Putnam
Pennsylvania
Tax Exempt
Income Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While the stock market's higher returns may be a lure,
diversification is imperative in any investment portfolio, and municipal
bonds can provide that variety."
-- Business Week, December 16, 1996
* "Technicals have remained positive for Pennsylvania municipal
investors so far this year; moderate but stable economic growth, benign
inflation, and a favorable supply/demand ratio created a constructive
environment for positive returns."
-- Howard K. Manning, manager
Putnam Pennsylvania Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
18 Financial statements
28 Results of December 5, 1996 shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam Pennsylvania Tax Exempt Income Fund's fiscal
year 1997 presented a significantly brighter municipal bond market
environment than that which had prevailed in the preceding months. As
the fiscal year unfolded, the municipal bond market -- including the
market for Pennsylvania tax-exempt bonds -- began to develop a sense of
serenity, closing the semiannual period on November 30, 1996, in an
almost upbeat mood.
During the period, Howard Manning was appointed your fund's manager.
Howard has 14 years of investment experience and has been a member of
Putnam's municipal bond group since 1986.
In the report that follows, Howard discusses the events and strategies
that drove your fund's performance during the fiscal year's first half
and takes a look at prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Howard K. Manning
Moderate price gains in the municipal bond market and an attractive
income stream from portfolio holdings combined to lead Putnam
Pennsylvania Tax Exempt Income Fund to solid total returns for the
semiannual period ended November 30, 1996. In the first six months of
fiscal year 1997, class A, class B, and class M shares totaled 6.44%,
5.98%, and 6.16%, respectively, all at net asset value (1.42%, 0.98%,
and 2.66%, respectively, at public offering price). For additional
performance information, including a look at your fund's taxable
equivalent dividend rate -- the amount of income you would need from a
taxable investment to equal your fund's distributions on an after-tax
basis -- please refer to the performance summary that begins on page 9.
* SLOWING ECONOMY AND STRONG DEMAND SPARK MUNICIPAL BOND RALLY
After a difficult and volatile year, the municipal bond market shifted
gears and rallied during your fund's semiannual period. The U.S.
economy's fast-paced growth of 4.6% during the third quarter of calendar
year 1996 gave way to a projection of 2.2% growth for the final three
months of the year. Economists expect this slowdown to continue into
early 1997. This cooling of economic growth soothed investors' concerns
over rising interest rates and helped lead fixed-income investments,
including municipal bonds, to higher price levels.
Strong demand also helped spur the period's market rally. While large
numbers of individual investors in the United States focused their
attention on the unprecedented gains in the stock market, overseas
investors purchased upward of $175 billion in U.S. bonds -- an amount
that exceeds the federal budget deficit. Although foreign investors --
ineligible for the tax benefits of U.S. municipal bonds -- invested
primarily in Treasury securities, their interest sparked greater demand
and, consequently, rising prices for the municipal market as well.
In terms of supply, the market for municipal securities was relatively
tight through the first few months of the period. June and July are
traditionally months in which many bonds mature or reach their call
dates and September's municipal bond issuance was the lowest in more
than a year. Autumn's lower interest rates, however, made bond issuance
more attractive for cash-strapped municipalities, and the overall supply
of new bonds rose slightly.
We capitalized on the positive performance of the municipal bond market
by maintaining an above-market duration for the past six months.
Duration is a measure of a portfolio's sensitivity to interest-rate
changes. A longer duration can mean a more volatile net asset value if
rates change -- but also one more likely to appreciate substantially if
rates decline. A shorter duration can help preserve portfolio value as
interest rates rise. Your fund's longer duration helped boost
performance during the period as interest rates on medium- and long-term
municipal bonds dropped by 46 and 50 basis points, respectively.
* CREDIT RESEARCH CRUCIAL TO PORTFOLIO STRUCTURE
We continue to emphasize investments in the health-care sector of the
municipal bond market. Consolidations, improved methods of cost
containment, and a near-total lack of new hospital construction are some
of the key factors supporting our favorable view of this sector's
potential. In addition to the traditional hospital holdings, our
investments include demographically attractive geriatric care facilities
such as nursing homes and retirement communities. Since beginning our
focus on this sector two years ago, our analysts have become adept at
identifying uninsured health-care bonds with steady revenue streams and
strong potential for credit upgrades or prerefunding.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Education 20.5%
Health care 18.1%
Water and sewerage 15.1%
Utilities 11.9%
Transportation 5.7%
Footnote reads:
* Based on net assets as of 11/30/96. Sector allocations will vary over
time.
Prerefunding occurs when an issuer floats a bond to raise capital to pay
off, or retire, an older bond. The proceeds from the newer issue are
held in top-quality short-term instruments until the old debt can be
retired, usually at its first call date. The typical effect of a
prerefunding is the same as that of an actual credit upgrade -- price
appreciation. In the meantime, these issues make up some of your
portfolio's core yield holdings.
Montgomery County United Hospital bonds are one such holding. Mentioned
in your fund's most recent annual report as a possible prerefunding
candidate, these bonds offered an 8 1/4% coupon and a B rating when we
originally purchased them. Today, after having been prerefunded, they
carry that same attractive level of income and a AAA rating. Thanks to
our in-depth credit research, we were able to identify these bonds as a
worthwhile purchase despite their initial lower rating. While these
bonds, along with others discussed in the report, were viewed favorably
at the end of the semiannual period, all portfolio holdings are subject
to review and adjustment in accordance with the fund's investment
strategy and may vary in the future.
The relatively light supply of Pennsylvania municipal bonds adds an
extra challenge to our attempts to identify holdings that meet your
fund's stringent investment criteria and fit into our desired portfolio
structure. Although our monthly surveillance meetings are designed, in
part, to highlight attractive market sectors, it is rarely possible for
us to build up a significant weighting in a promising sector as soon as
we identify it as such. Instead, our analysts scour the new-issue and
secondary markets on a daily basis, allowing us to acquire portfolio
holdings whenever we find what we believe to be the right balance of
price, credit quality, yield, and potential reward. Recently, issues
from U.S. Steel and a City of Philadelphia Parking Garage bond exhibited
this blend of factors and were added to your fund's portfolio.
[GRAPHIC PIE CHART OMITTED: PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW
A- 8.2%
Aa- 2.1%
Aaa- 66.2%
B- 0.2%
Ba- 3.3%
Baa- 18.7%
VMIG1- 1.3%
Footnote reads:
*As a percentage of market value as of 11/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* CONSTRUCTIVE, YET CAUTIOUS, OUTLOOK PREVAILS
After the market's positive performance during the past six months, we
now believe municipal bonds may be fully priced and are scaling back
your portfolio's duration accordingly. We are also aiming to re-position
the portfolio from a barbell structure, which favors holdings in both
short- and long-term bonds, to one that emphasizes bonds in the 15- to
20-year maturity range, where we expect to find better values. Seeking
improved call protection is another of our priorities, intended to help
protect your fund against the loss of bonds in a falling interest-rate
environment.
As your fund enters the second half of fiscal year 1997, our large staff
of experienced research analysts will continue to scrutinize existing
and new municipal bond issues to find securities that will contribute to
your fund's stream of tax-exempt income. In a post-rally environment,
however, we must remain mindful of another tax consequence -- capital
gains from the sales of portfolio holdings that have risen in value.
Although it is unlikely that any fund could avoid capital gains
altogether, we plan to shift portfolio holdings only when the benefits
will substantially outweigh the potential effects of any taxable
distributions.
Pre-election talks of sweeping tax reforms, such as the flat tax and the
elimination of the Internal Revenue Service, have been shelved, most
likely for the duration of the current administration. Although we
remain aware that these issues are merely dormant, not dead, the short-
term outlook for tax-advantaged income investments remains constructive.
Footnote reads:s
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 11/30/96, there is no guarantee the fund
will continue to hold these securities in the future.
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 taxes 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 11/30/96
Class A Class B Class M
(inception date) (7/21/89) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 6.44% 1.42% 5.98% 0.98% 6.16% 2.66%
- ------------------------------------------------------------------------
1 year 5.38 0.37 4.58 -0.41 4.95 1.50
- ------------------------------------------------------------------------
5 years 46.03 39.14 -- -- -- --
Annual average 7.87 6.83 -- -- -- --
- ------------------------------------------------------------------------
Life of class 76.53 68.23 17.51 14.54 11.15 7.48
Annual average 8.03 7.32 4.89 4.10 7.73 5.21
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.50% 1.28%
- ------------------------------------------------------------------------
1 year 5.89 3.26
- ------------------------------------------------------------------------
5 years 45.83 15.09
Annual average 7.83 2.85
- ------------------------------------------------------------------------
Life of class A 76.09 27.49
Annual average 8.02 3.36
- ------------------------------------------------------------------------
Life of class B 22.50 9.83
Annual average 6.11 2.81
- ------------------------------------------------------------------------
Life of class M 12.34 4.00
Annual average 8.54 2.80
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or
for distribution fees prior to implementation of the class A
distribution plan in 1990. Investment returns and principal 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 the applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income1 $0.246725 $0.216340 $0.232728
- ------------------------------------------------------------------------
Total $0.246725 $0.216340 $0.232728
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/96 $9.08 $9.53 $9.07 $9.09 $9.40
- ------------------------------------------------------------------------
11/30/96 9.41 9.88 9.39 9.41 9.73
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend rate2 5.28% 5.03% 4.64% 4.98% 4.82%
- ------------------------------------------------------------------------
Taxable equivalent3 8.99 8.57 7.90 8.48 8.21
- ------------------------------------------------------------------------
Current 30-day
SEC yield4 5.03 4.79 4.38 4.64 4.48
- ------------------------------------------------------------------------
Taxable equivalent3 8.57 8.16 7.46 7.90 7.63
- ------------------------------------------------------------------------
1 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.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 4.65% -0.37% 4.32% -0.68% 4.49% 1.06%
- ------------------------------------------------------------------------
1 year 3.63 -1.27 2.95 -1.92 3.31 -0.06
- ------------------------------------------------------------------------
5 years 42.06 35.29 -- -- -- --
Annual average 7.27 6.23 -- -- -- --
- ------------------------------------------------------------------------
Life of class 75.48 67.23 16.88 13.96 10.58 6.94
Annual average 7.84 7.14 4.60 3.84 6.93 4.57
- ------------------------------------------------------------------------
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 all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
CLI Insd. -- Connie Lee Insurance Insured
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
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
<S <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (100.0%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Pennsylvania (87.1%)
- --------------------------------------------------------------------------------------------------
$2,500,000 Abington Heights, School Dist. Rev. Bonds
(Lackawana Cnty.), FGIC, 5.1s, 3/15/18 Aaa $2,390,625
3,000,000 Allegheny Cnty., Rev. Bonds, AMBAC, 5s, 3/1/16 Aaa 2,835,000
1,000,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh
Intl. Arpt.), Ser. C, MBIA, 8 1/4s, 1/1/16 Aaa 1,059,240
5,000,000 Allegheny Cnty., Higher Ed. Bldg. Auth. Rev. Bonds
(Robert Morris College), Ser. A, 6 1/4s, 2/15/26 Baa 4,975,000
2,000,000 Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
(Southside Hosp. Pittsburgh), Ser. A, 8 3/4s,
6/1/10 AAA/P 2,050,720
1,000,000 Allegheny Cnty., Hosp. Dev. Auth. VRDN
(Childrens Hosp.), Ser. B, MBIA, 3 1/2s, 12/1/15 VMIG1 1,000,000
Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds
560,000 (Southwestern Arpt. Cargo Fac.), 8 3/4s,
2/15/09 BB/P 591,500
1,930,000 (Med. Ctr.), FHA Insd., 6 3/4s, 2/1/26 Aaa 2,045,800
4,305,000 (Environmental Impt.-USX Corp.), 6s, 1/15/14 Baa 4,369,575
5,500,000 Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A, 6 3/4s, 11/15/14 BBB 5,665,000
4,000,000 Allentown, Wtr. Rev. Bonds, FGIC, 5 1/2s,
10/15/15 Aaa 4,035,000
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds
(Altoona Hosp.), AMBAC, 6 1/2s, 7/1/22 Aaa 1,608,750
Cambria Cnty., Indl. Dev. Auth. Res. Recvy.
Rev. Bonds
400,000 Ser. F2, 7 3/4s, 9/1/19 A 411,500
1,100,000 (Cambria Cogen.), Ser. F1, 7 3/4s, 9/1/19 A 1,131,625
825,000 College Township, Indl. Dev. Auth. 1st Mtge.
Hlth. Facs. Rev. Bonds (Nittany Valley
Rehab. Hosp.), 7 5/8s, 11/1/07 BB/P 899,250
2,470,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB 2,818,888
1,000,000 Dauphin Cnty., Indl. Dev. Auth. Wtr. Rev. Bonds
(Dauphin Cons. Wtr. Supply),
Ser. A, 6.9s, 6/1/24 A 1,175,000
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 2,846,250
1,000,000 Delaware Cnty., Hosp. Auth. Rev. 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
(Res. Recvy.), Ser. A, 8.1s, 12/1/13 AA 1,072,519
4,100,000 Doylestown, Hosp. Auth. Rev. Bonds
(Doylestown Hosp. Pine Run),
Ser. A, 7.2s, 7/1/23 BBB/P 4,176,875
3,000,000 Emmaus, Gen. Auth. Rev. Bonds
(Local Govt. Bond Pool), Ser. A, MBIA,
8.15s, 5/15/18 # Aaa 3,202,500
Erie, City School Dist. G.O. Bonds
2,090,000 Ser. A, MBIA, 5 3/4s, 5/1/26 Aaa 2,142,250
5,300,000 Ser. B, MBIA, zero %, 9/1/05 Aaa 3,504,625
Erie, Higher Ed. Bldg. Auth. College Rev. Bonds
(Mercyhurst College)
1,150,000 7.85s, 9/15/19 AAA 1,262,125
1,000,000 Ser. A, 5 3/4s, 3/15/13 BBB 948,750
1,860,000 Ser. B, 5 3/4s, 3/15/13 BBB 1,764,675
2,000,000 Erie, Higher Ed. Bldg. Auth. U. Rev. Bonds
(Gannon U. ), Ser. D, 5.85s, 6/1/15 Baa 1,985,000
3,500,000 Erie, Wtr. Auth. Rev. Bonds, 7 1/8s, 12/1/11 AAA/P 3,924,375
750,000 Erie-Western, Port Auth. Gen. Rev.
Bonds, 8 5/8s, 6/15/10 BBB/P 837,188
915,000 Erie-Western, Port. Auth. Rev. Bonds,
6 7/8s, 6/15/16 BBB/P 939,019
2,000,000 Exeter Township, Swr. Auth. Rev. Bonds,
MBIA, 6.2s, 7/15/22 Aaa 2,082,500
1,350,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s, 1/1/02 BBB/P 1,356,278
3,500,000 Harrisburg, Auth. Lease Rev. Bonds
(Greene Cnty. Prison), FSA, 6 1/4s, 6/1/10 AAA 3,745,000
Harrisburg, Auth. Rev. Bonds, Ser. I
5,595,000 MBIA, 5 5/8s, 4/1/19 Aaa 5,650,950
5,000,000 MBIA, 5 5/8s, 4/1/15 Aaa 5,056,250
2,200,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds, Ser. B, 8 1/4s, 11/1/18 AAA 2,477,750
1,000,000 Lehigh Cnty., Gen. Purpose Auth. Rev. Bonds
(Muhlenberg Hosp.), Ser. A, 8.1s, 7/15/10 A 1,065,000
5,050,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Light Co.), 8.964s, 9/1/29
(acquired 6/20/95, cost $5,572,473) (DBL. DAGGER) Aaa 5,738,057
3,575,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (PA Pwr. & Lt. Co.), Ser. B, MBIA,
6.4s, 9/1/29 Aaa 3,843,125
2,000,000 Luzerne Cnty., Indl. Dev. Auth. Rev. Bonds
(Gas & Wtr. Co.), Ser. B, 7 1/8s, 12/1/22 Baa 2,147,500
2,305,000 McKeesport, Hosp. Auth. Rev. Bonds
(McKeesport Hosp.), 6 1/4s, 7/1/03 Baa 2,359,744
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. IFB (Abington Hosp.), Ser. A, AMBAC,
9.486s, 6/1/11 Aaa 2,322,500
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds
1,305,000 (United Hosp. Inc. - St. Christopher),
8 1/4s, 11/1/03 AAA 1,384,553
1,000,000 (UTD Hosp.), Ser. B, 7 1/2s, 11/1/12 AAA/P 1,090,000
3,000,000 (Sacred Heart Hosp. Norristown),
Ser. A, MBIA, 6.8s, 2/1/13 Aaa 3,060,000
5,000,000 (Montgomery Hosp.), AMBAC, 5 1/8s, 6/1/14 Aaa 4,781,250
3,000,000 New Morgan, Indl. Dev. Auth. Solid Waste Disp.
Rev. Bonds (New Morgan Landfill Co., Inc.),
6 1/2s, 4/1/19 A 3,150,000
1,000,000 Northeastern PA Hosp. & Edl. Auth. College
Rev. Bonds (Kings College), Ser. B, 6s, 7/15/11 BBB 998,750
PA Econ. Dev. Fin. Auth. Res. Recvy. Rev. Bonds
(Northampton Generating), Ser. A
1,300,000 6.6s, 1/1/19 BB/P 1,301,625
2,000,000 6 1/2s, 1/1/13 BB/P 2,002,500
4,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa 4,510,000
PA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
385,000 Ser. U, 7.8s, 10/1/20 Aa 408,581
275,000 Ser. 29, 7 3/8s, 10/1/16 Aa 292,875
1,730,000 Ser. 33, 6.9s, 4/1/17 Aa 1,820,825
7,830,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 7,360,200
PA State G.O. Bonds
7,515,000 Ser. 1, FGIC, 5 3/8s, 5/15/13 Aaa 7,533,788
2,700,000 Ser. II, FGIC, 5 1/4s, 6/15/13 Aaa 2,676,375
PA State Econ. Dev. Fin. Auth. Res. Recvy.
Rev. Bonds (Colver ), Ser. D
2,000,000 7.15s, 12/1/18 BBB 2,102,500
1,000,000 7 1/8s, 12/1/15 BBB 1,053,750
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
2,400,000 MBIA, 11.031s, 3/1/20 Aaa 2,640,000
3,850,000 AMBAC, 8.361s, 3/1/22 Aaa 3,898,125
PA State Higher Ed. Fac. Auth. College & U.
Rev. Bonds
2,500,000 (Duquesne U.), Ser. C, MBIA, 6 3/4s, 4/1/20 AAA 2,684,375
2,600,000 (Allegheny College), Ser. B, 6 1/8s, 11/1/13 BBB 2,658,500
PA State Higher Ed. Fac. Auth. Rev. Bonds
(Med. College), Ser. A
1,300,000 8 3/8s, 3/1/11 AAA 1,439,750
3,000,000 7 3/8s, 3/1/21 AAA 3,386,250
1,225,000 Philadelphia, Gas Works Rev. Bonds,
Ser. 13, 7.7s, 6/15/21 Aaa 1,411,813
4,000,000 Philadelphia, Gas Works IFB, FSA, 6.507s, 8/1/21
(acquired 1/24/94, cost $3,747,680) (DBL. DAGGER) Aaa 3,630,000
Philadelphia, Muni. Auth. Rev. Bonds
3,450,000 FGIC, 7.8s, 4/1/18 Aaa 3,812,787
1,000,000 Ser. B, FGIC, 7 1/8s, 11/15/18 Aaa 1,138,750
2,125,000 Ser. A, FGIC, 5 5/8s, 11/15/14 Aaa 2,148,906
2,000,000 Philadelphia, School Dist. G.O. Bonds, Ser. A,
AMBAC, 6 1/4s, 9/1/09 Aaa 2,222,500
3,900,000 Philadelphia, School Dist. Rev. Bonds, Ser. B,
AMBAC, 5 1/2s, 9/1/18 Aaa 3,919,500
3,250,000 Philadelphia, Wtr. & Swr. Rev. Bonds,
Ser. 16, FSA, 7s, 8/1/21 Aaa 3,664,375
Philadelphia, Wtr. & Wastewater Rev. Bonds
2,500,000 AMBAC, 5 1/2s, 6/15/15 Aaa 2,481,250
5,005,000 MBIA, 5s, 6/15/18 Aaa 4,654,650
3,000,000 FSA, 5s, 6/15/16 Aaa 2,820,000
1,950,000 FGIC, 5s, 6/15/12 Aaa 1,867,125
5,705,000 Pittsburgh, Wtr. & Swr. Auth. Rev. Bonds,
Ser. A, FGIC, 6 1/2s, 9/1/13 Aaa 6,503,700
2,420,000 Sayer, Hlth. Care Fac. Auth. VRDN
(VHR PA Cap. Fin.), Ser. D, AMBAC,
3.8s, 12/1/20 VMIG1 2,420,000
1,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 1,118,750
3,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp.),
Ser. B, 8 1/2s, 7/1/20 BBB 3,285,000
1,000,000 Smithfield, Swr. Auth. Gtd. Rev. Bonds,
8 5/8s, 1/15/11 AAA 1,155,000
2,470,000 Trafford, School District Rev. Bonds, MBIA,
6.6s, 5/1/08 Aaa 2,766,400
500,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B/P 498,125
3,000,000 Wilkes-Barre, School Dist. Rev. Bonds, FGIC,
6 3/8s, 4/1/15 Aaa 3,247,500
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 2,049,750
1,030,000 York Cnty., Hosp. Auth. Rev. Bonds (Hlth. Ctr.
Village at Sprenkle Drive), Ser. A, 7 3/4s,
4/1/21 AAA/P 1,202,525
1,665,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York),
7 1/2s, 9/1/07 BB/P 1,756,575
York Cnty., Solid Waste & Refuse Auth. Indl.
Dev. Rev. Bonds (Res. Recvy.)
650,000 Ser. A, 8.2s, 12/1/14 AA 692,842
890,000 Ser. C, 8.2s, 12/1/14 AA 948,660
300,000 Ser. B, 8.1s, 12/1/07 AA 317,757
-------------
230,618,340
Puerto Rico (12.4%)
- --------------------------------------------------------------------------------------------------
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
3,500,000 Ser. T, 6 5/8s, 7/1/12 A 3,924,375
3,000,000 Ser. Y, 6 1/4s, 7/1/14 A 3,292,500
Cmnwlth. of PR, Hwy. Auth. Rev. Bonds
200,000 Ser. P , 8 1/8s, 7/1/13 Aaa 217,000
250,000 Ser. O, 8s, 7/1/05 Aaa 270,938
900,000 Ser. Q, 7 3/4s, 7/1/16 Aaa 1,023,750
2,500,000 Ser. Q, 7 3/4s, 7/1/10 Aaa 2,843,750
200,000 Cmnwlth. of PR, IFB, MBIA, 7.894s, 7/1/08 Aaa 220,500
Cmnwlth. of PR, Impt. G.O. Bonds
450,000 Ser. A, 7 3/4s, 7/1/17 AAA 497,813
200,000 Ser. A, 7 3/4s, 7/1/13 AAA 216,000
2,150,000 7.7s, 7/1/20 Aaa 2,442,938
1,600,000 Cmnwlth. of PR, Rev. Bonds, MBIA, 5.642s, 7/1/08 Aaa 1,678,000
575,000 Cmnwlth. of PR, Urban Renewal & Hsg. Corp.
G.O. Bonds (Cmnwlth. Appropriation),
7 7/8s, 10/1/04 Baa 633,219
3,700,000 PR, Aqueduct & Swr. Auth. Rev. Bonds,
Cmnwlth. Gtd., 5s, 7/1/15 A 3,487,250
PR, Elec. Pwr. Auth. Rev. Bonds
6,000,000 Ser. W, MBIA, 6 1/2s, 7/1/05 Aaa 6,825,000
2,000,000 Ser. U, 6s, 7/1/14 A 2,067,500
PR Pub. Bldgs. Auth. Gtd. Edl. & Hlth. Fac.
Rev. Bonds
1,200,000 Ser. H, 7 7/8s, 7/1/16 Aaa 1,255,224
2,000,000 Ser. M, 5 3/4s, 7/1/15 A 2,007,500
-------------
32,903,257
Washington (0.5%)
- --------------------------------------------------------------------------------------------------
1,930,000 Thurston Cnty., School Dist. G.O. Bonds, Ser. B,
FGIC, zero %, 12/1/05 Aaa 1,237,613
- --------------------------------------------------------------------------------------------------
Total Investments (cost $252,039,215)*** $264,759,210
- --------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $264,639,915.
** The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at November 30, 1996 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, 1996. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $252,039,215, resulting in gross
unrealized appreciation and depreciation of $23,802,990 and $11,082,995, respectively,
or net unrealized appreciation of $12,719,995.
(DBL. DAGGER) Restricted, excluding 144A securities, as to public resale. The total market value
of restricted securities held at November 30, 1996 was $9,368,057 or 3.5% of net assets.
# A portion of this security was pledged and segregated with the custodian to cover
margin requirements for futures contracts at November 30, 1996.
The rates shown on IFB and IF COP, which are securities paying interest rates that
vary inversely to changes in the market interest rates, and VRDN's are the current
interest rates at November 30, 1996.
The fund had the following industry group concentrations greater than 10% at
November 30, 1996 (as a percentage of net assets):
Education 20.5%
Health Care 18.1
Water & Sewer 15.1
Utilities 11.9
The fund had the following insurance concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
MBIA 20.0%
FGIC 14.3
AMBAC 12.8
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1996 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Short) $4,648,750 $4,605,000 Dec 96 $(43,750)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $252,039,215) (Note 1) $264,759,210
- ------------------------------------------------------------------------------------------------
Cash 372,567
- ------------------------------------------------------------------------------------------------
Interest receivable 4,838,923
- ------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 355,511
- ------------------------------------------------------------------------------------------------
Total assets 270,326,211
Liabilities
- ------------------------------------------------------------------------------------------------
Payable for variation margin 36,250
- ------------------------------------------------------------------------------------------------
Distributions payable to shareholders 595,045
- ------------------------------------------------------------------------------------------------
Payable for securities purchased 4,319,350
- ------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 123,687
- ------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 390,621
- ------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 18,195
- ------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,140
- ------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,203
- ------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 114,065
- ------------------------------------------------------------------------------------------------
Other accrued expenses 82,740
- ------------------------------------------------------------------------------------------------
Total liabilities 5,686,296
- ------------------------------------------------------------------------------------------------
Net Assets $264,639,915
Represented by
- ------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $250,329,092
- ------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 94,106
- ------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 1,540,472
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 12,676,245
- ------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $264,639,915
Computation of net asset value and offering price
- ------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($190,028,604 divided by 20,203,696 shares) $9.41
- ------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.41)* $9.88
- ------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($73,957,449 divided by 7,873,028 shares)** $9.39
- ------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($653,862 divided by 69,458 shares) $9.41
- ------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.41)*** $9.73
- ------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $8,108,883
- ------------------------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 771,969
- ------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 136,219
- ------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,024
- ------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,586
- ------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 185,159
- ------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 297,098
- ------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,118
- ------------------------------------------------------------------------------------------------
Reports to shareholders 22,073
- ------------------------------------------------------------------------------------------------
Registration fees 2,692
- ------------------------------------------------------------------------------------------------
Auditing 11,621
- ------------------------------------------------------------------------------------------------
Legal 12,721
- ------------------------------------------------------------------------------------------------
Postage 52,378
- ------------------------------------------------------------------------------------------------
Other 10,690
- ------------------------------------------------------------------------------------------------
Total expenses 1,518,348
- ------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (109,518)
- ------------------------------------------------------------------------------------------------
Net expenses 1,408,830
- ------------------------------------------------------------------------------------------------
Net investment income 6,700,053
- ------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 13,641
- ------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (182,816)
- ------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 9,204,962
- ------------------------------------------------------------------------------------------------
Net gain on investments 9,035,787
- ------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,735,840
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income $6,700,053 $12,597,727
- ----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (169,175) 2,785,836
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 9,204,962 (7,165,681)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 15,735,840 8,217,882
- ----------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------
From net investment income
Class A (4,966,127) (10,000,537)
- ----------------------------------------------------------------------------------------------------------------
Class B (1,642,555) (2,682,096)
- ----------------------------------------------------------------------------------------------------------------
Class M (11,190) (5,299)
- ----------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 6,400,936 30,556,384
- ----------------------------------------------------------------------------------------------------------------
Total increase in net assets 15,516,904 26,086,334
- ----------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------
Beginning of period 249,123,011 223,036,677
- ----------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $94,106 and $13,925, respectively) $264,639,915 $249,123,011
- ----------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
For the period
Six months July 3, 1995 Six months
ended (commencement of ended
November 30 operations) to November 30 Year ended
(unaudited) May 31 (unaudited) May 31
- --------------------------------------------------------------------------------------------------------------------
1996 1996 1996 1996
- --------------------------------------------------------------------------------------------------------------------
Class M Class B
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.09 $9.10 $9.07 $9.23
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .23 .44 .22 .44
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .32 (.01) .32 (.15)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .55 .43 .54 .29
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.23) (.44) (.22) (.45)
- --------------------------------------------------------------------------------------------------------------------
From net realized gains on investments -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.44) (.22) (.45)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.41 $9.09 $9.39 $9.07
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 6.16* 4.70* 5.98* 3.14
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $654 $337 $73,957 $65,669
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .66* 1.13* .83* 1.62
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.51* 4.49* 2.38* 4.78
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.00* 41.40 13.00* 41.40
- --------------------------------------------------------------------------------------------------------------------
See page 23 for Notes to Financial highlights.
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
July 15, 1993 Six months
Three months (commencement of ended
ended Year ended operations) to November 30
May 31 February 28 February 28 (unaudited)
- --------------------------------------------------------------------------------------------------------------------
1995+ 1995 1994 1996
- --------------------------------------------------------------------------------------------------------------------
Class B Class A
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.97 $9.38 $9.48 $9.08
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .11 .47 .28 .25
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .27 (.40) (.08) .33
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .38 .07 .20 .58
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.12) (.47) (.28) (.25)
- --------------------------------------------------------------------------------------------------------------------
From net realized gains on investments -- (.01) (.02) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.48) (.30) (.25)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.23 $8.97 $9.38 $9.41
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 4.23* 0.93 2.18* 6.44*
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $44,252 $36,670 $12,633 $190,029
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .38* 1.57 1.00* .50*
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 1.26* 5.23 2.90* 2.71*
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.15* 26.09 15.65 13.00*
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Three months
Year ended ended Year ended
May 31 May 31 February 28
- --------------------------------------------------------------------------------------------------------------------
1996 1995+ 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $9.24 $8.98 $9.39 $9.40
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .51 .13 .53 .54
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (.16) .26 (.40) .01
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .35 .39 .13 .55
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.51) (.13) (.53) (.54)
- --------------------------------------------------------------------------------------------------------------------
From net realized gains on investments -- -- (.01) (.02)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.51) (.13) (.54) (.56)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.08 $9.24 $8.98 $9.39
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 3.82 4.39* 1.60 5.93
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $183,117 $178,785 $171,568 $171,757
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .98 .21* .92 .91
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 5.46 1.44* 5.94 5.36
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 41.40 4.15* 26.09 15.65
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended February 28
- ----------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $8.76 $8.42
- ---------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------
Net investment income .57(a) .61(a)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments .65 .34
- ---------------------------------------------------------------------------------
Total from investment operations 1.22 .95
- ---------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------
From net investment income (.57) (.61)
- ---------------------------------------------------------------------------------
From net realized gains on investments (.01) --
- ---------------------------------------------------------------------------------
Total distributions (.58) (.61)
- ---------------------------------------------------------------------------------
Net asset value, end of period $9.40 $8.76
- ---------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 14.34 11.65
- ---------------------------------------------------------------------------------
Net assets, end of period (in thousands) $144,374 $93,086
- ---------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .72(a) .52(a)
- ---------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 6.31(a) 6.98(a)
- ---------------------------------------------------------------------------------
Portfolio turnover (%) 12.26 3.30
- ---------------------------------------------------------------------------------
* Not annualized.
+ The fiscal year end advanced from February 28 to May 31.
(a) Reflects an expense limitation. As a result, net investment income for the year ended February 28, 1993,
and the year ended February 29, 1992, reflects expense reductions of approximately $0.01 and $0.04, per
share, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the period ended May 31, 1996 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2)
</TABLE>
Notes to financial statements
November 30, 1996 (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 approximately eight 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 preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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 Putnam Management
following procedures approved by the Trustees, and such valuations and
procedures are reviewed periodically by the Trustees.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
C) Futures and 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 in which it may invest 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.
D) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain 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. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
F) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized using the effective yield method for bonds issued
after September 27, 1985, and on a straight-line basis for bonds issued
prior thereto. Discounts on zero coupon bonds are accreted according to
the effective yield method.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.60% of the
first $500 million, 0.50% of the next $500 million, 0.45% of the next
million, 0.40% of the next $5 billion, 0.375% of the next $5 billion,
0.355% of the next $5 billion, 0.340% of the next $5 billion and 0.330%
thereafter. Prior to September 20, 1996, any amount over $1.5 billion
was based on 0.40%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
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 six months ended November 30, 1996, fund expenses were reduced
by $109,518 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 a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $740 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
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 certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (The "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
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 six months ended November 30, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $18,002 and $353 from
the sale of class A and class M shares, respectively and $65,755 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 six months ended November 30, 1996, Putnam
Mutual Funds Corp., acting as underwriter received $18 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$41,551,411 and $31,932,971, respectively. There were no purchases and
sales of U.S. government obligations. 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, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 2,138,703 $ 19,644,713
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 317,936 2,929,558
- ----------------------------------------------------
2,456,639 22,574,271
Shares
repurchased (2,422,077) (22,242,194)
- ----------------------------------------------------
Net increase 34,562 $ 332,077
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 4,774,300 $ 44,144,625
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 620,989 5,742,412
- ----------------------------------------------------
5,395,289 49,887,037
Shares
repurchased (4,579,112) (42,322,606)
- ----------------------------------------------------
Net increase 816,177 $ 7,564,431
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 931,543 $ 8,541,967
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 106,806 983,051
- ----------------------------------------------------
1,038,349 9,525,018
Shares
repurchased (407,653) (3,754,651)
- ----------------------------------------------------
Net increase 630,696 $ 5,770,367
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 2,812,059 $26,012,566
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 169,396 1,565,233
- ----------------------------------------------------
2,981,455 27,577,799
Shares
repurchased (534,787) (4,928,924)
- ----------------------------------------------------
Net increase 2,446,668 $22,648,875
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 32,571 $300,329
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,150 10,623
- ----------------------------------------------------
33,721 310,952
Shares repurchased (1,352) (12,460)
- ----------------------------------------------------
Net increase 32,369 $298,492
- ----------------------------------------------------
For the period
July 3, 1995
(commencement
of operations) to
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 41,822 $ 387,066
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 477 4,415
- ----------------------------------------------------
42,299 391,481
Shares repurchased (5,210) (48,403)
- ----------------------------------------------------
Net increase 37,089 $343,078
- ----------------------------------------------------
Results of December 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 14,808,667 212,364
Hans H. Estin 14,810,218 210,814
John A. Hill 14,817,879 203,153
Ronald J. Jackson 14,808,789 212,242
Elizabeth T. Kennan 14,817,591 203,440
Lawrence J. Lasser 14,820,981 200,050
Robert E. Patterson 14,807,674 213,358
Donald S. Perkins 14,803,117 217,915
William F. Pounds 14,811,455 209,576
George Putnam 14,804,800 216,231
George Putnam, III 14,812,795 208,237
Eli Shapiro 14,786,855 234,177
A.J.C. Smith 14,819,501 201,531
W. Nicholas Thorndike 14,786,484 234,547
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 14,582,134 votes for, and 125,657
votes against, with 313,241 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
13,802,842 votes for, and 313,983 votes against, with 904,207
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 13,553,120 votes for, and 471,540 votes against, with
996,372 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
13,287,308 votes for, and 801,028 votes against, with 932,696
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investment in real estate was approved as follows: 13,477,524
votes for, and 624,670 votes against, with 918,838 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
13,657,090 votes for, and 375,163 votes against, with 988,779
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities was approved as follows: 13,702,730 votes
for, and 342,271 votes against, with 976,031 abstentions and broker non-
votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 13,269,857 votes for, and 767,724 votes against,
with 983,451 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 13,294,005 votes for, and 706,731 votes against,
with 1,020,296 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 13,107,383
votes for, and 902,778 votes against, with 1,010,871 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 13,154,123 votes
for, and 867,904 votes against, with 999,005 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 13,132,486 votes for, and 855,496 votes against, with 1,033,050
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 13,177,030 votes for, and 803,004 votes against, with 1,040,998
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 13,349,053 votes for, and 667,615 votes
against, with 1,004,364 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 13,205,724 votes for, and 762,008 votes against,
with 1,053,300 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to trading its portfolio securities was approved as
follows: 13,365,780 votes for, and 590,897 votes against, with 1,064,355
abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President
Howard Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
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.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29930-047/226/2AE 1/97
