Putnam
Pennsylvania
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Because of their limited attractiveness to non-U.S. investors, municipal
bonds did not experience the turbulence endured by taxable bonds in the
wake of last fall's global flight to quality. Instead, for U.S. investors,
municipals have provided unusually handsome current income both in real
terms, thanks to low inflation, and relative to after-tax returns on
taxable securities, especially for higher-bracket taxpayers.
In this environment, David Hamlin, who manages Putnam Pennsylvania Tax
Exempt Income Fund, has been focusing on generating maximum current income
without undue risk to principal. He has done this primarily through
careful selection of portfolio holdings and strategies aimed at risk
reduction.
In the following report, Dave explains these strategies in detail as he
reviews your fund's performance during the fiscal year that ended on May
31, 1999. Then he offers his current thinking about prospects for the
fiscal year that has just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
David E. Hamlin
In an unusually volatile year for fixed-income investments, municipal
bonds fared better than most, escaping the dramatic swings in performance
that beset other areas of the market. True to its objective, Putnam
Pennsylvania Tax Exempt Income Fund provided a modest total return but an
attractive level of income. The fund's 3.90% 30-day SEC yield at the end
of May for class A shares at NAV is equivalent to a 6.64% after-tax yield
for investors in Pennsylvania's highest tax bracket.
Total return for 12 months ended 5/31/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------
1.91% -2.91% 1.24% -3.56% 1.60% -1.72%
- -----------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* MUNICIPALS DEMONSTRATE VIRTUES IN VOLATILE MARKET
The investment community was turned upside down in the fall of 1998 when
shaky foreign stock markets and an uncertain U.S. economic picture drove
investors to the security of U.S. Treasury bonds, which are backed by the
full faith and credit of the U.S. government. The overwhelming demand for
those securities drove their prices higher and their yields to record
lows.
For a brief period in the fall, fixed-income investors shunned bonds that
carried any degree of credit risk, including municipal bonds. Generally
the greater a bond's credit risk, the worse its performance relative to
Treasury bonds. Rapidly falling Treasury yields created an unusual
situation in which the yields offered by municipal bonds were just as high
as those offered by Treasury bonds of comparable maturity. (Under normal
market conditions, municipal bonds do not need to offer as high a yield as
taxable investments because their tax advantages make them attractive to
investors.) This anomaly represented a rare opportunity for investors,
stabilizing demand at a time when other segments of the bond market,
particularly higher-yielding corporate bonds, were suffering steep
declines.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 24.2%
Education 17.9%
Water and
sewerage 11.0%
Transportation 10.3%
Utilities 6.5%
Footnote reads:
* Based on net assets as of 5/31/99. Portfolio holdings will vary over
time.
In the first five months of 1999, Treasury bonds gave back much of their
gains from 1998, and municipal bonds began to outperform on a total return
basis. The strength of the U.S. economy did not peter out as feared.
Indeed, after a 6% annualized increase in gross domestic product in the
fourth quarter of 1998, the economy expanded at a robust 4.3% rate in the
first quarter of 1999. Signs began to point to higher interest rates and
possibly an increase in inflation. Some commodity prices began to rise -
including an almost 100% rise in the price of oil -- and the consumer
price index posted a stronger-than-expected 0.7% increase in April.
Municipal bonds benefited during this period as investors traded out of
U.S. Treasury bonds and into segments of the bond market that offered
higher yields and less sensitivity to rising interest rates.
Another positive for municipals: As rates edged higher in the first few
months of 1999, the issuance of municipal bonds slowed, reducing the
supply of bonds at the same time that demand for those bonds was surging.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 6.5%
A -- 6.7%
Baa/BBB -- 34.1%
BB -- 1.8%
B -- 0.2%
CCC -- 0.7%
VMIG1 -- 0.9%
Aaa/AAA -- 49.1%
Footnote reads:
* As a percentage of market value as of 5/31/99. A bond rated BBB or higher
is considered investment grade. Percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings will
vary over time.
* CAREFULLY CONSTRUCTED PORTFOLIO SEEKS TO MANAGE RISK WHILE MAXIMIZING INCOME
The fund's investment objective is to obtain high current income free from
federal and state income taxes and consistent with capital preservation.
To achieve this balanced objective, we generally temper higher-yielding,
riskier investments with other investments and strategies intended to have
a stabilizing effect on the portfolio. During the 12-month period covered
by this report, we pursued our investment objective with a multipronged
approach that included call protection, portfolio diversification, and a
prudent use of lower-rated, higher-yielding municipal bonds.
"Though municipal bonds aren't the conspicuous value they were last year --
when yields on Treasury bonds and municipals were nearly identical -- tax-free
bonds are still attractive."
- -- Forbes, April 5, 1999
The fund's call protection strategy is ongoing. In order to take advantage
of lower interest rates, issuers of municipal bonds frequently refinance
their bonds when interest rates are declining. Such was the case in 1998.
A refinanced bond can be disruptive to your fund's flow of income, since
the principal from the issue is returned to us and we must reinvest the
money at current interest rates, which are often lower. However, not all
bonds are issued with refinancing provisions. To help achieve a more
stable flow of income during this period, we invested where possible in
bonds that are not callable as well as in bonds that have distant call
dates.
A closer look at municipal credit ratings
Rating agencies such as Moody's Investors Service and Standard & Poor's
Corp. assign ratings to municipal issuers based on an in-depth analysis of
the issuer's financial condition and management, economic and debt
characteristics, and the specific revenue sources securing the bond. The
highest ratings are Aaa (Moody's) and AAA (Standard & Poor's). Bonds rated
in the Baa/BBB category or higher (A and Aa/AA) are considered to be
investment grade. Securities in the Ba/BB group and below are considered to
be below investment grade or high yield. If you look at "The fund's
portfolio" in the back of this report, you will see ratings next to each
issuer's name. The pie chart on page 3 summarizes this listing to give you a
sense of the portfolio's overall quality.
Sometimes smaller bonds are not rated because the cost of obtaining a rating
is not justifiable. Unrated bonds can still offer attractive investment
opportunities and may end up in your fund's portfolio. In such a case,
Putnam's analysts perform their own ratings; the bond's are identified in the
portfolio listing by a /P rating.
Taking a cue from the market's twists and turns, we also sought to broaden
the fund's diversification during the period and thereby limit unwanted
price volatility. At the end of May 1999, the fund's investments were
spread across more than 15 different segments of the municipal market,
from airport issues to hospitals and housing developments. Recent
purchases include a BBB- rated issue to support a hospital in Columbia
County and a Waste Management issue in Westmoreland County rated BBB+.
While these holdings were viewed favorably at the end of the period, all
are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
Although the majority of the investments in the portfolio are investment
grade, rated BBB or higher (the average was AA on May 31, 1999), we
typically reserve a portion of the portfolio for lower-rated
higher-yielding bonds. In addition to the extra income they provide, these
bonds can lend a measure of stability in times of rising interest rates
because investors are less willing to trade out of bonds that provide a
premium yield. Another plus: When the economy is strong, some lower-rated
bonds are upgraded and experience price gains as more investors seek to
own the issues. Nevertheless, we depend on the expertise of our credit
research department to scrutinize the financial background of high-yield
issuers being considered for the portfolio, regardless of the state of the
economy. Although our high-yield holdings dampened performance during last
year's brief flight to quality, this segment of the portfolio boosted
income and total return throughout the period and particularly in the
first five months of 1999.
* GREATER INCOME OPPORTUNITIES APPEAR TO LIE AHEAD
The rise in interest rates over the past several months has created
opportunities to achieve higher levels of income without sacrificing
credit quality. To make the most of this situation, we have begun to focus
on high-quality bonds with longer maturity dates. At the same time, the
reduction in municipal issuance in Pennsylvania should bode well for the
prices of existing bonds, including those in your fund's portfolio.
The fund's 3.90% 30-day SEC yield at net asset value for Class A shares was
equivalent to a 6.64% after-tax yield for investors in Pennsylvania's highest
income tax bracket.*
* See pages 6-8 for complete performance information.
Although the economy's strength continues unabated and some inflationary
pressures are evident, inflation is by no means widespread. Indeed, prices
continue to fall in such important segments of the economy as retail and
technology. In the coming months, we expect that economic and market
stability will be more the rule than the exception. If rates continue to
climb gradually as we expect, the fund's multipronged investment strategy
should continue to yield positive results in the coming fiscal year.
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 5/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Pennsylvania
Tax Exempt Income Fund is designed for investors seeking high current income
free from federal and state income taxes, consistent with capital
preservation.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class M
(inception dates) (7/21/89) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
1 year 1.91% -2.91% 1.24% -3.56% 1.60% -1.72%
- -------------------------------------------------------------------------
5 years 35.21 28.79 30.89 28.89 33.09 28.84
Annual average 6.22 5.19 5.53 5.21 5.88 5.20
- -------------------------------------------------------------------------
Life of fund 98.69 89.34 84.18 84.18 91.24 85.07
Annual average 7.21 6.69 6.39 6.39 6.80 6.44
- -------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
Lehman Bros. Municipal Consumer
Bond Index price index
- -----------------------------------------------------------------------
1 year 4.67% 2.09%
- -----------------------------------------------------------------------
5 years 41.51 12.68
Annual average 7.19 2.42
- -----------------------------------------------------------------------
Life of fund 107.80 33.91
Annual average 7.65 2.99
- -----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25%, respectively. Class B share returns for the 1-, 5-, and
life-of-fund periods reflect the applicable contingent deferred sales
charge (CDSC), which is 5% in the first year, declines to 1% in the sixth
year, and is eliminated thereafter. Returns shown for class B and class M
shares for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
initial sales charge or CDSC, if any, currently applicable to each class
and in the case of class B and class M shares, the higher operating
expenses applicable to such shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/21/89
Fund's class A Lehman Bros. Consumer price
Date shares at POP Municipal Bond Index index
7/21/89 9,529 10,000 10,000
5/31/90 9,931 10,446 10,386
5/31/91 10,912 11,499 10,900
5/31/92 12,119 12,628 11,230
5/31/93 13,622 14,139 11,592
5/31/94 13,911 14,488 11,857
5/31/95 15,223 15,812 12,235
5/31/96 15,805 16,534 12,588
5/31/97 17,060 17,906 12,870
5/31/98 18,581 19,586 13,087
5/31/99 $18,934 $20,780 $13,391
Footnote reads:
Past performance is no assurance of future results. At the end of the
same time period, a $10,000 investment in the fund's class B shares
would have been valued at $18,418 and no contingent deferred sales
charges would apply; a $10,000 investment in the fund's class M shares
would have been valued at $19,124 ($18,507 at public offering price).
See first page of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION 12 months ended 5/31/99
Class A Class B Class M
- -----------------------------------------------------------------------------
Distributions (number) 12 12 12
- -----------------------------------------------------------------------------
Income $0.461212 $0.400271 $0.433439
- -----------------------------------------------------------------------------
Capital gains1
Long-term 0.037900 0.037900 0.037900
- -----------------------------------------------------------------------------
Short-term 0.049000 0.049000 0.049000
- -----------------------------------------------------------------------------
Total $0.548112 $0.487171 $0.520339
- -----------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -----------------------------------------------------------------------------
5/31/98 $9.49 $9.96 $9.48 $9.49 $9.81
- -----------------------------------------------------------------------------
5/31/99 9.12 9.57 9.11 9.12 9.43
- -----------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------
Current dividend rate2 4.96% 4.72% 4.34% 4.67% 4.52%
- -----------------------------------------------------------------------------
Taxable equivalent3 8.45 8.04 7.39 7.95 7.70
- -----------------------------------------------------------------------------
Current 30-day SEC yield4 3.90 3.72 3.25 3.59 3.47
- -----------------------------------------------------------------------------
Taxable equivalent3 6.64 6.34 5.54 6.11 5.91
- -----------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 41.29% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (7/21/89) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 0.18% -4.55% -0.46% -5.19% -0.22% -3.48%
- ------------------------------------------------------------------------
5 years 34.04 27.61 29.76 27.76 31.92 27.65
Annual average 6.03 5.00 5.35 5.02 5.70 5.00
- ------------------------------------------------------------------------
Life of fund 95.94 86.72 81.54 81.54 88.54 82.47
Annual average 7.00 6.48 6.18 6.18 6.59 6.24
- ------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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.
Terms and definitions
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.
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 4.75% maximum 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. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type
and industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the
amounts listed in the Statement of Operations because the distributions are
determined on a tax basis and may be paid in a different period from the one
in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
Report of independent accountants
For the fiscal year ended May 31, 1999
To the Trustees and Shareholders of
Pennsylvania Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, except for bond ratings, and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of Pennsylvania Tax Exempt Income Fund (the "fund") at May 31,
1999, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31,
1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 12, 1999
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
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
MUNICIPAL BONDS AND NOTES (99.8%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Pennsylvania (93.7%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,000,000 Allegheny Cnty., Arpt. Rev. Bonds (Pittsburgh
Intl. Arpt.), Ser. A, MBIA, 5 3/4s, 1/1/14 Aaa $ 3,217,500
Allegheny Cnty. G. O. Bonds, MBIA
1,280,000 5s, 4/1/09 Aaa 1,289,600
2,115,000 5s, 4/1/08 Aaa 2,144,081
5,000,000 Allegheny Cnty., Higher Ed. Bldg. Auth. Rev. Bonds
(Robert Morris College), Ser. A, 6 1/4s, 2/15/26 Baa3 5,212,500
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
2,450,000 (Childrens Hosp.), MBIA, 5 3/8s, 7/1/17 Aaa 2,486,750
3,450,000 (South Hills Hlth.), Ser. A, MBIA, 5 1/8s, 5/1/25 A2 3,243,000
Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds
1,815,000 (Med. Ctr.), FHA Insd., 6 3/4s, 2/1/26 AAA 1,937,513
4,305,000 (Environmental Impt. -- USX Corp.), 6s, 1/15/14 Baa2 4,504,106
4,000,000 (Environmental Impt. -- USX Corp.), Ser. A,
5.6s, 9/1/30 Baa2 3,920,000
495,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
Rev. Bonds (Southwestern Arpt. Cargo Fac.),
8 3/4s, 2/15/09 BB+/P 503,366
Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A
6,650,000 6 3/4s, 11/15/14 BBB 7,165,375
1,200,000 6 1/2s, 11/15/08 BBB 1,296,000
3,800,000 Berks Cnty. Mun. Auth. Rev. Bonds (Health Care),
5s, 3/1/28 Aa3 3,553,000
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds (Altoona Hosp.),
AMBAC, 6 1/2s, 7/1/22 Aaa 1,640,625
720,000 College Township, Indl. Dev. Auth. 1st Mtge. Hlth.
Fac. Rev. Bonds (Nittany Valley Rehab. Hosp.),
7 5/8s, 11/1/07 BBB-/P 796,500
775,000 Columbia Cnty. Hosp. Auth. Rev. Bonds
(Bloomsberg Hosp.), 5.9s, 6/1/29 BBB- 751,750
2,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 2,500,000
2,385,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB- 2,817,281
1,000,000 Dauphin Cnty., Indl. Dev. Auth. Wtr. Rev. Bonds
(Dauphin Cons. Wtr. Supply), Ser. A, 6.9s, 6/1/24 A3 1,208,750
2,200,000 Delaware Cnty., College Auth. Rev. Bonds
(Neumann College), Ser. A, 5 3/8s, 10/1/26 BBB- 2,095,500
Delaware Cnty., Hosp. Auth. Rev. Bonds
(Crozer-Chester Med. Ctr.)
1,000,000 MBIA, 7 1/2s, 12/15/20 Aaa 1,078,750
1,000,000 6s, 12/15/20 Baa1 1,028,750
3,235,000 Ser. A, 5.3s, 12/1/27 Baa1 2,964,069
4,000,000 Delaware Cnty., Indl. Dev. Auth. Resource Recvy.
Rev. Bonds, Ser. A, 6.1s, 7/1/13 A- 4,105,000
3,000,000 Delaware Valley, Regl. Fin. Auth. Local Govt.
Rev. Bonds, Ser. B, AMBAC, 5.7s, 7/1/27 Aaa 3,232,500
4,100,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 AAA/P 4,643,250
Erie, Higher Ed. Bldg. Auth. College Rev. Bonds
2,000,000 (Gannon U.), Ser. D, 5.85s, 6/1/15 Baa2 2,015,000
1,865,000 (Mercyhurst College), Ser. A, 5 3/4s, 3/15/20 BBB 1,883,650
1,000,000 (Mercyhurst College), Ser. A, 5 3/4s, 3/15/13 BBB 1,015,000
3,500,000 Erie, Wtr. Auth. Rev. Bonds, 7 1/8s, 12/1/11 (SEG) BBB 3,775,625
Erie-Western PA Port Auth. Rev. Bonds
750,000 8 5/8s, 6/15/10 BBB/P 804,495
915,000 6 7/8s, 6/15/16 BBB/P 999,638
1,365,000 6 1/4s, 6/15/10 BBB/P 1,492,969
2,000,000 Exeter Township, Swr. Auth. Rev. Bonds, MBIA,
6.2s, 7/15/22 Aaa 2,137,500
2,100,000 General Mclane School Dist. G.O. Bonds, FGIC,
5 3/4s, 5/15/17 Aaa 2,289,000
1,200,000 Gettysburg, Muni. Auth. College Rev. Bonds
(Gettysburg College), Ser. B, AMBAC,
4 3/4s, 8/15/18 Aaa 1,134,000
665,000 Greene Cnty., Hosp. Auth. Rev. Bonds
(Greene Cnty. Memorial Hosp.), 6 1/2s, 1/1/02 BBB/P 666,111
4,150,000 Harrisburg, Auth. Wtr. IFB, FGIC, 8.22s, 6/18/15 Aaa 4,689,500
2,350,000 Hazleton, Hlth. Svcs. Auth. Rev. Bonds
(St. Joseph Med. Ctr.), 6.2s, 7/1/26 BBB+ 2,397,000
2,200,000 Lebanon Cnty., Good Samaritan Hosp. Auth.
Rev. Bonds, Ser. B, 8 1/4s, 11/1/18 BBB+ 2,287,824
1,000,000 Lehigh Cnty., Gen. Purpose Auth. Rev. Bonds
(Muhlenberg Hosp.), Ser. A, 8.1s, 7/15/10 A3 1,024,030
5,050,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.577s, 9/1/29
(acquired 6/20/95, cost $5,572,473) (RES) AAA/P 6,091,563
Lehigh Cnty., Indl. Dev. Auth. Poll. Control
Rev. Bonds (PA Pwr. & Lt. Co.)
3,575,000 Ser. B, MBIA, 6.4s, 9/1/29 Aaa 3,919,094
3,000,000 Ser. A, MBIA, 5 1/2s, 2/15/27 Aaa 3,060,000
2,000,000 Luzerne Cnty., Indl. Dev. Auth. Rev. Bonds
(Gas & Wtr. Co.), Ser. B, 7 1/8s, 12/1/22 A3 2,177,500
1,685,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2 1,771,356
Montgomery Cnty., Higher Ed. & Hlth. Auth. Hosp.
300,000 VRDN (Philadelphia Presbytery), 3.3s, 7/1/25 VMIG1 300,000
2,000,000 IFB (Abington Hosp.), Ser. A, AMBAC,
9.845s, 7/5/11 Aaa 2,277,500
Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. Rev. Bonds
1,000,000 (UTD Hosp.), Ser. B, 7 1/2s, 11/1/12 AAA 1,017,360
3,000,000 (Sacred Heart Hosp. Norristown), Ser. A, MBIA,
6.8s, 2/1/13 Aaa 3,007,140
3,000,000 New Morgan, Indl. Dev. Auth. Solid Waste Disp.
Rev. Bonds (New Morgan Landfill Co., Inc.),
6 1/2s, 4/1/19 A3 3,210,000
880,000 Northampton Cnty., Indl. Dev. Auth. Rev. Bonds
(Citizens Util. Co.), 6.95s, 8/1/15 AA- 928,400
2,000,000 Northeastern PA Hosp. & Edl. Auth. College
Rev. Bonds (Kings College), Ser. B, 6s, 7/15/11 BBB 2,050,000
PA Convention Ctr. Auth. Rev. Bonds
1,150,000 MBIA, 6 3/4s, 9/1/19 Aaa 1,288,000
5,000,000 Ser. A, 6 3/4s, 9/1/19 Baa 5,443,750
3,000,000 PA Econ. Dev. Fin. Auth. Indl. Dev. Rev. Bonds
(GEHL Co. Inc.), 9s, 9/1/10 BBB-/P 3,213,750
4,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 Baa2 4,755,000
PA Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
180,000 Ser. 29, 7 3/8s, 10/1/16 AA+ 186,975
1,310,000 Ser. 33, 6.9s, 4/1/17 AA+ 1,383,688
3,650,000 Ser. 61A, 5 1/2s, 4/1/29 AA+ 3,659,125
7,830,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 7,702,763
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
2,490,000 Ser. D, 7.15s, 12/1/18 BBB- 2,763,900
1,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,108,750
1,500,000 (Northhampton), Ser. B, 6 3/4s, 1/1/07 BBB-/P 1,616,250
2,300,000 (Northampton Generating), Ser. A, 6.6s, 1/1/19 BBB- 2,432,250
2,000,000 (Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BBB- 2,102,500
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
3,850,000 AMBAC, 8.797s, 3/1/22 Aaa 4,494,875
2,400,000 MBIA, 11.305s, 3/1/20 Aaa 2,655,000
4,450,000 PA State Higher Ed. Assistance Agcy. Student Loan,
Ser. A&B, 7 1/4s, 7/1/18 (acquired various dates
from 1/8/97 to 3/18/98, cost $4,651,703)
(In default) (NON) (RES) CCC 1,468,500
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 2,634,375
2,600,000 (Allegheny College), Ser. B, 6 1/8s, 11/1/13 BBB+ 2,733,250
PA State Higher Ed. Fac. Auth. Rev. Bonds
3,000,000 (Med. College), Ser. A, 7 3/8s, 3/1/21 AAA 3,236,250
9,500,000 (U. of Pennsylvania), 4 3/4s, 7/15/33 Aa2 8,585,625
PA State Tpk. Comm. Oil Franchise Tax Rev. Bonds
4,135,000 6.6s, 12/1/10 (acquired 8/7/98,
cost $4,561,897) (RES) AAA 4,538,163
3,250,000 Ser. B, AMBAC, 4 3/4s, 12/1/27 Aaa 3,006,250
2,000,000 Philadelphia, G.O. Bonds, FGIC, 4 3/4s, 5/15/20 Aaa 1,875,000
2,220,000 Philadelphia, Auth. For Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia LLC), 5 1/2s, 1/1/24 BB/P 2,081,250
Philadelphia, Gas Works Rev. Bonds
1,225,000 Ser. 13, 7.7s, 6/15/21 Aaa 1,342,906
2,550,000 FSA, 6 3/8s, 7/1/26 Aaa 2,811,375
Philadelphia, Hosp. & Higher Ed. Fac.
Auth. Rev. Bonds
500,000 (Graduate Hlth. Syst.), 7s, 7/1/01
(acquired 1/30/98, cost $499, 375)
(In default) (NON) (RES) CCC 165,000
1,315,000 (Graduate Hlth. Syst.), 6 5/8s, 7/1/21
(acquired various dates from 3/18/97 to
1/22/98, cost $1,301,113) (In default) (NON) (RES) CCC 433,950
4,600,000 (Jeanes Hlth. Syst.), 6.6s, 7/1/10 BBB 5,042,750
5,150,000 Philadelphia, Indl. Dev. Auth. Rev. Bonds
(Gallery II Garage), 6.4s, 2/15/13 BBB-/P 5,310,938
1,000,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. B, FGIC,
7 1/8s, 11/15/18 Aaa 1,096,250
2,000,000 Philadelphia, School Dist. G.O. Bonds, Ser. A,
AMBAC, 6 1/4s, 9/1/09 Aaa 2,267,500
3,250,000 Philadelphia, Wtr. & Swr. Rev. Bonds, Ser. 16, FSA,
7s, 8/1/21 Aaa 3,526,250
Philadelphia, Wtr. & Wastewtr. Rev. Bonds
3,400,000 MBIA, 6 1/4s, 8/1/09 Aaa 3,850,500
3,000,000 MBIA, 6 1/4s, 8/1/08 Aaa 3,390,000
4,160,000 Pittsburgh, G.O. Bonds, AMBAC, 5 1/2s, 9/1/14 Aaa 4,295,200
1,435,000 Pittsburgh, Urban Redev. Auth. Rev. Bonds, Ser. C,
5.9s, 10/1/22 AAA 1,501,369
2,850,000 Pittsburgh, Wtr. & Swr. Auth. Rev. Bonds, Ser. 415,
9.1s, 9/1/13 (acquired 9/3/98, cost $3,950,727) (RES) Aaa 3,794,063
2,000,000 Pottsville, Hosp. Auth. Rev. Bonds (Pottsville Hosp. &
Warne Clinic), 7 1/4s, 7/1/24 BBB 2,312,500
1,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 1,073,750
3,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp.), Ser. B,
8 1/2s, 7/1/20 AAA 3,337,500
1,000,000 Smithfield, Swr. Auth. Gtd. Rev. Bonds,
8 5/8s, 1/15/11 AAA/P 1,076,250
2,470,000 Trafford, School Dist. Rev. Bonds, MBIA, 6.6s, 5/1/08 Aaa 2,781,838
400,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 B-/P 413,884
1,500,000 Westmoreland Cnty., Indl. Dev. Auth. Rev. Bonds
(Valley Landfill), 5.1s, 5/1/18 BBB+ 1,486,875
5,000,000 Westmoreland Cnty., Muni. Auth. Svc. Rev. Bonds,
Ser. A, MBIA, zero %, 8/15/23 AAA 1,375,000
3,000,000 Wilkes-Barre, School Dist. Rev. Bonds, FGIC,
6 3/8s, 4/1/15 Aaa 3,322,500
1,800,000 Wilkins Area, Indl. Dev. Auth. 1st Mtge. Rev. Bonds
(Fairview Extended Care), Ser. A, 10 1/4s, 1/1/21 Aaa 2,025,000
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 1,153,600
1,450,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York),
7 1/2s, 9/1/07 BBB-/P 1,571,438
--------------
263,480,196
Puerto Rico (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds,
Ser. AA, MBIA, 6 1/4s, 7/1/10 Aaa 2,282,500
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
2,500,000 Ser. Q, 7 3/4s, 7/1/10 AAA 2,669,725
3,500,000 Ser. T, 6 5/8s, 7/1/12 A 3,823,750
3,000,000 Ser. Y, MBIA, 6 1/4s, 7/1/14 Aaa 3,476,250
2,300,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN,
AMBAC, 3s, 7/1/28 VMIG1 2,300,000
200,000 Cmnwlth. of PR, IFB, MBIA, 8.344s, 7/1/08 Aaa 224,750
2,150,000 Cmnwlth. of PR, Impt. G.O. Bonds, 7.7s, 7/1/20 AAA 2,294,840
--------------
17,071,815
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $273,521,169)(b) $ 280,552,011
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $281,137,208.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
May 31, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While
the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do
not necessarily represent what the agencies would ascribe to these securities at May 31, 1999. Securities rated by
Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
(b) The aggregate identified cost on a tax basis is $273,521,169 resulting in gross unrealized appreciation and
depreciation of $12,986,169 and $5,955,327, respectively, or net unrealized appreciation of $7,030,842.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
May 31, 1999 was $16,491,239 or 5.9% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at May 31, 1999.
The rates shown on IFB, 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 May 31, 1999.
The fund had the following industry group concentrations greater than 10% at May 31, 1999 (as a percentage of net
assets):
Health care 24.2%
Education 17.9
Water & Sewer 11.0
Transportation 10.3
The fund had the following insurance concentrations greater than 10% at May 31, 1999 (as a percentage of net
assets):
MBIA 17.9%
AMBAC 11.5
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond Index
(Long) $7,589,531 $7,623,216 Sep-99 $(33,685)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $273,521,169) (Note 1) $280,552,011
- -----------------------------------------------------------------------------------------------
Cash 425,585
- -----------------------------------------------------------------------------------------------
Interest and other receivables 5,040,735
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 154,125
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 17,719
- -----------------------------------------------------------------------------------------------
Total assets 286,190,175
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 640,901
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 3,473,228
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 284,818
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 425,290
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 36,681
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,543
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,061
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 134,788
- -----------------------------------------------------------------------------------------------
Other accrued expenses 46,657
- -----------------------------------------------------------------------------------------------
Total liabilities 5,052,967
- -----------------------------------------------------------------------------------------------
Net assets $281,137,208
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $275,741,020
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 152,619
- -----------------------------------------------------------------------------------------------
Distributions in excess of gain on investments (Note 1) (1,753,588)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 6,997,157
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $281,137,208
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($179,327,361 divided by 19,669,051 shares) $9.12
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.12)* $9.57
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($98,446,507 divided by 10,810,849 shares)+ $9.11
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,363,340 divided by 368,713 shares) $9.12
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.12)** $9.43
- -----------------------------------------------------------------------------------------------
* 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.
** 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.
+ Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1999
<S> <C>
Tax exempt interest income: $16,620,116
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,697,013
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 390,580
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 8,725
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,210
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 370,754
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 813,362
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 12,687
- -----------------------------------------------------------------------------------------------
Reports to shareholders 18,317
- -----------------------------------------------------------------------------------------------
Registration fees 6,708
- -----------------------------------------------------------------------------------------------
Auditing 27,621
- -----------------------------------------------------------------------------------------------
Legal 6,556
- -----------------------------------------------------------------------------------------------
Postage 33,389
- -----------------------------------------------------------------------------------------------
Other 21,765
- -----------------------------------------------------------------------------------------------
Total expenses 3,413,687
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (35,996)
- -----------------------------------------------------------------------------------------------
Net expenses 3,377,691
- -----------------------------------------------------------------------------------------------
Net investment income 13,242,425
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 619,730
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (162,631)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (9,168,628)
- -----------------------------------------------------------------------------------------------
Net loss on investments (8,711,529)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 4,530,896
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 13,242,425 $ 13,566,720
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 457,099 941,262
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (9,168,628) 8,180,365
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,530,896 22,688,347
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,139,589) (9,631,773)
- ---------------------------------------------------------------------------------------------------------------
Class B (4,093,772) (3,736,612)
- ---------------------------------------------------------------------------------------------------------------
Class M (116,254) (61,339)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,742,908) (840,329)
- ---------------------------------------------------------------------------------------------------------------
Class B (903,508) (374,512)
- ---------------------------------------------------------------------------------------------------------------
Class M (24,458) (5,683)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 13,057,811 8,430,711
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,568,218 16,468,810
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 279,568,990 263,100,180
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed
net investment income of $152,619
and $306,927 respectively) $281,137,208 $279,568,990
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value
beginning of period $9.49 $9.21 $9.08 $9.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .46 .49 .50 .51
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.28) .31 .20 (.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .18 .80 .70 .35
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.48) (.49) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.09) (.04) (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.55) (.52) (.57) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.12 $9.49 $9.21 $9.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.91 8.92 7.94 3.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $179,327 $187,272 $185,041 $183,117
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .98 .98 .98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.89 5.16 5.39 5.46
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.28 40.76 38.10 41.40
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations
* Not annualized.
++ The fiscal year end advanced from February 28 to May 31.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months
Per-share ended Year ended
operating performance May 31 February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1995++ 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value
beginning of period $8.98 $9.39
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .26 (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 .13
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.54)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.24 $8.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.39* 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $178,785 $171,568
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .21* .92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.44* 5.94
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.15* 26.09
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations
* Not annualized.
++ The fiscal year end advanced from February 28 to May 31.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value
beginning of period $9.48 $9.20 $9.07 $9.23
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .40 .42 .44 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.28) .32 .20 (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .12 .74 .64 .29
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.42) (.43) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.09) (.04) (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.49) (.46) (.51) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.11 $9.48 $9.20 $9.07
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.24 8.22 7.24 3.14
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $98,447 $90,303 $77,399 $65,669
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.63 1.63 1.63 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.24 4.51 4.73 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.28 40.76 38.10 41.40
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations
* Not annualized.
++ The fiscal year end advanced from February 28 to May 31.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Three months
Per-share ended Year ended
operating performance May 31 February 28
- ------------------------------------------------------------------------------------------------------------------------------------
1995++ 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value
beginning of period $8.97 $9.38
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .11 .47
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .38 .07
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.47)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.23 $8.97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 4.23* 0.93
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $44,252 $36,670
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .38* 1.57
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.26* 5.23
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.15* 26.09
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations
* Not annualized.
++ The fiscal year end advanced from February 28 to May 31.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) 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>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 3, 1995+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value
beginning of period $9.49 $9.22 $9.09 $9.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .46 .47 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.28) .30 .21 (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .15 .76 .68 .43
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.45) (.47) (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.09) (.04) (.08) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.49) (.55) (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.12 $9.49 $9.22 $9.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.60 8.47 7.61 4.70*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,363 $1,994 $660 $337
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.28 1.28 1.28 1.13*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.59 4.85 5.04 4.49*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 14.28 40.76 38.10 41.40
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations
* Not annualized.
++ The fiscal year end advanced from February 28 to May 31.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) 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
May 31, 1999
Note 1
Significant accounting policies
Putnam Pennsylvania Tax Exempt Income Fund (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 six to 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. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the year ended May
31, 1999, the fund had no borrowings against the line of credit.
E) 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, as amended. 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.
F) 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 at least 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. These differences include temporary and
permanent differences of defaulted bond interest, unrealized gains and
losses on certain futures contracts, post-October loss deferrals, market
discount accretion and straddle loss deferral. 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. For the year ended May 31, 1999, the fund reclassified
$47,118 to decrease undistributed net investment income and $19,646 to
increase paid-in-capital, with a decrease to distributions in excess of
gain on investments of $27,472. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds and
original issue discount are accreted according to the yield to maturity
basis.
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 of average net assets, 0.50% of the next $500 million, 0.45% of
the next $500 million, 0.40% of the next $5 billion, 0.375% of the next $5
billion, 0.355% of the next $5 billion, 0.34% of the next $5 billion, and
0.33% thereafter. On June 4, 1999, the trustees approved a management fee
schedule to become effective on July 1, 1999, based upon the lesser of (i)
an annual rate of 0.50% of the average net asset value of the Fund or (ii)
the initial tiers mentioned above.
The fund reimburses Putnam Management an allocated amount 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended May 31, 1999, fund expenses were reduced by $35,996
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.
Each Trustee of the fund receives an annual Trustee fee, of which $380 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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 Deferral 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 to 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 year ended May 31, 1999, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $31,807 and $1,062 from the sale
of class A and class M shares, respectively, and $172,491 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 that were purchased without an initial sales charge as part of an
investment of $1 million or more. For the year ended May 31, 1999, Putnam
Mutual Funds Corp., acting as underwriter received $429 on class A
redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1999, purchases and sales of investment
securities other than short-term investments aggregated $54,060,520 and
$39,991,587, 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
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,873,907 $26,965,937
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 685,831 6,400,031
- -----------------------------------------------------------------------------
3,559,738 33,365,968
Shares
repurchased (3,616,548) (33,827,464)
- -----------------------------------------------------------------------------
Net decrease (56,810) $ (461,496)
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,888,742 $27,228,107
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 635,723 6,002,555
- -----------------------------------------------------------------------------
3,524,465 33,230,662
Shares
repurchased (3,884,147) (36,640,689)
- -----------------------------------------------------------------------------
Net decrease (359,682) $(3,410,027)
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,135,123 $19,982,461
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 335,184 3,123,172
- -----------------------------------------------------------------------------
2,470,307 23,105,633
Shares
repurchased (1,184,516) (11,065,780)
- -----------------------------------------------------------------------------
Net increase 1,285,791 $12,039,853
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,795,478 $16,967,106
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 270,466 2,551,522
- -----------------------------------------------------------------------------
2,065,944 19,518,628
Shares
repurchased (952,834) (8,983,401)
- -----------------------------------------------------------------------------
Net increase 1,113,110 $10,535,227
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 171,232 $1,597,191
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,853 101,148
- -----------------------------------------------------------------------------
182,085 1,698,339
Shares
repurchased (23,439) (218,885)
- -----------------------------------------------------------------------------
Net increase 158,646 $1,479,454
- -----------------------------------------------------------------------------
Year ended May 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 144,578 $ 1,363,465
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,743 54,313
- -----------------------------------------------------------------------------
150,321 1,417,778
Shares
repurchased (11,844) (112,267)
- -----------------------------------------------------------------------------
Net increase 138,477 $1,305,511
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $58,807 as capital gain, for its taxable year ended May
31, 1999.
The fund has designated 100% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Welcome to www.putnaminv.com
Now you can use your PC to get up-to-date information about your funds, learn
more about investing and retirement planning, and access market news and
economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name or
objective, use our glossary to decode investment terms . . . and much more.
The site can be accessed through any of the major online services (America
Online, CompuServe, Prodigy) that offer web access. Of course, you can also
access it via Netscape or Microsoft Internet Explorer, using an independent
Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
David E. Hamlin
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
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' Web site: 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 the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
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U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN054-53212 047/226/2AE 7/99
