<PAGE>
PUTNAM
PENNSYLVANIA
TAX EXEMPT
INCOME FUND
ANNUAL REPORT
MAY 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
Putnam Pennsylvania Tax Exempt Income Fund's class A shares earned
four out of five stars from Morningstar for risk-adjusted
performance as of May 31, 1995.*
"The gap is narrowing between Treasury and municipal yields, making
munis look increasingly attractive."
- --The Wall Street Journal, May 19, 1995
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
- --------------------------------------------------------------------
(change in value during
period plus reinvested
distributions)
3 months ended 5/31/95 4.39% -0.59% 4.23% -0.77%
- --------------------------------------------------------------------
SHARE VALUE: NAV POP NAV
- --------------------------------------------------------------------
2/28/95 $8.98 $9.43 $8.97
5/31/95 9.24 9.70 9.23
- --------------------------------------------------------------------
CAPITAL
DISTRIBUTIONS: NO. INCOME GAINS(1) TOTAL
- --------------------------------------------------------------------
Class A 3 $0.131837 -- $0.131837
Class B 3 0.117029 -- 0.117029
- --------------------------------------------------------------------
CURRENT RETURN: NAV POP NAV
- --------------------------------------------------------------------
End of period
Current dividend rate(2) 5.62% 5.35% 4.98%
Taxable equivalent(3) 9.57 9.11 8.48
Current 30-day SEC yield(4) 5.48 5.21 4.81
Taxable equivalent(3) 9.33 8.87 8.19
- --------------------------------------------------------------------
<FN>
Performance data represent past results and will differ for each
share class. For performance over longer periods, see pages 8 and 9.
POP assumes 4.75% maximum sales charge for class A shares. CDSC for
class B shares assumes 5% maximum contingent deferred sales charge.
(1)Capital gains, if any, are taxable for federal and, in most
cases, state tax purposes. For some investors, investment income may
also be subject to the Federal Alternative Minimum tax. Investment
income may be subject to state and local taxes. (2)Income portion of
most recent distribution, annualized and divided by NAV or POP at
end of period. (3)Assumes maximum 41.29% combined federal and state
tax rate. Results for investors subject to lower tax rates would not
be as advantageous. (4)Based only on investment income, calculated
using SEC guidelines.
* Morningstar, an independent mutual fund rating agency, rates
funds in relation to other funds with similar investment
objectives, based on the fund's 3-, 5-, and 10-year average
annual returns and adjusted for risk factors and sales charges.
Ratings are updated monthly. The fund had a four-star overall
rating for the period ended 5/31/95, which puts the fund in the
top 32.5% among all municipal funds rated. For the 3- and 5-
year periods ended 5/31/95, there were 670 and 465 funds in the
municipal category. The fund received 3 and 4 stars,
respectively. Past performance is not indicative of future
results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
YOU MAY NOT HAVE NOTICED, BUT YOUR ANNUAL REPORT FOR PUTNAM
PENNSYLVANIA TAX EXEMPT INCOME FUND HAS ARRIVED EARLIER THAN USUAL.
THIS IS BECAUSE PUTNAM MANAGEMENT HAS DECIDED TO REALIGN MANY OF ITS
TAX-EXEMPT BOND FUNDS' FISCAL YEARS SO THEY HAVE COMMON FISCAL YEAR
ENDS. THIS WILL ALLOW US TO TAKE ADVANTAGE OF ECONOMIES OF SCALE IN
FINANCIAL REPORTING, ACCOUNTING, LITERATURE PRODUCTION, AND THE
LIKE, AND SHOULD PROVIDE CONSIDERABLE SAVINGS FOR YOUR FUND IN THE
FUTURE.
YOUR FUND WAS AMONG THOSE AFFECTED BY THIS CHANGE. IN THE FUTURE ITS
FISCAL YEAR WILL END ON MAY 31. CONSEQUENTLY, ALTHOUGH THE FUND'S
MOST RECENT ANNUAL REPORT WAS MAILED TO YOU IN APRIL, THIS REPORT,
WHICH COVERS THE PERIOD BETWEEN FEBRUARY 28 AND MAY 31, 1995, IS
ALSO DESIGNATED AS AN ANNUAL REPORT.
FUND MANAGER RICHARD WYKE REVIEWS PERFORMANCE DURING THIS
ABBREVIATED PERIOD, THEN OFFERS SOME INSIGHTS ON PROSPECTS FOR THE
MONTHS AHEAD.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JULY 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
Having turned the corner into positive territory in January, the
municipal bond market continued its course of strong performance
through May 31, 1995. The rally lost steam only briefly in April, as
investors became concerned about the effects of the flat-tax
proposal being considered by Congress.
Putnam Pennsylvania Tax Exempt Income Fund participated to a
significant degree in the rally, providing a total return of 8.70%
for class A shares and 8.01% for class B shares, both at net asset
value, for the 12 months ended May 31, 1995. From the closing date
of our last report, February 28, 1995, through May 31, the fund's
class A shares returned 4.39% and class B shares returned 4.23%,
both at NAV.
FLAT TAX DIALOGUE CAUSED MARKET TO FALTER BRIEFLY
This spring's market strength faltered briefly in April as investors
became spooked by the possible effects of the flat-tax proposal
headed for congressional hearings. A flat tax -- only one of many
tax-reform proposals that will eventually be discussed, dissected,
and debated in Washington -- would, if approved, deprive municipal
bonds of their exclusivity as tax-exempt investments.
The uneasiness caused by this rhetoric, however, was short- lived.
Having soon realized that passage of a flat tax was far from
certain, investors renewed their interest in the market, pushing
municipal bond prices higher by period's end.
WEAKENING ECONOMY AND SHRINKING SUPPLY FUEL RALLY
Recent evidence of a weakening economy -- such as lower employment
figures, declines in consumer spending, and a slowdown in
manufacturing -- gave the entire fixed-income market another shot in
the arm.
<PAGE>
The lower volume of new bond issuance has also bolstered the
performance of many long-term municipal bonds and, in turn, your
fund. We've been anticipating a substantial supply/demand imbalance
in the market for several years now and it indeed has begun to
materialize. As more investors pursue fewer bonds, prices of
existing bonds are likely to rise in response to demand.
On the national level, new bond issuance for the first quarter of
calendar 1995 has dropped more than 40% from the level of new
issuance recorded for the first quarter of 1994. Additionally,
nearly $60 billion worth of high-coupon bonds issued in 1985 are due
to mature or become callable this June and July. In Pennsylvania,
municipal bond issuance is currently down by approximately 55% from
that of 1994. The reduced volume nationally and locally raises the
prospect of brisk demand, and higher prices, for existing issues.
PORTFOLIO POSITIONED TO BENEFIT FROM RECENT TRENDS
In light of the supply/demand imbalance and the current economic
environment, we have taken several steps to augment the fund's
performance potential. We have lengthened the portfolio's average
maturity a bit to benefit from a potential
[LINE CHART]
MUNICIPAL BOND YIELDS IN DECLINE
- --------------------------------------------------------------------
6/94 6.92
7/94 6.57
8/94 6.59
9/94 6.93
10/94 7.36
11/94 7.73
12/94 7.25
1/95 6.86
2/95 6.47
3/95 6.35
4/95 6.33
5/95 6.04
Bond prices rise as yields decline
[FN]
Evidence of positive changes in the municipal bond market can be
seen in the following yields of existing tax-exempt debt. (Bond
yields move in the opposite direction from their prices.) The Bond
Buyer Municipal Bond index is a list of 40 unmanaged individual
municipal bonds. It is not intended to represent the fund's
performance. Source: Bloomberg; data plotted monthly.
<PAGE>
fall in interest rates -- a task complicated by the tight supply of
Pennsylvania tax-exempt securities. We've also focused sharply on
call protection, a strategy that seeks to minimize the risk of bonds
being redeemed by issuers and taken out of the market prior to their
maturity dates.
One of our ongoing goals is to build both healthy yield and solid
total return potential into the portfolio. This involves structuring
the portfolio very carefully in terms of both coupon and credit
quality. The voracious appetite for yield in the market has caused
the yield spread between the highest- and lowest-rated bonds to
remain narrow despite the rally's strength. In this environment,
investors chasing incrementally higher yields from lower-rated bonds
are, in our opinion, not getting compensated for the additional risk
they are undertaking.
We preferred to cluster approximately 61% of the fund's assets in
AAA-rated and insured bonds. Investors typically sell these high-
quality bonds first in a market downturn and seek to purchase them
first in times of market recovery. These bonds have performed well
and stand to appreciate further should the yield spread between
higher and lower-rated issues widen once again.
Roughly 23% of the fund's assets remain in BBB-rated and below
investment-grade issues, however, because these lower rated bonds
continue to provide an attractive stream of income and an element of
price stability. We've also pinpointed certain discount- and premium-
coupon bonds for their appreciation and current yield potential,
respectively.
Your fund remained well diversified by industry and municipality.
Health care was well represented in the portfolio, as were education
and utility bonds. We've also been scrutinizing opportunities in the
resource recovery arena, a fairly new sector not well understood by
the broad market, where we believe Putnam's extensive research
capabilities can add value.
<PAGE>
[BAR CHART]
TOP INDUSTRY SECTORS
- --------------------------------------------------------------------
Hospitals/Health Care 19.2%
Utilities, Water & Sewer 16.2%
Education 8.9%
Transportation 8.6%
Housing 2.7%
*Based on a percentage of net assets on 5/31/95. Sector allocation
will vary over time.
CONDITIONS SEEM RIGHT FOR MARKET STRENGTH TO CONTINUE
All markets move in cycles. Municipal bonds have enjoyed a long-
awaited rally since January and, while it's impossible to predict
the course of the economy, political events, and the Federal Reserve
Board's actions, we believe the environment for Pennsylvania tax-
exempt bonds remains promising. Recent data suggest controlled
inflation and a slowing economy are in our future. Furthermore, the
attractive value of municipal bonds relative to Treasury bonds, a
decrease in new bond supply, and growing investor demand for tax
relief also create a compelling environment for investing in
municipal bonds.
Ongoing tax-reform dialogue may, of course, cause further
turbulence, however we don't foresee a revision of the income tax
code occurring until after the 1996 presidential election. Should a
revision indeed come to pass, it doesn't necessarily bode ill for
municipal bonds. Any future tax reform could be a positive event for
the economy and the municipal market as any change could result in
an increase in the savings rate. Rest assured, we will monitor any
developments on all tax-reform proposals and maintain an element of
flexibility in the portfolio should repositioning be required.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described
holdings and industries were viewed favorably as of 5/31/95, there
is no guarantee the fund will continue to represent these industries
or hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show
total return in two ways: on a cumulative long-term basis and on
average how the fund might have grown each year over varying
periods.
Performance should always be considered in light of a fund's
investment strategy. Putnam Pennsylvania Tax Exempt Income Fund is
designed for investors seeking a high level of current income free
from federal and Pennsylvania state income taxes, consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LEHMAN BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSCBOND INDEX CPI
- --------------------------------------------------------------------
3 months ended
5/31/95 4.39% _0.59% 4.23% -0.77% 4.50% 0.86%
- --------------------------------------------------------------------
1 year 8.70 3.55 8.01 3.01 9.11 3.19
- --------------------------------------------------------------------
5 years 53.27 45.91 -- -- 51.33 17.80
Annual average 8.92 7.85 -- -- 8.64 3.33
- --------------------------------------------------------------------
Life of class A 59.74 52.23 -- -- 58.08 22.35
Annual average 8.32 7.43 -- -- 8.13 3.50
- --------------------------------------------------------------------
Life of class B -- -- 7.49 3.60 9.97 5.40
Annual average -- -- 3.92 1.90 5.18 2.84
- --------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- --------------------------------------------------------------------
1 year 8.05% 2.87% 7.37% 2.37%
- --------------------------------------------------------------------
5 years 50.06 42.88 -- --
Annual average 8.46 7.40 -- --
- --------------------------------------------------------------------
Life of class A 57.95 50.52 -- --
Annual average 8.00 7.13 -- --
- --------------------------------------------------------------------
Life of class B -- -- 6.24 2.40
Annual average -- -- 3.13 1.22
- --------------------------------------------------------------------
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions or, for class A shares,
distribution fees prior to implementation of the class A
distribution plan in 1993. The fund began operations on 7/21/89
offering shares now known as class A. Effective 7/15/93, the fund
began offering class B shares. Performance data represent past
results, will differ for each share class, and is no indication of
future performance. Investment returns and net asset value will
fluctuate so an investor's shares, when sold, may be worth more or
less than their original cost.
</TABLE>
<PAGE>
[LINE CHART]
GROWTH OF $10,000 COMPARED
Cumulative total return of a $10,000
investment since 7/21/89
FundOs class A Lehman Bros. Consumer
shares at POP Municipal Bond Index Price Index
- ---------------------------------------------------------------
7/21/89 $ 9,595 $10,000 $10,000
5/31/90 9,932 10,446 10,386
5/31/91 10,913 11,499 10,900
5/31/92 12,118 12,628 11,230
5/31/93 13,622 14,139 11,592
5/31/94 14,004 14,488 11,857
5/31/95 15,223 15,808 12,235
The indexes are unmanaged, include bonds different from those in the
fund, and may pose different risks than the fund. Past performance
is no assurance of future results. A $10,000 investment in the
fundOs class B shares at inception on 7/15/93 would have been valued
at $10,749 by 5/31/95 ($10,360 with a redemption at the end of the
period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales charge
for class A shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at
the end of the period. Your fund's CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth
year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-
term fixed-rate investment-grade tax-exempt bonds representative of
the municipal bond market. The index does not take into account
brokerage commissions or other costs, may include bonds different
from those in the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation;
it does not represent an investment return.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
for the three months ended May 31, 1995
To the Trustees and Shareholders of
Putnam Pennsylvania Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments owned (except
for bond ratings), and the related statements of operations and of
changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam
Pennsylvania Tax Exempt Income Fund (the "fund") at May 31, 1995,
and the results of its operations, the changes in its net assets,
and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of investments owned at
May 31, 1995 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 13, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1995
KEY TO ABBREVIATIONS
AMBAC--American Municipal Bond Assurance Corporation
BIGI--Bond Investors Guaranty Insurance
CLI--Connie Lee Insurance
CGIC--Capital Guaranty Insurance Company
FB--Floating Bond
FHA Insd.--Federal Housing Administration Insured
FGIC--Financial Guaranty Insurance Company
FSA--Financial Security Assurance
G.O. Bonds--General Obligation Bonds
IFB--Inverse Floating Bonds
MBIA--Municipal Bond Investors Assurance Corporation
VRDN--Variable Rate Demand Notes
<TABLE><CAPTION>
<C> <S> <C>
<C>
MUNICIPAL BONDS AND NOTES (100.1%)*
PRINCIPAL AMOUNT RATINGS** VALUE
- --------------------------------------------------------------------
PENNSYLVANIA (87.6%)
- --------------------------------------------------------------------
$1,000,000Allegheny Cnty., Arpt. Rev. Bonds
(Pittsburgh Intl. Arpt.), Ser. C, MBIA,
8 1/4s, 1/1/16 AAA $ 1,095,000
Allegheny Cnty., Hosp. Dev. Auth.
Rev. Bonds
2,000,000(Southside Hosp. Pittsburgh), Ser. A,
8 3/4s, 6/1/10 BBB 2,097,500
1,000,000(St. Francis Med. Ctr. Project), AMBAC,
8 1/8s, 6/1/13 AAA 1,057,500
900,000Allegheny Cnty., Hosp. Dev. Auth.,
VRDN, (Presbyterian Hlth. Ctr.), Ser.
A, MBIA, 3.95s, 3/1/20 VMIG1 900,000
2,000,000Allegheny Cnty., Indl. Dev. Auth.
Med. Ctr. Rev. Bonds (Presbyterian
Med. Ctr. of Oakmont), FHA Insd.,
6 3/4s, 2/1/26 AAA 2,092,500
580,000Allegheny Cnty., Indl. Dev. Auth.
Rev. Bonds (Southwestern Arpt. Cargo
Fac.), 8 3/4s, 2/15/09 BB/P 617,700
8,000,000Beaver Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (OH Edison Co.
Beaver Valley), Ser. A, 10 1/2s,
10/1/15 Baa 8,390,000
1,500,000Blair Cnty., Hosp. Auth. Rev. Bonds
(Altoona Hosp. Project), AMBAC,
6 1/2s, 7/1/22 AAA 1,576,875
Cambria Cnty., Indl. Dev. Auth.
Resource Recvy. Rev. Bonds
1,100,000(Cambria Cogen. Project), Ser. F1,
7 3/4s, 9/1/19 A 1,156,375
400,000(Cambria Cogen. Project) Ser. F2,
7 3/4s, 9/1/19 A 420,500
Chichester School Dist. Rev. Bonds,
Ser. B
1,180,000 FGIC, zero %, 3/1/10 AAA
514,775
1,220,000 FGIC, zero %, 3/1/09 AAA
565,775
920,000College Township, Indl. Dev. Auth. 1st
Mtge. Hlth. Facs. Rev. Bonds (Nittany
Valley Rehab. Hosp. Project), 7 5/8s,
11/1/07 BBB/P 956,800
2,500,000Dauphin Cnty., Gen. Auth. Hosp. Rev.
Bonds (Northwest Med. Ctr. Project),
8 5/8s, 10/15/13 Ba 2,525,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
- --------------------------------------------------------------------
PENNSYLVANIA (continued)
- --------------------------------------------------------------------
$1,000,000Dauphin Cnty., Indl. Dev. Auth. Wtr.
Rev. Bonds (Dauphin Cons. Wtr.
Supply), Ser. A, 6.9s, 6/1/24 A $1,108,750
3,000,000Delaware Cnty., Hlth. Care Auth.
Rev. Bonds (Mercy Hlth. Corp.,
Southeastern), Ser. A, CLI, 5 1/8s,
11/15/12 AAA 2,752,500
1,000,000Delaware Cnty., Hosp. Auth. Rev.
Rfdg. Bonds (Crozer-Chester Med.
Ctr.) MBIA, 7 1/2s, 12/15/20 AAA 1,155,000
8,900,000Delaware Cnty., Indl. Dev. Auth.
Arpt. VRDN (UTD Parcel Svc. Project),
4.15s, 12/1/15 AAA 8,900,000
1,035,000Delaware Cnty., Indl. Dev. Auth. Rev.
Bonds (Resource Recvy. Project),
Ser. A, 8.1s, 12/1/13 AA 1,093,219
4,100,000Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB 4,023,125
3,000,000Emmaus, Gen. Auth. Rev. Bonds (Local
Govt. Bond Pool), Ser. A, BIGI, 8.15s,
5/15/18 AAA 3,296,250
6,500,000Erie Cnty., Prison Auth. Lease Rev.
Bonds, MBIA, 6 5/8s, 11/1/14 AAA 7,206,875
Erie, Higher Ed. Bldg. Auth. College
Rev. Bonds
1,150,000(Mercyhurst College Project), 7.85s,
9/15/19 AAA 1,298,062
1,000,000Prerefunded, Ser. A, 5 3/4s, 3/15/13 BBB
940,000
1,860,000 Ser. B, 5 3/4s, 3/15/13 BBB
1,748,400
2,000,000(Gannon U. Project), Prerefunded,
Ser. D, 5.85s, 6/1/15 BBB 1,885,000
1,360,000Erie, Indl. Dev. Auth. Rev. Rfdg.
Bonds (Beverly Enterprises), Ser. A,
6 5/8s, 5/1/02 BB/P 1,314,100
3,500,000 Erie, Wtr. Auth. Rev. Bonds,
Prerefunded, 7 1/8s, 12/1/11 AAA/P 3,959,375
750,000 Erie-Western PA, Port Auth. Gen.
Rev. Bonds, 8 5/8s, 6/15/10 BBB 812,812
1,560,000 Greene Cnty., Hosp. Auth. Rev.
Bonds (Greene Cnty. Memorial Hosp.),
6 1/2s, 1/1/02 BBB/P 1,511,250
3,500,000Harrisburg, Auth. Lease Rev. Bonds
(Greene Cnty. Prison Project),
CGIC, 6 1/4s, 6/1/10 AAA 3,758,125
Hazleton Area School Dist. Rev.
Bonds
5,265,000 FGIC, zero %, 3/1/22 AAA
1,085,906
5,265,000 FGIC, zero %, 3/1/21 AAA
1,151,719
5,265,000 FGIC, zero %, 3/1/20 AAA
1,217,531
5,265,000 FGIC, zero %, 3/1/19 AAA
1,309,669
550,000 Jenkins Township, Sanitary Auth.
Swr. Prerefunded Rev. Bonds, 8s,
12/1/09 AAA/P 624,250
700,000Lancaster Cnty., Solid Waste Mgt.
Auth. (Resource Recvy. Systs.) Rev.
Bonds, Ser. A, 8 1/2s, 12/15/10 A 743,750
2,200,000Lebanon Cnty., Good Samaritan Hosp.
Auth. Rev. Bonds, Ser. B, 8 1/4s,
11/1/18 AAA/P 2,549,250
1,000,000Lehigh Cnty., Gen. Purpose Auth.
Prerefunded Rev. Bonds (Muhlenberg
Hosp.), Ser. A, 8.1s, 7/15/10 A 1,076,250
Lehigh Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds
600,000(PA Pwr. & Lt. Co. Project) Ser. A,
9 3/8s, 7/1/15 A 613,500
5,100,000 Ser. B, MBIA, 6.4s, 9/1/29 AAA
5,355,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
- --------------------------------------------------------------------
PENNSYLVANIA (continued)
- --------------------------------------------------------------------
$2,000,000Luzerne Cnty., Indl. Dev. Auth. Rev.
Bonds (Gas & Wtr. Co. Project), Ser.
B, 7 1/8s, 12/1/22 BBB $ 2,070,000
2,305,000McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s,
7/1/03 Baa 2,281,950
Montgomery Cnty., Higher Ed. & Hlth.
Auth. Hosp. Rev. Bonds
2,000,000(Abington Hosp.), Ser. A, AMBAC,
8.975s, 6/1/11 AAA 2,277,500
1,000,000(UTD Hosp. Project), Ser. B, 7 1/2s,
11/1/12 Ba 981,250
3,000,000(Sacred Heart Hosp. Norristown), Ser.
A, BIGI, 6.8s, 2/1/13 AAA 3,056,250
5,000,000(Montgomery Hosp.), AMBAC, 5 1/8s,
6/1/14 AAA 4,618,750
3,000,000New Morgan, Indl. Dev. Auth. Solid
Waste Disp. Rev. Bonds (New Morgan
Landfill Co., Inc. Project), 6 1/2s,
4/1/19 A 3,071,250
4,000,000North PA Wtr. Auth. Rev. Bonds, FGIC,
5 3/4s, 11/1/18+++ AAA 3,980,000
1,000,000Northeastern PA Hosp. & Edl. Auth.
College Rev. Bonds (Kings College
Project), Ser. B, 6s, 7/15/11 BBB 967,500
2,000,000PA Econ. Dev. Fin. Auth. Resource
Recvy. Rev. Bonds (Northampton
Generating Project), Ser. A, 6 1/2s,
1/1/13 BB/P 1,935,000
PA Econ. Dev. Fin. Auth. Rev. Bonds
4,000,000(MacMillan Ltd. Partnership Project),
7.6s, 12/1/20 Baa 4,355,000
1,000,000(Colver Project), Ser. D, 7 1/8s,
12/1/15 BBB 1,036,250
PA Hsg. Fin. Agcy. Rev. Bonds
825,000 Ser. R, 8 1/8s, 10/1/19 AA
860,062
385,000 Ser. U, 7.8s, 10/1/20 AA
407,138
400,000 Ser. 29, 7.3/8s, 10/1/16 AA
418,000
2,000,000 Ser. 33, 6.9s, 4/1/17 AA
2,090,000
2,000,0004s, stepped-coupon (6.1s, 4/1/04),
10/1/13++ AA 1,707,500
4,750,000PA Intergovt. Co-op. Auth. Special
Tax Rev. Bonds (City of Philadelphia),
AMBAC, 5 3/4s, 6/15/15 AAA 4,750,000
4,000,000PA Rfdg. & Project Rev. Bonds, 1st
Ser., 5s, 4/15/07 AA 3,880,000
PA State Higher Ed. Assistance Agcy.
IFB
2,400,000 Ser. B, MBIA, 10.342s, 3/1/20 AAA
2,715,000
3,850,000 Ser. B, AMBAC, 7.671s, 3/1/22 AAA
3,893,312
PA State Higher Ed. Fac. Auth. College
& U. Rev. Bonds
500,000 (Carnegie Project), 9s, 11/1/09 A
519,375
2,500,000(Duquesne U. Project), Ser. C, MBIA,
6 3/4s, 4/1/20 AAA 2,678,125
2,600,000(Allegheny College Project), Ser. B,
6 1/8s, 11/1/13 BBB 2,583,750
1,300,000(Med. College), Ser. A, 8 3/8s,
3/1/11 Baa 1,421,875
3,000,000(Med. College), Ser. A, 7 3/8s,
3/1/21 Baa 3,120,000
2,700,000PA State Rev. Bonds, Ser. 2, 5 1/4s,
6/15/13 AA 2,565,000
4,500,000PA State Tpk. Rev. Bonds, 5 1/2s,
12/1/17 A 4,359,375
2,000,000 Penn Hills, G.O. Bonds, AMBAC,
5 7/8s, 12/1/15 AAA 2,020,000
Philadelphia Gas Works
1,225,000 FSA, Ser. 13, 7.7s, 6/15/21 AAA
1,437,844
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
- --------------------------------------------------------------------
PENNSYLVANIA (continued)
- --------------------------------------------------------------------
$4,000,000IFB, FSA, 5.60326s, 8/1/21 144A AAA
$ 3,385,000
1,000,000Philadelphia, G.O. Bonds, FGIC,
8 1/4s, 2/15/09 AAA 1,047,500
Philadelphia, Muni. Auth. Rev. Bonds
320,000 Prerefunded, FGIC, 7.8s, 4/1/18 AAA
354,800
3,130,000 Prerefunded, FGIC, 7.8s, 4/1/18 AAA
3,556,462
1,000,000Prerefunded, Ser. B, FGIC, 7 1/8s,
11/15/18 AAA 1,151,250
2,125,000 Ser. A, FGIC, 5 5/8s, 11/15/14 AAA
2,087,812
3,250,000Philadelphia, Wtr. & Swr. IFB, CGIC,
Ser. 16, 7s, 8/1/21 AAA 3,705,000
3,000,000Philadelphia, Wtr. & Wastewater Rev.
Bonds, CGIC, 5s, 6/15/16 AAA 2,722,500
1,000,000Schuylkill Cnty., Redev. Auth. Lease
Rev. Bonds, Ser. A, FGIC, 7 1/8s,
6/1/13 AAA 1,122,500
3,000,000Scranton-Lackawanna, Hlth. & Welfare
Auth. Rev. Bonds (Moses Taylor Hosp.
Project), Ser. B, 8 1/2s, 7/1/20 BBB/P 3,131,250
1,000,000Smithfield, Swr. Auth. Rev. Gtd.
Bonds, 8 5/8s, 1/15/11 AAA/P 1,187,500
2,470,000Trafford School District Rev. Bonds,
MBIA, 6.6s, 5/1/08 AAA 2,695,388
500,000Washington Cnty., Indl. Dev. Auth.
1st Mtge. Rev. Bonds (AHF/Central
States Inc. Project), 10 1/4s,
11/1/19 B/P 485,000
3,000,000Wilkes-Barre School Dist. Rev. Bonds,
FGIC, 6 3/8s, 4/1/15 AAA 3,146,250
1,800,000Wilkins Area, Indl. Dev. Auth. 1st
Mtge. Rev. Bonds (Fairview Extended
Care), Ser. A, 10 1/4s, 1/1/21 BB/P 1,989,000
1,030,000York Cnty., Hosp. Auth. Rev. Bonds
(Hlth. Ctr. Village at Sprenkle
Drive), Ser. A, 7 3/4s, 4/1/21 BBB 1,078,925
1,845,000York Cnty., Indl. Dev. Auth. lst
Mtge. Hlth. Fac. Rev. Bonds
(Rehabilitation Hosp. of York
Project), 7 1/2s, 9/1/07 BB/P 1,930,331
York Cnty., Solid Waste & Refuse
Auth. Indl. Dev. Rev. Bonds
(Resource Recvy. Project)
650,000 Ser. A, 8.2s, 12/1/14 AA
711,750
890,000 Ser. C, 8.2s, 12/1/14 AA
974,550
300,000 Ser. B, 8.1s, 12/1/07 AA
327,000
- ------------
195,302,792
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
- --------------------------------------------------------------------
PUERTO RICO (12.5%)
- --------------------------------------------------------------------
$1,600,000Cmnwlth. of PR, FB, MBIA, 5.782s,
7/1/08 AAA $ 1,636,000
Cmnwlth. of PR, Hwy. Auth. Rev. Bonds
200,000 Ser. P, 8 1/8s, 7/1/13 AAA
226,000
250,000 Ser. O, 8s, 7/1/05 AAA
281,563
900,000 Ser. Q, 7 3/4s, 7/1/16 AAA
1,049,625
2,500,000 Ser. Q, 7 3/4s, 7/1/10 AAA
2,903,125
3,000,000Cmnwlth. of PR, Hwy. & Trans. Auth.
VRDN, Ser. X, MBIA, 3.45s, 7/1/99 VMIG1 3,000,000
Cmnwlth. of PR, IFB
4,000,000 FSA, 7.382s, 7/1/20 AAA
4,065,000
200,000 MBIA, 7.284s, 7/1/08 AAA
211,750
3,000,000 MBIA, 5 1/4s, 7/1/18 AAA
2,820,000
Cmnwlth. of PR, Pub. Impt. G.0. Bonds
450,000 Ser. A, 7 3/4s, 7/1/17 AAA
513,000
200,000 Ser. A, 7 3/4s, 7/1/13 AAA
224,000
2,150,000 7.7s, 7/1/20 AAA
2,504,750
575,000 Cmnwlth. of PR, Urban Renewal &
Hsg. Corp. Rev. Bonds, (Cmnwlth.
Appropriation), 7 7/8s, 10/1/04 Baa 645,438
4,550,000PR Elec. Pwr. Auth. Rev. Bonds,
Ser. T, 6s, 7/1/16 A 4,578,438
1,200,000PR Pub. Bldgs. Auth., Gtd. Edl. &
Hlth. Fac. Rev. Bonds, Ser. H,
7 7/8s, 7/1/16 AAA 1,314,000
2,000,000 Ser. M, 5 3/4s, 7/1/15 A
1,962,500
- ------------
27,935,189
- --------------------------------------------------------------------
TOTAL INVESTMENTS (cost $212,601,017)***
$223,237,981
- --------------------------------------------------------------------
<PAGE>
<FN>
NOTES
* Percentages indicated are based on net assets of $223,036,677,
which correspond to a net asset value per class A and class B
share of $9.24 and $9.23, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at May 31, 1995 for the
securities listed. Ratings are generally ascribed to securities
at the time of issuance. While the agencies may from time to
time revise such ratings, they undertake no obligation to do
so, and the ratings do not necessarily represent what the
agencies would ascribe to these securities at May 31, 1995.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated. The ratings are not covered by the Report of
Independent Accountants.
++ The interest rate and date shown parenthetically represent the
next interest rate to be paid and the date the fund will begin
receiving interest at this rate.
+++ This security, having a total value of $3,980,000 or 1.8% of
net assets has been purchased on a "forward commitment" basis,
that is, the fund has agreed to take delivery of and make
payment for this security beyond the settlement time of three
business days after the trade date and subsequent to the date
of this report. The purchase price and interest rate of such
security are fixed at the trade date although the fund does not
earn any interest on such security until the settlement date.
*** The aggregate identified cost for federal income tax purposes
is $212,601,017, resulting in gross unrealized appreciation and
depreciation of $12,297,466 and $1,660,502, repectively, or net
unrealized appreciation of $10,636,964.
The rates shown on IFB's, which are securities paying variable
interest rates that vary inversely to changes in market
interest rates, FB's and VRDN's are the current interest rates
at May 31, 1995, which are subject to change based on the terms
of the security.
The fund had the following industry group concentrations
greater than 10% at May 31, 1995 (as a percentage of net
assets):
Hospitals/Health Care 19.2%
Utilities, Water & Sewer 16.2
The fund had the following insurance concentrations greater
than 10% at May 31, 1995 (as a percentage of net assets):
MBIA 14.1%
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
<TABLE>
<S> <C>
ASSETS
- --------------------------------------------------------------------
Investments in securities, at value
(identified cost $212,601,017) (Note 1) $223,237,981
- --------------------------------------------------------------------
Cash 278,469
- --------------------------------------------------------------------
Interest receivable 4,045,239
- --------------------------------------------------------------------
Receivable for shares of the fund sold 805,923
- --------------------------------------------------------------------
TOTAL ASSETS 228,367,612
LIABILITIES
- --------------------------------------------------------------------
Payable for securities purchased 4,067,885
- --------------------------------------------------------------------
Payable for shares of the fund repurchased 315,020
- --------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 306,197
- --------------------------------------------------------------------
Distributions payable to shareholders 526,108
- --------------------------------------------------------------------
Payable for administrative services (Note 2) 1,525
- --------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 182
- --------------------------------------------------------------------
Payable for distribution fees (Note 2) 89,220
- --------------------------------------------------------------------
Other accrued expenses 24,798
- --------------------------------------------------------------------
TOTAL LIABILITIES 5,330,935
- --------------------------------------------------------------------
NET ASSETS $223,036,677
- --------------------------------------------------------------------
REPRESENTED BY
- --------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $213,375,603
- --------------------------------------------------------------------
Undistributed net investment income (Note 1) 76,798
- --------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,052,688)
- --------------------------------------------------------------------
Net unrealized appreciation of investments 10,636,964
- --------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $223,036,677
- --------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- --------------------------------------------------------------------
Net asset value and redemption price per class A share
($178,784,490 divided by 19,352,957 shares) $9.24
- --------------------------------------------------------------------
Offering price per share (100/95.25 of $9.24)* $9.70
- --------------------------------------------------------------------
Net asset value and offering price per class B share
($44,252,187 divided by 4,795,664 shares)** $9.23
- --------------------------------------------------------------------
<FN>
* On single retail sales of less than $25,000. On sales of
$25,000 or more and on group sales the offering price is
reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Three months ended May 31, 1995
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $3,542,788
- --------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Compensation of Manager (Note 2) 323,968
- --------------------------------------------------------------------
Compensation of Trustees (Note 2) 2,719
- --------------------------------------------------------------------
Reports to shareholders 2,343
- --------------------------------------------------------------------
Postage 5,109
- --------------------------------------------------------------------
Auditing 5,151
- --------------------------------------------------------------------
Legal 4,738
- --------------------------------------------------------------------
Administrative services (Note 2) 2,376
- --------------------------------------------------------------------
Distribution fees -- class A (Note 2) 86,239
- --------------------------------------------------------------------
Distribution fees -- class B (Note 2) 86,431
- --------------------------------------------------------------------
Other 12,884
- --------------------------------------------------------------------
TOTAL EXPENSES 531,958
- --------------------------------------------------------------------
NET INVESTMENT INCOME 3,010,830
- --------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (192,151)
- --------------------------------------------------------------------
Net unrealized appreciation of investments during the year 6,309,302
- --------------------------------------------------------------------
NET GAIN ON INVESTMENTS 6,117,151
- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,127,981
- --------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Three months ended May 31, 1995
<TABLE><CAPTION>
<S> <C> <C>
Three months
ended Year ended
May 31 February 28
------------ -----------
1995 1995
- --------------------------------------------------------------------
INCREASE IN NET ASSETS
- --------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------
Net investment income $3,010,830 $11,277,099
- --------------------------------------------------------------------
Net realized loss on investments (192,151) (731,524)
- --------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 6,309,302 (7,009,417)
- --------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 9,127,981 3,536,158
- --------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------
From net investment income:
- --------------------------------------------------------------------
Class A (2,522,292) (9,864,312)
- --------------------------------------------------------------------
Class B (515,060) (1,330,727)
- --------------------------------------------------------------------
From net realized gain on investments:
- --------------------------------------------------------------------
Class A -- (143,524)
- --------------------------------------------------------------------
Class B -- (26,246)
- --------------------------------------------------------------------
In excess of realized gain on investments:
- --------------------------------------------------------------------
Class A -- (98,516)
- --------------------------------------------------------------------
Class B -- (18,015)
- --------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 8,708,289 31,793,571
- --------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 14,798,918 23,848,389
NET ASSETS
- --------------------------------------------------------------------
Beginning of period 208,237,759 184,389,370
- --------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of $76,798 and
$90,838, respectively) $223,036,677 $208,237,759
- --------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
THREE MONTHS (COMMENCEMENT OF
ENDED YEAR ENDED OPERATIONS) TO
MAY 31 FEBRUARY 28 FEBRUARY 28
------------ ----------- ----------------
1995* 1995 1994
- --------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF
PERIOD $8.97 $9.38 $9.48
- --------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .11 .47 .28
Net realized and unrealized
gain (loss) on investments .27 (.40) (.08)
- --------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .38 .07 .20
- --------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (.12) (.47) (.28)
From net realized gain on
investments -- (.01) (.02)
- --------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.12) (.48) (.30)
- --------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.23 $8.97 $9.38
- --------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) 4.23(c) .93 2.18(c)
- --------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $44,252 $36,670 $12,633
- --------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .38(c) 1.57 1.00(c)
- --------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26(c) 5.23 2.90(c)
- --------------------------------------------------------------------
Portfolio turnover (%) 4.15(c) 26.09 15.65(c)
- --------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<C> <C> <C> <C> <C> <C>
THREE MONTHS
ENDED
MAY 31 YEAR ENDED FEBRUARY 28
------------ ------------------------------------------------
1995* 1995 1994 1993 1992 1991
- --------------------------------------------------------------------
CLASS A
- --------------------------------------------------------------------
$8.98 $9.39 $9.40 $8.76 $8.42 $8.36
- --------------------------------------------------------------------
- --------------------------------------------------------------------
.13 .53 .54 .57(a) .61(a) .62(a)
- --------------------------------------------------------------------
.26 (.40) .01 .65 .34 .06
- --------------------------------------------------------------------
.39 .13 .55 1.22 .95 .68
- --------------------------------------------------------------------
(.13) (.53) (.54) (.57) (.61) (.62)
- --------------------------------------------------------------------
-- (.01) (.02) (.01) -- --
- --------------------------------------------------------------------
(.13) (.54) (.56) (.58) (.61) (.62)
- --------------------------------------------------------------------
$9.24 $8.98 $9.39 $9.40 $8.76 $8.42
- --------------------------------------------------------------------
4.39(c) 1.60 5.93 14.34 11.65 8.53
- --------------------------------------------------------------------
$178,785 $171,568 $171,757 $144,374 $93,086 $47,112
- --------------------------------------------------------------------
.21(c) .92 .91 .72(a) .52(a) .41(a)
- --------------------------------------------------------------------
1.44(c) 5.94 5.36 6.31(a) 6.98(a) 7.43(a)
- --------------------------------------------------------------------
4.15(c) 26.09 15.65 12.26 3.30 9.01
- --------------------------------------------------------------------
<FN>
* The fiscal year end has advanced from February 28 to May 31.
(a) Reflects an expense limitation. As a result, net investment
income for the years ended February 28, 1993, 1992 and 1991,
reflects expense reductions of approximately $0.01, $0.04, and
$0.06 per share, respectively.
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company.
The fund seeks as high a level of current income exempt from federal
income tax and Pennsylvania personal income tax as Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-
owned subsidiary of Putnam Investments, Inc., believes is consistent
with preservation of capital by investing primarily in a diversified
portfolio of Pennsylvania tax-exempt securities.
The fund offers both class A and class B shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares
do not pay a front-end sales charge, but pay a higher ongoing
distribution fee than class A shares, and may be subject to a
contingent deferred sales charge, if those shares are redeemed
within six years of purchase. In addition, the Trustees declare
separate dividends on each class of shares. Expenses of the fund are
borne pro-rata by the holders of both classes of shares, except that
each class bears expenses unique to that class (including the
distribution fees applicable to such class). Each class votes as a
class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by
the Trustees. Shares of each class would receive their pro-rata
share of the net assets of the fund, if the fund were liquidated.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its
financial statements. The policies are in conformity with generally
accepted accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities
in determining value. The fair value of restricted securities is
determined by the Manager following procedures approved by the
Trustees, and such valuations and procedures are reviewed
periodically by the Trustees.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Interest income is recorded on the accrual
basis.
C FEDERAL TAXES It is the policy of the fund to distribute all of
its income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise
tax under Section 4982 of the Internal Revenue
<PAGE>
Code of 1986. Therefore, no provision has been made for federal
taxes on income, capital gains or unrealized appreciation of
securities held and excise tax on income and capital gains. At May
31, 1995, the fund had a capital loss carryover of approximately
$291,000 and $762,000 which may be available to offset realized
gains, if any, to the extent provided by regulations. These amounts
will expire May 31, 2002 and 2003, respectively. To the extent that
capital loss carryovers are used to offset realized capital gains,
it is unlikely that gains so offset will be distributed to
shareholders, since any such distribution might be taxable as
ordinary income.
D DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily
by the fund and are distributed monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and paid
annually.
The character of income and gains to be distributed are determined
in accordance with income tax regulations, which may differ from
generally accepted accounting principles. These differences include
treatment of market discount. Reclassifications are made to the
fund's capital accounts as necessary so that they reflect income and
gains available for distributions (or available capital loss
carryovers) under income tax regulations. For the three months ended
May 31, 1995, the fund reclassified $12,482 to increase
undistributed net investment income, and $12,482 to increase
accumulated net realized loss on investments.
E AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting
from the purchase of securities in excess of maturity value is
amortized using the effective yield method for bonds issued after
September 27, 1985, and on a straight line basis for bonds issued
prior thereto. The premium is in excess of the call price, if any,
is amortized to the call date thereafter, and the remaining excess
premium is amortized to maturity on a yield-to- maturity basis.
Discount on zero- coupon bonds and stepped-coupon bonds, is accreted
according to the effective yield method.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets
of the fund for the quarter. Such fee is based on the following
annual rates: 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 subject, under current law, to
reduction in any year to the extent of certain brokerage commissions
and fees (less expenses) received by affiliates of the Manager on
the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and
related expenses of the certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees.
<PAGE>
Trustees of the fund receive an annual Trustee's fee of $730 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Manager and who serve on committees of
the Trustees receive additional fees for attendance at certain
committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC. Investor servicing and custodian fees
reported in the Statement of operations for the three months ended
May 31, 1995 have been reduced by credits allowed by PFTC. Such
credits amounted to $65,295.
The fund has adopted distribution plans (the "Plans") with respect
to its class A shares and class B shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans
is to compensate Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred by it in distributing each class of shares of the
fund. The Plans provide for payments by the fund to Putnam Mutual
Funds Corp. at an annual rate up to 0.35% and 1.00% of the average
net assets attributable to class A and class B shares, respectively.
The Trustees have approved payments by the fund at an annual rate of
0.20% and 0.85% of the average net assets attributable to class A
and class B shares, respectively.
For the three months ended May 31, 1995, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $18,254 from
the sale of class A shares and $18,160 in contingent deferred sales
charges from redemptions of class B shares.
A deferred sales charge of up to 1.0% is assessed on certain
redemptions of class A shares purchased as part of an investment of
$1 million or more. For the three months ended May 31, 1995, Putnam
Mutual Funds Corp., acting as the underwriter, received $10,000 in
commissions on such redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the three months ended May 31, 1995, purchases and sales of
investment securities other than short-term investments aggregated
$12,950,000 and $8,532,710, respectively. Purchases and sales of
short-term municipal obligations aggregated $9,700,000 and
$1,800,000, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
<PAGE>
NOTE 4
CAPITAL SHARES
At May 31, 1995, there was an unlimited number of shares of
beneficial interest authorized divided into two classes, class A and
class B capital shares. Transactions in capital shares were as
follows:
<TABLE>
<S> <C> <C>
THREE MONTHS ENDED MAY 31
- --------------------------------------------------------------------
1995
- --------------------------------------------------------------------
CLASS A SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 1,088,734 $9,874,777
Shares issued in connection with
reinvestment of distributions 159,067 1,450,835
- --------------------------------------------------------------------
1,247,801 11,325,612
- --------------------------------------------------------------------
Shares repurchased (996,648) (9,041,998)
- --------------------------------------------------------------------
NET INCREASE 251,153 $2,283,614
- --------------------------------------------------------------------
YEAR ENDED FEBRUARY 28
- --------------------------------------------------------------------
1995
- --------------------------------------------------------------------
CLASS A SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 4,764,552 $42,380,328
Shares issued in connection with
reinvestment of distributions 631,124 5,583,837
- --------------------------------------------------------------------
5,395,676 47,964,165
- --------------------------------------------------------------------
Shares repurchased (4,589,936) (40,611,535)
- --------------------------------------------------------------------
NET INCREASE 805,740 $7,352,630
- --------------------------------------------------------------------
THREE MONTHS ENDED MAY 31
- --------------------------------------------------------------------
1995
- --------------------------------------------------------------------
CLASS B SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 767,770 $6,959,062
Shares issued in connection with
reinvestment of distributions 33,557 305,770
- --------------------------------------------------------------------
801,327 7,264,832
- --------------------------------------------------------------------
Shares repurchased (92,606) (840,157)
- --------------------------------------------------------------------
NET INCREASE 708,721 $6,424,675
- --------------------------------------------------------------------
YEAR ENDED FEBRUARY 28
- --------------------------------------------------------------------
1995
- --------------------------------------------------------------------
CLASS B SHARES AMOUNT
- --------------------------------------------------------------------
Shares sold 2,977,430 $26,531,088
Shares issued in connection with
reinvestment of distributions 91,725 806,568
- --------------------------------------------------------------------
3,069,155 27,337,656
- --------------------------------------------------------------------
Shares repurchased (328,507) (2,896,715)
- --------------------------------------------------------------------
NET INCREASE 2,740,648 $24,440,941
- --------------------------------------------------------------------
</TABLE>
<PAGE>
TAX INFORMATION
The fund has designated all income dividends paid during the fiscal
year as exempt-interest dividends. Thus 100% of these distributions
are exempt from federal income tax. For residents of the state of
Pennsylvania, 100% of the fund's distributions are also exempt from
Pennsylvania personal income tax.
During the fiscal year ended May 31, 1995 the fund paid no capital
gains distributions. Any capital gains paid subsequent to May 31,
1995 will be reported to you on the Form 1099 you will receive in
January 1996.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Pennsylvania Tax Exempt Income Fund. It may also be used as sales
literature when preceded or accompanied by the current prospectus,
which gives details of sales charges, investment objectives and
operating policies of the fund, and the most recent copy of Putnam's
Quarterly Performance Summary. For more information or to request a
prospectus, call toll free 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
18992-047/226
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND
EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of
these financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
