Putnam
Pennsylvania
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
Putnam Pennsylvania Tax Exempt Income Fund's recently concluded
semiannual period coincided with one of the more anxiety-driven times in
recent memory. Uncertainties generated by the Federal Reserve Board's
interest-rate policy, the slowing pace of the economy, and the aftermath
of the U.S. presidential election contributed to the general sense of
unease.
Typically, in such an environment, investors are drawn to the relative
security of fixed-income investments. In this case, they have also been
increasingly drawn to the tax advantages of municipal bonds, helping to
boost demand in the face of a diminishing supply. Consequently, your
fund, which had been under some pressure for much of its 2000 fiscal
year, begins fiscal 2001 with solid performance.
Seasoned investors realize that uncertainties such as we have recently
experienced are usually transitory. Your fund's manager, Susan
McCormack, successfully positioned the fund to benefit as the market
encounters a more favorable climate. We are confident that her
strategies will enable the fund to take full advantage of the
opportunities available in fiscal 2001.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 17, 2001
REPORT FROM FUND MANAGEMENT
Susan A. McCormack
The past six months have been difficult for investors in the stock
market, with an unprecedented amount of volatility sparked by a slowdown
in the economy. The municipal bond market anticipated the beginning of
the economy's slowdown and delivered significantly better performance to
fixed-income investors who maintained their positions. Putnam
Pennsylvania Tax Exempt Income Fund was no exception. Throughout the six
months ended November 30, 2000, we remained focused on generating a high
rate of tax-exempt income, but also took advantage of opportunities to
boost the fund's total return.
Total return for 6 months ended 11/30/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
-------------------------------------------------------------
6.47% 1.37% 6.12% 1.12% 6.18% 2.74%
-------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* ECONOMY MODERATES, FED SHIFTS STANCE
For the first five months of the year, the Federal Reserve Board was
absorbed in an agenda of raising interest rates in efforts to slow
economic growth. The last interest-rate hike came in May, when the
benchmark federal funds target rate on bank overnight loans rose by
one-half of a percentage point. Since then, economic indicators have
shown that growth has slowed significantly and now appears to be running
at approximately 3% annually. In October, for example, factory orders
fell 3.3%, the first decline in months, according to the U.S. Commerce
Department. In addition, there are some signs that unemployment may be
creeping upward, while productivity appears to be steady.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 20.3%
Education 19.6%
Water and sewer 15.1%
Utilities 10.7%
Transportation 3.8%
Footnote reads:
*Based on net assets as of 11/30/00. Holdings will vary over time.
Just after the close of your fund's semiannual period, Fed Chairman Alan
Greenspan signaled a change in the Fed's stance on interest rates,
indicating that it was more concerned with the slowing economy than with
an outbreak in inflation. In January, in a surprise move, the Fed
lowered rates by one half of one percentage point, the first decrease
in almost two years.
* PERFORMANCE AND OPPORTUNITY
For much of 2000, the municipal bond market anticipated a slowdown in
the economy and, consequently, delivered better performance despite the
Fed's string of interest-rate increases. Over much of the past six
months we began to see positive total returns as interest rates in the
municipal market have peaked and fallen. In tandem with declining
interest rates and strong demand for high-quality bonds, the AAA sector
of the municipal market has benefited the most. As a result, we
witnessed a dramatic difference in yield (known as yield spread)
between the highest-rated and lowest-rated municipal bonds.
As investors have moved into higher-quality municipal bonds, pushing up
their prices, the prices of lower-rated bonds have lagged. In the past,
we've stated that it has been our strategy to increase the lower-rated
holdings in your fund's portfolio. This price drop created an unusual
opportunity for us to invest in a greater number of lower-rated bonds at
attractive prices.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 51.4%
Aa/AA -- 1.1%
A -- 6.5%
Baa/BBB -- 35.2%
Ba/BB -- 4.7%
Other -- 1.1%
Footnote reads:
*As a percentage of market value as of 11/30/00. A bond rated BBB/Baa 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.
We still believe that the lower-rated sector is a good place to be
invested -- that the fall in lower-rated bond prices is not due to
rising defaults or a looming recession, but rather to earlier cash flow
out of municipal bond funds. When investors leave a market (such as they
did when the equity markets became troubled in March) lower-credit
securities are generally the first to be sold. However, there is a
positive aspect to waiting for lower-rated credit sectors to perform
better. Investors receive attractive income levels while they wait. With
better performance in the general municipal bond market, extremely low
valuations in the lower-rated sectors, and the return of many investors
to the municipal market, we have begun to see signs that credit yield
spreads have peaked and are beginning to narrow.
"For investors tired of seesawing in the stock market, some cautious
investment in bonds may be just the ticket."
-- Business Week, November 15, 2000
* PORTFOLIO STRATEGIES
Your fund is designed to seek a high level of tax-free income. Over the
past six months, we have used two primary strategies for boosting
income. First, we continued to selectively add higher-yielding,
lower-rated bonds to the portfolio. Second, we opportunistically
purchased bonds that we believe will perform well when interest rates
start to decline.
When investing in the high-yield sector, Putnam's extensive research
capabilities help us to identify and carefully analyze such bonds,
allowing us to purchase with a higher degree of confidence undervalued
securities as well as securities whose current ratings may not
accurately reflect their performance. Putnam's in-depth analytical
expertise has become even more important to the fund's management in
recent months, since the economy's ongoing expansion has severely
limited new bond issuance and made it more challenging to find
appropriate additions for the portfolio.
"As the Fed moves toward a more bond-friendly stance, the fund's
higher-yielding holdings are well positioned for price appreciation.
When interest rates begin to drop, many mutual fund managers will
reach for additional yield to keep up their portfolios' income stream.
This increase in demand should have a very favorable effect on the
high-yield end of the municipal market."
-- Susan A. McCormack, portfolio manager, Putnam Pennsylvania Tax Exempt
Income Fund
One higher-yielding holding purchased over the recent period was issued
by the Carbon County Industrial Development Authority to finance the
Panther Creek project, a power plant that burns waste coal. We purchased
$2.3 million of these bonds, which carry a BBB- rating by Standard &
Poor's and provide a yield of 6.65%.
Another facet of our investment strategy was to purchase high-quality
bonds that mature further in the future. As investors' appetites for
higher-quality bonds continued to build, bonds with the highest credit
ratings and call protection strengthened. For example, we purchased $2
million worth of Allegheny County Sanitation Authority bonds. These
bonds have a 5.5% coupon, mature in 2030, and have call protection
through 2010. Plus they are insured.
* CAUTIOUSLY OPTIMISTIC OUTLOOK
In the coming months, the Fed is likely to continue lowering rates if
the equity markets remain volatile and the economy continues to slow
down. As performance improves in the municipal bond market, the
investments in your fund, especially the bonds at the lower end of the
rating spectrum, offer the opportunity for increased tax-exempt income
and the potential for price appreciation. At the same time,
Pennsylvania's fiscal situation remains quite strong, providing a
healthy backdrop for its municipal bond market and continuing to make it
a good place to invest for tax-exempt income.
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 11/30/00, there is no guarantee the fund
will continue to hold these securities in the future.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing regulations
for semiannual and annual reports and prospectuses. Putnam is now able to
send a single copy of these materials to customers who share the same
address. This change will automatically apply to all shareholders except
those who notify us. If you prefer to receive your own copy, please call
Putnam at 1-800-225-1581.
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 11/30/00
Class A Class B Class M
(inception dates) (7/21/89) (7/15/93) (7/3/95)
NAV POP NAV CDSC NAV POP
------------------------------------------------------------------------------
6 months 6.47% 1.37% 6.12% 1.12% 6.18% 2.74%
------------------------------------------------------------------------------
1 year 6.57 1.49 5.88 0.88 6.25 2.78
------------------------------------------------------------------------------
5 years 22.11 16.31 18.19 16.35 20.15 16.20
Annual average 4.08 3.07 3.40 3.08 3.74 3.05
------------------------------------------------------------------------------
10 years 87.41 78.48 74.15 74.15 80.96 75.03
Annual average 6.48 5.96 5.70 5.70 6.11 5.76
------------------------------------------------------------------------------
Annual average
(life of fund) 6.50 6.05 5.70 5.70 6.10 5.80
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/00
Lehman Brothers Municipal Consumer
Bond Index price index
------------------------------------------------------------------------
6 months 7.08% 1.57%
------------------------------------------------------------------------
1 year 8.18 3.44
------------------------------------------------------------------------
5 years 30.88 13.26
Annual average 5.53 2.52
------------------------------------------------------------------------
10 years 98.76 30.19
Annual average 7.11 2.67
------------------------------------------------------------------------
Annual average
(life of fund) 7.10 3.02
------------------------------------------------------------------------
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-year, 5- and
10-year, if available, 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. Performance
reflects an expense limitation currently or previously in effect. Had it
not been in effect, the fund's total returns would have been lower.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/00
Class A Class B Class M
------------------------------------------------------------------------------
Distributions (number) 6 6 6
------------------------------------------------------------------------------
Income 1 $0.23599 $0.20750 $0.223071
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Capital gains 1 -- -- --
------------------------------------------------------------------------------
Total $0.23599 $0.20750 $0.223071
------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
------------------------------------------------------------------------------
5/31/00 $8.35 $8.77 $8.34 $8.36 $8.64
------------------------------------------------------------------------------
11/30/00 8.65 9.08 8.64 8.65 8.94
------------------------------------------------------------------------------
Current return (end of period)
------------------------------------------------------------------------------
Current dividend rate 2 5.88% 5.60% 5.18% 5.56% 5.38%
------------------------------------------------------------------------------
Taxable equivalent 3 10.02 9.54 8.82 9.47 9.16
------------------------------------------------------------------------------
Current 30-day SEC yield 4 5.08 4.84 4.43 4.78 4.62
------------------------------------------------------------------------------
Taxable equivalent 3 8.65 8.24 7.55 8.14 7.87
------------------------------------------------------------------------------
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 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 41.29% federal and state combined 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 12/31/00 (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
------------------------------------------------------------------------------
6 months 5.93% 0.94% 5.58% 0.58% 5.76% 2.28%
------------------------------------------------------------------------------
1 year 9.83 4.62 9.12 4.11 9.62 6.10
------------------------------------------------------------------------------
5 years 23.03 17.23 19.08 17.23 21.20 17.24
Annual average 4.23 3.23 3.55 3.23 3.92 3.23
------------------------------------------------------------------------------
10 years 90.20 81.12 76.67 76.67 83.81 77.77
Annual average 6.64 6.12 5.86 5.86 6.28 5.92
------------------------------------------------------------------------------
Annual average
(life of fund) 6.62 6.17 5.82 5.82 6.23 5.93
------------------------------------------------------------------------------
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. See first
page of performance section for performance calculation method.
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 class B 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
The Lehman Brothers Municipal Bond Index is an index of approximately
20,000 investment-grade, fixed-rate tax-exempt bonds. Securities indexes
assume reinvestment of all distributions and interest payments and do
not take into account brokerage fees or taxes. 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 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 are determined. All investment and noninvestment 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 sources 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-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
November 30, 2000 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FRB -- Floating Rate Bonds
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 (98.3%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Pennsylvania (94.3%)
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$ 5,000,000 Allegheny Cnty., Higher Ed. Bldg. Auth. Rev. Bonds
(Robert Morris College), Ser. A, 6 1/4s, 2/15/26 Baa3 $ 5,037,500
Allegheny Cnty., Hosp. Dev. Auth. Rev. Bonds
2,450,000 (Childrens Hosp.), MBIA, 5 3/8s, 7/1/17 Aaa 2,443,875
3,450,000 (South Hills Hlth.), Ser. A, MBIA, 5 1/8s, 5/1/25 A2 2,880,750
1,400,000 Allegheny Cnty., Indl. Dev. Auth. Arpt. Special Fac.
VRDN, Ser. A, 4s, 7/1/27 Aa3 1,400,000
Allegheny Cnty., Indl. Dev. Auth. Rev. Bonds
1,735,000 (Med. Ctr.), FHA Insd., 6 3/4s, 2/1/26 AAA 1,800,063
3,305,000 (Environmental Impt. - USX Corp.), 6s, 1/15/14 Baa1 3,305,000
4,000,000 (Environmental Impt. - USX Corp.), Ser. A,
5.6s, 9/1/30 Baa2 3,510,000
2,000,000 Allegheny Cnty., Redev. Auth. Tax Increment Rev.
Bonds (Waterfront Proj.), Ser. B, 6.4s, 12/15/18 A- 2,072,500
2,000,000 Allegheny Cnty., Sanitation Auth. Rev. Bond, MBIA,
5 1/2s, 12/1/30 AAA 1,987,500
Allentown, Hosp. Auth. Rev. Bonds
(Sacred Heart Hosp.), Ser. A
6,650,000 6 3/4s, 11/15/14 BBB 6,583,500
1,200,000 6 1/2s, 11/15/08 BBB 1,207,500
Bethlehem, PA Wtr. Auth. Rev. Bonds
4,000,000 FSA, zero %, 11/15/23 AAA 1,086,960
1,000,000 FSA, zero %, 11/15/22 AAA 288,750
1,500,000 Blair Cnty., Hosp. Auth. Rev. Bonds (Altoona Hosp.),
AMBAC, 6 1/2s, 7/1/22 Aaa 1,575,000
2,250,000 Carbon Cnty., Indl. Dev. Auth. Rev. Bonds
(Panther Creek Partners PJ), 6.65s, 5/1/10 BBB 2,300,625
595,000 College Township, Indl. Dev. Auth. 1st Mtge. Hlth.
Fac. Rev. Bonds (Nittany Valley Rehab. Hosp.),
7 5/8s, 11/1/07 BBB-/P 619,544
775,000 Columbia Cnty., Hosp. Auth. Rev. Bonds
(Bloomsburg Hosp.), 5.9s, 6/1/29 BBB-/P 609,344
1,000,000 Council Rock, Schl. Dist. G.O. Bonds, FGIC,
4 3/4s, 11/15/17 AAA 922,500
2,500,000 Dauphin Cnty., Gen. Auth. Rev. Bonds
(Office & Pkg.), Ser. A, 6s, 1/15/25 BB-/P 2,184,375
2,210,000 Dauphin Cnty., Gen. Auth. Hosp. Rev. Bonds
(Northwest Med. Ctr.), 8 5/8s, 10/15/13 BBB-/P 2,406,138
1,000,000 Dauphin Cnty., Indl. Dev. Auth. Wtr. Rev. Bonds
(Dauphin Cons. Wtr. Supply), Ser. A, 6.9s, 6/1/24 A 1,141,250
1,000,000 Delaware Cnty., College Auth. Rev. Bonds
(Haverford College), 5 3/4s, 11/15/25 AA 1,020,000
Delaware Cnty., Hosp. Auth. Rev. Bonds
(Crozer-Chester Med. Ctr.)
1,000,000 6s, 12/15/20 BBB+ 885,000
3,235,000 Ser. A, 5.3s, 12/1/27 BBB+ 2,490,950
4,000,000 Delaware Cnty., Indl. Dev. Auth. Resource Recvy.
Rev. Bonds, Ser. A, 6.1s, 7/1/13 BB- 3,625,000
3,000,000 Delaware Valley, Regl. Fin. Auth. Local Govt.
Rev. Bonds, Ser. B, AMBAC, 5.7s, 7/1/27 Aaa 3,075,000
4,100,000 Doylestown, Hosp. Auth. Rev. Bonds (Doylestown
Hosp. Pine Run), Ser. A, 7.2s, 7/1/23 Baa1 4,433,125
2,000,000 Erie, Higher Ed. Bldg. Auth. College Rev. Bonds
(Gannon U.), Ser. D, 5.85s, 6/1/15 Baa2 2,002,500
3,500,000 Erie, Wtr. Auth. Rev. Bonds, 7 1/8s, 12/1/11 (SEG) BBB 3,592,645
Erie-Western PA Port Auth. Rev. Bonds
915,000 6 7/8s, 6/15/16 BBB/P 945,881
1,365,000 6 1/4s, 6/15/10 BBB/P 1,405,950
4,150,000 Harrisburg, Auth. Wtr.IFB, FGIC, 7.47s, 6/18/15 Aaa 4,341,938
2,350,000 Hazleton, Hlth. Svcs. Auth. Rev. Bonds
(St. Joseph Med. Ctr.), 6.2s, 7/1/26 BBB+ 2,112,063
5,050,000 Lehigh Cnty., Indl. Dev. Auth. Poll. Control IFB
(PA Pwr. & Lt. Co.), 8.362s, 9/1/29
(acquired 6/20/95, cost $5,572,473) (RES) AAA/P 5,592,875
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 3,767,156
3,000,000 Ser. A, MBIA, 5 1/2s, 2/15/27 Aaa 2,955,000
2,000,000 Luzerne Cnty., Indl. Dev. Auth. Rev. Bonds
(Gas & Wtr. Co.), Ser. B, 7 1/8s, 12/1/22 A 2,102,500
4,655,000 McKeesport, Area School Dist. G.O. Bonds,
zero %, MBIA, 10/1/18 Aaa 1,739,806
1,035,000 McKeesport, Hosp. Auth. Rev. Bonds, 6 1/4s, 7/1/03 Baa2 1,056,994
2,000,000 Montgomery Cnty., Higher Ed. & Hlth. Auth.
Hosp. IFB (Abington Hosp.), Ser. A, AMBAC,
8.695s, 7/5/11 Aaa 2,105,780
3,000,000 New Morgan, Indl. Dev. Auth. Solid Waste Disp.
Rev. Bonds (New Morgan Landfill Co., Inc.),
6 1/2s, 4/1/19 BB- 2,782,500
2,000,000 Northeastern PA Hosp. & Edl. Auth. College
Rev. Bonds (Kings College), Ser. B, 6s, 7/15/11 BBB 2,030,000
5,000,000 PA Convention Ctr. Auth. Rev. Bonds, Ser. A,
6 3/4s, 9/1/19 Baa2 5,193,750
3,000,000 PA Econ. Dev. Fin. Auth. Indl. Dev. Rev. Bonds
(GEHL Co. Inc.), 9s, 9/1/10 BBB/P 3,108,990
4,000,000 PA Econ. Dev. Fin. Auth. Rev. Bonds
(MacMillan Ltd. Partnership), 7.6s, 12/1/20 A 4,555,000
2,600,000 PA Gas Works Rev. Bonds, Ser. 2, FSA, 5 1/2s, 7/1/16 AAA 2,639,000
PA G.O. Bonds (Canon McMillan School Dist.)
3,200,000 FGIC, zero %, 12/1/19 AAA 1,108,000
3,230,000 FGIC, zero %, 12/1/18 AAA 1,195,100
2,000,000 FGIC, zero %, 12/1/17 AAA 790,000
2,000,000 PA School Dist. G.O. Bonds, Ser. C, MBIA,
5 1/2s, 3/1/24 AAA 1,997,500
7,830,000 PA State COP, Ser. A, AMBAC, 5s, 7/1/15 Aaa 7,585,313
PA State Econ. Dev. Fin. Auth. Resource Recvy.
Rev. Bonds
2,490,000 Ser. D, 7.15s, 12/1/18 BBB- 2,549,138
1,000,000 (Colver), Ser. D, 7 1/8s, 12/1/15 BBB- 1,025,000
2,300,000 (Northampton Generating), Ser. A, 6.6s, 1/1/19 BBB- 2,222,375
2,000,000 (Northampton Generating), Ser. A, 6 1/2s, 1/1/13 BBB- 1,937,500
PA State Higher Ed. Assistance Agcy. IFB, Ser. B
3,850,000 AMBAC, 8.381s, 3/1/22 Aaa 4,263,875
2,400,000 MBIA, 8.253s, 3/1/20 Aaa 2,889,000
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 $4,461,703)
(In default) (NON) (RES) D 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 2,518,975
2,600,000 (Allegheny College), Ser. B, 6 1/8s, 11/1/13 BBB+ 2,652,000
1,000,000 PA State Higher Ed. Fac. Auth. Rev. Bonds
(Med. College), Ser. A, 7 3/8s, 3/1/21 AAA 1,026,600
9,500,000 PA State Higher Edl. Facs. Auth. College &
U. Revisions Rev. Bonds (Trustees U.), MBIA,
4 3/4s, 7/15/33 AAA 8,134,375
3,250,000 PA State, Tpk. Comm. Oil Franchise Tax Rev. Bonds,
Ser. B, AMBAC, 4 3/4s, 12/1/27 Aaa 2,855,938
2,000,000 Philadelphia, G.O. Bonds, FGIC, 4 3/4s, 5/15/20 Aaa 1,802,500
2,220,000 Philadelphia, Auth. For Indl. Dev. Arpt. Rev. Bonds
(Aero Philadelphia LLC), 5 1/2s, 1/1/24 BB/P 1,767,675
Philadelphia, Gas Works Rev. Bonds
1,225,000 Ser. 13, 7.7s, 6/15/21 Aaa 1,270,374
2,550,000 FSA, 6 3/8s, 7/1/26 Aaa 2,645,625
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) D 165,000
1,315,000 (Graduate Hlth. Syst.), 6 5/8s, 7/1/21 (acquired
3/18/97, cost $1,301,113) (In default) (NON) (RES) D 433,950
4,600,000 (Jeanes Hlth. Syst.), 6.6s, 7/1/10 BBB 4,542,500
5,150,000 Philadelphia, Indl. Dev. Auth. Rev. Bonds
(Gallery II Garage), 6.4s, 2/15/13 BBB- 5,124,250
1,000,000 Philadelphia, Muni. Auth. Rev. Bonds, Ser. B, FGIC,
7 1/8s, 11/15/18 Aaa 1,044,950
4,125,000 Philadelphia, School Dist., FRB, 5 3/4s, 3/1/29
(acquired 2/1/00, cost $3,645,923) (RES) AAA/P 4,243,594
2,000,000 Philadelphia, School Dist. G.O. Bonds, Ser. A,
AMBAC, 6 1/4s, 9/1/09 Aaa 2,217,500
2,250,000 Philadelphia, Wtr. & Swr. Rev. Bonds, Ser. 16, FSA,
7s, 8/1/21 Aaa 2,332,283
3,000,000 Philadelphia, Wtr. & Wastewtr. Rev. Bonds, MBIA,
6 1/4s, 8/1/08 Aaa 3,300,000
2,160,000 Pittsburgh, G.O. Bonds, AMBAC, 5 1/2s, 9/1/14 Aaa 2,205,900
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 3,658,688
1,000,000 Schuylkill Cnty., Redev. Auth. Lease Rev. Bonds,
Ser. A, FGIC, 7 1/8s, 6/1/13 Aaa 1,033,050
3,000,000 Scranton-Lackawanna, Hlth. & Welfare Auth.
Rev. Bonds (Moses Taylor Hosp.), Ser. B,
8 1/2s, 7/1/20 AAA 3,127,800
1,000,000 Smithfield, Swr. Auth. Gtd. Rev. Bonds,
8 5/8s, 1/15/11 AAA/P 1,004,500
2,470,000 Trafford, School Dist. Rev. Bonds, MBIA, 6.6s, 5/1/08 Aaa 2,673,770
400,000 Washington Cnty., Indl. Dev. Auth. 1st Mtge.
Rev. Bonds (AHF/Central States Inc.),
10 1/4s, 11/1/19 CCC/P 402,500
3,000,000 Wilkes-Barre, School Dist. Rev. Bonds, FGIC,
6 3/8s, 4/1/15 Aaa 3,195,000
1,030,000 York Cnty., Hosp. Auth. Rev. Bonds (Hlth. Ctr.
Village at Sprenkle Drive), Ser. A, 7 3/4s, 4/1/21 AAA 1,093,088
1,200,000 York Cnty., Indl. Dev. Auth. lst Mtge. Hlth. Fac.
Rev. Bonds (Rehabilitation Hosp. of York),
7 1/2s, 9/1/07 BBB-/P 1,242,000
-------------
211,667,763
Puerto Rico (4.0%)
-------------------------------------------------------------------------------------------------------------------
1,500,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. T, 6 5/8s, 7/1/12 A 1,578,750
1,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN,
AMBAC, 3.6s, 7/1/28 Aaa 1,000,000
2,500,000 PR Comnwlth. G.O. Bonds, MBIA, 5 3/4s, 7/1/26 AAA 2,590,625
1,500,000 PR Indl. Tourist Edl. Med. & Env. Control Facs.
Rev. Bonds (Cogen Facs. -- AES PR Project),
6 5/8s, 6/1/26 Baa2 1,569,375
2,000,000 PR Muni. Fin Agcy. G.O. Bonds, Ser. A, FSA,
5 7/8s, 8/1/14 AAA 2,160,000
-------------
8,898,750
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $222,783,229) (b) $220,566,513
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $224,408,420.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at November 30, 2000 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, 2000. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $222,783,229
resulting in gross unrealized appreciation and depreciation of
$7,376,072 and $9,592,788, respectively, or net unrealized depreciation
of $2,216,716.
(NON) Non-income-producing security.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at November 30, 2000
was $15,562,604 or 6.9% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at November
30, 2000.
The rates shown on IFB, which are securities paying interest rates
that vary inversely to changes in the market interest rates, and VRDN's
and FRB's are the current interest rates at November 30, 2000.
The fund had the following industry group concentrations greater than 10% at November 30, 2000
(as a percentage of net assets):
Health care 20.3%
Education 19.6
Water and sewer 15.1
Utilities 10.7
The fund had the following insurance concentrations greater than
10% at November 30, 2000 (as a percentage of net assets):
MBIA 17.8%
AMBAC 12.0
------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 2000 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
------------------------------------------------------------------------------
Municipal Bond
Index (Short) $2,527,343 $2,480,045 Dec-00 $(47,298)
Municipal Bond
Index (Short) 402,250 399,411 Mar-01 (2,839)
------------------------------------------------------------------------------
$(50,137)
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $222,783,229) (Note 1) $220,566,513
-------------------------------------------------------------------------------------------
Cash 673,341
-------------------------------------------------------------------------------------------
Interest and other receivables 3,992,148
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 292,141
-------------------------------------------------------------------------------------------
Total assets 225,524,143
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 17,116
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 129,835
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 519,973
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 278,513
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 27,315
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 12,608
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,331
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 98,298
-------------------------------------------------------------------------------------------
Other accrued expenses 29,734
-------------------------------------------------------------------------------------------
Total liabilities 1,115,723
-------------------------------------------------------------------------------------------
Net assets $224,408,420
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $233,926,566
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 83,379
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,334,672)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,266,853)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $224,408,420
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($156,607,923 divided by 18,097,659 shares) $8.65
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.65)* $9.08
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($65,196,622 divided by 7,549,516 shares)+ $8.64
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,603,875 divided by 300,971 shares) $8.65
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.65)** $8.94
-------------------------------------------------------------------------------------------
* 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
Six months ended November 30, 2000 (Unaudited)
<S> <C>
Tax exempt interest income: $ 7,001,396
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 560,916
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 114,324
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,542
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,768
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 152,865
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 291,870
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 6,172
-------------------------------------------------------------------------------------------
Other 46,205
-------------------------------------------------------------------------------------------
Total expenses 1,179,662
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (88,336)
-------------------------------------------------------------------------------------------
Net expenses 1,091,326
-------------------------------------------------------------------------------------------
Net investment income 5,910,070
-------------------------------------------------------------------------------------------
Net realized gain on investments (Note 1) 20,705
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (138,194)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 7,966,843
-------------------------------------------------------------------------------------------
Net gain on investments 7,849,354
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $13,759,424
-------------------------------------------------------------------------------------------
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
2000* 2000
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 5,910,070 $ 12,951,452
--------------------------------------------------------------------------------------------------
Net realized loss on investments (117,489) (5,483,242)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 7,966,843 (17,230,853)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations 13,759,424 (9,762,643)
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (4,193,383) (8,662,464)
--------------------------------------------------------------------------------------------------
Class B (1,656,088) (4,160,353)
--------------------------------------------------------------------------------------------------
Class M (64,165) (128,635)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (3,961,723) (37,898,758)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 3,884,065 (60,612,853)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 220,524,355 281,137,208
--------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $83,379 and $86,945 respectively) $224,408,420 $220,524,355
--------------------------------------------------------------------------------------------------
* Unaudited
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
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share November 30
operating performance (Unaudited) Year ended May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period 8.35 9.12 9.49 $9.21 $9.08 $9.24
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .24 .47 .46 .49 .50 .51
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.77) (.28) .31 .20 (.16)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .54 (.30) .18 .80 .70 .35
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.47) (.46) (.48) (.49) (.51)
------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.09) (.04) (.08) --
------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.55) (.52) (.57) (.51)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.65 $8.35 $9.12 $9.49 $9.21 $9.08
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.47* (3.30) 1.91 8.92 7.94 3.82
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $156,608 $141,406 $179,327 $187,272 $185,041 $183,117
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .43* .87 .98 .98 .98 .98
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.74* 5.44 4.89 5.16 5.39 5.46
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.83* 14.85 14.28 40.76 38.10 41.40
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share November 30
operating performance (Unaudited) Year ended May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $8.34 $9.11 $9.48 $9.20 $9.07 $9.23
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .21 .41 .40 .42 .44 .44
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.77) (.28) .32 .20 (.15)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .51 (.36) .12 .74 .64 .29
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.41) (.40) (.42) (.43) (.45)
------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.09) (.04) (.08) --
------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.41) (.49) (.46) (.51) (.45)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.64 $8.34 $9.11 $9.48 $9.20 $9.07
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.12* (3.94) 1.24 8.22 7.24 3.14
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $65,197 $76,921 $98,447 $90,303 $77,399 $65,669
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .75* 1.52 1.63 1.63 1.63 1.62
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.42* 4.79 4.24 4.51 4.73 4.78
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.83* 14.85 14.28 40.76 38.10 41.40
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share November 30 July 3, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
------------------------------------------------------------------------------------------------------------------
2000 2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
beginning of period $8.36 $9.12 $9.49 $9.22 $9.09 $9.10
------------------------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------------------------
Net investment income .22 .44 .43 .46 .47 .44
------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .29 (.76) (.28) .30 .21 (.01)
------------------------------------------------------------------------------------------------------------------
Total from
investment operations .51 (.32) .15 .76 .68 .43
------------------------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.44) (.43) (.45) (.47) (.44)
------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.09) (.04) (.08) --
------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.52) (.49) (.55) (.44)
------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.65 $8.36 $9.12 $9.49 $9.22 $9.09
------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 6.18* (3.48) 1.60 8.47 7.61 4.70*
------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,604 $2,197 $3,363 $1,994 $660 $337
------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .58* 1.17 1.28 1.28 1.28 1.13*
------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.59* 5.14 4.59 4.85 5.04 4.49*
------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.83* 14.85 14.28 40.76 38.10 41.40
------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
November 30, 2000 (Unaudited)
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, LLC ("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 higher than class A but lower than
class B 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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.
Restricted securities are stated at fair value following procedures
approved by the Trustees. 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). Gains or losses on securities sold are determined
on the identified cost basis.
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 six months
ended November 30, 2000, 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.
At May 31, 2000 the fund had a capital loss carryover of approximately
$2,668,000 available to offset future capital gains, if any, which will
expire May 31, 2008.
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid 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. 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.
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 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 upon the lesser of (i) an annual rate of
0.50% of the average net asset value of the fund or (ii) 0.60% of the
first $500 million, 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.
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.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2000, the fund's expenses were reduced by $88,336 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $517 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. 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
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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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 six months ended November 30, 2000, Putnam Retail Management,
Inc., acting as underwriter received net commissions of $7,890 and $342
from the sale of class A and class M shares, respectively, and $89,036
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, 2000, Putnam
Retail Management, Inc., acting as underwriter received no monies on
class A redemptions.
Note 3
Purchase and sales of securities
During six months ended November 30, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $6,181,480 and $9,714,358, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At May 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 2,564,642 $ 22,010,666
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 275,887 2,375,429
---------------------------------------------------------------------------
2,840,529 24,386,095
Shares
repurchased (1,673,059) (14,370,008)
---------------------------------------------------------------------------
Net increase 1,167,470 $ 10,016,087
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 1,903,581 $ 16,437,995
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 575,135 4,933,503
---------------------------------------------------------------------------
2,478,716 21,371,498
Shares
repurchased (5,217,578) (44,783,737)
---------------------------------------------------------------------------
Net decrease (2,738,862) $(23,412,239)
---------------------------------------------------------------------------
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 400,688 $ 3,349,749
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 111,434 957,649
---------------------------------------------------------------------------
512,122 4,307,398
Shares
repurchased (2,183,195) (18,612,806)
---------------------------------------------------------------------------
Net decrease (1,671,073) $(14,305,408)
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 959,926 $ 8,296,358
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 296,089 2,536,156
---------------------------------------------------------------------------
1,256,015 10,832,514
Shares
repurchased (2,846,275) (24,385,706)
---------------------------------------------------------------------------
Net decrease (1,590,260) $(13,553,192)
---------------------------------------------------------------------------
Six months ended November 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 39,639 $340,698
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,371 54,882
---------------------------------------------------------------------------
46,010 395,580
Shares
repurchased (7,887) (67,982)
---------------------------------------------------------------------------
Net increase 38,123 $327,598
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 89,479 $ 783,722
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,470 97,957
---------------------------------------------------------------------------
100,949 881,679
Shares
repurchased (206,814) (1,815,006)
---------------------------------------------------------------------------
Net decrease (105,865) $ (933,327)
---------------------------------------------------------------------------
Note 5
New accounting pronouncement
In November 2000, the AICPA issued a revised Audit and Accounting Guide,
Audits of Investment Companies, which is effective for fiscal years
beginning after December 15, 2000. The revised Guide will require the
fund to amortize premium and accrete discount on all fixed-income
securities, and classify as interest income gains and losses realized on
paydowns on mortgage-backed securities which are presently included in
realized gain/loss. Adopting these accounting principles will not affect
the fund's net asset value, but will change the classification of
certain amounts between interest income and realized and unrealized
gain/loss in the Statement of operations. The fund has not at this time
quantified the impact, if any, resulting from the adoption of this
principle on the financial statements.
OUR COMMITMENT TO QUALITY SERVICE
* CHOOSE AWARD-WINNING SERVICE
Putnam has won the DALBAR Award for Service nine times in the past ten
years and has won the Intermediary Service Award for advisors all three
years in which it has been given.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change
or termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative. To learn more about Putnam, visit our Web
site.
www.putnaminvestments.com
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
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
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity 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
International Growth and Income Fund
New Value Fund
Small Cap 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 Growth and Income Fund 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.putnaminvestments.com.
WELCOME TO WWW.PUTNAMINVESTMENTS.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.putnaminvestments.com
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, LLC
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Susan A. McCormack
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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 and Putnam's Quarterly Ranking 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.putnaminvestments.com.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA054-67676 047/226/2AE 1/01
