<PAGE>
Putnam
Pennsylvania
Tax Exempt
Income Fund
ANNUAL REPORT
February 28, 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
February
28, 1995.*
Performance should always be considered in light of a fund's investment
strategy. The fund is designed for investors seeking high current income
free
from federal income tax and Pennsylvania
personal income tax, consistent with capital preservation.
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)
12 months ended 2/28/95 1.60% -3.25% 0.93% -3.85%
- ---------------------------------------------------------------------------
- --
Share value NAV POP NAV
- ---------------------------------------------------------------------------
- --
2/28/94 $9.39 $9.86 $9.38
2/28/95 8.98 9.43 8.97
- ---------------------------------------------------------------------------
- --
CAPITAL GAINS(1)
DISTRIBUTIONS: LONG- SHORT-
NO. INCOME TERM TERM TOTAL
- ---------------------------------------------------------------------------
- --
Class A 13 $0.523660 $0.002 $0.011 $0.536660
Class B 13 $0.465190 $0.002 $0.011 $0.478190
- ---------------------------------------------------------------------------
- --
CURRENT RETURN: NAV POP NAV
- ---------------------------------------------------------------------------
- --
End of period
Current dividend rate(2) 5.90% 5.62% 5.27%
Taxable equivalent(3) 10.05 9.57 8.98
Current 30-day SEC yield(4) 5.68 5.41 5.03
Taxable equivalent(3 9.67 9.21 8.57
- ---------------------------------------------------------------------------
- --
<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- and 5-year average annual returns and adjusted for risk factors
and sales charges. Ratings are updated monthly. The four-star overall
rating puts the fund in the top 32.5% among all 632 municipal funds
rated. For the 3-year period, the fund received three stars. There were
632 funds in the municipal category. For the 5-year period, there were
458 funds in the municipal category. The fund received four stars for the
5-year period. Past performance is not indicative of future results.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
FOLLOWING ONE OF THE MOST VOLATILE PERIODS ON RECORD, 1995 MAY PROVE TO BE
A
TURNAROUND YEAR FOR THE MUNICIPAL BOND MARKET. BY THE TIME PUTNAM
PENNSYLVANIA TAX EXEMPT INCOME FUND REACHED THE END OF ITS CURRENT FISCAL
YEAR ON FEBRUARY 28, 1995, FIXED-INCOME INVESTORS HAD BEGUN TO EXHIBIT MORE
SIGNS OF CONFIDENCE THAN THEY HAD IN MORE THAN A YEAR AND A HALF.
INVESTORS WERE FINALLY GAINING CONFIDENCE IN THE FEDERAL RESERVE BOARD'S
ABILITY TO CONTROL INFLATION. MOREOVER, THEY WERE BEGINNING TO THINK THE
ECONOMIC RECOVERY, NOW IN ITS FIFTH YEAR, MIGHT SLOW TO THE POINT WHERE
INTEREST RATES WOULD STOP RISING AND, ULTIMATELY, LEAD TO BETTER BOND
PERFORMANCE.
FOR THE PAST SEVERAL MONTHS, FUND MANAGER RICHARD WYKE HAS BEEN POSITIONING
THE PORTFOLIO NOT ONLY IN RESPONSE TO THE MARKET'S VOLATILITY, BUT ALSO IN
ANTICIPATION OF THE BRIGHTER MOOD THAT NOW SEEMS TO BE EMERGING. IN THE
REPORT THAT FOLLOWS, RICK DISCUSSES THE FUND'S FISCAL 1995 PERFORMANCE AND
WHAT HE SEES IN STORE FOR FISCAL 1996.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
APRIL 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
What a difference a few weeks can make. A substantial rise in Putnam
Pennsylvania Tax Exempt Income Fund's total return during January and
February allowed the fund to close its fiscal year on a much brighter note
than its performance at the fiscal year's midpoint might have suggested.
Thanks to a rise of more than 5% in the total returns of both class A and
class B shares at net asset value (NAV) during the first two months of
1995,
the fund delivered positive results for the 12 months ended February 28,
1995. Total return at NAV was 1.60% for class A shares and 0.93% for class
B
shares during an annual period that included one of the worst periods for
the
bond markets in recent history.
Fixed-income markets were turned upside down by the Federal Reserve Board's
tighter stance on U.S. monetary policy and
by bond investors' fears of inflation -- all in response to accelerating
economic growth. Ultimately, the Fed raised short- term interest rates six
times during the fiscal period. The most aggressive increase -- three
quarters of a percentage point in November 1994 -- helped calm inflation
fears considerably. The subsequent increase in February was widely expected
and barely caused a ripple in the bond markets.
Taxable equivalent yields are now at double-digit levels and represent
excellent values -- particularly for investors in such high-tax states as
Pennsylvania. In fact, your fund's 5.90% current dividend rate at NAV for
class A shares would translate into a yield of 10.05% for a taxable
investment, assuming the maximum combined 41.29% federal and state tax
rate.
Most investors in lower brackets would also enjoy tax advantages, though
not
necessarily to the same extent.
LOW SUPPLY COMPLICATES EFFORTS TO EXTEND AVERAGE MATURITY
Since last fall, we have been searching for opportunities to lengthen the
portfolio's average maturity. As we entered fiscal
<PAGE>
1995, the average maturity of bonds held in the portfolio was shorter than
normal, because some of the shorter-term higher- coupon municipal bonds had
been called in during the prior fiscal year -- during a period of
historically low interest rates. By calling in higher-yielding bonds in a
low-interest-rate environment, bond issuers are able to save money by
retiring bonds before maturity and reissuing new debt at the lower
prevailing
rates. Given the sharp and unexpected rise in interest rates in 1994, our
decision to keep the average maturity short helped soften the impact of
rising interest rates on the fund's net asset value.
Our search for longer-maturity bonds has been complicated by the tight
supply
of Pennsylvania tax-exempt securities, primarily because of the lower
volume
of new issues. On the other hand, the low level of issuance has driven up
demand for existing securities. This imbalance has translated into
substantial price appreciation for many of the bonds in your fund's
portfolio.
THE PUTNAM ADVANTAGE AT WORK
The fund's purchase of noncallable zero-coupon bonds was one way we were
able
to lengthen average maturity. Zero-coupon bonds, which are issued at a
fraction of their par value, increase in value as they approach maturity.
The
noncallable provision is advantageous to investors because it prohibits the
issuers
[LINE CHART]
MUNICIPAL BOND YIELDS IN DECLINE
- ---------------------------------------------------------------------------
- --
[PLOT DATA]
Date
12/30/94 7.28
1/6/95 7.28
1/13/95 7.08
1/20/95 7.02
1/31/95 6.96
2/3/95 6.67
2/10/95 6.62
2/17/95 6.58
2/28/95 6.47
[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 fundOs performance. Source: Bloomberg; data plotted weekly.
<PAGE>
from retiring the bond before maturity. Generally, this call protection
comes
at a price. However, Putnam's size and stature offer investors in its funds
many advantages, among them the ability of our management team to negotiate
at arm's length with issuers of some municipal offerings before they come
to
market.
Your fund's purchase of Hazelton zero-coupon bonds is a case in point.
Putnam
was able to use its purchasing power as a large institutional investor to
give input as to how this project would most benefit investors. The bonds,
which will finance school improvements, are insured and carry a AAA rating
from all the major rating agencies.
PROACTIVE MANAGEMENT MAXIMIZES TOTAL RETURN POTENTIAL
In our day-to-day management of the fund, we continually re- evaluate the
fund's holdings and search for municipal bonds that offer the right balance
of credit quality, yield, and relative price stability. If the right
circumstances present themselves, we may sell one holding while
simultaneously buying another to take advantage of differences in such
factors as interest rates, maturity, and marketability.
During the latter half of the fiscal year, we sold many of the current-
coupon
bonds held in the portfolio. Our rationale was that these bonds' coupon
rates
were close to those being offered on new issues of the same maturity.
Furthermore, most current-coupon bond prices were staying close to par. In
our opinion, the bonds we sold didn't have much more room for appreciation.
They were also in great demand by individual investors.
We were able to reinvest the proceeds from these sales into higher-yielding
investment-grade bonds. However, we were unable to find many bonds offering
attractive price appreciation potential. We remain vigilant for such bonds,
for while they typically exhibit a certain amount of price volatility, we
believe they could make a noticeable impact on the fund's overall total
return during market rallies.
<PAGE>
[BAR CHART]
TOP INDUSTRY SECTORS(R)
- ---------------------------------------------------------------------------
- --
[PLOT DATA]
Hospitals / health care 17.0%
Utilities, Water & Sewer 15.6%
Education 10.9%
Transportation 5.0%
Housing 4.7%
[FN]
*Based on net assets on 2/28/95. Holdings will vary over time.
As the end of a tax year approaches, individual and institutional investors
typically employ several strategies to reduce the effect
of federal, state, and local taxes. Beginning in October and November, many
investors began selling municipal bonds with
the intent of using the capital losses to offset taxable profits in
other sectors. This tax-loss selling thwarted a brief rally this
past October and led to further pressures on municipal bond prices. As
valuations sank to levels not seen for several years,
we purchased some of these otherwise attractive bonds at very affordable
prices.
A GLANCE FORWARD
While the months ahead are not likely to sustain the healthy pace of the
last
two months of the fiscal year, we believe there are many positive trends
that
bode well for your fund's performance. We believe the continuing imbalance
in
supply, the attractiveness of municipal bonds relative to Treasury bonds,
and
steady investor demand should continue to act as a strong price support for
Pennsylvania tax-exempt securities.
Clearly, investors who sat tight and remained committed to their longer-
term
goals during the past year's volatility are potentially well positioned, in
our opinion, to benefit from an improving bond market.
The views expressed here are exclusively those of Putnam Management. They
are
not meant as investment advice. Although the described holdings were viewed
favorably as of 2/28/95, there is no guarantee the fund will continue to
hold
these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares changed
over time, assuming you held the shares through the entire period and
reinvested all distributions
back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over
varying periods. For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 2/28/95
<TABLE><CAPTION>
CLASS A CLASS B LEHMAN BROS.
MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
<S> <C> <C> <C> <C> <C> <C>
1 year 1.60% -3.25% 0.93% -3.85% 1.88% 2.86%
5 years 49.12 41.99 -- -- 46.95 17.89
Annual average 8.32 7.26 -- -- 8.00 3.35
Life of class A 53.02 45.82 -- -- 51.27 21.30
Annual average 7.88 6.96 -- -- 7.66 3.50
Life of class B -- -- 3.13 -0.65 5.23 4.50
Annual average -- -- 1.91 -0.40 3.18 2.74
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 3/31/95
(most recent calendar quarter)
<TABLE><CAPTION>
CLASS A CLASS B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 year 6.40% 1.34% 5.71% 0.71%
5 years 50.12 42.93 -- --
Annual average 8.46 7.40 -- --
Life of class A 54.51 47.24 -- --
Annual average 7.95 7.04 -- --
Life of class B -- -- 4.09 0.28
Annual average -- -- 2.37 0.17
<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 and will differ for each share class. 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. POP assumes maximum 4.75% sales
charge. 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>
[MOUNTAIN CHART]
GROWTH OF A $10,000 INVESTMENT
- ---------------------------------------------------------------------------
- --
[PLOT DATA]
Date POP Lehman CPI
7/21/89 $9,529 $10,000 $10,000
2/28/90 $9,779 $10,294 $10,289
2/28/91 $10,614 $11,243 $10,836
2/28/92 $11,850 $12,366 $11,141
2/28/93 $13,549 $14,068 $11,503
2/28/94 $14,353 $14,847 $11,793
2/28/95 $14,583 $15,127 $12,130
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
$10,313 on 2/28/95 ($9,935 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.
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 year ended February 28, 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
February 28, 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 accounting 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 February 28, 1995 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
April 17, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
February 28, 1995
MUNICIPAL BONDS AND NOTES (98.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<TABLE><CAPTION>
<S> <C> <C> <C>
Pennsylvania (84.6%)
$1,000,000 Allegheny Cnty. Arpt. Rev. Bonds
(Pittsburgh Intl. Arpt.), Ser. C,
Municipal Bond Insurance Assoc.
(MBIA), 8 1/4s, 1/1/16 AAA $1,080,000
1,000,000 Allegheny Cnty., General Obligation
(G.O.) Bonds, Ser. 17, MBIA,
9 3/8s, 3/1/12 AAA 1,020,000
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
2,000,000 (Southside Hosp. Pittsburgh),
Ser. A, 8 3/4s, 6/1/10 BBB 2,095,000
1,000,000 (St. Francis Med. Ctr. Project),
American Municipal Bond Assurance
Corp. (AMBAC), 8 1/8s, 6/1/13 AAA 1,062,500
1,000,000 Allegheny Cnty. Hosp. Dev. Auth.
Variable Rate Demand Note (VRDN)
(Presbyterian Hlth. Ctr.), Ser.
A, MBIA 4s, 3/1/20 VMIG1 1,000,000
2,000,000 Allegheny Cnty. Indl. Dev. Auth. Med.
Ctr. Rev. Bonds (Presbyterian Med.
Ctr. of Oakmont) Federal Housing
Administration (FHA), 6 3/4s, 2/1/26 AAA 2,030,000
580,000 Allegheny Cnty., Indl. Dev. Auth. Rev.
Bonds (Southwestern Arpt. Cargo Fac.),
8 3/4s, 2/15/09 BB/P 609,725
8,000,000 Beaver Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (OH Edison Co.-Beaver
Valley), Ser. A, 10 1/2s, 10/1/15 Baa 8,500,000
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds
(Altoona Hosp. Project), AMBAC, 6 1/2s,
7/1/22 AAA 1,537,500
Cambria Cnty., Indl. Dev. Auth. Resource Recvy. Rev. Bonds
1,100,000 (Cambria Cogen Project), Ser. F1,
7 3/4s, 9/1/19 A 1,148,125
400,000 7 3/4s, 9/1/19 A 417,500
Chichester School Dist. Rev. Bonds
1,180,000 FGIC zero %, 3/1/10 AAA 483,800
1,220,000 Ser B, Financial Guaranty Insurance Co.
(FGIC) zero %, 3/1/09 AAA 533,750
920,000 College Township, Indl. Dev. Auth. 1st Mtge.
Hlth. Facs. Rev. Bonds (Nittany Valley Rehab.
Hosp. Project), 7 5/8s, 11/1/07 BBB/P 933,800
1,000,000 Dauphin Cnty., Indl. Dev. Auth. Wtr. Rev.
Bonds (Dauphin Cons. Wtr. Supply),
Ser. A, 6.9s, 6/1/24 A 1,030,000
900,000 Delaware Cnty. PA. Indl. Dev. Auth. Arpt.
VRDN, (UTD Parcel Svc. Project),
3 3/4s, 12/1/15 AAA 900,000
3,000,000 Delaware Cnty., Hlth. Care Auth. Rev.
Bonds (Mercy Hlth. Corp., Southeastern),
Ser. A, Connie Lee Insd., 5 1/8s, 11/15/12 AAA 2,640,000
1,000,000 Delaware Cnty., Hosp. Auth. Rev. Rfdg.
Bonds (Crozer-Chester Med. Ctr.),
MBIA 7 1/2s, 12/15/20 AAA 1,136,250
1,035,000 Delaware Cnty., Indl. Dev. Auth. Rev.
Bonds (Resource Recvy. Project),
Ser. A, 8.1s, 12/1/13 AA 1,094,512
4,100,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB/P 3,782,250
3,000,000 Emmaus, General Auth. Rev. Bonds
(Local Govt. Bond Pool), Bond Investors
Guaranty Insurance (BIGI) Ser. A,
8.15s, 5/15/18 AAA 3,277,500
6,500,000 Erie Cnty., Prison Auth. Lease Rev. Bonds
MBIA, 6 5/8s, 11/1/14 AAA 7,052,500
Erie, Higher Edl. Bldg. Auth. College Rev. Bonds
1,150,000 (Mercyhurst College Project), 7.85s, 9/15/19AAA 1,280,812
1,000,000 Refunded (Mercyhurst College Project),
Ser. A, 5 3/4s, 3/15/13 BBB 912,500
1,860,000 Ser. A, 5 3/4s, 3/15/13 BBB 1,697,250
2,000,000 Erie, Higher Edl. Bldg. Auth. U. Rev.
Bonds (Gannon U. Project) Ser. D,
5.85s, 6/1/15 BBB 1,810,000
1,360,000 Erie, Indl. Dev. Auth. Rev. Rfdg. Bonds
(Beverly Enterprises), 6 5/8s, 5/1/02 BB/P 1,275,000
3,500,000 Erie, Wtr. Auth. Rev. Bonds 7 1/8s, 12/1/11BBB 3,876,250
750,000 Erie-Western PA Port Auth. Gen. Rev. Bonds,
8 5/8s, 6/15/10 BBB 803,438
1,560,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s,
1/1/02 BBB/P 1,483,950
3,500,000 Harrisburg, Auth. Lease Rev. Bonds
(Green Cnty. Prison Project), Capital
Guaranty Insurance Company (CGIC),
6 1/4s, 6/1/10 AAA 3,653,125
Hazleton Area School Dist. Rev. Bonds, FGIC
5,265,000 zero %, 3/1/22## AAA 987,187
5,265,000 zero %, 3/1/21## AAA 1,053,000
5,265,000 zero %, 3/1/20## AAA 1,118,812
5,265,000 zero %, 3/1/19## AAA 1,204,369
550,000 Jenkins Township, Sanitary Auth. Swr.
Rev. Bonds, 8s, 12/1/09 AAA/P 615,312
700,000 Lancaster Cnty., Solid Waste Management
Auth. (Resource Recvy. Systs.) Rev.
Bonds, Ser. A, 8 1/2s, 12/15/10 A 735,000
2,200,000 Lebanon Cnty., Good Samaritan Hosp.
Auth. Rev. Bonds, Ser. B,
8 1/4s, 11/1/18 BBB 2,516,250
1,000,000 Lehigh Cnty., General Purpose Auth.
Rev. Bonds (Muhlenberg Hosp.),
Ser. A, 8.1s, 7/15/10 Baa 1,061,250
Lehigh Cnty. Indl. Dev. Auth. Poll. Control Rev. Bonds
(PA Power & Light Co. Project-B)
5,000,000 MBIA, 6.4s, 9/1/29 AAA 5,081,250
600,000 9 3/8s, 7/1/15 A 620,250
2,000,000 Luzerne Cnty., Indl. Dev. Auth. Rev. Bonds
(Gas & Wtr. Co. Project), Ser. B,
7 1/8s, 12/1/22 BBB 2,002,500
2,305,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s, 7/1/03 Baa 2,215,681
Montgomery Cnty. Higher Ed. & Hlth. Auth. Rev. Bonds
5,000,000 (Montgomery Hospital), AMBAC, 5 1/8s, 6/1/14AAA 4,400,000
3,000,000 (Sacred Heart Hosp. Norristown),
Ser. A, BIGI, 6.8s, 2/1/13 AAA 3,018,750
1,000,000 (UTD Hosp. Project), Ser. B, 7 1/2s, 11/1/12Ba 957,500
2,000,000 Montgomery Cnty., Higher Ed. & Health.
Auth. Hosp. Inverse Floating Bond (IFB)
(Abington Hosp.), Ser. A, AMBAC,
8.89s, 6/1/11 AAA 2,190,000
1,325,000 Montgomery Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (Philadelphia Elec. Co.),
Ser. A, 10 1/2s, 5/15/15 Baa 1,379,656
3,000,000 New Morgan, Indl. Dev. Auth. Solid Waste
Disp. Rev. Bonds (New Morgan Landfill Co. Inc.
Project), 6 1/2s, 4/1/19 A 2,943,750
1,000,000 Northeastern PA Hosp. & Edl. Auth. College
Rev. Bonds (Kings College Project),
Ser. B, 6s, 7/15/11 BBB 932,500
PA Econ. Dev. Fin. Auth. Resource Recvy. Rev. Bonds
(Northampton Generating), Ser. A,
2,000,000 6 1/2s, 1/1/13 BB/P 1,827,500
1,000,000 (Colver Project) Ser. D, 7 1/8s, 12/1/15 BBB 1,010,000
4,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20Baa 4,190,000
PA Hsg. Fin. Agcy. Rev. Bonds
2,000,000 4s, stepped-coupon (6.1s, 4/1/04), 10/1/13++AA 1,662,500
825,000 Ser. R, 8 1/8s, 10/1/19 AA 859,031
385,000 Ser. U, GNMA 7.8s, 10/1/20 AA 409,063
400,000 Ser. 29, 7 3/8s, 10/1/16 AA 420,000
2,000,000 Ser. 33, 6.9s, 4/1/17 AA 2,057,500
3,000,000 PA Intergovernmental Co-op Auth. Spl. Tax
Rev Bonds (City of Philadelphia), AMBAC,
5 3/4s, 6/15/15 AAA 2,883,750
4,000,000 PA Rfdg. & Projects Rev. Bonds 1st
Ser., 5s, 4/15/07 AA 3,680,000
PA State Higher Edl. Assistance Agcy.
Inverse Floating Bond (IFB)
2,400,000 Ser. B, MBIA, 10.454s, 3/1/20 AAA 2,640,000
3,850,000 Ser. B, AMBAC, 9.476s, 3/1/22 AAA 3,575,688
500,000 PA State Higher Edl. Fac. Auth. College & U.
Rev. Bonds (Carnegie Project), 9s, 11/1/09 A 525,625
PA State Higher Edl. Fac. Auth. Rev. Bonds
3,000,000 (Med. College), Ser. A, 7 3/8s, 3/1/21 Baa 3,056,250
2,500,000 (Duquesne U. Project), MBIA 6 3/4s, 4/1/20 AAA 2,575,000
2,600,000 (Allegheny College Project),
Ser. B, 6 1/8s, 11/1/13 BBB 2,483,000
1,300,000 PA State Higher Edl. Facs. Auth. Rev. Bonds
(Med. College), Ser. A, 8 3/8s, 3/1/11 BBB 1,387,750
2,700,000 PA State Rev. Bonds Ser. 2, 5 1/4s, 6/15/13 AA 2,453,625
4,500,000 PA State Tpk. Rev. Bonds, 5 1/2s, 12/1/17 A 4,173,750
2,000,000 Penn Hills, G.O. Bonds, AMBAC,
5 7/8s, 12/1/15 AAA 1,962,500
1,000,000 Philadelphia, G.O. Bonds, FGIC,
8 1/4s, 2/15/09 AAA 1,053,750
Philadelphia Gas Works Rev. Bonds, Ser. 13,
1,225,000 Financial Security Assurance (FSA),
7.7s, 6/15/21 AAA 1,411,813
4,000,000 IFB, FSA, 6.69s, 8/1/21 I44A AAA 2,960,000
Philadelphia Muni-Auth. Rev. Bonds
1,000,000 Ser. B, FGIC, 7 1/8s, 11/15/18 AAA 1,127,500
2,125,000 Refunded, Ser. A, FGIC, 5 5/8s, 11/15/14 AAA 1,997,500
3,130,000 Refunded, FGIC, 7.8s, 4/1/18 AAA 3,509,513
320,000 Refunded, FGIC, 7.8s, 4/1/18 AAA 351,600
3,250,000 Philadelphia, Wtr. & Swr. Rev. Bonds,
Capital Guaranty Insurance Corp. (CGIC),
Ser. 16, 7s, 8/1/21 AAA 3,631,875
3,000,000 Philadelphia Wtr. & Wastewater Rev. Bonds
Refunded, CGIC, 5s, 6/15/16 AAA 2,576,250
1,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev.
Bonds, Ser. A, FGIC, 7 1/8s, 6/1/13 AAA 1,092,500
3,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp. Project),
Ser. B, 8 1/2s, 7/1/20 BB 3,075,000
1,000,000 Smithfield, Swr. Auth. Rev. Gtd. Bonds,
8 5/8s, 1/15/11 AAA/P 1,168,750
2,470,000 Trafford School District Rev. Bonds,
MBIA, 6.6s, 5/1/08 AAA 2,636,725
500,000 Washington Cnty.,Indl. Dev. Auth. 1st.
Mtge. Rev. Bonds (AHF/Central States Inc.
Project), 10 1/4s, 11/1/19 B/P 485,000
3,000,000 Wilkes-Barre School Dist. Rev. Bonds, FGIC,
6 3/8s, 4/1/15 AAA 3,075,000
1,800,000 Wilkins Area, Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (Fairview Extended Care),
Ser. A, 10 1/4s, 1/1/21 BB/P 1,959,750
1,030,000 York Cnty., Hosp. Auth. Rev. Bonds
(Hlth. Ctr. Village at Sprinkle Drive),
Ser. A, 7 3/4s, 4/1/21 BBB/P 1,058,325
1,845,000 York Cnty., Indl. Dev. Auth. First Mtge.
Hlth. Fac. Rev. Bonds (Rehabilitation
Hosp. of York Project), 7 1/2s, 9/1/07 BBB/P 1,881,900
York Cnty., Solid Waste & Refuse Auth. Indl. Dev. Rev. Bonds
650,000 (Resource Recvy. Project),
Ser A, 8.2s, 12/1/14 AA 703,625
890,000 (Resource Recvy. Project),
Ser. C, 8.2s, 12/1/14 AA 963,425
300,000 (Resource Recvy. Project),
Ser. B, 8.1s, 12/1/07 AA 325,500
- ---------------------------------------------------------------------------
--
$176,067,887
- ---------------------------------------------------------------------------
--
Puerto Rico (13.7%)
- ---------------------------------------------------------------------------
--
$1,000,000 Cmnwlth. of Puerto Rico IFB, MBIA,
8.08s, 7/1/08 AAA $ 1,018,750
800,000 Cmnwlth. of Puerto Rico IFB, MBIA,
3.9s, 7/1/08 AAA 800,000
Cmnwlth. of Puerto Rico, Pub. Impt. G.O. Bonds
200,000 Ser. A, 7 3/4s, 7/1/13 AAA 221,500
2,150,000 7.7s, 7/1/20 AAA 2,461,750
450,000 Ser. A, 7 3/4s, 7/1/17 AAA 505,688
4,000,000 Cmnwlth. of Puerto Rico G.O. Bonds,
IFB, FSA, 6.934s, 7/1/20 AAA 3,825,000
3,000,000 Cmnwlth. of Puerto Rico Rev. Bonds,
MBIA, 5 1/4s, 7/1/18 AAA 2,688,750
5,000,000 Cmnwlth. of Puerto Rico, Hwy. & Trans.
Auth. Rev. Bonds Ser. W, 5 1/4s, 7/1/20 A 4,375,000
Cmnwlth. of Puerto Rico, Hwy. Auth. Rev. Bonds
200,000 Ser. P, 8 1/8s, 7/1/13 AAA 223,750
250,000 Ser. O, 8s, 7/1/05 AAA 278,750
900,000 Ser. Q, 7 3/4s, 7/1/16 AAA 1,032,750
2,500,000 Ser. Q, 7 3/4s, 7/1/10 AAA 2,856,250
2,000,000 Cmnwlth. of Puerto Rico, Pub. Bldgs.
Auth. Ed. & Hlth. Fac. Rev. Bonds
Ser. M, 5 3/4s, 7/1/15 A 1,900,000
575,000 Cmnwlth. of Puerto Rico, Urban Renewal &
Hsg. Corp. Rev. Bonds, 7 7/8s, 10/1/04 Baa 638,250
4,550,000 Puerto Rico Elec. Pwr. Auth. Rev. Bonds,
Ser. T, 6s, 7/1/16 A 4,453,313
1,200,000 Puerto Rico, Pub. Bldgs. Auth. Gtd. Edl. &
Hlth. Fac. Rev. Bonds, Ser. H,
7 7/8s, 7/1/16 AAA 1,306,500
- ---------------------------------------------------------------------------
--
$ 28,586,001
- ---------------------------------------------------------------------------
--
Total Investments (cost $200,326,226)*** $204,653,888
- ---------------------------------------------------------------------------
--
<FN>
NOTES
- ---------------------------------------------------------------------------
- --
* Percentages indicated are based on net assets of $208,237,759, which
correspond to a net asset value per class A and class B share of $8.98
and $8.97, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at February 28, 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 February 28, 1995. Securities rated by Putnam are
indicated by "/P" and are not publicly rated. 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.
## These securities, having an aggregate value of $4,363,368 or 2.1% of
the fund's net assets have been purchased on a when-issued basis --
that is, the fund has agreed to take delivery of and make payment for
such securities beyond the settlement time of 10 business days and
subsequent to the date of this report. The purchase price and interest
rate of such securities are fixed at the trade date, although the fund
does not earn any interest on such securities until the settlement
date.
*** The aggregate identified cost on a tax basis is $200,326,226,
resulting in gross unrealized appreciation and depreciation of
$8,054,951 and $(3,727,289), repectively, or net unrealized
appreciation of $4,327,662. The rates shown on Inverse Floating Bonds
(IFB) which are securities paying variable interest rates that vary
inversely to changes in market interest rates and Variable Rate Demand
Notes (VRDN) are the current interest rates at February 28, 1995,
which are subject to change based on the terms of the security. The
Fund had the following industry group concentrations greater than 10%
on February 28, 1995 (as a percentage of net assets):
Hospitals/Health Care 17.0%
Utility, Water & Sewer 15.6
Education 10.9
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. The Fund had the following
insurance concentrations greater than 10% at February 28, 1995 (as a
percentage of net assets):
MBIA 14.2%
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1995
</TABLE>
<TABLE><CAPTION>
<S>
<C>
ASSETS
- ---------------------------------------------------------------------------
--
Investments in securities, at value (identified cost $200,326,226)
(Note 1)
$204,653,888
- ---------------------------------------------------------------------------
--
Cash
3,709,552
- ---------------------------------------------------------------------------
--
Interest receivable
3,625,564
- ---------------------------------------------------------------------------
--
Receivable for shares of the Fund sold
1,312,736
- ---------------------------------------------------------------------------
--
Receivable for securities sold
363,110
- ---------------------------------------------------------------------------
--
Total assets
213,664,850
LIABILITIES
- ---------------------------------------------------------------------------
--
Payable for securities purchased
4,250,645
- ---------------------------------------------------------------------------
--
Payable for shares of the Fund repurchased
264,382
- ---------------------------------------------------------------------------
--
Payable for compensation of Manager (Note 2)
292,014
- ---------------------------------------------------------------------------
--
Distributions payable to shareholders
495,354
- ---------------------------------------------------------------------------
--
Payable for administrative services (Note 2)
1,436
- ---------------------------------------------------------------------------
--
Payable for compensation of Trustees (Note 2)
204
- ---------------------------------------------------------------------------
--
Payable for investor servicing and custodian fees (Note 2)
5,959
- ---------------------------------------------------------------------------
--
Payable for distribution fees (Note 2)
77,612
- ---------------------------------------------------------------------------
--
Other accrued expenses
39,485
- ---------------------------------------------------------------------------
--
TOTAL LIABILITIES
5,427,091
- ---------------------------------------------------------------------------
--
NET ASSETS
$208,237,759
- ---------------------------------------------------------------------------
--
REPRESENTED BY
- ---------------------------------------------------------------------------
--
Paid-in capital (Notes 1 and 4)
$204,667,314
- ---------------------------------------------------------------------------
--
Undistributed net investment income (Note 1)
90,838
- ---------------------------------------------------------------------------
--
Accumulated net realized loss on investments (Note 1)
(848,055)
- ---------------------------------------------------------------------------
--
Net unrealized appreciation of investments
4,327,662
- ---------------------------------------------------------------------------
--
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES
OUTSTANDING
$208,237,759
- ---------------------------------------------------------------------------
--
COMPUTATION OF NET ASSET VALUE
- ---------------------------------------------------------------------------
--
Net asset value and redemption price per class A shares
($171,568,051 divided by 19,101,804 shares)
$8.98
- ---------------------------------------------------------------------------
--
Offering price per share (100/95.25 of $8.98)*
$9.43
- ---------------------------------------------------------------------------
--
Net asset value and offering price per class B share ($36,669,708
divided by 4,086,943 shares)**
$8.97
- ---------------------------------------------------------------------------
--
<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
Year ended February 28, 1995
<TABLE><CAPTION>
<S> <C>
- ---------------------------------------------------------------------------
--
TAX EXEMPT INTEREST INCOME: $13,212,959
- ---------------------------------------------------------------------------
--
EXPENSES:
- ---------------------------------------------------------------------------
--
Compensation of Manager (Note 2) 1,155,995
- ---------------------------------------------------------------------------
--
Investor servicing and custodian fees (Note 2) 135,312
- ---------------------------------------------------------------------------
--
Compensation of Trustees (Note 2) 10,727
- ---------------------------------------------------------------------------
--
Reports to shareholders 14,629
- ---------------------------------------------------------------------------
--
Auditing 27,254
- ---------------------------------------------------------------------------
--
Legal 20,519
- ---------------------------------------------------------------------------
--
Administrative services (Note 2) 8,865
- ---------------------------------------------------------------------------
--
Distribution fees -- Class A (Note 2) 334,268
- ---------------------------------------------------------------------------
--
Distribution fees -- Class B (Note 2) 215,603
- ---------------------------------------------------------------------------
--
Amortization of organization expenses (Note 1) 11,066
- ---------------------------------------------------------------------------
--
Other 1,622
- ---------------------------------------------------------------------------
--
TOTAL EXPENSES 1,935,860
- ---------------------------------------------------------------------------
--
NET INVESTMENT INCOME 11,277,099
- ---------------------------------------------------------------------------
--
Net realized loss on investments (Notes 1 and 3) (381,727)
- ---------------------------------------------------------------------------
--
Net realized loss on futures contracts (Notes 1 and 3) (349,797)
- ---------------------------------------------------------------------------
--
Net unrealized depreciation of investments during the
year (7,009,417)
- ---------------------------------------------------------------------------
--
NET LOSS ON INVESTMENTS (7,740,941)
- ---------------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,536,158
- ---------------------------------------------------------------------------
--
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED YEAR
ENDED
FEBRUARY 28 FEBRUARY
28
----------- ----------
- -
1995
1994
- ---------------------------------------------------------------------------
--
INCREASE IN NET ASSETS
- ---------------------------------------------------------------------------
--
Operations:
- ---------------------------------------------------------------------------
--
Net investment income $ 11,277,099 $
9,157,267
- ---------------------------------------------------------------------------
--
Net realized gain (loss) on investments
and futures (731,524)
581,495
- ---------------------------------------------------------------------------
--
Net unrealized depreciation of investments (7,009,417)
(643,257)
- ---------------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 3,536,158
9,095,505
- ---------------------------------------------------------------------------
--
Distributions to shareholders from:
- ---------------------------------------------------------------------------
--
Net investment income:
- ---------------------------------------------------------------------------
--
Class A (9,864,312)
(9,026,558)
- ---------------------------------------------------------------------------
--
Class B (1,330,727)
(170,225)
- ---------------------------------------------------------------------------
--
Net realized gain on investments
- ---------------------------------------------------------------------------
--
Class A (143,524)
(438,817)
- ---------------------------------------------------------------------------
--
Class B (26,246)
(15,999)
- ---------------------------------------------------------------------------
--
In excess of realized gains on investments
- ---------------------------------------------------------------------------
--
Class A (98,516)
- ---------------------------------------------------------------------------
--
Class B (18,015)
- ---------------------------------------------------------------------------
--
Increase from capital share transactions (Note 4) 31,793,571
40,571,165
- ---------------------------------------------------------------------------
--
TOTAL INCREASE IN NET ASSETS 23,848,389
40,015,071
NET ASSETS
- ---------------------------------------------------------------------------
--
Beginning of period 184,389,370
144,374,299
- ---------------------------------------------------------------------------
--
END OF PERIOD (including undistributed net
investment income of $90,838 and
$4,404, respectively) $208,237,759
$184,389,370
- ---------------------------------------------------------------------------
--
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
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
- ---------------------------------------------------------------------------
--
</TABLE>
<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>
NOTES TO FINANCIAL STATEMENTS
February 28, 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 Management 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
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 February 28, 1995, the Fund had a capital loss carryover of
approximately
$290,456 which may be available to offset realized gains, if any, to the
extent provided by regulations. This amount will expire February 28, 2008.
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
amortization of organizational costs. 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. During the year ended February 28, 1995 the
fund reclassified $4,374 to increase undistributed net investment income,
with a decrease of $4,374, to additional paid-in capital.
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 straight line basis for bonds issued prior
thereto.
The premium in excess of the call price, if any, is amortized to the call
date thereafter, and the remaining excess premium is amortized to maturity
on
a yield-to- maturity basis. Discount on zero- coupon bonds, and income on
stepped- coupon bonds, is recognized according to the effective yield
method.
F UNAMORTIZED ORGANIZATION EXPENSES
Expenses incurred by the Fund in connection with its organization, its
registration with the Securities and Exchange Commission and with various
states, and the initial public offering of its class A shares aggregated
$60,484. These expenses were amortized over a five-year period based on
current and projected net asset levels.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the Fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is paid quarterly based on the average net
assets of the Fund for the quarter. Such fee is based on the following
annual
rates: 0.6% of the first $500 million of average net assets, 0.5% of the
next
$500 million, 0.45% of the next $500 million and 0.4% of any amount over
$1.5
billion subject to reduction in any year to the extent of certain brokerage
commissions and fees (less expenses) received by affiliates of the Manager
on
the Fund's portfolio transactions.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the
Fund and their staff who provide administrative services to the Fund. The
aggregate amount of all such reimbursements is determined annually by the
Trustees.
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 year ended February 28, 1995 have been reduced by credits allowed
by PFTC.
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 year ended February 28, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $71,739 from the sale of class A
shares and $69,280 in contingent deferred sales charges from redemptions of
class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more.
For
the year ended February 28, 1995, Putnam Mutual Funds Corp., acting as
underwriter received no commissions on such redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended February 28, 1995, purchases and sales of investment
securities other than
short-term investments aggregated $79,981,305 and $48,654,259,
respectively.
Purchases and sales of short-term municipal obligations aggregated
$15,700,000 and $17,000,000, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
NOTE 4
CAPITAL SHARES
At February 28, 1995, there was an unlimited number of class A and class B
capital shares of beneficial interest authorized. Transactions in capital
shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
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
- -------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED FEBRUARY 28
- -------------------------------------------------------
1994
- -------------------------------------------------------
CLASS A SHARES AMOUNT
- -------------------------------------------------------
Shares sold 4,612,523 $ 43,626,301
Shares issued in connection
with reinvestment of
distributions 554,144 5,240,173
- -------------------------------------------------------
5,166,667 48,866,474
- -------------------------------------------------------
Shares repurchased (2,227,002) (21,139,190)
- -------------------------------------------------------
NET INCREASE 2,939,665 $ 27,727,284
- -------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
<S> <C> <C>
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>
<TABLE><CAPTION>
<S> <C> <C>
JULY 15, 1993
(COMMENCEMENT
OF OPERATIONS) TO
FEBRUARY 28
- -------------------------------------------------------
1994
- -------------------------------------------------------
CLASS B SHARES AMOUNT
- -------------------------------------------------------
Shares sold 1,365,905 $13,030,991
Shares issued in connection
with reinvestment of
distributions 10,492 99,743
- -------------------------------------------------------
1,376,397 13,130,734
- -------------------------------------------------------
Shares repurchased (30,102) (286,853)
- -------------------------------------------------------
Net increase 1,346,295 $12,843,881
- -------------------------------------------------------
</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 the fund paid long-term capital gains distribution
of
$0.002 and $0.002 per share and short-term capital gains of $0.011 and
$0.011
on February 28, 1995 on class A and class B shares, respectively. Any
additional capital gains paid subsequent to February 28, 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
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
047/226-17505
<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.
