnam Family of Mutual Funds (the
"Funds"), we agree to sell you shares of beneficial interest
issued by the Funds (the "Shares"), subject to any limitations
imposed by any of the Funds and to confirmation by us in each
instance of such sales. By your acceptance hereof, you agree to
all of the following terms and conditions:
1. OFFERING PRICE AND FEES
The public offering price at which you may offer the Shares is
the net asset value thereof, as computed from time to time, plus
any applicable sales charge described in the then-current
Prospectus of the applicable Fund. As compensation for each sale
of Shares made by you, you will be allowed the dealer discount if
any, on such Shares described in the then-current Prospectus of
the Fund whose Shares are sold. We reserve the right to revise
the dealer discount referred to herein upon ten days' written
notice to you. We will furnish you upon request with the public
offering prices for the Shares, and you agree to quote such
prices in connection with any Shares offered by you for sale.
Your attention is specifically called to the fact that each sale
is always made subject to confirmation by us at the public
offering price next computed after receipt of the order. There
is no sales charge or dealer discount to dealers on the
reinvestment of dividends and distributions.
In addition to the dealer discount, if any, allowed pursuant to
the foregoing provisions of this Section 1, we may, at our
expense, provide additional promotional incentives or payments to
dealers. If non-cash concessions are provided, each dealer
earning such a concession may elect to receive an amount in cash
equivalent to the cost of providing such concessions. Notice of
the availability of concessions will be given to you by us. All
dealer discounts, promotional incentives, payments and
concessions will be made by us in accordance with National
Association of Securities Dealers, Inc. ("NASD") guidelines and
rules.
<PAGE>
2. MANNER OF OFFERING,
SELLING AND PURCHASING SHARES
We have delivered to you a copy of each Fund's current Prospectus
and will provide you with such number of copies of each Fund's
Prospectus, Statement of Additional Information and shareholder
reports and of supplementary sales materials prepared by us, as
you may reasonably request. You will offer and sell the Shares
only in accordance with the terms and conditions of the current
Prospectus and Statement of Additional Information of the
applicable Fund. Neither you nor any other person is authorized
to give any information or to make any representations other than
those contained in such Prospectuses, Statements of Additional
Information and shareholder reports or in such supplementary
sales materials. You agree that you will not use any other
offering materials for the Funds without our written consent.
You hereby agree:
(i) to exercise your best efforts to find purchasers for
the Shares of the Funds,
(ii) to furnish to each person to whom any sale is made a
copy of the then-current Prospectus of the applicable fund,
(iii) to transmit to us promptly upon receipt any and all
orders received by you, and
(iv) to pay to us the offering price, less any dealer
discount to which you are entitled, within three (3)
business days of our confirmation of your order, or such
shorter time as may be required by law. If such payment is
not received within said time period, we reserve the right,
without prior notice, to cancel the sale, or at our option
to return the Shares to the issuer for redemption or
repurchase. In the latter case, we shall have the right to
hold you responsible for any loss resulting to us. Should
payment be made by check on your local bank, liquidation of
Shares may be delayed pending clearance of your check. You
agree to issue confirmations promptly for all accepted
purchase orders for accounts held in street name. You shall
make all sales subject to our confirmation. All orders are
subject to acceptance or rejection by us in our sole
discretion, and by the Funds in their sole discretion. The
procedure stated herein relating to the pricing and handling
of orders shall be subject to instructions which we may
forward to you from time to time.
3. COMPLIANCE WITH LAW
You hereby represent that you are registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended, and are
licensed and qualified as a broker-dealer or otherwise authorized
to offer and sell the Shares under the laws of each jurisdiction
in which the Shares will be offered and sold by you. You further
confirm that you are a member in good standing of the NASD and
agree to maintain such membership in good standing or, in the
alternative, you are a foreign dealer not eligible for membership
in the NASD.
You agree that in selling Shares you will comply with all
applicable laws, rules and regulations, including the applicable
provisions of the Securities Act of 1933, as amended, the
applicable rules and regulations of the NASD, and the applicable
rules and regulations of any jurisdiction in which you sell,
directly or indirectly, any Shares. You agree not to offer for
sale or sell the Shares in any jurisdiction in which the Shares
are not qualified for sale or in which you are not qualified as a
broker-dealer.
4. RELATIONSHIP WITH DEALERS
In offering and selling Shares under this Contract, you shall be
acting as principal and nothing herein shall be construed to
constitute you or any of your agents, employees or
representatives as our agent or employee, or as an agent or
employee of the Funds. As general distributor of the Funds, we
shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the
distribution of the Shares. We shall not be under any obligation
to you, except for obligations expressly assumed by us in this
Contract.
5. TERMINATION
Either party hereto may terminate this Contract, without cause,
upon ten days' written notice to the other party. We may
terminate this Contract for cause upon the violation by you of
any of the provisions hereof, such termination to become
effective on the date such notice of termination is mailed to
you. This Contract shall terminate automatically if either Party
ceases to be a member of the NASD.
6. ASSIGNABILITY
This Contract is not assignable or transferable, except that we
may assign or transfer this Contract to any successor which
becomes general distributor of the Funds.
7. GOVERNING LAW
This Contract and the rights and obligations of the parties
hereunder shall be governed by and construed under the laws of
The Commonwealth of Massachusetts.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding
agreement between us.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By:
------------------------------
William N. Shiebler, President
and Chief Executive Officer
We accept and agree to the foregoing Contract as of the date set
forth below.
Please indicate which best Dealer:-------------
describes your firm's entity:
/ / Partnership --------------------
/ / Corporation
By: --------------------
/ / Other - please specify: Authorized
Signature, Title
---------------------
-------------------------
Please provide your organization's
Tax Identification Number on the -------------------------
following line: Address
- ---------------------------- Dated:-------------------
Please return the signed Putnam copy to Putnam Mutual Funds
Corp., P.O. Box 41203, Providence, RI 02940-1203
Approval:---------------------
Date required:----------------
NF-22.94
FINANCIAL INSTITUTION SALES CONTRACT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
As general distributor of The Putnam Family of Mutual Funds (the
"Funds"), we agree that you will make available to your
customers, under an agency relationship with your customers,
shares of beneficial interest issued by the Funds (the "Shares"),
subject to any limitations imposed by any of the Funds and to
confirmation by us of each transaction. By your acceptance
hereof, you agree to all of the following terms and conditions:
1. OFFERING PRICES AND FEES
The public offering price at which you may make the Shares
available to your customers is the net asset value thereof, as
computed from time to time, plus any applicable sales charge
described in the then-current Prospectus of the applicable Fund.
In the case of purchases by you, as agent for your customers, of
Shares sold with a sales charge, you shall receive an agency
commission consisting of a portion of the public offering price,
determined on the same basis as the "dealer discount" described
in the then-current Prospectus of the Fund, and such other
compensation to dealers as may be described therein, which shall
be payable to you at the same time and on the same basis as the
same is paid to such dealers, consistent with applicable law,
rules and regulations. In determining the amount of any agency
commission payable to you hereunder, we reserve the right to
exclude any purchases for any accounts which we reasonably
determine are not made in accordance with the terms of the
applicable Fund Prospectus and the provisions of this Contract.
We reserve the right to revise the agency commission referred to
herein upon ten days' written notice to you. We will furnish you
upon request with the public offering prices for the Shares, and
you agree to quote such prices in connection with any Shares made
available by you as agent for your customers. Your attention is
specifically called to the fact that each purchase of Shares by
your customers is always made subject to confirmation by us at
the public offering price next computed after receipt of the
order. There is no sales charge or agency commission to you on
the reinvestment of dividends and distributions.
<PAGE>
2. MANNER OF MAKING SHARES AVAILABLE FOR PURCHASE
We will, upon request, deliver to you a copy of each Fund's then-
current Prospectus and will provide you with such number of
copies of each Fund's then-current Prospectus, Statement of
Additional Information and shareholder reports and of
supplementary sales materials prepared by us, as you may
reasonably request. It shall be your obligation to ensure that
all such information and materials are distributed to your
customers who own Shares, in accordance with securities and/or
banking law and regulations and any other applicable regulations.
Neither you nor any other person is authorized to give any
information or to make any representations other than those
contained in such Prospectuses, Statements of Additional
Information and shareholder reports or in such supplementary
sales materials. You shall not furnish or cause to be furnished
to any person, display or publish any information or materials
relating to any Fund (including, without limitation, promotional
materials and sales literature, advertisements, press releases,
announcements, statements, posters, signs or other similar
material), except such information and materials as may be
furnished to you by us or the Fund, and such other information
and materials as may be approved in writing by us.
You hereby agree:
(i) to not purchase any Shares as agent for any customer,
unless you deliver or cause to be delivered to such
customer, at or prior to the time of such purchase, a copy
of the then-current Prospectus of the applicable Fund unless
such customer has acknowledged receipt of the Prospectus of
such Fund. You hereby represent that you understand your
obligation to deliver a prospectus to customers who purchase
Shares pursuant to federal securities laws and you have
taken all necessary steps to comply with such prospectus
delivery requirements;
(ii) to transmit to us promptly upon receipt any and all
orders received by you, it being understood that no
conditional orders will be accepted;
(iii) to obtain from each customer for whom you act as agent
for the purchase of Shares any taxpayer identification
number certification and backup withholding information
required under the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), and the regulations
promulgated thereunder, or other sections of the Code which
may become applicable, and to provide us or our designee
with timely written notice of any failure to obtain such
taxpayer identification number certification or information
in order to enable the implementation of any required backup
withholding in accordance with the Code and the regulations
thereunder; and
(iv) to pay to us the offering price, less any agency
commission to which you are entitled, within three (3)
business days of our confirmation of your customer's order,
or such shorter time as may be required by law. You may,
subject to our approval, remit the total public offering
price to us, and we will return to you your agency
commission. If such payment is not received within said
time period, we reserve the right, without prior notice, to
cancel the sale, or at our option to return the Shares to
the issuer for redemption or repurchase. In the latter
case, we shall have the right to hold you responsible for
any loss resulting to us. Should payment be made by local
bank check, liquidation of Shares may be delayed pending
clearance of your check.
Unless otherwise mutually agreed in writing or except as provided
below, each transaction placed by you shall be promptly confirmed
by us in writing to you, and shall be confirmed to the customer
promptly upon receipt by us of instructions from you as to such
customer. In the case of a purchase order by customer's
application, each transaction shall be promptly confirmed in
writing directly to the customer and a copy of each confirmation
shall be sent simultaneously to you. We reserve the right, at
our discretion and without notice, to suspend the sale of Shares
or withdraw entirely the sale of Shares of any or all of the
Funds. All orders are subject to acceptance or rejection by us
in our sole discretion, and by the Funds in their sole
discretion. The procedure stated herein relating to the pricing
and handling of orders shall be subject to instructions which we
may forward to you from time to time.
3. COMPLIANCE WITH LAW
You hereby represent that you are either (1) a "bank" as defined
in Section 3(a)(6) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and at the time of each transaction
in shares of the Funds, are not required to register as a broker-
dealer under the Exchange Act or regulations thereunder; or (2)
registered as a broker-dealer under the Exchange Act, a member in
good standing of the National Association of Securities Dealers,
Inc. ("NASD") and affiliated with a bank.
(a) If you are a bank, not required to register as a broker-
dealer under the Exchange Act: You further represent and warrant
to us that with respect to any sales in the United States, you
will use your best efforts to ensure that any purchase of Shares
by your customers constitutes a suitable investment for such
customers. You shall not effect any transaction in, or induce
any purchase or sale of, any Shares by means of any manipulative,
deceptive or other fraudulent device or contrivance, and shall
otherwise deal equitably and fairly with your customers with
respect to transactions in Shares of a Fund.
(b) If you are a NASD member broker-dealer affiliated with a
bank and registered under the Exchange Act: You further
represent and warrant to us that with respect to any sales in the
United States, you agree to abide by all of the applicable laws,
rules and regulations including applicable provisions of the
Securities Act of 1933, as amended, and the applicable rules and
regulations of the NASD, including, without limitation, its Rules
of Fair Practice, and the applicable rules and regulations of any
jurisdiction in which you make Shares available for sale to your
customers. You agree not to make available for sale to your
customers the Shares in any jurisdiction in which the Shares are
not qualified for sale or in which you are not qualified as a
broker-dealer. We shall have no obligation or responsibility as
to your right to make Shares of any Funds available to your
customers in any jurisdiction. You agree to notify us
immediately in the event of (i) your expulsion or suspension from
the NASD or your becoming subject to any enforcement action by
the Securities and Exchange Commission, NASD, or any other self-
regulatory organization, or (ii) your violation of any applicable
federal or state law, rule or regulation including, but not
limited to, those of the SEC, NASD or other self-regulatory
organization, arising out of or in connection with this
Agreement, or which may otherwise affect in any material way your
ability to act in accordance with the terms of this Contract.
You shall not make Shares of any Fund available to your
customers, including your fiduciary customers, except in
compliance with all federal and state laws and rules and
regulations of regulatory agencies or authorities applicable to
you, or any of your affiliates engaging in such activity, which
may affect your business practices. You confirm that you are not
in violation of any banking law or regulations as to which you
are subject.
4. RELATIONSHIP WITH CUSTOMER
With respect to any and all transactions in the Shares of any
Fund pursuant to this Contract, it is understood and agreed in
each case that: (a) you shall be acting solely as agent for the
account of your customer; (b) each transaction shall be initiated
solely upon the order of your customer; (c) we shall execute
transactions only upon receiving instructions from you acting as
agent for your customer or upon receiving instructions directly
from your customer; (d) as between you and your customer, your
customer will have full beneficial ownership of all Shares; (e)
each transaction shall be for the account of your customer and
not for your account; and (f) unless otherwise agreed in writing
we will serve as a clearing broker for you on a fully disclosed
basis, and you shall serve as the introducing agent for your
customers' accounts. Subject to the foregoing, however, and
except for Shares sold subject to a contingent deferred sales
charge, you may maintain record ownership of such customers'
Shares in an account registered in your name or the name of your
nominee, for the benefit of such customers. With respect to
Shares sold subject to a contingent deferred sales charge, you
agree not to hold shares of such Funds in an account registered
in your name or in the name of your nominee for the benefit of
certain of your customers. You understand that such Shares must
be held in a separate account for each shareholder of such Funds.
Each transaction shall be without recourse to you provided that
you act in accordance with the terms of this Agreement. You
represent and warrant to us that you will have full right, power
and authority to effect transactions (including, without
limitation, any purchases and redemptions) in Shares on behalf of
all customer accounts provided by you.
5. RELATIONSHIP WITH FINANCIAL INSTITUTION
Neither this Contract nor the performance of the services of the
respective parties hereunder shall be considered to constitute an
exclusive arrangement, or to create a partnership, association or
joint venture between you and us. In making available Shares of
the Funds under this Contract, nothing herein shall be construed
to constitute you or any of your agents, employees or
representatives as our agent or employee, or as an agent or
employee of the Funds, and you shall not make any representations
to the contrary. As general distributor of the Funds, we shall
have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the distribution of the
Shares. We shall not be under any obligation to you, except for
obligations expressly assumed by us in this Contract.
6. TERMINATION
Either party hereto may terminate this Contract, without cause,
upon ten days' written notice to the other party. We may
terminate this Contract for cause upon the violation by you of
any of the provisions hereof, such termination to become
effective on the date such notice of termination is mailed to
you. If you are registered as a broker-dealer and affiliated
with a bank, this Contract shall terminate automatically if
either Party ceases to be a member of the NASD.
7. ASSIGNABILITY
This Contract is not assignable or transferable, except that we
may assign or transfer this Contract to any successor which
becomes general distributor of the Funds.
<PAGE>
8. MISCELLANEOUS
(a) All communications mailed to us should be sent to the above
address. Any notice to you shall be duly given if mailed or
delivered to you at the address specified by you below.
(b) This Contract constitutes the entire agreement and
understanding between the parties and supercedes any and all
prior agreements between the parties.
(c) This Contract and the rights and obligations of the parties
hereunder shall be governed by and construed under the laws of
The Commonwealth of Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: ------------------------------
William N. Shiebler, President
and Chief Executive Officer
We accept and agree to the foregoing Contract as of the date
set forth below.
Financial Institution: ---------------------------
By: ----------------------------
Authorized Signature, Title
----------------------------
----------------------------
Address
Dated: ----------------------------
Please return the signed Putnam copy of this sales Contract to
Putnam Mutual Funds Corp., P. O. Box 41203, Providence, RI
02940-1203
NF-59.94
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
CLASS M
DISTRIBUTION PLAN AND AGREEMENT
This Plan and Agreement (the "Plan") constitutes the
Distribution Plan for the Class M shares of Putnam Pennsylvania
Tax Exempt Income Fund, a Massachusetts business trust (the
"Trust"), adopted pursuant to the provisions of Rule 12b-1 under
the Investment Company Act of 1940 (the "Act") and the related
agreement between the Trust and Putnam Mutual Funds Corp.
("PMF"). During the effective term of this Plan, the Trust may
incur expenses primarily intended to result in the sale of its
Class M shares upon the terms and conditions hereinafter set
forth:
SECTION 1. The Trust shall pay to PMF a monthly fee at the
annual rate of 1.00% of the average net asset value of the Class
M shares of the Trust, as determined at the close of each
business day during the month, to compensate PMF for services
provided and expenses incurred by it in connection with the
offering of the Trust's Class M shares, which may include,
without limitation, payments by PMF to investment dealers with
respect to Class M shares, as set forth in the then current
Prospectus or Statement of Additional Information of the Trust,
including the payment of a service fee of up to 0.25% of such net
asset value for the purpose of maintaining or improving services
provided to shareholders by PMF and investment dealers. Such
fees shall be payable for each month within 15 days after the
close of such month. A majority of the Qualified Trustees, as
defined below, may, from time to time, reduce the amount of such
payments, or may suspend the operation of the Plan for such
period or periods of time as they may determine.
SECTION 2. This Plan shall not take effect until:
(a) it has been approved by a vote of a majority of the
outstanding Class M shares of the Trust;
(b) it has been approved, together with any related
agreements, by votes of the majority (or whatever greater
percentage may, from time to time, be required by Section
12(b) of the Act or the rules and regulations thereunder)
of both (i) the Trustees of the Trust, and (ii) the
Qualified Trustees of the Trust, cast in person at a
meeting called for the purpose of voting on this Plan or
such agreement; and
(c) the Trust has received the proceeds of the initial
public offering of its Class M shares.
<PAGE>
SECTION 3. This Plan shall continue in effect for a period
of more than one year after it takes effect only so long as such
continuance is specifically approved at least annually in the
manner provided for approval of this Plan in Section 2(b).
SECTION 4. PMF shall provide to the Trustees of the Trust,
and the Trustees shall review, at least quarterly, a written
report of the amounts so expended and the purposes for which such
expenditures were made.
SECTION 5. This Plan may be terminated at any time by vote
of a majority of the Qualified Trustees or by vote of the
majority of the outstanding Class M shares of the Trust.
SECTION 6. All agreements with any person relating to
implementation of this Plan shall be in writing, and any
agreement related to this Plan shall provide:
(a) that such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Qualified Trustees or by vote of a majority of
the outstanding Class M shares of the Trust, on not
more than 60 days' written notice to any other party
to the agreement; and
(b) that such agreement shall terminate automatically in
the event of its assignment.
SECTION 7. This Plan may not be amended to increase
materially the amount of distribution expenses permitted pursuant
to Section 1 hereof without the approval of a majority of the
outstanding Class M shares of the Trust and all material
amendments to this Plan shall be approved in the manner provided
for approval of this Plan in Section 2(b).
SECTION 8. As used in this Plan, (a) the term "Qualified
Trustees" shall mean those Trustees of the Trust who are not
interested persons of the Trust, and have no direct or indirect
financial interest in the operation of this Plan or any
agreements related to it, and (b) the term "majority of the
outstanding Class M shares of the Trust" means the affirmative
vote, at a duly called and held meeting of Class M shareholders
of the Trust, (i) of the holders of 67% or more of the Class M
shares of the Trust present (in person or by proxy) and entitled
to vote at such meeting, if the holders of more than 50% of the
outstanding Class M shares of the Trust entitled to vote at such
meeting are present in person or by proxy, or (ii) of the holders
of more than 50% of the outstanding Class M shares of the Trust
entitled to vote at such meeting, whichever is less, and (c) the
terms "assignment" and "interested person" shall have the
respective meanings specified in the Act and the rules and
regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
SECTION 9. A copy of the Agreement and Declaration of
Trust of the Trust is on file with the Secretary of State of The
Commonwealth of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually, and that the obligations
of or arising out of this instrument are not binding upon any of
the Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Trust.
Executed as of , 1995.
PUTNAM MUTUAL FUNDS CORP. PUTNAM PENNSYLVANIA TAX EXEMPT
INCOME FUND
By: ---------------------- By: --------------------------
William N. Shiebler Charles E. Porter
President Executive Vice President
DEALER SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
We are pleased to inform you that, pursuant to the terms of this
Dealer Service Agreement, we are authorized to pay you service
fees in connection with the accounts of your customers that hold
shares of certain Putnam funds listed in SCHEDULE 1 that have
adopted distribution plans pursuant to Rule 12b-1 (the "12b-1
Funds"). Payment of the service fees is subject to your initial
and continuing satisfaction of the following terms and conditions
which may be revised by us from time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Sales Contract with us with respect
to the Putnam Family of Mutual Funds (the "Putnam Funds").
(b) You are the dealer of record for accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS)
during the period for which a service fee is to be paid. Putnam
Fund accounts are accounts in any open-end Putnam Fund, but
excluding any accounts for your firm's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) on accounts in Putnam Funds having
an aggregate average net asset value of at least the minimum
amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records.
For each Putnam Fund account registered in the name of
one of your customers, you will advise us, preferably
by electronic means, before the end of the second month
in each calendar quarter, of the registered
representative's name, identification number, branch
number, and telephone number.
2. SERVICE FEES
(a) If you meet the qualification requirements set forth above
in Paragraph 1, you will be paid a service fee on assets in the
12b-1 Funds for which you are the dealer of record and which are
serviced by a registered representative of your firm meeting the
Registered Representative Requirements, if any, at the annual
rates specified in SCHEDULE 3 (excluding any accounts for your
firm's own retirement plans).
(b) You understand and agree that:
(i) all service fee payments are subject to the
limitations contained in each 12b-1 Fund's Distribution
Plan, which may be varied or discontinued at any time;
(ii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to
time, or otherwise comply with the terms of this
Agreement, will render you ineligible to receive
service fees; and
(iii) failure of an assigned registered representative
to provide services required by this Agreement will
render that representative's accounts ineligible as
accounts on which service fees are paid.
3. PAYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES
(a) You will pass through to your registered representatives a
significant share of the service fees paid to you pursuant to
this Agreement.
(b) You will assist us in distributing to your registered
representatives periodic statements which we will have prepared
showing the aggregate average net asset value of shares in Putnam
Funds with which they are credited on our records.
<PAGE>
4. REQUIRED SERVICES
(a) You will assign one of your registered representatives to
each Putnam Fund account on your records and reassign the Putnam
Fund account should that representative leave your firm.
(b) You and your registered representatives will assist us and
our affiliates in providing the following services to
shareholders of the Putnam Funds:
(i) Maintain regular contact with shareholders in
assigned accounts and assist in answering inquiries
concerning the Putnam Funds.
(ii) Assist in distributing sales and service
literature provided by us, particularly to the
beneficial owners of accounts registered in your name
(nominee name accounts).
(iii) Assist us and our affiliates in the establishment
and maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will support our marketing efforts by granting
reasonable requests for visits to your offices by our wholesalers
and by including all Putnam Funds on your "approved" list.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for not
more than one year from the date of its execution or adoption and
thereafter for successive annual periods only so long as such
continuance is specifically approved at least annually by the
Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1
under the Investment Company Act of 1940 (the "1940 Act"). This
Agreement shall automatically terminate in the event of its
assignment (as defined by the 1940 Act). In addition, this
Agreement may be terminated at any time, without the payment of
any penalty, by either party upon written notice delivered or
mailed by registered mail, postage prepaid, to the other party,
or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees
of any 12b-1 Fund or by the vote of the holders of the
outstanding voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. MISCELLANEOUS
(a) All communications mailed to us should be sent to the
address listed below. Any notice to you shall be duly given if
mailed or delivered to you at the address specified by you below.
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: ------------------------------
William N. Shiebler, President
and Chief Executive Officer
<PAGE>
We accept and agree to the foregoing Agreement as of the date set
forth below.
Dealer: -------------------------
By: ----------------------------
Authorized Signature, Title
------------------------------
------------------------------
Address
Dated: -------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203.
<PAGE>
FINANCIAL INSTITUTION
SERVICE AGREEMENT
Between: and
PUTNAM MUTUAL FUNDS CORP.
General Distributor of
The Putnam Family of Mutual Funds
One Post Office Square
Boston, MA 02109
We are pleased to inform you that, pursuant to the terms of this
FINANCIAL INSTITUTION SERVICE AGREEMENT, we are authorized to pay
you service fees in connection with the accounts of your
customers that hold shares of certain Putnam funds listed in
SCHEDULE 1 that have adopted distribution plans pursuant to Rule
12b-1 (the "12b-1 Funds"). Payment of the service fees is
subject to your initial and continuing satisfaction of the
following terms and conditions which may be revised by us from
time to time:
1. QUALIFICATION REQUIREMENTS
(a) You have entered into a Financial Institution Sales Contract
with us with respect to the Putnam Family of Mutual Funds (the
"Putnam Funds"), whose shares you have agreed to make available
to your customers on an agency basis.
(b) You are the financial institution of record for accounts in
Putnam Funds having an aggregate average net asset value of at
least the minimum amount set forth in SCHEDULE 2 (FINANCIAL
INSTITUTION REQUIREMENTS) during the period for which a service
fee is to be paid. Putnam Fund accounts are accounts in any
open-end Putnam Fund but excluding any accounts for your
organization's own retirement plans.
(c) One or more of your current employees must be the designated
registered representative(s) in the case of a bank affiliated
dealer, or agent representative(s) in the case of a bank (both
referred to as "representatives"), on accounts in Putnam Funds
having an aggregate average net asset value of at least the
minimum amount set forth in SCHEDULE 2 (REPRESENTATIVE
REQUIREMENTS) during the period for which a service fee is to be
paid.
(d) You will provide the following information and agree that we
will be entitled to rely on the accuracy of such information in
updating our records for determining the levels of service fees
payable to you under the terms of this Agreement. You understand
that such payments will be based solely on Putnam's records:
<PAGE>
For each Putnam Fund account registered in the name of one
of your customers, you will advise us, preferably by
electronic means, before the end of the second month in each
calendar quarter, of the representative's name,
identification number, branch number, and telephone number.
2. SERVICE FEES
(a) If you meet the qualification requirements set forth above in
Paragraph 1, you will be paid, at the end of each calendar
quarter, a service fee on assets of your customers in the 12b-1
Funds for which you are the financial institution of record and
which are serviced by a representative of your organization
meeting the Representative Requirements, if any at the annual
rates specified in SCHEDULE 3 (excluding any accounts for your
organization's own retirement plans), provided that you have
evaluated such service fees and have concluded that it is
consistent with applicable laws, rules, regulations and
regulatory interpretations for you to receive such service fees.
(b) You understand and agree that:
(i) all service fee payments are subject to the limitations
contained in each 12b-1 Fund's Distribution Plan, which may
be varied or discontinued at any time;
(ii) your failure to provide the services described in
Paragraph 4 below as may be amended by us from time to time,
or otherwise comply with the terms of this Agreement, will
render you ineligible to receive service fees; and
(iii) failure of an assigned representative to provide
services required by this Agreement will render that
representative's accounts ineligible as accounts on which
service fees are paid.
3. PAYMENTS AND COMMUNICATIONS TO REPRESENTATIVES
(a) Where consistent with applicable laws, rules, regulations and
regulatory interpretations, you will pass through to your
representatives a significant share of the service fees paid to
you pursuant to this Agreement, or you will otherwise use the
payments of service fees to advance the objective of providing
and improving service to shareholders of the Putnam Funds in a
manner specifically approved by Putnam Mutual Funds (for example,
via training courses for representatives or shareholder
seminars).
(b) You will assist us in distributing to your representatives
periodic statements which we will have prepared showing the
aggregate average net asset value of shares in Putnam Funds with
which they are credited on our records.
4. REQUIRED SERVICES
(a) You will assign one of your representatives to each Putnam
Fund account on your records and reassign the Putnam Fund account
should that representative leave your organization.
(b) You and your representatives will assist us and our
affiliates in providing the following services to shareholders of
the Putnam Funds:
(i) Maintain regular contact with shareholders in assigned
accounts and assist in answering inquiries concerning the
Putnam Funds.
(ii) Assist in distributing sales and service literature
provided by us, particularly to the beneficial owners of
accounts registered in your name (nominee name accounts).
(iii) Assist us and our affiliates in the establishment and
maintenance of shareholder accounts and records.
(iv) Assist shareholders in effecting administrative
changes, such as changing dividend options, account
designations, address, automatic investment programs or
systematic investment plans.
(v) Assist in processing purchase and redemption
transactions.
(vi) Provide any other information or services as the
customer or we may reasonably request.
(c) You will grant reasonable requests for visits to your offices
by our wholesalers and include all Putnam Funds on your menu or
list of investments made available by you to your customers.
(d) Your compliance with the service requirements set forth in
this Agreement will be evaluated by us from time to time by
surveying shareholder satisfaction with service, by monitoring
redemption levels of shareholder accounts assigned to you and by
such other methods as we deem appropriate.
(e) The provisions of this Paragraph 4 may be amended by us from
time to time upon notice to you.
5. AMENDMENT
This Agreement, including any Schedule hereto, shall be deemed
amended as provided in any written notice delivered by us to you.
6. EFFECTIVE PERIOD AND TERMINATION
The provisions of this Agreement shall remain in effect for one
year from the date of its execution or adoption and thereafter
for successive annual periods only so long as such continuance is
specifically approved at least annually by the Trustees of each
of the 12b-1 Funds in conformity with Rule 12b-1 under the
Investment Company Act of 1940 (the "1940 Act"). This Agreement
shall automatically terminate in the event of its assignment (as
defined by the 1940 Act). In addition, this Agreement may be
terminated at any time, without the payment of any penalty, by
either party upon written notice to the other party, or, as
provided in Rule 12b-1 under the 1940 Act, by the Trustees of any
12b-1 Fund or by the vote of the holders of the outstanding
voting securities of any 12b-1 Fund.
7. WRITTEN REPORTS
Putnam Mutual Funds Corp. shall provide the Trustees of each of
the 12b-1 Funds, and such Trustees shall review at least
quarterly, a written report of the amounts paid to you under this
Agreement and the purposes for which such expenditures were made.
8. COMPLIANCE WITH LAWS
With respect to the receipt of service fees under the terms of
this Agreement, you will comply with all applicable federal and
state laws and rules, and all applicable regulations and
interpretations of regulatory agencies or authorities, which may
affect your business practices, including any requirement of
written authorization or consent by your customers to your
receipt of service fees, and any requirement to provide
disclosure to your customers of such service fees.
9. MISCELLANEOUS
(a) All communications mailed to us should be sent to the address
listed below. Any notice to you shall be duly given if mailed or
delivered to you at the address specified by you below.
<PAGE>
(b) The provisions of this Agreement shall be governed by and
construed in accordance with the laws of The Commonwealth of
Massachusetts.
Very truly yours,
PUTNAM MUTUAL FUNDS CORP.
By: --------------------------
William N. Shiebler,
President and
Chief Executive Officer
We accept and agree to the foregoing Agreement as of the date set
forth below.
Financial Institution: --------------------------
By: --------------------------
Authorized Signature, Title
--------------------------
--------------------------
Address
Dated: --------------------------
Please return the signed Putnam copy of this Agreement to Putnam
Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203.
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Pennsylvania Tax Exempt Income Fund-- Class A
Shares#
Fiscal period ending: 2/28/95
Inception date (if less than 10 years of performance): 7/21/89
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 $1,000 $1,000
ERV = Ending Redeemable Value $967.53 $1,419.94 $1,458.23
T = Average Annual
Total Return -3.25% +7.26% +6.96%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $915,499
Expenses $118,171
Reimbursement $0
Average shares 18,974,157
NAV $8.98
Sales Charge 4.75%
POP $9.43
Yield at POP 5.41%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.41% 5.41%
- ------ = ------ = 9.21%
1-41.29% 58.71%
<PAGE>
SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS
Fund name: Putnam Pennsylvania Tax Exempt Income Fund-- Class B
Shares
Fiscal period ending: 2/28/95
Inception date (if less than 10 years of performance): 7/15/93
TOTAL RETURN
Formula -- Average Annual Total Return: ERV = P(1+T)^n
n = Number of Time Periods 1 Year 5 Years 10 Years*
P = Initial Investment $1,000 N/A $1,000
ERV = Ending Redeemable Value $961.50 N/A 993.46
T = Average Annual
Total Return -3.85% N/A -0.40%*
*Life of fund, if less than 10 years
YIELD
Formula:
Interest + Dividends - Expenses
2 (-------------------------------------------------- +1)(6) -1
POP x Average shares
Interest and Dividends $189,059
Expenses $43,145
Reimbursement $0
Average shares 3,918,759
NAV $ 8.97
Maximum Contingent Deferred
Sales Charge 5.0%
Yield at NAV 5.03%
<PAGE>
TAX-EXEMPT EQUIVALENT YIELD
Formula: 30 day yield
--------------- = TAX EQUIVALENT YIELD
1-(Highest Individual Tax Rate)
5.03% 5.03%
- ------ = ------ = 8.57%
1-41.29% 58.71%
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Pennsylvania Tax Exempt Class A AND IS QUALIFIED IN
ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 200,326,226
<INVESTMENTS-AT-VALUE> 204,653,888
<RECEIVABLES> 5,301,410
<ASSETS-OTHER> 3,709,552
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,664,850
<PAYABLE-FOR-SECURITIES> 4,250,645
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,176,446
<TOTAL-LIABILITIES> 5,427,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,667,314
<SHARES-COMMON-STOCK> 19,101,804
<SHARES-COMMON-PRIOR> 18,296,064
<ACCUMULATED-NII-CURRENT> 90,838
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (848,055)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,327,662
<NET-ASSETS> 208,237,759
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,212,959
<OTHER-INCOME> 0
<EXPENSES-NET> 1,935,860
<NET-INVESTMENT-INCOME> 11,277,099
<REALIZED-GAINS-CURRENT> (381,727)
<APPREC-INCREASE-CURRENT> (7,009,417)
<NET-CHANGE-FROM-OPS> 3,536,158
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,864,312)
<DISTRIBUTIONS-OF-GAINS> (143,524)
<DISTRIBUTIONS-OTHER> (98,516)
<NUMBER-OF-SHARES-SOLD> 4,764,552
<NUMBER-OF-SHARES-REDEEMED> (4,589,936)
<SHARES-REINVESTED> 631,124
<NET-CHANGE-IN-ASSETS> 23,848,389
<ACCUMULATED-NII-PRIOR> 4,404
<ACCUMULATED-GAINS-PRIOR> 169,770
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,155,995
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,935,860
<AVERAGE-NET-ASSETS> 167,308,100
<PER-SHARE-NAV-BEGIN> 9.39
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> (.40)
<PER-SHARE-DIVIDEND> (9.53)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.98
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM Putnam Pennsylvania Tax Exempt Class B AND IS QUALIFIED IN
ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 200,326,226
<INVESTMENTS-AT-VALUE> 204,653,888
<RECEIVABLES> 5,301,410
<ASSETS-OTHER> 3,709,552
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,664,850
<PAYABLE-FOR-SECURITIES> 4,250,645
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,176,446
<TOTAL-LIABILITIES> 5,427,091
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 204,667,314
<SHARES-COMMON-STOCK> 4,086,943
<SHARES-COMMON-PRIOR> 1,346,295
<ACCUMULATED-NII-CURRENT> 90,838
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (848,055)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,327,662
<NET-ASSETS> 208,237,759
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13,212,959
<OTHER-INCOME> 0
<EXPENSES-NET> 1,935,860
<NET-INVESTMENT-INCOME> 11,277,099
<REALIZED-GAINS-CURRENT> (381,727)
<APPREC-INCREASE-CURRENT> (7,009,417)
<NET-CHANGE-FROM-OPS> 3,536,158
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,330,727)
<DISTRIBUTIONS-OF-GAINS> (26,246)
<DISTRIBUTIONS-OTHER> (18,015)
<NUMBER-OF-SHARES-SOLD> 2,977,430
<NUMBER-OF-SHARES-REDEEMED> (328,507)
<SHARES-REINVESTED> 91,725
<NET-CHANGE-IN-ASSETS> 23,848,389
<ACCUMULATED-NII-PRIOR> 4,404
<ACCUMULATED-GAINS-PRIOR> 169,770
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,155,995
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,935,860
<AVERAGE-NET-ASSETS> 25,466,404
<PER-SHARE-NAV-BEGIN> 9.38
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (.40)
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.97
<EXPENSE-RATIO> 1.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
