PUTNAM
PENNSYLVANIA
TAX EXEMPT
INCOME FUND
SEMIANNUAL REPORT
November 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
FUND HIGHLIGHTS
"Munis offer unusually attractive yields right now because of
unwarranted fears that a flat-rate income tax will end the tax
advantage they have over taxable bonds."
-- Kiplinger's Personal Finance Magazine, December 1995
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
17 Financial statements
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
TAX-EXEMPT BOND INVESTORS WILL LONG REMEMBER 1995 AS A YEAR OF HIGHS
AND LOWS IN THE MARKET. THE YEAR BEGAN AS THE BOND MARKET WAS COMING
OFF ONE OF ITS WORST PERIODS IN RECENT MEMORY. JUST AS THINGS BEGAN TO
LOOK BRIGHTER FOR TAX-EXEMPT BONDS, TALK IN WASHINGTON ABOUT TAX
REFORM THREW A FRIGHT INTO INVESTORS.
BY THE TIME PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND ENTERED ITS NEW
FISCAL YEAR IN JUNE, INVESTORS HAD BEGUN TO REGAIN THEIR COMPOSURE,
REALIZING HOW REMOTE ENACTMENT OF ANY TAX-REFORM LEGISLATION WAS
LIKELY TO BE DURING AN ELECTION YEAR. AS THE FUND REACHED THE FISCAL
YEAR'S MIDPOINT ON NOVEMBER 30, 1995, SHAREHOLDERS COULD LOOK BACK ON
A PERIOD OF IMPRESSIVE RECOVERY.
FURTHERMORE, BECAUSE OF THE EARLIER INTERRUPTION OVER TAX- REFORM
PROPOSALS, FUND MANAGER RICHARD WYKE BELIEVES THE RALLY WILL BE
SUSTAINED DURING THE SECOND HALF OF FISCAL 1996, AS THE TAX-EXEMPT
BOND MARKET CONTINUES TO MAKE UP LOST GROUND. HIS REPORT, WHICH
FOLLOWS, PROVIDES MORE DETAILS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 17, 1996
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
Shareholders who resisted the temptation to be spooked by the flat-tax
rhetoric have not gone unrewarded. Putnam Pennsylvania Tax Exempt
Income Fund produced solid results during the six months ended
November 30, 1995, posting gains of 4.87% and 4.53% at net asset value
for class A and class B shares, respectively. For performance for
longer periods and for performance of class M shares, which became
available on July 3, 1995, see page 8.
STRONG RELATIVE PERFORMANCE: A MATTER OF PERSPECTIVE
After overcoming a brief stall in midsummer, the broad fixed- income
market continued its impressive run throughout the six months ended
November 30, 1995. Increased investor confidence in the Federal
Reserve Board's ability to thwart inflation and effectively manage
economic growth over the long term fueled the gains of most fixed-
income investments. Indeed, the rally had gained such momentum by
period's end that the current yield on the benchmark 30-year Treasury
bond seems to be fast approaching its historically low level of 5.79%
(as of October 15, 1993).
On an absolute basis, municipal bonds participated in the rally's
strength in a highly respectable fashion. However, their performance
relative to taxable investments may appear somewhat lackluster because
of investors' lingering concerns about the perceived effects of the
flat-tax proposal introduced in April, which, in its purest form,
would deprive municipal bonds of their beneficial tax treatment. These
investor concerns prevented your fund's investments from attaining the
full price appreciation potential presented by the favorable
investment environment.
We, on the other hand, prefer to look at the semiannual returns in a
historical context, noting that they are the highest on record for any
semiannual period over the past decade. In any good year, this
performance would have been quite satisfactory
<PAGE>
and during 1994's bear market, it would have been considered a
godsend. Furthermore, on a tax-equivalent basis, an investor in the
combined maximum federal and state income tax bracket of 41.29% would
have had to earn 9.19% and 8.09%, respectively, to match the 5.40% and
4.75% current dividend rates at NAV that your fund's class A and class
B shares produced.
INCREASED FOCUS ON 15- TO 20-YEAR BONDS
One of the key strategies we employed during the period involved
reconfiguring the portfolio's positioning along the yield curve. We
began selectively selling bonds with 15-year or shorter maturities, as
well as those with 30-year maturities, reinvesting these assets into
bonds we believed offered better value and price appreciation
potential. In most cases, this meant bonds in the 15- to 20-year
maturity range. This action enabled us to better manage the fund's
price sensitivity during this past summer's decreased liquidity and
unclear interest rate movements without sacrificing high current
income potential. Once flat-tax concerns subsided and the direction of
interest rates became evident, these bonds enjoyed heightened demand
and price appreciation.
In keeping with this strategy, we will be looking for ways to decrease
the fund's heavy weighting in prerefunded bonds over time. Because of
their refunded status, the effective maturities of these issues fall
within the 7-year range.
TOP INDUSTRY SECTORS
[BAR CHART]
- -----------------------------------------
Health care 15.9%
Utilities/Water and sewerage 15.4%
Education 8.2%
Housing 3.6%
- -----------------------------------------
* Based on net assets as of 11/30/95. Holdings will vary over time.
<PAGE>
PORTFOLIO STRUCTURED FOR BETTER CALL PROTECTION, FURTHER APPRECIATION
POTENTIAL
During the period, we made other structural modifications to the
portfolio as well. We increased our emphasis on bonds with a high
degree of call protection -- i.e., trading out of securities that were
priced close to par and purchasing those selling below par, such as
discount-coupon bonds that have a lower probability of being called
and tend to offer greater price appreciation potential in a favorable
interest rate environment. Should interest rates decline in earnest,
our expanded focus on noncallable bonds should shield the portfolio
from early bond redemptions.
Inverse floaters were increased, comprising roughly 4% of net assets
by period's end. These variable-rate bonds, whose coupons change in an
opposite direction from short-term interest rates, can help boost your
fund's yield in the current rate environment and provide appreciation
potential if long-term rates begin to fall.
We've also pulled back slightly from our previous strategy of actively
adding to BBB-rated investment-grade bonds, electing instead to
bolster the fund's weighting in AAA-rated bonds from 59% of net assets
at the fiscal midyear to 62.6% of net assets by period's end. These
high-rated bonds have performed extremely well in the rally and stand
to appreciate more should the yield spread between AAA- and BBB-rated
bonds widen. Given the currently narrow yield spreads, we believe the
lower-rated issues no longer provide sufficient income to compensate
for their additional credit risk.
FUNDAMENTALS ARE SOUND, VALUATIONS APPEALING
As we enter the second half of fiscal 1996, we anticipate conditions
for investing in fixed-income securities to remain hospitable.
Subsiding inflation, a benign interest rate environment, and
decelerating economic growth seem likely to continue.
The debate over tax reform is probably the most critical factor that
will influence tax-exempt bond performance over the next 12 months.
While more instability cannot be ruled out, we believe investors have
come to realize that a revision of the income tax code would not
likely occur until after the
<PAGE>
1996 presidential election, at which time it would most likely involve
a simplification of the existing system rather than a major overhaul.
That said, we are upbeat about the prospects for the municipal-bond
market for several reasons:
First, any time municipal bonds underperform relative to Treasuries,
we believe a buying opportunity exists. Most high-grade, long-term
municipal bonds are providing 90% of the yield that Treasury bonds are
offering, on a before-tax basis. After taxes are factored in,
municipal-bond yields surpass Treasury yields. While there can be no
assurance, the failure of municipal bonds to participate in the 1995
rally to the same degree as their taxable counterparts leaves the
potential for additional price appreciation.
Second, new issue supply has been scant in 1995, down by roughly 10%-
15% from 1994 levels, while investor demand for municipal bonds has
once again picked up with the easing of flat tax concerns. This
presents a positive dynamic for continued price support.
Lastly, government, on both the state and national levels, is
addressing for the first time in history the issue of how to be more
efficient. Such attention to fiscal responsibility bodes well for the
fundamental structure of the municipal market.
The views expressed throughout this report are exclusively those of
Putnam Management. They are not meant as investment advice. Although
the described holdings were viewed favorably as of 11/30/95, there is
no guarantee the fund will continue to hold these securities in the
future.
<PAGE>
PERFORMANCE SUMMARY
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 STATE INCOME TAX CONSISTENT WITH PRESERVATION OF
CAPITAL.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
(7/21/89)* (7/15/93)* (7/3/95)*
NAV POP NAV CDSC NAV CDSC
- ----------------------------------------------------------------------
6 months 4.87% -0.10% 4.53% -0.47% -- --
- ----------------------------------------------------------------------
1 year 18.37 12.75 17.63 12.63 -- --
- ----------------------------------------------------------------------
5 years 53.48 46.16 -- -- -- --
Annual average 8.95 7.89 -- -- -- --
- ----------------------------------------------------------------------
Life of class 67.52 59.64 12.36 9.38 5.91% 2.42%
Annual average 8.45 7.63 5.02 3.84 -- --
- ----------------------------------------------------------------------
<FN>
* Commencement of operations.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/95
LEHMAN BROS.
MUNICIPAL CONSUMER
BOND INDEX PRICE INDEX
- ----------------------------------------------------------------------
6 months 5.18% 0.92%
- ----------------------------------------------------------------------
1 year 18.90 2.61
- ----------------------------------------------------------------------
5 years 51.82 14.80
Annual average 8.71 2.80
- ----------------------------------------------------------------------
Life of class A 66.26 23.47
Annual average 8.32 3.37
- ----------------------------------------------------------------------
Life of class B 68.52 6.37
Annual average 8.52 2.63
- ----------------------------------------------------------------------
Life of class M 6.10 0.72
- ----------------------------------------------------------------------
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Class A share
performance data do not take into account distribution fees prior to
implementation of the class A distribution plan in 1993. Investment
returns and net asset value will fluctuate so that an investor's
shares, when sold, may be worth more or less than their original cost.
POP assumes 4.75% maximum sales charge for class A shares and 3.25%
for class M shares. CDSC for class B shares assumes 5% maximum
contingent deferred sales charge.
</TABLE>
<PAGE>
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
(7/21/89)* (7/15/93)* (7/3/95)*
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
1 year 16.73% 11.17% 16.01% 11.01% -- --
- ----------------------------------------------------------------------
5 years 54.48 47.10 -- -- -- --
Annual average 9.09 8.02 -- -- -- --
- ----------------------------------------------------------------------
Life of class 69.22 61.26 13.45 10.45 6.96% 3.43%
Annual average 8.50 7.69 5.26 4.12 -- --
- ----------------------------------------------------------------------
<FN>
* Commencement of operations.
PRICE AND DISTRIBUTIONS FOR PERIODS ENDED 11/30/95
CLASS A CLASS B CLASS M
- ----------------------------------------------------------------------
Distributions (number) 6 6 5
- ----------------------------------------------------------------------
Income $0.260717 $0.230145 $0.20075
- ----------------------------------------------------------------------
TOTAL $0.260717 $0.230145 $0.20075
- ----------------------------------------------------------------------
SHARE VALUE: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
5/31/95 $9.24 $9.70 $9.23 -- --
- ----------------------------------------------------------------------
7/3/95 -- -- -- $9.10 $9.41
- ----------------------------------------------------------------------
11/30/95 9.42 9.89 9.41 9.43 9.75
- ----------------------------------------------------------------------
CURRENT RETURN:
End of period
- ----------------------------------------------------------------------
Current dividend rate(1) 5.40% 5.14% 4.75% 5.10% 4.94%
- ----------------------------------------------------------------------
Taxable equivalent(2) 9.19 8.76 8.09 8.69 8.41
- ----------------------------------------------------------------------
Current 30-day SEC yield(3)5.23 4.98 4.58 4.93 4.76
- ----------------------------------------------------------------------
Taxable equivalent(2) 8.91 8.48 7.80 8.40 8.11
- ----------------------------------------------------------------------
<FN>
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. (1)Income portion of most recent distribution,
annualized and divided by NAV or POP at end of period. (2)Assumes
maximum combined state and federal tax rates of 41.29%. (3)Based on
investment income, calculated using SEC guidelines. Results for
investors subject to lower tax rates would not be as advantageous.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of the 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 and 3.25% for class M 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. It is not
possible to invest directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1995 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -AMBAC Indemnity Corporation
BIGI -Bond Investors Guaranty Insurance
CGIC -Capital Guaranty Insurance Corporation
CLI Insd. -Connie Lee Insurance Insured
COP -Certificate of Participation
FGIC -Federal Guaranty Insurance Corporation
FHA Insd. -Federal Housing Administration Insured
FSA -Financial Security Assurance
G.O. Bonds -General Obligation Bonds
IFB -Inverse Floating Rate Bonds
MBIA -Municipal Bond Investors Assurance Corporation
VRDN -Variable Rate Demand Notes
<TABLE><CAPTION>
<C> <S> <C> <C>
MUNICIPAL BONDS AND NOTES (99.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (87.2%)
- ----------------------------------------------------------------------
$2,500,000 Abington Heights School Dist. Rev.
Bonds (Lackawanna Cnty.), FGIC, 5.1s,
3/15/18 AAA $2,362,500
1,000,000 Allegheny Cnty., Arpt. Rev. Bonds
(Pittsburgh Intl. Arpt.), Ser. C,
MBIA, 8 1/4s, 1/1/16 AAA 1,086,250
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
2,000,000 (Southside Hosp. Pittsburgh), Ser. A,
8 3/4s, 6/1/10 BBB 2,080,000
1,000,000 (St. Francis Med. Ctr. Project),
AMBAC, 8 1/8s, 6/1/13 AAA 1,040,970
900,000 Allegheny Cnty., Hosp. Dev. Auth.
VRDN (Presbyterian Hlth. Ctr.), Ser. A,
MBIA, 3.7s, 3/1/20 VMIGI 900,000
1,975,000 Allegheny Cnty., Indl. Dev. Auth. Med.
Ctr. Rev. Bonds (Presbyterian Med. Ctr.
of Oakmont) FHA Insd., 6 3/4s, 2/1/26 AAA 2,105,844
580,000 Allegheny Cnty., Indl. Dev. Auth. Rev.
Bonds (Southwestern Arpt. Cargo Fac.),
8 3/4s, 2/15/09 BB/P 622,050
4,000,000 Allentown Wtr. Rev. Bonds, FGIC, 5 1/2s,
10/15/15 AAA 4,025,000
1,900,000 Beaver Cnty. Indl. Dev. Auth. Poll.
Control Rev. Bonds (Mansfield Pwr. Co.
Project), Ser. A, FSA, 5.45s, 9/15/28 AAA 1,847,750
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds
(Altoona Hosp. Project), AMBAC, 6 1/2s,
7/1/22 AAA 1,603,125
Cambria Cnty., Indl. Dev. Auth. Resource
Recvy. Rev. Bonds (Cambria Cogen. Project)
1,100,000 Ser. F1, 7 3/4s, 9/1/19 A 1,156,375
400,000 Ser. F2, 7 3/4s, 9/1/19 A 420,500
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (CONTINUED)
- ----------------------------------------------------------------------
$ 875,000 College Township, Indl. Dev. Auth.
1st Mtge.Hlth. Facs. Rev. Bonds
(Nittany Valley Rehab. Hosp. Project),
7 5/8s, 11/1/07 BBB/P $ 923,125
2,485,000 Dauphin Cnty., Gen. Auth. Hosp. Rev.
Bonds (Northwest Med. Ctr. Project),
8 5/8s, 10/15/13 Ba 2,674,481
1,000,000 Dauphin Cnty., Indl. Dev. Auth. Wtr.
Rev. Bonds (Dauphin Cons. Wtr. Supply),
Ser. A, 6.9s, 6/1/24 A 1,151,250
3,000,000 Delaware Cnty., Hlth. Care Auth. Rev.
Bonds (Mercy Hlth. Corp. Southeastern),
Ser. A, CLI Insd., 5 1/8s, 11/15/12 AAA 2,842,500
1,000,000 Delaware Cnty., Hosp. Auth. Rev. Bonds
(Crozer-Chester Med. Ctr.), MBIA, 7 1/2s,
12/15/20 AAA 1,160,000
5,000,000 Delaware Cnty., Indl. Dev. Auth. Arpt.
Fac. VRDN (UTD Parcel Svc. Project),
3.8s, 12/1/15 VMIGI 5,000,000
1,035,000 Delaware Cnty., Indl. Dev. Auth. Rev.
Bonds (Resource Recvy. Project), Ser. A,
8.1s, 12/1/13 AA 1,084,794
4,100,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run), Ser. A,
7.2s, 7/1/23 BBB/P 4,135,875
3,000,000 Emmaus, Gen. Auth. Rev. Bonds (Local Govt.
Bond Pool), Ser. A, BIGI, 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 7,247,500
Erie, Higher Ed. Bldg. Auth. College Rev.
Bonds (Mercyhurst College Project)
1,150,000 7.85s, 9/15/19 AAA 1,292,313
1,860,000 Ser. B, 5 3/4s, 3/15/13 BBB 1,825,125
1,000,000 Ser. A, 5 3/4s, 3/15/13 BBB 981,250
2,000,000 Erie, Higher Ed. Bldg. Auth. U. Rev.
Bonds (Gannon U. Project), Ser. D,
5.85s, 6/1/15 BBB 1,975,000
3,500,000 Erie, Wtr. Auth. Rev. Bonds, 7 1/8s,
12/1/11 BBB 3,985,625
750,000 Erie-Western PA Port Auth. Gen. Rev.
Bonds, 8 5/8s, 6/15/10 BBB 815,625
1,560,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s,
1/1/02 BBB/P 1,517,100
3,500,000 Harrisburg, Auth. Lease Rev. Bonds
(Greene Cnty. Prison Project), CGIC,
6 1/4s, 6/1/10 AAA 3,815,000
550,000 Jenkins Township, Sanitary Auth. Swr.
Rev. Bonds, 8s, 12/1/09 AAA 624,250
700,000 Lancaster Cnty., Solid Waste Mgt. Auth.
(Resource Recvy. Systs.) Rev. Bonds,
Ser. A, 8 1/2s, 12/15/10 A 751,625
2,200,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds Ser. B, 8 1/4s, 11/1/18 BBB 2,549,250
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (CONTINUED)
- ----------------------------------------------------------------------
$5,050,000 Lehigh Cnty. Indl. Dev. Auth. Poll.
Control IFB (PA Pwr. & Light Co. Project),
8.362s, 9/1/29 (acquired 6/20/95, cost
$5,572,473)+ AAA $5,839,063
1,000,000 Lehigh Cnty., Gen. Purpose Auth. Rev.
Bonds (Muhlenberg Hosp.), Ser. A, 8.1s,
7/15/10 Baa 1,080,000
3,575,000 Lehigh Cnty., Indl. Dev. Auth. Poll.
Control Rev. Bonds (PA Pwr. & Lt. Co.
Project), Ser. B, MBIA, 6.4s, 9/1/29 AAA 3,825,250
3,000,000 Lower Providence Township Swr. Auth. Rev.
Bonds, MBIA, 5 1/4s, 5/1/22 AAA 2,867,937
2,000,000 Luzerne Cnty., Indl. Dev. Auth. Rev.
Bonds (Gas & Wtr. Co. Project), Ser. B,
7 1/8s, 12/1/22 BBB 2,125,000
2,305,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp. Project), 6 1/4s, 7/1/03 Baa 2,336,694
Montgomery Cnty., Higher Ed. & Hlth.
Auth. Hosp. Rev. Bonds
2,000,000 (Abington Hosp.), Ser. A, AMBAC, 8.695s,
6/1/11 AAA 2,320,000
1,305,000 (United Hosp. Inc.--St. Christopher),
8 1/4s, 11/1/03 Ba 1,371,881
1,000,000 (UTD Hosp. Project), Ser. B, 7 1/2s,
11/1/12 Ba 1,020,000
3,000,000 (Sacred Heart Hosp., Norristown), Ser. A,
BIGI, 6.8s, 2/1/13 AAA 3,071,250
5,000,000 (Montgomery Hosp.), AMBAC, 5 1/8s, 6/1/14 AAA 4,750,000
3,000,000 New Morgan, Indl. Dev. Auth. Solid Waste
Disp. Rev. Bonds (New Morgan Landfill Co.,
Inc. Project), 6 1/2s, 4/1/19 A 3,168,750
4,000,000 North PA Wtr. Auth. Wtr. Rev. Bonds, FGIC,
5 3/4s, 11/1/18 AAA 4,075,000
1,000,000 Northeastern PA Hosp. & Edl. Auth. College
Rev. Bonds (Kings College Project), Ser. B,
6s, 7/15/11 BBB 1,003,750
PA Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds (Northampton Generating Project)
1,300,000 Ser. A, 6.6s, 1/1/19 BB/P 1,303,250
2,000,000 Ser. A, 6 1/2s, 1/1/13 BB/P 1,995,000
4,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership Project), 7.6s,
12/1/20 Baa 4,510,000
PA Hsg. Fin. Agcy. Single Fam. Mtge. Rev.
Bonds
825,000 Ser. R, 8 1/8s, 10/1/19 AA 859,031
385,000 Ser. U, 7.8s, 10/1/20 AA 412,431
400,000 Ser. 29, 7 3/8s, 10/1/16 AA 424,000
2,000,000 Ser. 33, 6.9s, 4/1/17 AA 2,110,000
4,750,000 PA Intergovernmental Co-op. Auth. Special
Tax Rev. Bonds (City of Philadelphia),
AMBAC, 5 3/4s, 6/15/15 AAA 4,791,563
7,830,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 AAA 7,272,113
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (continued)
- ----------------------------------------------------------------------
$1,000,000 PA State Econ. Dev. Fin. Auth. Res.
Recvy. Rev. Bonds (Colver Project), Ser. D,
7 1/8s, 12/1/15 BBB $1,065,000
PA State Higher Ed. Assistance Agcy. IFB
2,400,000 Ser. B, MBIA, 10.515s, 3/1/20 AAA 2,724,000
3,850,000 Ser. B, AMBAC, 9.476s, 3/1/22 AAA 3,936,625
PA State Higher Ed. Facs. Auth. College & U.
Rev. Bonds
1,300,000 (Med. College), Ser. A, 8 3/8s, 3/1/11 BBB 1,438,125
3,000,000 (Med. College), Ser. A, 7 3/8s, 3/1/21 Baa 3,183,750
2,500,000 (Duquesne U. Project), Ser. C, MBIA,
6 3/4s, 4/1/20 AAA 2,696,875
2,600,000 (Allegheny College Project), Ser. B,
6 1/8s, 11/1/13 BBB 2,639,000
2,700,000 PA State Rev. Bonds, Ser. 2, 5 1/4s,
6/15/13 AA 2,652,750
4,500,000 PA State Tpk. Rev. Bonds, 5 1/2s, 12/1/17 A 4,477,500
Philadelphia Gas Works Bonds
1,225,000 Ser. 13, 7.7s, 6/15/21 AAA 1,440,906
4,000,000 FSA, 5.905s, 8/1/21 (acquired 1/24/94,
cost $3,747,680)+ AAA 3,640,000
Philadelphia School Dist. Rev. Bonds
3,000,000 Ser. B, AMBAC, 5 1/2s, 9/1/18 AAA 2,985,000
2,600,000 Ser. B, AMBAC, 5 1/2s, 9/1/15 AAA 2,596,750
Philadelphia Wtr. & Wastewtr. Rev. Bonds
2,500,000 CGIC, 5 1/2s, 6/15/15 AAA 2,481,250
3,000,000 CGIC, 5s, 6/15/16 AAA 2,778,750
1,950,000 FGIC, 5s, 6/15/12 AAA 1,852,500
1,000,000 Philadelphia, G.O. Bonds, FGIC, 8 1/4s,
2/15/09 AAA 1,028,600
Philadelphia, Muni. Auth. Rev. Bonds
320,000 Prerefunded FGIC, 7.8s, 4/1/18 AAA 352,000
3,130,000 Prerefunded FGIC, 7.8s, 4/1/18 AAA 3,556,463
1,000,000 Ser. B, FGIC, 7 1/8s, 11/15/18 AAA 1,156,250
2,125,000 Ser. A, FGIC, 5 5/8s, 11/15/14 AAA 2,135,625
3,250,000 Philadelphia, Wtr. & Swr. Rev. Bonds, CGIC,
Ser. 16, 7s, 8/1/21 AAA 3,721,250
400,000 St. Mary Hosp. Langhorne Hosp. Auth. VRDN
(Franciscan Hlth. Syst.), Ser. A, 3.8s,
12/1/24 VMIGI 400,000
1,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev.
Bonds, Ser. A, FGIC, 7 1/8s, 6/1/13 AAA 1,130,000
3,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp. Project),
Ser. B, 8 1/2s, 7/1/20 BB 3,258,750
1,000,000 Smithfield, Swr. Auth. Rev. Gtd. Bonds,
8 5/8s, 1/15/11 AAA/P 1,187,500
4,500,000 Southeastern Trans. Auth. Special Rev.
Bonds, Ser. A, FGIC, 5 3/4s, 3/1/20 AAA 4,578,750
2,470,000 Trafford School District Rev. Bonds, MBIA,
6.6s, 5/1/08 AAA 2,775,663
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
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PENNSYLVANIA (continued)
- ----------------------------------------------------------------------
$3,000,000 Wilkes-Barre School Dist. Rev. Bonds, FGIC,
6 3/8s, 4/1/15 AAA $3,198,750
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 2,002,500
1,030,000 York Cnty., Hosp. Auth. Rev. Bonds (Hlth.
Ctr. Village at Sprenkle Drive), Ser. A,
7 3/4s, 4/1/21 BBB/P 1,090,513
1,760,000 York Cnty., Indl. Dev. Auth. lst Mtge.
Hlth. Facs. Rev. Bonds (Rehabilitation
Hosp. of York Project), 7 1/2s, 9/1/07 BBB/P 1,872,200
York Cnty., Solid Waste & Refuse Auth.
Indl. Dev. Rev. Bonds (Resource Recvy.
Project)
650,000 Ser. A, 8.2s, 12/1/14 AA 715,000
300,000 Ser. B, 8.1s, 12/1/07 AA 330,375
York Cnty., Solid Waste & Refuse
Auth. Rev. Bonds
890,000 (Resource Recvy. Project), Ser. C,
8.2s, 12/1/14 AA 979,000
---------
209,954,485
PUERTO RICO (12.1%)
- ----------------------------------------------------------------------
3,000,000 Cmnwlth. of PR, MBIA, 5 1/4s, 7/1/18 AAA 2,940,000
Cmnwlth. of PR, Hwy. Auth. Rev. Bonds
200,000 Ser. P, 8 1/8s, 7/1/13 AAA 224,250
250,000 Ser. O, 8s, 7/1/05 AAA 279,375
900,000 Ser. Q, 7 3/4s, 7/1/16 AAA 1,048,500
2,500,000 Ser. Q, 7 3/4s, 7/1/10 AAA 2,912,500
3,500,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev.
Bonds Ser. T, 6 5/8s, 7/1/12 A 3,766,875
Cmnwlth. of PR, IFB
200,000 MBIA, 7.534s, 7/1/08 AAA 223,000
4,000,000 FSA, 7.677s, 7/1/20 AAA 4,260,000
Cmnwlth. of PR, Impt. G.O. Bonds
450,000 Ser. A, 7 3/4s, 7/1/17 AAA 510,750
200,000 Ser. A, 7 3/4s, 7/1/13 AAA 222,250
2,150,000 7.7s, 7/1/20 AAA 2,504,750
1,600,000 MBIA, 5.642s, 7/1/08 AAA 1,694,000
575,000 Cmnwlth. of PR, Urban Renewal & Hsg.
Corp. Rev. Bonds (Cmnwlth. Appropriation),
7 7/8s, 10/1/04 Baa 655,500
4,550,000 PR Elec. Pwr. Auth. Rev. Bonds Ser. T, 6s,
7/1/16 A 4,669,438
PR Pub. Bldgs. Auth., Gtd. Edl. & Hlth.
Fac. Rev. Bonds
1,200,000 Ser. H, 7 7/8s, 7/1/16 AAA 1,299,000
2,000,000 Ser. M, 5 3/4s, 7/1/15 A 2,007,500
----------
29,217,688
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (cost $224,365,143)*** $239,172,173
- ----------------------------------------------------------------------
<PAGE>
<FN>
NOTES
* Percentages indicated are based on net assets of $240,863,527.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at November 30, 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 November 30, 1995.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated.
++ Restricted as to public resale. At the date of acquisition these
securities were valued at cost. There were no outstanding
securities of the same class as those held. Total market value of
restricted securities owned at November 30, 1995 was $9,479,063
or 3.9% of net assets.
*** The aggregate identified cost on a tax cost basis is
$224,365,143, resulting in gross unrealized appreciation and
depreciation of $15,274,098 and $467,068, respectively, or net
unrealized appreciation of $14,807,030.
The fund had the following insurance concentrations greater than
10% of net assets at November 30, 1995 (as a percentage of net
assets):
AMBAC 13.0%
FGIC 12.2
MBIA 12.5
The fund had the following industry group concentrations greater
than 10% of net assets at November 30, 1995 (as a percentage of
net assets):
Health Care 15.9%
Utilities/Water & Sewerage 15.4
The rates shown on IFB, which are securities paying variable
interest rates that vary inversely to changes in the market
interest rates, and VRDN, are the current interest rates at
November 30, 1995, which are subject to change based on the terms
of the security.
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities, at value
(identified cost $224,365,143) (Note 1) $239,172,173
- ----------------------------------------------------------------------
Cash 55,568
- ----------------------------------------------------------------------
Interest receivable 4,434,064
- ----------------------------------------------------------------------
Receivable for shares of the fund sold 844,713
- ----------------------------------------------------------------------
TOTAL ASSETS 244,506,518
LIABILITIES
- ----------------------------------------------------------------------
Payable for securities purchased 2,886,753
- ----------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 3,630
- ----------------------------------------------------------------------
Payable for shares of the fund repurchased 127,272
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 349,458
- ----------------------------------------------------------------------
Distributions payable to shareholders 136,010
- ----------------------------------------------------------------------
Payable for administrative services (Note 2) 1,398
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 125
- ----------------------------------------------------------------------
Payable for distribution fees (Note 2) 98,973
- ----------------------------------------------------------------------
Other accrued expenses 39,372
- ----------------------------------------------------------------------
TOTAL LIABILITIES 3,642,991
- ----------------------------------------------------------------------
NET ASSETS $240,863,527
- ----------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $226,427,277
- ----------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (37,538)
- ----------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (333,242)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 14,807,030
- ----------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE
TO CAPITAL SHARES OUTSTANDING $240,863,527
- ----------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
- ----------------------------------------------------------------------
Net asset value and redemption price per class A share
($184,616,129 divided by 19,593,861 shares) $9.42
- ----------------------------------------------------------------------
Offering price per share (100/95.25 of $9.42)* $9.89
- ----------------------------------------------------------------------
Net asset value and offering price per class B share ($56,196,347
divided by 5,971,193 shares)** $9.41
- ----------------------------------------------------------------------
Net asset value and redemption price per class M share
($51,051 divided by 5,415 shares) $9.43
- ----------------------------------------------------------------------
Offering price per share (100/96.75 of $9.43)*** $9.75
- ----------------------------------------------------------------------
<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.
*** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1995 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $7,424,201
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) 686,428
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 155,883
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,712
- ----------------------------------------------------------------------
Reports to shareholders 37,283
- ----------------------------------------------------------------------
Postage 19,891
- ----------------------------------------------------------------------
Auditing 28,180
- ----------------------------------------------------------------------
Legal 12,468
- ----------------------------------------------------------------------
Administrative services (Note 2) 4,196
- ----------------------------------------------------------------------
Distribution fees -- class A (Note 2) 179,763
- ----------------------------------------------------------------------
Distribution fees -- class B (Note 2) 210,807
- ----------------------------------------------------------------------
Distribution fees -- class M (Note 2) 68
- ----------------------------------------------------------------------
Other 3,889
- ----------------------------------------------------------------------
TOTAL EXPENSES 1,344,568
- ----------------------------------------------------------------------
Expense reduction (Note 2) (104,568)
- ----------------------------------------------------------------------
NET EXPENSES 1,240,000
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 6,184,201
- ----------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 629,192
- ----------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 90,254
- ----------------------------------------------------------------------
Net unrealized appreciation of investments during the period 4,170,066
- ----------------------------------------------------------------------
NET GAIN ON INVESTMENTS 4,889,512
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,073,713
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS THREE MONTHS
ENDED ENDED
NOVEMBER 30 MAY 31
- ----------------------------------------------------------------------
1995* 1995**
- ----------------------------------------------------------------------
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $6,184,201 $3,010,830
- ----------------------------------------------------------------------
Net realized gain (loss) on investments 719,446 (192,151)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 4,170,066 6,309,302
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 11,073,713 9,127,981
- ----------------------------------------------------------------------
Distributions to shareholders:
From net investment income:
- ----------------------------------------------------------------------
Class A (5,065,766) (2,522,292)
- ----------------------------------------------------------------------
Class B (1,232,052) (515,060)
- ----------------------------------------------------------------------
Class M (719) --
- ----------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 13,051,674 8,708,289
- ----------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 17,826,850 14,798,918
NET ASSETS
- ----------------------------------------------------------------------
Beginning of period 223,036,677 208,237,759
- ----------------------------------------------------------------------
END OF PERIOD (including distributions in excess
of net investment income and undistributed
net investment income of $37,538 and $76,798,
respectively) $240,863,527 $223,036,677
- ----------------------------------------------------------------------
<FN>
* Unaudited.
** The fiscal year end has advanced from February 28 to May 31.
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
FOR THE PERIOD
JULY 3, 1995
(COMMENCEMENT SIX MONTHS THREE MONTHS YEAR
OF OPERATIONS) ENDED ENDED ENDED
TO NOVEMBER 30 NOVEMBER 30 MAY 31 FEBRUARY 28
- ----------------------------------------------------------------------
1995** 1995** 1995* 1995
- ----------------------------------------------------------------------
Class M Class B
- ----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $9.10 $9.23 $8.97 $9.38
- ----------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .20 .23 .11 .47
Net realized and unrealized
gain (loss) on investments .33 .18 .27 (.40)
- ----------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS.53 .41 .38 .07
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
From net investment income (.20) (.23) (.12) (.47)
From net realized gain on
investments -- -- -- (.01)
- ----------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.20) (.23) (.12) (.48)
- ----------------------------------------------------------------------
NET ASSET VALUE, END OF
PERIOD $9.43 $9.41 $9.23 $8.97
- ----------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 5.91(c) 4.53(c) 4.23(c) .93
- ----------------------------------------------------------------------
Net assets, end of period
(in thousands) $51,053 $56,196 $44,252 $36,670
- ----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .49(c) .84(c) .38(c) 1.57
- ----------------------------------------------------------------------
Ratio of net investment
income to average net
assets (%) 2.11(c) 2.43(c) 1.26(c) 5.23
- ----------------------------------------------------------------------
Portfolio turnover (%) 18.91 18.91 4.15 26.09
- ----------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<C> <C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT SIX MONTHS THREE MONTHS
OF OPERATIONS) TO ENDED ENDED
FEBRUARY 28 NOVEMBER 30 MAY 31 YEAR ENDED FEBRUARY 28
- --------------------------------------------------------------------------------
- -------------
1994 1995** 1995* 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
- -------------
CLASS B CLASS A
- --------------------------------------------------------------------------------
- -------------
$9.48 $9.24 $8.98 $9.39 $9.40 $8.76 $8.42 $8.36
- --------------------------------------------------------------------------------
- -------------
.28 .26 .13 .53 .54 .57(a) .61(a) .62(a)
(.08) .18 .26 (.40) .01 .65 .34 .06
- --------------------------------------------------------------------------------
- -------------
.20 .44 .39 .13 .55 1.22 .95 .68
- --------------------------------------------------------------------------------
- -------------
(.28) (.26) (.13) (.53) (.54) (.57) (.61) (.62)
(.02) -- -- (.01) (.02) (.01) -- --
- --------------------------------------------------------------------------------
- -------------
(.30) (.26) (.13) (.54) (.56) (.58) (.61) (.62)
- --------------------------------------------------------------------------------
- -------------
$9.38 $9.42 $9.24 $8.98 $9.39 $9.40 $8.76 $8.42
- --------------------------------------------------------------------------------
- -------------
2.18(c) 4.87(c) 4.39(c) 1.60 5.93 14.34 11.65 8.53
- --------------------------------------------------------------------------------
- -------------
$12,633 $184,616 $178,785 $171,568 $171,757 $144,374 $93,086 $47,112
- --------------------------------------------------------------------------------
- -------------
1.00(c) .52(c) .21(c) .92 .91 .72(a) .52(a) .41(a)
- --------------------------------------------------------------------------------
- -------------
2.90(c) 2.78(c) 1.44(c) 5.94 5.36 6.31(a) 6.98(a) 7.43(a)
- --------------------------------------------------------------------------------
- -------------
15.65 18.91 4.15 26.09 15.65 12.26 3.30 9.01
- --------------------------------------------------------------------------------
- -------------
<FN>
* The fiscal year end has advanced from February 28 to May 31.
** Unaudited.
(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.
(d) The ratio of expenses to average net assets for the six months ended
November 30, 1995 include expense offset arrangements. Prior period ratios
exclude these amounts.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES The fund is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of
current income exempt from federal income tax and Pennsylvania
personal income tax as Putnam 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 class A, class B and class M shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B
shares, which convert to class A shares after six years, do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than
class A shares and are subject to a contingent deferred sales charge,
if those shares are redeemed within six years of purchase. Class M
shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and
higher than class A shares.
Expenses of the fund are borne pro- rata by the holders of each class
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. In
addition, the Trustees declare separate dividends on each class of
shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. The fair value of restricted securities is determined by the
Manager following procedures approved by the Trustees, and such
valuations and procedures are reviewed periodically by the Trustees.
B Security transactions and related investment income Security
transactions are accounted for on the trade date. Interest income is
recorded on the accrual basis.
<PAGE>
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 May 31, 1995, the fund had a capital loss carryover of
approximately $1,053,000 which may be available to offset future
realized gains, if any. The amount of the carryover and expiration
dates are:
<TABLE><CAPTION>
<S> <C>
LOSS CARRYOVER EXPIRATION
- ----------------------------------------------------------------------
$291,000 May 31, 2002
$762,000 May 31, 2003
- ----------------------------------------------------------------------
</TABLE>
D FUTURES AND OPTIONS CONTRACTS The fund may use futures and options
contracts to hedge against changes in the values of securities the
fund owns or expects to purchase. The fund may also write options on
securities it owns or which it invests to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded
options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by dealers.
E DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by
the fund and are distributed monthly. Capital gains distributions, if
any, are recorded on the ex-dividend date and paid annually.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles.
<PAGE>
F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from
the purchase of securities in excess of maturity value is amortized on
a yield-to-maturity basis. Discount on zero-coupon bonds and original
issue discount bonds are accredited 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.
Trustees of the fund receive an annual Trustee's fee of $750 and an
additional fee for each Trustees' meeting attended. Trustees who are
not interested persons of the Putnam Management and who serve on
committees of the Trustees receive additional fees for attendance at
certain committee meetings.
During the period ended November 30, 1995, the fund adopted a Trustee
Fee Deferral Plan (the "Plan") which allows the Trustees to defer the
receipt of all or a portion of Trustees Fees payable on or after July
1, 1995. The deferred fees remain in the fund and are invested in the
fund or in other Putnam funds until distribution in accordance with
the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the period ended November 30, 1995, fund expenses were reduced by
$104,568 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested the assets
utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
<PAGE>
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M 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 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%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.20%, 0.85% and
0.50% of the average net assets attributable to class A, class B and
class M shares respectively.
For the period ended November 30, 1995, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $23,179 and $49 from
the sale of class A and class M shares, respectively and received
$45,126 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. For the period ended November 30, 1995
Putnam Mutual Funds Corp., acting as underwriter received no monies on
class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES During the period ended November 30,
1995, purchases and sales of investment securities other than short-
term municipal obligations aggregated $59,197,228 and $41,699,601,
respectively. Purchases and sales of short-term municipal obligations
aggregated $9,600,000 and $16,000,000, 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 November 30, 1995, there was an unlimited number of
shares of beneficial interest. Transactions in capital shares were as
follows:
<PAGE>
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
NOVEMBER 30
- ----------------------------------------------------------------------
1995
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 2,075,690 $19,099,384
Shares issued in connection with
reinvestment of distributions 314,319 2,890,193
- ----------------------------------------------------------------------
2,390,009 21,989,577
- ----------------------------------------------------------------------
Shares repurchased (2,149,105) (19,788,803)
- ----------------------------------------------------------------------
NET INCREASE 240,904 $2,200,774
- ----------------------------------------------------------------------
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
- ----------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30
- ----------------------------------------------------------------------
1995
CLASS B SHARES AMOUNT
Shares sold 1,310,965 $12,047,040
Shares issued in connection with
reinvestment of distributions 77,799 714,877
- ----------------------------------------------------------------------
1,388,764 12,761,917
- ----------------------------------------------------------------------
Shares repurchased (213,235) (1,960,409)
- ----------------------------------------------------------------------
NET INCREASE 1,175,529 $10,801,508
- ----------------------------------------------------------------------
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
- ----------------------------------------------------------------------
FOR THE PERIOD
JULY 3, 1995
(COMMENCEMENT
OF OPERATIONS) TO
NOVEMBER 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 5,369 $48,965
Shares issued in connection with
reinvestment of distributions 46 427
- ----------------------------------------------------------------------
5,415 49,392
- ----------------------------------------------------------------------
Shares repurchased (--) (--)
- ----------------------------------------------------------------------
NET INCREASE 5,415 $49,392
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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
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
Senior 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
22177-047/226/2AE 1/96
<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.
