-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, D31oLTBaVW/cSpObdyUknOqbtFNfvXl0pTvjO2P30TDsLR79p3JxQTskk9gyG+64 2XKToLf+SJca6OZfHaguiQ== 0000794615-95-000009.txt : 19950621 0000794615-95-000009.hdr.sgml : 19950621 ACCESSION NUMBER: 0000794615-95-000009 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19950620 EFFECTIVENESS DATE: 19950620 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND CENTRAL INDEX KEY: 0000794615 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 043057637 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-28321 FILM NUMBER: 95547998 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 485BPOS 1 FILED PURSUANT TO RULE 485 As filed with the Securities and Exchange Commission on June 20, 1995 Registration No. 33-28321 811-5802 - ---------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM N-1A ---- REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X / ---- ---- Pre-Effective Amendment No. / / ---- ---- Post-Effective Amendment No. 7 / X / and ---- ---- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X / ACT OF 1940 ---- ---- Amendment No. 8 / X / (Check appropriate box or boxes) ---- --------------- PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND (Exact name of registrant as specified in charter) One Post Office Square, Boston, Massachusetts 02109 (Address of principal executive offices) Registrant's Telephone Number, including Area Code (617) 292-1000 -------------- It is proposed that this filing will become effective (check appropriate box) ---- / / immediately upon filing pursuant to paragraph (b) - ---- ---- / X / on July 1, 1995 pursuant to paragraph (b) - ---- ---- / / 60 days after filing pursuant to paragraph (a) (1) - ---- ---- / / on (date) pursuant to paragraph (a) (1) - ---- ---- / / 75 days after filing pursuant to paragraph (a)(2) - ---- ---- / / on (date) pursuant to paragraph (a)(2) of rule 485. - ---- If appropriate, check the following box: ---- / / this post-effective amendment designates a new - ---- effective date for a previously filed post-effective amendment. -------------- JOHN R. VERANI, Vice President PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND One Post Office Square Boston, Massachusetts 02109 (Name and address of agent for service) -------------- Copy to: JOHN W. GERSTMAYR, Esquire ROPES & GRAY One International Place Boston, Massachusetts 02110 ---------------------- The Registrant has registered an indefinite number or amount of securities under the Securities Act of 1933 pursuant to Rule 24f-2. A Rule 24f-2 notice for the fiscal year ended February 28, 1995 was filed on April 27, 1995 . PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND CROSS REFERENCE SHEET (AS REQUIRED BY RULE 481(A)) PART A N - 1A ITEM NO. LOCATION 1. Cover Page . . . . . . . . . . . Cover Page 2. Synopsis . . . . . . . . . . . . Expenses summary 3. Condensed Financial Information Financial highlights; How performance is shown 4. General Description of Registrant . . . . . . . . . . . Objective; How objective is pursued; Organization and history 5. Management of the Fund . . . . . Expenses summary; How the Fund is managed; About Putnam Investments, Inc. 5A . . . . . . . . . . . . . . . . . Management's Discussion of Fund Performance . . . . . . . . . . (Contained in the Annual Report of the Registrant) 6. Capital Stock and Other Securities . . . . . . . . . . . Cover Page; Organization and history; How distributions are made; tax information 7. Purchase of Securities Being Offered . . . . . . . . . . . . How to buy shares; Distribution Plans; How to sell shares; How to exchange shares; How the Fund values its shares 8. Redemption or Repurchase . . . . How to buy shares; How to sell shares; How to exchange shares; Organization and history 9. Pending Legal Proceedings . . . Not Applicable PART B N - 1A ITEM NO. LOCATION 10. Cover Page . . . . . . . . . . . Cover Page 11. Table of Contents . . . . . . . Cover Page 12. General Information and History Organization and history (Part A) 13. Investment Objectives and Policies . . . . . . . . . . . . How objective is pursued (Part A); Investment Restrictions of the Fund; Miscellaneous Investment Practices 14. Management of the Registrant . . Management of the Fund (Trustees; Officers); Additional Officers of the Fund 15. Control Persons and Principal. . . . . Management of the Holders of Securities Fund (Trustees; Officers); Fund Charges and Expenses (Ownership of Fund Shares) 16. Investment Advisory and Other. . . . . Management of the Services Fund (Trustees; Officers; The Management Contract; Principal Underwriter ; Investor Servicing Agent and Custodian) ; Fund Charges and Expenses; Distribution Plan ; Independent Accountants and Financial Statements 17. Brokerage Allocation . . . . . . Management of the Fund (Portfolio Transactions); Fund Charges and Expenses 18. Capital Stock and Other Securities . . . . . . . . . . . Organization and history (Part A); How distributions are made; tax information (Part A); Suspension of Redemptions 19. Purchase, Redemption , and Pricing How to buy shares of Securities Being Offered (Part A); How to sell shares (Part A); How to exchange shares (Part A); How to Buy Shares; Determination of Net Asset Value; Suspension of Redemptions 20. Tax Status . . . . . . . . . . . How distributions are made; tax information (Part A); Taxes 21. Underwriters . . . . . . . . . . Management of the Fund (Principal Underwriter); Fund Charges and Expenses 22. Calculation of Performance Data How performance is shown (Part A); Investment Performance of the Fund; Standard Performance Measures 23. Financial Statements . . . . . . Independent Accountants and Financial Statements PART C Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of the Registration Statement. PROSPECTUS JULY 1, 1995 PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND CLASS A , B AND M SHARES INVESTMENT STRATEGY: TAX-ADVANTAGED This Prospectus explains concisely what you should know before investing in Class A , B or M shares of Putnam Pennsylvania Tax Exempt Income Fund (the "Fund") . Please read it carefully and keep it for future reference. You can find more detailed information about the Fund in the July 1, 1995 Statement of Additional Information, as amended from time to time. For a free copy of the Statement or other information , call Putnam Investor Services at 1-800-225-1581. The Statement has been filed with the Securities and Exchange Commission and is incorporated into this Prospectus by reference. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. BOSTON * LONDON * TOKYO ABOUT THE FUND Expenses summary . ......................................................... ..... 3 Financial highlights . ......................................................... ..... 4 Objective . ......................................................... ..... 6 How objective is pursued . ......................................................... ..... 6 Risk factors ............................................................... 10 How performance is shown . ......................................................... ....16 How the Fund is managed . ......................................................... ..... 17 Organization and history . ......................................................... ..... 17 ABOUT YOUR INVESTMENT Alternative sales arrangements . ......................................................... ....19 How to buy shares . ......................................................... ....20 Distribution Plans . ......................................................... ....25 How to sell shares . ......................................................... ....27 How to exchange shares . ......................................................... ....28 How the Fund values its shares . ......................................................... ....29 How distributions are made; tax information . ......................................................... ....29 ABOUT PUTNAM INVESTMENTS, INC. 32 APPENDIX Securities ratings 33 ABOUT THE FUND EXPENSES SUMMARY Expenses are one of several factors to consider when investing in the Fund. The following table summarizes your maximum transaction costs from investing in the Fund and expenses incurred by the Fund based on its most recent fiscal year. The Examples show the cumulative expenses attributable to a hypothetical $1,000 investment over specified periods. CLASS A CLASS B CLASS M SHARES SHARES SHARES SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) 4.75% NONE* 3.25%* Deferred Sales Charge 5.0% in the first (as a percentage year, declining of the lower of to 1.0% in the original purchase sixth year, and price or redemption eliminated proceeds) NONE** thereafter NONE** ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees 0.60% 0.60% 0.60% 12b-1 Fees 0.20% 0.85% 0.50% Other Expenses 0.12% 0.12% 0.12% Total Fund Operating Expenses 0.92% 1.57% 1.22% The table is provided to help you understand the expenses of investing in the Fund and your share of the operating expenses which the Fund incurs. The 12b-1 fees for Class M shares shown in the table reflect the amount to which the Trustees currently limit payments under the Class M Distribution Plan. For Class M shares, management fees and "Other expenses" are based on the operating expenses for the Fund's Class A shares. EXAMPLES Your investment of $1,000 would incur the following expenses, assuming 5% annual return and redemption at the end of each period: 1 3 5 10 year years years years Class A $56 $75 $ 96 $155 Class B $66 $80 $106 $187*** Class M $45 $70 $ 97 $176 Your investment of $1,000 would incur the following expenses, assuming 5% annual return but no redemption: 1 3 5 10 year years years years Class A $56 $75 $96 $155 Class B $16 $50 $86 $187*** Class M $45 $70 $97 $176 The Examples do not represent past or future expense levels. Actual expenses may be greater or less than those shown. Federal regulations require the Examples to assume a 5% annual return, but actual annual return has varied. * The higher 12b-1 fees borne by Class B and Class M shares may cause long-term shareholders to pay more than the economic equivalent of the maximum permitted front-end sales charge on Class A shares . ** A deferred sales charge of up to 1.00% 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. See "How to buy shares - Class A shares." *** Reflects conversion of Class B shares to Class A shares (which pay lower ongoing expenses) approximately eight years after purchase. See "How to buy shares - Class B shares - Conversion of Class B shares." FINANCIAL HIGHLIGHTS The table on the following page presents per share financial information for Class A and B shares. No Class M shares were outstanding during these periods . This information has been audited and reported on by the Fund's independent accountants. The Report of Independent Accountants and financial statements included in the Fund's Annual Report to shareholders for the 1995 fiscal year are incorporated by reference into this Prospectus. The Fund's Annual Report, which contains additional unaudited performance information, is available without charge upon request. FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
FOR THE PERIOD JULY 15, 1993 (COMMENCEMENT OF OPERATIONS) TO YEAR ENDED FEBRUARY 28 FEBRUARY 28 1995 1994 1995 CLASS B NET ASSET VALUE, BEGINNING OF PERIOD $9.38 $9.48 $9.39 INVESTMENT OPERATIONS NET INVESTMENT INCOME .47 .28 .53 NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (.40) (.08) (.40) TOTAL FROM INVESTMENT OPERATIONS .07 .20 .13 LESS DISTRIBUTIONS FROM: NET INVESTMENT INCOME (.47) (.28) (.53) NET REALIZED GAIN ON INVESTMENTS (.01) (.02) (.01) IN EXCESS OF REALIZED GAINS ON INVESTMENTS -- -- -- TOTAL DISTRIBUTIONS (.48) (.30) (.54) NET ASSET VALUE, END OF PERIOD $8.97 $9.38 $8.98 TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(B) 0.93 2.18(C) 1.60 NET ASSET VALUE, END OF PERIOD (IN THOUSANDS) $36,670 $12,633 $171,568 RATIO OF EXPENSES TO AVERAGE NET ASSETS (%) 1.57 1.00(C) .92 RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS (%) 5.23 2.90(C) 5.94 PORTFOLIO TURNOVER (%) 26.09 15.65(C) 26.09 PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD JULY 21, 1989 (COMMENCEMENT OF OPERATIONS) TO YEAR ENDED FEBRUARY 28 FEBRUARY 28 1994 1993 1992 1991 1990 CLASS A $9.40 $8.76 $8.42 $8.36 $8.50 .54 .57(A) .61(A) .62(A) .36(A) .01 .65 .34 .06 (.14) .55 1.22 .95 .68 .22 (.54) (.57) (.61) (.62) (.36) (.02) (.01) -- -- -- -- -- -- -- -- (.56) (.58) (.61) (.62) (.36) $9.39 $9.40 $8.76 $8.42 $8.36 5.93 14.34 11.65 8.53 2.62(C) $171,757 $144,374 $93,086 $47,112 $19,203 .91 .72(A) .52(A) .41(A) .48(A)(C) 5.36 6.31(A) 6.98(A) 7.43(A) 4.25(A)(C) 15.65 12.26 3.30 9.01 4.41(C)
(A) REFLECTS AN EXPENSE LIMITATION. AS A RESULT, NET INVESTMENT INCOME FOR THE YEAR ENDED FEBRUARY 28, 1993, THE YEAR ENDED FEBRUARY 29, 1992, THE YEAR ENDED FEBRUARY 28, 1991 AND THE PERIOD ENDED FEBRUARY 28, 1990 REFLECTS EXPENSE REDUCTIONS OF APPROXIMATELY $0.01, $0.04, $0.06 AND $0.05 PER SHARE, RESPECTIVELY. (B) TOTAL INVESTMENT RETURN ASSUMES DIVIDEND REINVESTMENT AND DOES NOT REFLECT THE EFFECT OF SALES CHARGES. (C) NOT ANNUALIZED. OBJECTIVE PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND PENNSYLVANIA PERSONAL INCOME TAX AS PUTNAM INVESTMENT MANAGEMENT , INC., THE FUND'S INVESTMENT MANAGER ("PUTNAM MANAGEMENT"), BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL. The Fund is not intended to be a complete investment program, and there is no assurance it will achieve its objective. HOW OBJECTIVE IS PURSUED BASIC INVESTMENT STRATEGY PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND SEEKS ITS OBJECTIVE BY FOLLOWING THE FUNDAMENTAL INVESTMENT POLICY OF INVESTING AT LEAST 80% OF ITS NET ASSETS IN PENNSYLVANIA TAX EXEMPT SECURITIES, EXCEPT WHEN INVESTING FOR DEFENSIVE PURPOSES DURING TIMES OF ADVERSE MARKET CONDITIONS. Under current law, to the extent distributions by the Fund are derived from interest on Pennsylvania Tax Exempt Securities (which are described below) and are designated as such, they are exempt from federal and Pennsylvania personal income taxes. The Fund may also invest in taxable obligations, as described below, to the extent permitted by its investment policies, or hold its assets in money market instruments or in cash. Putnam Management expects the Fund will generally invest in Pennsylvania Tax Exempt Securities of longer maturities (10 years or more), but the Fund may invest in Pennsylvania Tax Exempt Securities having a broad range of maturities. The Fund's investments in Pennsylvania Tax Exempt Securities and taxable obligations will be limited to securities rated at the time of purchase not lower than the five highest grades assigned by Moody's Investors Service, Inc. ("Moody's")(Aaa, Aa, A, Baa or Ba) or Standard & Poor's Corporation ("S&P")(AAA, AA, A, BBB or BB), or unrated securities which Putnam Management determines are of comparable quality. The Fund will not purchase a Pennsylvania Tax Exempt Security rated both Ba by Moody's and BB by S&P at the time of purchase, or, if unrated, determined by Putnam Management to be of comparable quality if, as a result, more than 25% of the Fund's total assets would be of that quality. The rating services' descriptions of the five highest grades of debt securities are included in the Appendix to this Prospectus. Pennsylvania Tax Exempt Securities rated Ba or BB are considered to have speculative elements, with large uncertainties or major risk exposures to adverse conditions. INVESTORS SHOULD CAREFULLY CONSIDER THEIR ABILITY TO ASSUME THE RISKS OF OWNING SHARES OF A MUTUAL FUND WHICH MAY INVEST IN SECURITIES IN CERTAIN OF THE LOWER RATING CATEGORIES . TO THE EXTENT THAT THE FUND EARNS INTEREST INCOME FROM CERTAIN TYPES OF PENNSYLVANIA TAX EXEMPT SECURITIES , INDIVIDUAL AND CORPORATE SHAREHOLDERS MAY BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAX ON THAT PART OF THE FUND'S DISTRIBUTIONS ATTRIBUTABLE TO SUCH INCOME. More generally, corporations may be subject to alternative minimum tax on a portion of the exempt-interest dividends they receive from the Fund. For purposes of measuring compliance with the Fund's fundamental 80% policy on investments in Pennsylvania Tax Exempt Securities, the Fund will exclude securities the interest from which may be subject to federal alternative minimum tax. Under the Fund's investment policies, Putnam Management will not trade the Fund's securities for the purpose of seeking profits. It is a fundamental policy of the Fund that its portfolio securities may be varied only (i) to eliminate unsafe investments and investments not consistent with the preservation of the Fund's capital or the tax status of the Fund's investments; (ii) to honor redemption orders and meet anticipated redemption requirements and negate gains from discount purchases; (iii) to reinvest the earnings from securities in like securities; or (iv) to defray normal administrative expenses. For purposes of this fundamental policy, the Fund may vary its portfolio securities if (i) there has been an adverse change in a security's credit rating or in that of its issuer or in Putnam Management's credit analysis of the security or its issuer; (ii) there has been, in the opinion of Putnam Management, a deterioration or anticipated deterioration in general economic or market conditions affecting issuers of Pennsylvania Tax Exempt Securities, or a change or anticipated change in interest rates; (iii) adverse changes or anticipated changes in market conditions or economic or other factors temporarily affecting the issuers of one or more portfolio securities make necessary or desirable the sale of such security or securities in anticipation of the Fund's repurchase of the same or comparable securities at a later date; or (iv) Putnam Management engages in the alternative investment practices described below. In addition, for purposes of this fundamental policy, the Fund may purchase or sell financial futures contracts and related options and options on securities and securities indices for hedging purposes. As a result of these limitations, the Fund may have less flexibility than other mutual funds in responding to market or interest rate changes and to new investment opportunities. At times Putnam Management may judge that conditions in the markets for Pennsylvania Tax Exempt Securities make pursuing the Fund's basic investment strategy inconsistent with the best interests of its shareholders. At such times Putnam Management may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of the Fund's assets. In implementing these "defensive" strategies, the Fund may invest without limit in taxable obligations, including: obligations of the U.S. government, its agencies or instrumentalities; obligations issued by governmental issuers in other states, the interest on which would be exempt from federal income tax; other debt securities rated within the four highest grades by either Moody's or S&P ; commercial paper rated in the highest grade by either rating service (Prime-1 or A-1+, respectively); certificates of deposit and bankers' acceptances; repurchase agreements; or any other securities that Putnam Management considers consistent with such defensive strategies. It is impossible to predict when, or for how long, the Fund will use such alternative strategies. The limitations described above on the ability of the Fund to vary its portfolio securities may limit the Fund's use of these alternative investment strategies. PENNSYLVANIA TAX EXEMPT SECURITIES PENNSYLVANIA TAX EXEMPT SECURITIES INCLUDE OBLIGATIONS OF THE COMMONWEALTH OF PENNSYLVANIA , ITS POLITICAL SUBDIVISIONS , AND THEIR AGENCIES , INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE INTEREST WITH RESPECT TO WHICH, IN THE OPINION OF BOND COUNSEL, IS EXEMPT FROM FEDERAL INCOME TAX AND PENNSYLVANIA PERSONAL INCOME TAX. These securities are issued to obtain funds for various public purposes, such as the construction of public facilities, the payment of general operating expenses or the refunding of outstanding debts. They may also be issued to finance various private activities, including the lending of funds to public or private institutions for the construction of housing, educational or medical facilities , and may also include certain types of industrial development bonds, private activity bonds or notes issued by public authorities to finance privately owned or operated facilities , or to fund short-term cash requirements. Short-term Pennsylvania Tax Exempt Securities may be issued as interim financing in anticipation of tax collections, revenue receipts or bond sales to finance various public purposes. Pennsylvania Tax Exempt Securities may also include obligations issued by certain other governmental entities , such as U.S. territories, if such obligations generate interest income which is exempt from federal income tax and Pennsylvania personal income tax. THE TWO PRINCIPAL CLASSIFICATIONS OF PENNSYLVANIA TAX EXEMPT SECURITIES ARE GENERAL OBLIGATION AND SPECIAL OBLIGATION (OR SPECIAL REVENUE OBLIGATION) SECURITIES. GENERAL OBLIGATION securities involve a pledge of the credit of an issuer possessing taxing power and are payable from the issuer's general unrestricted revenues. Their payment may depend on an appropriation by the issuer's legislative body. The characteristics and methods of enforcement of general obligation securities vary according to the law applicable to the particular issuer. SPECIAL OBLIGATION (or SPECIAL REVENUE OBLIGATION) securities are payable only from the revenues derived from a particular facility or class of facilities, or a specific revenue source, and generally are not payable from the unrestricted revenues of the issuer. Industrial development bonds and private activity bonds are in most cases special obligation securities, the credit quality of which is directly related to the private user of the facilities. The Fund may also invest in securities representing interests in Pennsylvania Tax Exempt Securities, known as "inverse floating obligations" or "residual interest bonds," which pay interest rates that vary inversely to changes in the interest rates of specified short-term tax exempt securities or an index of short-term tax exempt securities. The interest rates on inverse floating obligations or residual interest bonds will typically decline as short-term market interest rates increase and increase as short-term market rates decline. Such securities have the effect of providing a degree of investment leverage, since they will generally increase or decrease in value in response to changes in market interest rates at a rate which is a multiple (typically two) of the rate at which fixed-rate long- term tax exempt securities increase or decrease in response to such changes. As a result, the market values of inverse floating obligations and residual interest bonds will generally be more volatile than the market values of fixed-rate tax exempt securities. INVESTMENTS IN PREMIUM SECURITIES. During a period of declining interest rates, many of the Fund's portfolio investments will likely bear coupon rates which are higher than current market rates, regardless of whether such securities were originally purchased at a premium. Such securities would generally carry market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of the Fund's shares. The values of such "premium" securities tend to approach the principal amount as they approach maturity (or call price in the case of securities approaching their first call date). As a result, an investor who purchases shares of the Fund during such periods would initially receive higher monthly distributions (derived from the higher coupon rates payable on the Fund's investments) than might be available from alternative investments bearing current market interest rates, but may face an increased risk of capital loss as these higher coupon securities approach maturity (or first call date). In evaluating the potential performance of an investment in the Fund, investors may find it useful to compare the Fund's current dividend rate with the Fund's "yield," which is computed on a yield-to-maturity basis in accordance with SEC regulations and which reflects amortization of market premiums. See "How performance is shown." RISK FACTORS THE VALUES OF PENNSYLVANIA TAX EXEMPT SECURITIES FLUCTUATE IN RESPONSE TO CHANGES IN INTEREST RATES . A decrease in interest rates will generally result in an increase in the value of the Fund's assets . Conversely, during periods of rising interest rates, the value of the Fund's assets will generally decline. The magnitude of these fluctuations generally is greater for securities with longer maturities. However, the yields on such securities are also generally higher. In addition, the values of such securities are affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers . Changes by recognized rating services in their ratings of a tax- exempt security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect income derived from such securities , but will affect the Fund's net asset value. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether continued investment in the security will assist in meeting its investment objective. THE FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED PENNSYLVANIA TAX EXEMPT SECURITIES. The values of lower-rated securities generally fluctuate more than those of higher-rated securities . In addition, the lower rating reflects a greater possibility that the financial condition of the issuer, adverse changes in general economic conditions, or an unanticipated rise in interest rates may impair the ability of the issuer to make payments of income and principal. The table below shows the percentages of the Fund's assets invested during fiscal 1995 in securities assigned to the various rating categories by S&P and in unrated securities determined by Putnam Management to be of comparable quality : UNRATED SECURITIES RATED SECURITIES,OF COMPARABLE QUALITY , AS PERCENTAGE OFAS PERCENTAGE OF RATING FUND'S ASSETS FUND'S ASSETS "AAA" 55.11% 0.24% "AA" 7.10% --- "A" 11.91% --- "BBB" 15.53% 3.54% "BB" 1.90% 4.12% "B" 0.30% 0.25% ------ ----- 91.85% 8.15% ====== ===== Putnam Management seeks to minimize the risks of investing in lower-rated securities through careful investment analysis. However, the amount of information about the financial condition of an issuer of Pennsylvania Tax Exempt Securities may not be as extensive as that which is made available by corporations whose securities are publicly traded. When the Fund invests in Pennsylvania Tax Exempt Securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's ability than would be the case if the Fund were investing in Pennsylvania Tax Exempt Securities in the higher rating categories. At times, a substantial portion of the Fund's assets may be invested in securities as to which the Fund, by itself or together with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the Fund's net asset value. In order to enforce its rights in the event of a default under such securities, the Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. Any income derived from the Fund's ownership or operation of such assets would not be tax-exempt. Certain securities held by the Fund may permit the issuer at its option to "call," or redeem, its securities. If an issuer were to redeem securities held by the Fund during a time of declining interest rates, the Fund may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed. The Fund may invest in so-called "zero-coupon" bonds whose values are subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently. Zero-coupon bonds are issued at a significant discount from face value and pay interest only at maturity rather than at intervals during the life of the security. Zero-coupon bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. The Fund is required to accrue and distribute income from zero-coupon bonds on a current basis, even though it does not receive that income currently in cash. Thus, the Fund may have to sell other investments to obtain cash needed to make income distributions. The secondary market for Pennsylvania Tax Exempt Securities is generally less liquid than that for taxable fixed-income securities, particularly in the lower rating categories. Thus it may be more difficult to value or buy and sell certain securities from time to time. Certain investment grade Pennsylvania Tax Exempt Securities in which the Fund may invest share some of the risk factors discussed above with respect to lower-rated Pennsylvania Tax Exempt Securities. FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH INVESTMENT BY THE FUND IN SECURITIES IN THE LOWER RATING CATEGORIES, SEE THE STATEMENT OF ADDITIONAL INFORMATION. SINCE THE FUND INVESTS PRIMARILY IN PENNSYLVANIA TAX EXEMPT SECURITIES, THE VALUE OF ITS SHARES MAY BE ESPECIALLY AFFECTED BY FACTORS PERTAINING TO THE PENNSYLVANIA ECONOMY AND OTHER FACTORS SPECIFICALLY AFFECTING THE ABILITY OF ISSUERS OF PENNSYLVANIA TAX EXEMPT SECURITIES TO MEET THEIR OBLIGATIONS. As a result, the value of the Fund's shares may fluctuate more widely than the value of shares of a portfolio investing in securities relating to a number of different states. The ability of state, county, or local governments to meet their obligations will depend primarily on the availability of tax and other revenues to those governments and on their fiscal conditions generally. The amounts of tax and other revenues available to governmental issuers of Pennsylvania Tax Exempt Securities may be affected from time to time by economic, political, and demographic conditions within Pennsylvania . In addition, constitutional or statutory restrictions may limit a government's power to raise revenues or increase taxes. The availability of federal, state, and local aid to issuers of Pennsylvania Tax Exempt Securities may also affect their ability to meet their obligations. Payments of principal and interest on special obligation securities will depend on the economic condition of the facility or specific revenue source from whose revenues the payments will be made, which in turn could be affected by economic, political, and demographic conditions in the state. Any reduction in the actual or perceived ability of an issuer of Pennsylvania Tax Exempt Securities to meet its obligations (including a reduction in the rating of its outstanding securities) would likely affect adversely the market value and marketability of its obligations and could affect adversely the values of other Pennsylvania Tax Exempt Securities as well. THE FUND IS A "DIVERSIFIED" INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940. This means that with respect to 75% of its total assets the Fund may not invest more than 5% of its total assets in the securities of any one issuer (except U.S. government securities). The other 25% of the Fund's total assets may be invested in the securities of any one issuer. Because of the relatively small number of issuers of Pennsylvania Tax Exempt Securities, the Fund is more likely to invest a higher percentage of its assets in the securities of a single issuer than an investment company which invests in a broad range of tax-exempt securities. This practice involves an increased risk of loss to the Fund if the issuer is unable to make interest or principal payments or if the market value of such securities declines. THE FUND WILL NOT INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN ANY ONE INDUSTRY. Governmental issuers of Pennsylvania Tax Exempt Securities are not considered part of any "industry." However, Pennsylvania Tax Exempt Securities backed only by the assets and revenues of nongovernmental users may for this purpose be deemed to be issued by such nongovernmental users . Thus, the 25% limitation would apply to such obligations. It is nonetheless possible that the Fund may invest more than 25% of its assets in a broader segment of the market for Pennsylvania Tax Exempt Securities, such as revenue obligations of hospitals and other health care facilities, housing revenue obligations, or airport revenue obligations. This would be the case only if Putnam Management determined that the yields available from obligations in a particular segment of the market justified the additional risks associated with such concentration. Although such obligations could be supported by the credit of governmental users or by the credit of nongovernmental users engaged in a number of industries, economic, business, political and other developments generally affecting the revenues of such issuers (for example, proposed legislation or pending court decisions affecting the financing of such projects and market factors affecting the demand for their services or products) may have a general adverse effect on all Pennsylvania Tax Exempt Securities in such a market segment. The Fund reserves the right to invest more than 25% of its assets in industrial development bonds and private activity securities. PORTFOLIO TURNOVER The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as "portfolio turnover." As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestment in other securities. Such transactions may result in realization of taxable capital gains. Portfolio turnover rates for the life of the Fund are shown in the section "Financial highlights." FINANCIAL FUTURES AND OPTIONS THE FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS FOR HEDGING PURPOSES. Futures contracts on a Municipal Bond Index are traded on the Chicago Board of Trade. This Index is intended to represent a numerical measure of market performance for long-term tax-exempt bonds. An "index future" is a contract to buy or sell units of a particular securities index at an agreed price on a specified future date. Depending on the change in value of the index between the time when the Fund enters into and terminates an index futures contract, the Fund realizes a gain or loss. The Fund may purchase and sell futures contracts on the Index (or any other tax-exempt bond index approved for trading by the Commodity Futures Trading Commission) to hedge against general changes in market values of Pennsylvania Tax Exempt Securities which the Fund owns or expects to purchase. The Fund may also purchase and sell put and call options on index futures or on the indices directly, in addition to or as an alternative to purchasing and selling index futures . The Fund may also , for hedging purposes , purchase and sell futures contracts and related options with respect to U.S. Treasury securities, including U.S. Treasury bills, notes and bonds ("U.S. Government Securities") and options directly on U.S. Government Securities. U.S. Government Securities futures and options would be used in a way similar to the Fund's use of index futures and options. In addition, the Fund may purchase put and call options on, or warrants to purchase, Pennsylvania Tax Exempt Securities, either directly or through custodial arrangements in which the Fund and other investors own an interest in one or more options on Pennsylvania Tax Exempt Securities. THE USE OF FUTURES AND OPTIONS INVOLVES CERTAIN SPECIAL RISKS AND MAY RESULT IN REALIZATION OF TAXABLE INCOME OR CAPITAL GAINS. FUTURES AND OPTIONS TRANSACTIONS INVOLVE COSTS AND MAY RESULT IN LOSSES. Certain risks arise because of the possibility of imperfect correlations between movements in the prices of financial futures and options and movements in the prices of the underlying bond index or U.S. Government Securities or of the Pennsylvania Tax Exempt Securities which are the subject of the hedge. The successful use of futures and options further depends on Putnam Management's ability to forecast interest rate movements correctly. Other risks arise from the Fund's potential inability to close out its futures or related options positions, and there can be no assurance that a liquid secondary market will exist for any futures contract or option at a particular time. Certain provisions of the Internal Revenue Code and certain regulatory requirements may limit the Fund's ability to engage in futures and options transactions. A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN THE STATEMENT OF ADDITIONAL INFORMATION. OTHER INVESTMENT PRACTICES THE FUND MAY ALSO ENGAGE TO A LIMITED EXTENT IN THE FOLLOWING INVESTMENT PRACTICES, EACH OF WHICH MAY RESULT IN TAXABLE INCOME OR CAPITAL GAINS AND INVOLVES CERTAIN SPECIAL RISKS. THE STATEMENT OF ADDITIONAL INFORMATION CONTAINS MORE DETAILED INFORMATION ABOUT THESE PRACTICES, INCLUDING LIMITATIONS DESIGNED TO REDUCE THESE RISKS. REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS. The Fund may enter into repurchase agreements on up to 25% of its assets. These transactions must be fully collateralized at all times. The Fund may also purchase securities for future delivery, which may increase its overall investment exposure and involves a risk of loss if the value of the securities declines prior to the settlement date. These transactions involve some risk to the Fund if the other party should default on its obligation and the Fund is delayed or prevented from recovering the collateral or completing the transaction. LIMITING INVESTMENT RISK SPECIFIC INVESTMENT RESTRICTIONS HELP THE FUND LIMIT INVESTMENT RISKS FOR ITS SHAREHOLDERS. THESE RESTRICTIONS PROHIBIT THE FUND FROM INVESTING MORE THAN: (a) (with respect to 75% of its total assets) 5% of its total assets in the securities of any one issuer, other than U.S. government securities;* (b) 5% of its net assets in securities of any issuer if the party responsible for payment, together with any predecessor, has been in operation for less than three years (except obligations of the U.S. government or agencies or instrumentalities and obligations backed by the faith, credit and taxing power of any person authorized to issue Pennsylvania Tax Exempt Securities); (c) 15% of its net assets in securities restricted as to resale, excluding securities determined by the Fund's Trustees (or the person designated by the Fund's Trustees to make such determinations) to be readily marketable;* and (d) 15% of its net assets in any combination of securities that are not readily marketable, in securities restricted as to resale (excluding securities determined by the Fund's Trustees (or the person designated by the Fund's Trustees to make such determinations) to be readily marketable), and in repurchase agreements maturing in more than seven days. Restrictions marked with an asterisk (*) above are summaries of fundamental investment policies. See the Statement of Additional Information for the full text of these policies and the Fund's other fundamental investment policies. Except for investment policies designated as fundamental in this Prospectus or the Statement, the investment policies described in this Prospectus and in the Statement are not fundamental investment policies. The Trustees may change any non-fundamental investment policies without shareholder approval. As a matter of policy, the Trustees would not materially change the Fund's investment objective without shareholder approval. HOW PERFORMANCE IS SHOWN THE FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE INCLUDED IN ADVERTISEMENTS ABOUT THE FUND. "Yield" for each class of shares is calculated by dividing the annualized net investment income per share during a recent 30-day period by the maximum public offering price per share of such class on the last day of that period. For this purpose, net investment income is calculated in accordance with SEC regulations and may differ from net investment income as determined for financial reporting purposes. SEC regulations require that net investment income be calculated on a "yield-to-maturity" basis, which has the effect of amortizing any premiums or discounts in the current market value of fixed-income securities. The current dividend rate is based on net investment income as determined for tax purposes, which may not reflect amortization in the same manner. See "How objective is pursued - - - Investments in premium securities." Yield reflects the deduction of the maximum initial sales charge in the case of Class A and Class M shares, but does not reflect the deduction of any contingent deferred sales charge in the case of Class B shares. "Tax-equivalent" yield for each class of shares shows the effect on performance of the tax-exempt status of distributions received from the Fund. It reflects the approximate yield that a taxable investment must earn for shareholders at stated income levels to produce an after-tax yield equivalent to a tax-exempt yield. "Total return" for the one- , five - and ten -year periods (or for the life of a class, if shorter) through the most recent calendar quarter represents the average annual compounded rate of return on an investment of $1,000 in the Fund invested at the maximum public offering price (in the case of Class A and Class M shares) or reflecting the deduction of any applicable contingent deferred sales charge (in the case of Class B shares). Total return may also be presented for other periods or based on investment at reduced sales charge levels . Any quotation of investment performance not reflecting the maximum initial sales charge or contingent deferred sales charge would be reduced if such sales charge were used. ALL DATA IS BASED ON THE FUND'S PAST INVESTMENT RESULTS AND DOES NOT PREDICT FUTURE PERFORMANCE. Investment performance, which will vary, is based on many factors, including market conditions, the composition of the Fund's portfolio, the Fund's operating expenses and which class of shares you purchase. Investment performance also often reflects the risks associated with the Fund's investment objective and policies. These factors should be considered when comparing the Fund's investment results to those of other mutual funds and other investment vehicles. Quotations of investment performance for any period when an expense limitation was in effect will be greater than if the limitation had not been in effect. The Fund's performance may be compared to various indices. See the Statement of Additional Information. HOW THE FUND IS MANAGED THE TRUSTEES OF THE FUND ARE RESPONSIBLE FOR GENERALLY OVERSEEING THE CONDUCT OF THE FUND'S BUSINESS. Subject to such policies as the Trustees may determine, Putnam Management furnishes a continuing investment program for the Fund and makes investment decisions on its behalf. Subject to the control of the Trustees, Putnam Management also manages the Fund's other affairs and business. Richard P. Wyke, Senior Vice President of Putnam Management and Vice President of the Fund, has had primary responsibility for the day-to-day management of the Fund's portfolio since 1990. Mr. Wyke has been employed by Putnam Management since 1987 . The Fund pays all expenses not assumed by Putnam Management, including Trustees' fees, auditing, legal, custodial, investor servicing and shareholder reporting expenses, and payments under its Distribution Plans (which are in turn allocated to the relevant class of shares). The Fund also reimburses Putnam Management for the compensation and related expenses of certain officers of the Fund and their staff who provide administrative services to the Fund. The total reimbursement is determined annually by the Trustees. Putnam Management places all orders for purchases and sales of the Fund's securities. In selecting broker-dealers, Putnam Management may consider research and brokerage services furnished to it and its affiliates. Subject to seeking the most favorable price and execution available, Putnam Management may consider sales of shares of the Fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers. ORGANIZATION AND HISTORY Putnam Pennsylvania Tax Exempt Income Fund is a Massachusetts business trust organized on April 20, 1989. A copy of the Agreement and Declaration of Trust, which is governed by Massachusetts law, is on file with the Secretary of State of The Commonwealth of Massachusetts. The Fund is an open-end, diversified management investment company with an unlimited number of authorized shares of beneficial interest. Shares of the Fund may, without shareholder approval, be divided into two or more series of shares representing separate investment portfolios. Any such series of shares may be divided without shareholder approval into two or more classes of shares having such preferences and special or relative rights and privileges as the Trustees determine. The Fund's shares are not currently divided into series. The Fund's shares are currently divided into three classes. Each share has one vote, with fractional shares voting proportionally. Shares of each class will vote together as a single class except when required by law or as determined by the Trustees. Shares are freely transferable, are entitled to dividends as declared by the Trustees, and, if the Fund were liquidated, would receive the net assets of the Fund. The Fund may suspend the sale of shares at any time and may refuse any order to purchase shares. Although the Fund is not required to hold annual meetings of its shareholders, shareholders holding at least 10% of the outstanding shares entitled to vote have the right to call a meeting to elect or remove Trustees, or to take other actions as provided in the Agreement and Declaration of Trust. If you own fewer shares than a minimum amount set by the Trustees (presently 20 shares), the Fund may choose to redeem your shares and pay you for them. You will receive at least 30 days' written notice before the Fund redeems your shares, and you may purchase additional shares at any time to avoid a redemption. The Fund may also redeem shares if you own shares above a maximum amount set by the Trustees. There is presently no maximum, but the Trustees may establish one at any time, which could apply to both present and future shareholders. THE FUND'S TRUSTEES: GEORGE PUTNAM,* CHAIRMAN. President of the Putnam funds. Chairman and Director of Putnam Management and Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director, Marsh & McLennan Companies, Inc.; WILLIAM F. POUNDS, VICE CHAIRMAN. Professor of Management, Alfred P. Sloan School of Management, M.I.T.; JAMESON ADKINS BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN, Vice Chairman, North American Management Corp. ; JOHN A. HILL, Principal and Managing Director, First Reserve Corporation; ELIZABETH T. KENNAN, President Emeritus and Professor , Mount Holyoke College; LAWRENCE J. LASSER,* Vice President of the Putnam funds. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Management. Director, Marsh & McLennan Companies, Inc.; ROBERT E. PATTERSON, Executive Vice President, Cabot Partners Limited Partnership; DONALD S. PERKINS, * Chairman of the Board and Director of Kmart Corporation and Director of various corporations, including AT&T and Time Warner Inc.; GEORGE PUTNAM, III,* President, New Generation Research, Inc. ; ELI SHAPIRO, Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, M.I.T. ; A.J.C. SMITH,* Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc.; and W. NICHOLAS THORNDIKE, Director of various corporations and charitable organizations, including Data General Corporation, Bradley Real Estate, Inc. and Providence Journal Co. Also, Trustee of Massachusetts General Hospital and Eastern Utilities Associates. The Fund's Trustees are also Trustees of the other Putnam funds. Those marked with an asterisk (*) are or may be deemed to be "interested persons" of the Fund, Putnam Management or Putnam Mutual Funds. ABOUT YOUR INVESTMENT ALTERNATIVE SALES ARRANGEMENTS This Prospectus offers investors three classes of shares which bear sales charges in different forms and amounts and which bear different levels of expenses: CLASS A SHARES . An investor who purchases Class A shares pays a sales charge at the time of purchase. As a result, Class A shares are not subject to any charges when they are redeemed (except for sales at net asset value in excess of $1 million which are subject to a contingent deferred sales charge). Certain purchases of Class A shares qualify for reduced sales charges. Class A shares currently bear a 12b-1 fee at the annual rate of 0.20% of the Fund's average net assets attributable to Class A shares. See "How to buy shares -- Class A shares." CLASS B SHARES . Class B shares are sold without an initial sales charge, but are subject to a contingent deferred sales charge of up to 5% if redeemed within six years. Class B shares also bear a higher 12b-1 fee than Class A shares, currently at the annual rate of 0.85% of the Fund's average net assets attributable to Class B shares. Class B shares will automatically convert into Class A shares, based on relative net asset value, approximately eight years after purchase. Class B shares provide an investor the benefit of putting all of the investor's dollars to work from the time the investment is made, but (until conversion) will have a higher expense ratio and pay lower dividends than Class A shares due to the higher 12b-1 fee. See "How to buy shares -- Class B shares." CLASS M SHARES. An investor who purchases Class M shares pays a sales charge at the time of purchase which is lower than the sales charge applicable to Class A shares. Class M shares are not subject to any contingent deferred sales charge when they are redeemed. Certain purchases of Class M shares qualify for reduced sales charges. Class M shares currently bear a 12b-1 fee at the annual rate of 0.50% of the Fund's average net assets attributable to Class M shares. See "How to buy shares -- Class M shares." WHICH ARRANGEMENT IS BETTER FOR YOU? The decision as to which class of shares provides a more suitable investment for an investor depends on a number of factors, including the amount and intended length of the investment. Investors making investments that qualify for reduced sales charges might consider Class A or Class M shares. Investors who prefer not to pay an initial sales charge might consider Class B shares. Orders for Class B shares for $250,000 or more will be treated as orders for Class A shares or declined. For more information about these sales arrangements, consult your investment dealer or Putnam Investor Services. Sales personnel may receive different compensation depending on which class of shares they sell. Shares may only be exchanged for shares of the same class of another Putnam fund. See "How to exchange shares." HOW TO BUY SHARES You can open a Fund account with as little as $500 and make additional investments at any time with as little as $50. You can buy Fund shares three ways - through most investment dealers, through Putnam Mutual Funds (at 1-800-225-1581), or through a systematic investment plan. If you do not have a dealer, Putnam Mutual Funds can refer you to one. BUYING SHARES THROUGH PUTNAM MUTUAL FUNDS. Complete an order form and return it with a check payable to the Fund to Putnam Mutual Funds, which will act as your agent in purchasing shares through your designated investment dealer. BUYING SHARES THROUGH SYSTEMATIC INVESTING. You can make regular investments of $25 or more per month through automatic deductions from your bank checking account. Application forms are available from your investment dealer or through Putnam Investor Services. Shares are sold at the public offering price based on the net asset value next determined after Putnam Investor Services receives your order. In most cases, in order to receive that day's public offering price, Putnam Investor Services must receive your order before the close of regular trading on the New York Stock Exchange. If you buy shares through your investment dealer, the dealer must receive your order before the close of regular trading on the New York Stock Exchange to receive that day's public offering price. CLASS A SHARES The public offering price of Class A shares is the net asset value plus a sales charge. The Fund receives the net asset value. The sales charge varies depending on the size of your purchase and is allocated between your investment dealer and Putnam Mutual Funds. The current sales charges are:
SALES CHARGE AMOUNT OF AS A PERCENTAGE OF: SALES CHARGE ------------------ ----- REALLOWED NET TO DEALERS AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE AT OFFERING PRICE INVESTED PRICE OF OFFERING PRICE* - -------------------------------------------------------------------------------- Less than $ 25,000 4.99% 4.75% 4.50% $ 25,000 but less than 100,000 4.71 4.50 4.25 100,000 but less than 250,000 3.90 3.75 3.50 250,000 but less than 500,000 3.09 3.00 2.75 500,000 but less than 1,000,000 2.04 2.00 1.85 - --------------------------------------------------------------------------------
* At the discretion of Putnam Mutual Funds, however, the entire sales charge may at times be reallowed to dealers. The Staff of the Securities and Exchange Commission has indicated that dealers who receive more than 90% of the sales charge may be considered underwriters. There is no initial sales charge on purchases of Class A shares of $1 million or more. However, a contingent deferred sales charge ("CDSC") of 1.00% or 0.50%, respectively, is imposed on redemptions of such shares within the first or second year after purchase, based on the lower of the shares' cost and current net asset value. Any shares acquired by reinvestment of distributions will be redeemed without a CDSC. In addition, shares purchased by certain investors investing $1 million or more that have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission as described below are not subject to the CDSC. In determining whether a CDSC is payable, the Fund will first redeem shares not subject to any charge. Putnam Mutual Funds receives the entire amount of any CDSC you pay. See the Statement of Additional Information for more information about the CDSC. Except as stated below, Putnam Mutual Funds pays investment dealers of record commissions on sales of Class A shares of $1 million or more based on an investor's cumulative purchases during the one-year period beginning with the date of the initial purchase at net asset value . Each subsequent one-year measuring period for these purposes will begin with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter. On sales at net asset value to a participant- directed qualified retirement plan initially investing less than $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates (including a plan sponsored by an employer with more than 750 employees), Putnam Mutual Funds pays commissions on cumulative purchases during the life of the account at the rate of 1.00% of the amount under $3 million and 0.50% thereafter. On sales at net asset value to all other participant-directed qualified retirement plans, Putnam Mutual Funds pays commissions on the initial investment and on subsequent net quarterly sales at the rate of 0.15%. CLASS B SHARES Class B shares are sold without an initial sales charge, although a CDSC will be imposed if you redeem shares within six years of purchase. The following types of shares may be redeemed without charge at any time: (i) shares acquired by reinvestment of distributions and (ii) shares otherwise exempt from the CDSC, as described in "How to buy shares-General" below. For other shares , the amount of the charge is determined as a percentage of the lesser of the current market value or the cost of the shares being redeemed. The amount of the CDSC will depend on the number of years since you invested and the dollar amount being redeemed, according to the following table: CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF YEARS SINCE PURCHASE DOLLAR AMOUNT PAYMENT MADE SUBJECT TO CHARGE - ------------------- ------------------- 0-1.................................. 5.0% 1-2.................................. 4.0% 2-3.................................. 3.0% 3-4.................................. 3.0% 4-5.................................. 2.0% 5-6.................................. 1.0% 6 and thereafter..................... NONE In determining whether a CDSC is payable on any redemption, the Fund will first redeem shares not subject to any charge, and then shares held longest during the six-year period. For this purpose, the amount of any increase in a share's value above its initial purchase price is not regarded as a share exempt from the CDSC. Thus, when a share that has appreciated in value is redeemed during the six-year period, a CDSC is assessed on its initial purchase price. For information on how sales charges are calculated if you exchange your shares, see "How to exchange shares." Putnam Mutual Funds receives the entire amount of any CDSC you pay. CONVERSION OF CLASS B SHARES. Class B shares will automatically convert into Class A shares at the end of the month eight years after the purchase date, except as noted below. Class B shares acquired by exchanging Class B shares of another Putnam fund will convert into Class A shares based on the time of the initial purchase. Class B shares acquired through reinvestment of distributions will convert into Class A shares based on the date of the initial purchase to which such shares relate. For this purpose, Class B shares acquired through reinvestment of distributions will be attributed to particular purchases of Class B shares in accordance with such procedures as the Trustees may determine from time to time. The conversion of Class B shares to Class A shares is subject to the continuing availability of a ruling from the Internal Revenue Service or an opinion of counsel that such conversions will not constitute taxable events for Federal tax purposes. There can be no assurance that such ruling or opinion will be available, and the conversion of Class B shares to Class A shares will not occur if such ruling or opinion is not available. In such event, Class B shares would continue to be subject to higher expenses than Class A shares for an indefinite period. CLASS M SHARES The public offering price of Class M shares is the net asset value plus a sales charge. The Fund receives the net asset value. The sales charge varies depending on the size of your purchase and is allocated between your investment dealer and Putnam Mutual Funds. The current sales charges are:
SALES CHARGE AS A PERCENTAGE OF: AMOUNT OF SALES ---------------- CHARGE REALLOWED NET TO DEALERS AMOUNT OF TRANSACTION AMOUNT OFFERING AS A PERCENTAGE OF AT OFFERING PRICE INVESTED PRICE OFFERING PRICE* - ---------------------------------------------------------------------------- Less than $ 50,000 3.36% 3.25% 3.00% $ 50,000 but less than 100,000 2.30 2.25 2.00 100,000 but less than 250,000 1.52 1.50 1.25 250,000 but less than 500,000 1.01 1.00 1.00 500,000 and above None None None - ----------------------------------------------------------------------------
* At the discretion of Putnam Mutual Funds, however, the entire sales charge may at times be reallowed to dealers. The Staff of the Securities and Exchange Commission has indicated that dealers who receive more than 90% of the sales charge may be considered underwriters. Class M shares do not convert into any other class of shares. GENERAL YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M SHARES AT REDUCED SALES CHARGES. Consult your investment dealer or Putnam Mutual Funds for details about Putnam's Combined Purchase Privilege, Cumulative Quantity Discount, Statement of Intention, Group Sales Plan, Employee Benefit Plans and other plans. Descriptions are also included in the order form and in the Statement of Additional Information. In addition, sales charges will not apply to Class M shares purchased with redemption proceeds received within the prior ninety days from non-Putnam mutual funds on which the investor paid a front-end sales charge or CDSC. The Fund may sell Class A , Class B and Class M shares at net asset value without an initial sales charge or a CDSC to the Fund's current and retired Trustees (and their families), current and retired employees (and their families) of Putnam Management and affiliates, registered representatives and other employees (and their families) of broker-dealers having sales agreements with Putnam Mutual Funds, employees (and their families) of financial institutions having sales agreements with Putnam Mutual Funds (or otherwise having an arrangement with a broker-dealer or financial institution with respect to sales of Fund shares), financial institution trust departments investing an aggregate of $1 million or more in Putnam funds, clients of certain administrators of tax-qualified plans, employee benefit plans of companies with more than 750 employees, tax-qualified plans when proceeds from repayments of loans to participants are invested (or reinvested) in Putnam funds, "wrap accounts" for the benefit of clients of broker-dealers, financial institutions or financial planners adhering to certain standards established by Putnam Mutual Funds, and investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by the closed-end fund. In addition, the Fund may sell shares at net asset value without an initial sales charge or a CDSC in connection with the acquisition by the Fund of assets of an investment company or personal holding company, and the CDSC will be waived on redemptions of shares arising out of death or disability or in connection with certain withdrawals from IRA or other retirement plans. Up to 12% of the value of Class B shares subject to a Systematic Withdrawal Plan may also be redeemed each year without a CDSC. See the Statement of Additional Information. Shareholders of other Putnam funds may be entitled to exchange their shares for, or reinvest distributions from their funds in, shares of the Fund at net asset value. If you are considering redeeming or exchanging shares or transferring shares to another person shortly after purchase, you should pay for those shares with a certified check to avoid any delay in redemption, exchange or transfer. Otherwise the Fund may delay payment until the purchase price of those shares has been collected or, if you redeem by telephone, until 15 calendar days after the purchase date. To eliminate the need for safekeeping, the Fund will not issue certificates for your shares unless you request them. Putnam Mutual Funds will from time to time at its expense provide additional promotional incentives or payments to dealers that sell shares of the Putnam funds. Such incentives or payments may include payments for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and their guests to locations within and outside the United States for meetings or seminars of a business nature. In some instances, these incentives or payments may be offered only to certain dealers who have sold or may sell significant amounts of shares. Certain dealers may not sell all classes of shares. DISTRIBUTION PLANS CLASS A DISTRIBUTION PLAN. The Class A Plan provides for payments by the Fund to Putnam Mutual Funds at the annual rate of up to 0.35% of the Fund's average net assets attributable to Class A shares . The Trustees currently limit payments under the Class A Plan to the annual rate of 0.20% of such assets . Should the Trustees decide in the future to approve payments in excess of this amount, shareholders will be notified and this Prospectus will be revised. In order to compensate investment dealers (including, for this purpose, certain financial institutions) for services provided in connection with sales of Class A shares and the maintenance of shareholder accounts, Putnam Mutual Funds makes quarterly payments to qualifying dealers based on the average net asset value of Class A shares of the Fund which are attributable to shareholders for whom the dealers are designated as the dealer of record. This calculation excludes until one year after purchase shares purchased at net asset value by shareholders investing $1 million or more and by participant-directed qualified retirement plans sponsored by employers with more than 750 employees ("NAV Shares"), except for shares owned by certain investors investing $1 million or more that have made arrangements with Putnam Mutual Funds and whose dealer of record waived the sales commission. Except as stated below, Putnam Mutual Funds makes such payments at the annual rate of 0.15% of such average net asset value for Class A shares outstanding as of July 8, 1993 and 0.20% of such average net asset value of shares acquired after that date (including shares acquired through reinvestment of distributions). For participant-directed qualified retirement plans initially investing less than $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates, Putnam Mutual Funds' payments to qualifying dealers on NAV Shares are 100% of the rate stated above if average plan assets in Putnam funds (excluding money market funds) during the quarter are less than $20 million, 60% of the stated rate if average plan assets are at least $20 million but less than $30 million, and 40% of the stated rate if average plan assets are $30 million or more. For all other participant-directed qualified retirement plans purchasing NAV Shares, Putnam Mutual Funds makes quarterly payments to qualifying dealers at the annual rate of 0.10% of the average net asset value of such shares. CLASS B AND CLASS M DISTRIBUTION PLANS . The Class B and the Class M Plans provide for payments by the Fund to Putnam Mutual Funds at the annual rate of up to 1.00% of the Fund's average net assets attributable to Class B shares and Class M shares, as the case may be. The Trustees currently limit payments under the Class M Plan to the annual rate of 0.50% of such assets . The Trustees currently limit payments under the Class B Plan to the annual rate of 0.85% of such assets. Should the Trustees decide in the future to approve payments in excess of these amounts , shareholders will be notified and this Prospectus will be revised. Although Class B shares are sold without an initial sales charge, Putnam Mutual Funds pays a sales commission equal to 4.00% of the amount invested (including a prepaid service fee of 0.20% of the amount invested) to dealers who sell Class B shares. These commissions are not paid on exchanges from other Putnam funds and sales to investors exempt from the CDSC. The amount paid to dealers at the time of the sale of Class M shares is set forth above under "How to buy shares -- Class M shares." In addition, in order to further compensate dealers (including, for this purpose, certain financial institutions) for services provided in connection with sales of Class B shares and Class M shares and the maintenance of shareholder accounts, Putnam Mutual Funds makes quarterly payments to qualifying dealers based on the average net asset value of Class B shares and Class M shares which are attributable to shareholders for whom the dealers are designated as the dealer of record, except for the first year's service fees for Class B shares , which are prepaid as described above. Putnam Mutual Funds makes such payments at an annual rate of 0.20% of such average net asset value of Class B shares and Class M shares, as the case may be. Putnam Mutual Funds also pays to dealers, as additional compensation with respect to the sale of Class M shares, 0.20% of such average net asset value of Class M shares . For Class M shares, the total annual payment to dealers equals 0.40% of such average net asset value. GENERAL. Payments under the Plans are intended to compensate Putnam Mutual Funds for services provided and expenses incurred by it as principal underwriter of the Fund's shares, including the payments to dealers mentioned above. Putnam Mutual Funds may suspend or modify such payments to dealers . Such payments are also subject to the continuation of the relevant Distribution Plan , the terms of Service Agreements between dealers and Putnam Mutual Funds, and any applicable limits imposed by the National Association of Securities Dealers, Inc. HOW TO SELL SHARES You can sell your shares to the Fund any day the New York Stock Exchange is open, either directly to the Fund or through your investment dealer. The Fund will only redeem shares for which it has received payment. SELLING SHARES DIRECTLY TO THE FUND. Send a signed letter of instruction or stock power form to Putnam Investor Services, along with any certificates that represent shares you want to sell. The price you will receive is the next net asset value calculated after the Fund receives your request in proper form less any applicable CDSC. In order to receive that day's net asset value, Putnam Investor Services must receive your request before the close of regular trading on the New York Stock Exchange. If you sell shares having a net asset value of $100,000 or more, the signatures of registered owners or their legal representatives must be guaranteed by a bank, broker-dealer or certain other financial institutions. See the Statement of Additional Information for more information about where to obtain a signature guarantee. Stock power forms are available from your investment dealer, Putnam Investor Services and many commercial banks. If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, a signature guarantee is required. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details. THE FUND GENERALLY SENDS YOU PAYMENT FOR YOUR SHARES THE BUSINESS DAY AFTER YOUR REQUEST IS RECEIVED. Under unusual circumstances, the Fund may suspend redemptions , or postpone payment for more than seven days, as permitted by federal securities law. You may use Putnam's Telephone Redemption Privilege to redeem shares valued up to $100,000 from your account unless you have notified Putnam Investor Services of an address change within the preceding 15 days. Unless an investor indicates otherwise on the Account Application, Putnam Investor Services will be authorized to act upon redemption and transfer instructions received by telephone from a shareholder, or any person claiming to act as his or her representative, who can provide Putnam Investor Services with his or her account registration and address as it appears on Putnam Investor Services' records. Putnam Investor Services will employ these and other reasonable procedures to confirm that instructions communicated by telephone are genuine; if it fails to employ reasonable procedures, Putnam Investor Services may be liable for any losses due to unauthorized or fraudulent instructions. For information, consult Putnam Investor Services. During periods of unusual market changes and shareholder activity, you may experience delays in contacting Putnam Investor Services by telephone in which case you may wish to submit a written redemption request, as described above, or contact your investment dealer, as described below. The Telephone Redemption Privilege is not available if you were issued certificates for your shares which remain outstanding. The Telephone Redemption Privilege may be modified or terminated without notice. SELLING SHARES THROUGH YOUR INVESTMENT DEALER. Your dealer must receive your request before the close of regular trading on the New York Stock Exchange to receive that day's net asset value. Your dealer will be responsible for furnishing all necessary documentation to Putnam Investor Services, and may charge you for its services. HOW TO EXCHANGE SHARES You can exchange your shares for shares of the same class of certain other Putnam funds at net asset value beginning 15 days after purchase. Not all Putnam funds offer all classes of shares. If you exchange shares subject to a CDSC, the transaction will not be subject to the CDSC. However, when you redeem the shares acquired through the exchange, the redemption may be subject to the CDSC, depending upon when you originally purchased the shares and using the schedule of any fund into or from which you have exchanged your shares that would result in your paying the highest CDSC applicable to your class of shares. For purposes of computing the CDSC, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any exchange. To exchange your shares, simply complete an Exchange Authorization Form and send it to Putnam Investor Services. Exchange Authorization Forms are available by calling or writing Putnam Investor Services. For federal income tax purposes, an exchange is treated as a sale of shares and generally results in a capital gain or loss. A Telephone Exchange Privilege is currently available for amounts up to $500,000. Putnam Investor Services' procedures for telephonic transactions are described above under "How to sell shares." The Telephone Exchange Privilege is not available if you were issued certificates for shares which remain outstanding. Ask your investment dealer or Putnam Investor Services for prospectuses of other Putnam funds. Shares of certain Putnam funds are not available to residents of all states. The exchange privilege is not intended as a vehicle for short- term trading. Excessive exchange activity may interfere with portfolio management and have an adverse effect on all shareholders. In order to limit excessive exchange activity and in other circumstances where Putnam Management or the Trustees believe doing so would be in the best interests of the Fund, the Fund reserves the right to revise or terminate the exchange privilege, limit the amount or number of exchanges or reject any exchange. Shareholders would be notified of any such action to the extent required by law. Consult Putnam Investor Services before requesting an exchange. See the Statement of Additional Information to find out more about the exchange privilege. HOW THE FUND VALUES ITS SHARES THE FUND CALCULATES THE NET ASSET VALUE OF A SHARE OF EACH CLASS BY DIVIDING THE TOTAL VALUE OF ITS ASSETS, LESS LIABILITIES, BY THE NUMBER OF ITS SHARES OUTSTANDING. SHARES ARE VALUED AS OF THE CLOSE OF REGULAR TRADING ON THE NEW YORK STOCK EXCHANGE EACH DAY THE EXCHANGE IS OPEN. Tax - exempt securities (including Pennsylvania Tax Exempt Securities) 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 Fund believes that reliable market quotations generally are not readily available for purposes of valuing its portfolio securities. As a result, it is likely that most of the valuations provided by such pricing service will be based upon fair value determined on the basis of the factors listed above. Non-tax-exempt securities for which market quotations are readily available are valued at market value. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION THE FUND DECLARES ALL OF ITS NET INVESTMENT INCOME AS A DISTRIBUTION ON EACH DAY IT IS OPEN FOR BUSINESS. Net investment income consists of interest accrued on portfolio investments of the Fund, less accrued expenses, computed in each case since the most recent determination of net asset value. Normally, the Fund pays distributions of net investment income monthly. The Fund will distribute at least annually all net realized capital gains, if any, after applying any available capital loss carryovers. Distributions paid by the Fund with respect to Class A shares will generally be greater than those paid with respect to Class B and Class M shares because expenses attributable to Class B and Class M shares will generally be higher. You begin earning distributions on the business day after Putnam Mutual Funds receives payment for your shares. It is your responsibility to see that your dealer forwards payment promptly. YOU CAN CHOOSE FROM THREE DISTRIBUTION OPTIONS: (1) reinvest all distributions in additional Fund shares without a sales charge; (2) receive distributions from net investment income in cash while reinvesting capital gains distributions in additional shares without a sales charge; or (3) receive all distributions in cash. You can change your distribution option by notifying Putnam Investor Services in writing. If you do not select an option when you open your account, all distributions will be reinvested. All distributions not paid in cash will be reinvested in shares of the class on which the distributions are paid. You will receive a statement confirming reinvestment of distributions in additional Fund shares (or in shares of other Putnam funds for Dividends Plus accounts) promptly following the quarter in which the reinvestment occurs. If a check representing a Fund distribution is not cashed within a specified period, Putnam Investor Services will notify you that you have the option of requesting another check or reinvesting the distribution in the Fund or in another Putnam fund. If Putnam Investor Services does not receive your election, the distribution will be reinvested in the Fund. Similarly, if correspondence sent by the Fund or Putnam Investor Services is returned as "undeliverable," Fund distributions will automatically be reinvested in the Fund or in another Putnam fund. FEDERAL TAXES The Fund intends to qualify as a "regulated investment company" for federal income tax purposes and to meet all other requirements that are necessary for it to be relieved of federal taxes on income and gains it distributes to shareholders. The Fund will distribute substantially all of its ordinary income and capital gain net income on a current basis. Distributions designated by the Fund as "exempt-interest dividends" are not generally subject to federal income tax. However, if you receive Social Security or railroad retirement benefits, you should consult your tax adviser to determine what effect, if any, an investment in the Fund may have on the taxation of your benefits. In addition, an investment in the Fund may result in liability for federal alternative minimum tax and for state and local taxes, both for individual and corporate shareholders. The Fund may at times purchase Pennsylvania Tax Exempt Securities at a discount from the price at which they were originally issued, especially during periods of rising interest rates. For federal income tax purposes, some or all of this market discount will be included in the Fund's ordinary income and will be taxable to shareholders as such when it is distributed to them. All Fund distributions other than exempt-interest dividends will be taxable to you as ordinary income, except that any distributions of net long-term capital gains will be taxable as such, regardless of how long you have held the shares. Distributions will be taxable as described above whether received in cash or in shares through the reinvestment of distributions. PENNSYLVANIA TAX Distributions paid by the Fund will not be subject to the Pennsylvania personal income tax or to the Philadelphia School District investment net income tax to the extent that the distributions are attributable to interest received by the Fund from its investments in Pennsylvania Tax Exempt Securities and obligations of the United States, its territories and certain of its agencies and instrumentalities . Distributions by the Fund to a Pennsylvania resident that are attributable to other sources may be subject to the Pennsylvania personal income tax and (for residents of Philadelphia) to the Philadelphia School District investment net income tax whether paid in cash or reinvested in additional shares. Distributions paid by the Fund which are excludable as exempt income for federal tax purposes are not subject to the Pennsylvania corporate net income tax. For a more detailed description of Pennsylvania corporate income tax see the Statement of Additional Information. Individual shareholders of the Fund who are subject to the personal property taxes levied by certain Pennsylvania counties, cities and school districts will be exempt from such tax on their shares of the Fund to the extent that the Fund's portfolio consists of Pennsylvania Tax Exempt Securities and obligations of the United States, its territories and certain of its agencies and instrumentalities. Corporations are not subject to Pennsylvania personal property taxes. GENERAL The foregoing is a summary of certain federal and Pennsylvania income tax consequences of investing in the Fund. You should consult your tax adviser to determine the precise effect of an investment in the Fund on your particular tax situation (including possible liability for alternative minimum tax and state and local taxes ). Early in each year the Fund will notify you of the amount and tax status of distributions paid to you by the Fund for the preceding year. ABOUT PUTNAM INVESTMENTS, INC. PUTNAM MANAGEMENT HAS BEEN MANAGING MUTUAL FUNDS SINCE 1937. Putnam Mutual Funds is the principal underwriter of the Fund and of other Putnam funds. Putnam Fiduciary Trust Company is the Fund's custodian. Putnam Investor Services, a division of Putnam Fiduciary Trust Company, is the Fund's investor servicing and transfer agent. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., which is wholly owned by Marsh & McLennan Companies, Inc., a publicly - owned holding company whose principal businesses are international insurance and reinsurance brokerage, employee benefit consulting and investment management. APPENDIX SECURITIES RATINGS THE FOLLOWING RATING SERVICES DESCRIBE RATED SECURITIES AS FOLLOWS: MOODY'S INVESTORS SERVICE, INC. BONDS Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa -- Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A -- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa -- Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. STANDARD & POOR'S CORPORATION BONDS AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. AA -- Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A -- Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. BB -- Debt rated BB is regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. GLOSSARY OF TERMS BOND An IOU issued by a government or corporation that usually pays interest. - ----------------------------------------------------------------- CAPITAL A profit or loss on the sale of securities (stocks GAIN/LOSS or bonds). - ----------------------------------------------------------------- CLASS A, B, Types of shares, each class offering investors a M SHARES different choice about how to pay sales charges and distribution fees. A fund's prospectus explains the availability and attributes of each type. - ----------------------------------------------------------------- COMMON A unit of ownership of a corporation. STOCK - ----------------------------------------------------------------- DISTRIBUTION A payment from a mutual fund to shareholders. It may include interest from bonds and dividends from stocks (dividend distributions). It may also include profits from the sale of securities from the fund's portfolio (capital gains distributions). - ----------------------------------------------------------------- NET ASSET The basic value of one share of a mutual fund VALUE (NAV) without regard to sales charges. Some bond funds aim for a steady NAV, representing stability; most stock funds work to raise NAV, representing growth in the value of an investment. - ----------------------------------------------------------------- PUBLIC The purchase price of one class A share or class M OFFERING share of a mutual fund, including the applicable PRICE (POP) up-front sales charge. - ----------------------------------------------------------------- TOTAL RETURN A measure of performance showing change in the value of an investment over a given period, assuming all earnings are invested back into the fund. - ----------------------------------------------------------------- YIELD The percentage rate at which a fund's portfolio earns income from its investments. MAKE THE MOST OF YOUR PUTNAM PRIVILEGES As a Putnam mutual fund shareholder, you have access to a number of services that can help you build a more effective and flexible financial program. Here are some of the ways you can use these privileges to make the most of your Putnam mutual fund investment. SYSTEMATIC INVESTMENT PLAN Invest as much as you wish ($25 or more) on any day of the month except for the 29th, 30th, or 31st. The amount will be automatically transferred from your checking or savings account. SYSTEMATIC WITHDRAWAL Make regular withdrawals of $50 or more monthly, quarterly, or semiannually from an account valued at $10,000 or more. You may establish your withdrawal on any day of the month except for the 29th, 30th, or 31st. SYSTEMATIC EXCHANGE Transfer assets automatically from one Putnam account to another on a regular, prearranged basis. There is no additional charge for this service. FREE EXCHANGE PRIVILEGE Exchange money between Putnam funds in the same class of shares without charge. The exchange privilege allows you to adjust your investments as your objectives change. A signature guarantee is required for exchanges of more than $500,000. DIVIDENDS PLUS Diversify your portfolio by investing dividends and other distributions from one Putnam fund automatically into another at net asset value. STATEMENT OF INTENTION To reduce a front-end sales charge, you agree to invest a minimum dollar amount over 13 months. Depending on your fund, the minimum is $25,000, $50,000, or $100,000. Whenever you make an investment under this arrangement, you or your investment advisor should notify Putnam that a Statement of Intention is in effect. Investors may not maintain, within the same fund, simultaneous plans for systematic investment or exchange and systematic withdrawal or exchange. These privileges are subject to change or termination. For more information about any of these services and privileges, call your investment advisor or a Putnam customer service representative toll-free at 1-800-225-1581. PUTNAM FAMILY OF FUNDS PUTNAM GROWTH FUNDS Putnam Asia Pacific Growth Fund Putnam Diversified Equity Trust Putnam Europe Growth Fund Putnam Global Growth Fund Putnam Health Sciences Trust Putnam Investors Fund Putnam Natural Resources Fund Putnam New Opportunities Fund Putnam OTC Emerging Growth Fund Putnam Overseas Growth Fund Putnam Vista Fund Putnam Voyager Fund PUTNAM GROWTH AND INCOME FUNDS Putnam Balanced Retirement Fund* Putnam Convertible Income-Growth Trust Putnam Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income Putnam Growth and Income Fund II Putnam Utilities Growth and Income Fund PUTNAM INCOME FUNDS Putnam Adjustable Rate U.S. Government Fund Putnam American Government Income Fund Putnam Diversified Income Trust Putnam Federal Income Trust Putnam Global Governmental Income Trust Putnam High Yield Advantage Fund Putnam High Yield Trust Putnam Income Fund Putnam Intermediate U.S. Government Fund Putnam Preferred Income Fund Putnam U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Putnam Intermediate Tax Exempt Fund Putnam Municipal Income Fund Putnam Tax Exempt Income Fund Putnam Tax-Free High Yield Fund Putnam Tax-Free Insured Fund Putnam State tax-free income funds+ Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania LIFESTAGE(SM) FUNDS Putnam Asset Allocation Funds -- three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments seeking to help maximize your return and reduce your risk. THE THREE PORTFOLIOS: Balanced Portfolio Conservative Portfolio Growth Portfolio PUTNAM MONEY MARKET FUNDS Putnam Money Market Fund Putnam California Tax Exempt Money Market Fund Putnam New York Tax Exempt Money Market Fund Putnam Tax Exempt Money Market Fund *Formerly Putnam Managed Income Trust +Not available in all states. Please call your financial advisor or Putnam to obtain a prospectus for any Putnam fund. It contains more complete information, including charges and expenses. Read it carefully before you invest or send money. PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND One Post Office Square Boston, MA 02109 FUND INFORMATION: INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 INVESTOR SERVICING AGENT Putnam Investor Services Mailing address: P.O. Box 41203 Providence, RI 02940-1203 CUSTODIAN Putnam Fiduciary Trust Company One Post Office Square Boston, MA 02109 LEGAL COUNSEL Ropes & Gray One International Place Boston, MA 02110 INDEPENDENT ACCOUNTANTS Price Waterhouse LLP 160 Federal Street Boston, MA 02110 PUTNAMINVESTMENTS One Post Office Square Boston, Massachusetts 02109 Toll-free 1-800-225-1581 PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND FORM N-1A PART B STATEMENT OF ADDITIONAL INFORMATION JULY 1, 1995 This Statement of Additional Information is not a Prospectus and is only authorized for distribution when accompanied or preceded by the Prospectus of the Fund dated July 1, 1995 , as revised from time to time. This Statement contains information which may be useful to investors but which is not included in the Prospectus. If the Fund has more than one form of current Prospectus, each reference to the Prospectus in this Statement shall include all the Fund's Prospectuses, unless otherwise noted. The Statement should be read together with the applicable Prospectus. Investors may obtain a free copy of the applicable Prospectus from Putnam Investor Services, Mailing address: P.O. Box 41203, Providence, RI 02940-1203. Part I of this Statement contains specific information about the Fund. Part II includes information about the Fund and the other Putnam funds. TABLE OF CONTENTS PART I PENNSYLVANIA TAX EXEMPT SECURITIES. . . . . . . . . . . . . I- 4 PENNSYLVANIA CORPORATE NET INCOME TAX . . . . . . . . . I -6 ^ INVESTMENT RESTRICTIONS OF THE FUND . . . . . . . . . . . . . .I-7 FUND CHARGES AND EXPENSES . . . . . . . . . . . . . . .I- 9 INVESTMENT PERFORMANCE OF THE FUND. . . . . . . . . . I- 13 EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIESI- 20 ADDITIONAL OFFICERS OF THE FUND . . . . . . . . . . . I- 21 INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS. . . I- 21 PART II MISCELLANEOUS INVESTMENT PRACTICES. . . . . . . . . . . . . . II-1 TAXES . . . . . . . . . . . . . . . . . . . . . .II- 22 MANAGEMENT OF THE FUND. . . . . . . . . . . . . . . . II- 27 DETERMINATION OF NET ASSET VALUE. . . . . . . . . . . II- 36 HOW TO BUY SHARES . . . . . . . . . . . . . . . . . . II- 38 DISTRIBUTION PLAN . . . . . . . . . . . . . . . . . . II- 49 INVESTOR SERVICES . . . . . . . . . . . . . . . . . . II- 49 SIGNATURE GUARANTEES. . . . . . . . . . . . . . . . . II- 55 SUSPENSION OF REDEMPTIONS . . . . . . . . . . . . . . II- 55 SHAREHOLDER LIABILITY . . . . . . . . . . . . . . . . II- 55 STANDARD PERFORMANCE MEASURES . . . . . . . . . . . . II- 56 COMPARISON OF PORTFOLIO PERFORMANCE . . . . . . . . . II- 57 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . II- 62 PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND STATEMENT OF ADDITIONAL INFORMATION PART I PENNSYLVANIA TAX EXEMPT SECURITIES GENERAL DESCRIPTION. As used in the Prospectus and in this Statement, the term "Pennsylvania Tax Exempt Securities" includes debt obligations issued by The Commonwealth of Pennsylvania , its political subdivisions (for example, counties, cities, towns, villages, districts and authorities) and their agencies, instrumentalities or other governmental units, the interest from which is, in the opinion of bond counsel, exempt from federal income tax and Pennsylvania personal income tax. Such obligations are issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, such as airports, bridges, highways, housing, hospitals, mass transportation, schools, streets and water and sewer works. Other public purposes for which Pennsylvania Tax Exempt Securities may be issued include the refunding of outstanding obligations or obtaining funds for general operating expenses. Short-term Pennsylvania Tax Exempt Securities are generally issued by state and local governments and public authorities as interim financing in anticipation of tax collections, revenue receipts, or bond sales to finance such public proposes. In addition, certain types of "private activity" bonds may be issued by public authorities to finance such projects as privately operated housing facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal, student loans, or the obtaining of funds to lend to public or private institutions for the construction of facilities such as educational, hospital and housing facilities. Such obligations are included within the term Pennsylvania Tax Exempt Securities if the interest paid thereon is, in the opinion of bond counsel, exempt from federal income tax (such interest may, however, be subject to federal alternative minimum tax) and Pennsylvania personal income tax. Other types of private activity bonds, the proceeds of which are used for the construction, repair or improvement of, or to obtain equipment for, privately operated industrial or commercial facilities, may constitute Pennsylvania Tax Exempt Securities, although the current federal tax laws place substantial limitations on the size of such issues. Pennsylvania Tax Exempt Securities also include short-term discount notes (tax-exempt commercial paper), which are promissory notes issued by municipalities to enhance their cash flows. STAND-BY COMMITMENTS. When the Fund purchases Pennsylvania Tax Exempt Securities, it has the authority to acquire stand-by commitments from banks and broker-dealers with respect to those Pennsylvania Tax Exempt Securities. A stand-by commitment may be considered a security independent of the Pennsylvania Tax Exempt Security to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances, would be substantially the same as the market value of the underlying Pennsylvania Tax Exempt Security to a third party at any time. The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. The Fund does not expect to assign any value to stand-by commitments. YIELDS. The yields on Pennsylvania Tax Exempt Securities depend on a variety of factors, including general money market conditions, effective marginal tax rates, the financial condition of the issuer, general conditions of the Pennsylvania Tax Exempt Security market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of Moody's Investors Service, Inc. and Standard & Poor's Corporation represent their opinions as to the quality of the Pennsylvania Tax Exempt Securities which they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, Pennsylvania Tax Exempt Securities with the same maturity and interest rate but with different ratings may have the same yield. Yield disparities may occur for reasons not directly related to the investment quality of particular issues or the general movement of interest rates, due to such factors as changes in the overall demand or supply of various types of Pennsylvania Tax Exempt Securities or changes in the investment objectives of investors. Subsequent to purchase by the Fund, an issue of Pennsylvania Tax Exempt Securities or other investments may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Fund. Neither event will require the elimination of an investment from the Fund's portfolio, but Putnam Management will consider such an event in its determination of whether the Fund should continue to hold an investment in its portfolio. "MORAL OBLIGATION" BONDS. The Fund does not currently intend to invest in so-called "moral obligation" bonds, where repayment is backed by a moral commitment of an entity other than the issuer, unless the credit of the issuer itself, without regard to the "moral obligation , " meets the investment criteria established for investments by the Fund. ADDITIONAL RISKS. Securities in which the Fund may invest, including Pennsylvania Tax Exempt Securities, are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the federal Bankruptcy Code, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations. There is also the possibility that as a result of litigation or other conditions the power or ability of issuers to meet their obligations for the payment of interest and principal on their Pennsylvania Tax Exempt Securities may be materially affected. From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on debt obligations issued by states and their political subdivisions. Federal tax laws limit the types and amounts of tax-exempt bonds issuable for certain purposes, especially industrial development bonds and private activity bonds . Such limits may affect the future supply and yields of these types of Pennsylvania Tax Exempt Securities. Further proposals limiting the issuance of tax-exempt bonds may well be introduced in the future. If it appeared that the availability of Pennsylvania Tax Exempt Securities for investment by the Fund and the value of the Fund's portfolio could be materially affected by such changes in law, the Trustees of the Fund would reevaluate its investment objective and policies and consider changes in the structure of the Fund or its dissolution. PENNSYLVANIA CORPORATE NET INCOME TAX Distributions paid by the Fund which are excludable as exempt income for federal tax purposes are not subject to the Pennsylvania corporate net income tax. An additional deduction from Pennsylvania taxable income is permitted for the amount of distributions paid by the Fund attributable to interest received by the Fund from its investments in Pennsylvania Tax Exempt Securities and obligations of the United States, its territories and certain of its agencies and instrumentalities to the extent included in federal taxable income, but such a deduction is reduced by any interest on indebtedness incurred to carry the securities and other expenses incurred in the production of such interest income, including expenses deducted on the federal income tax return that would not have been allowed under the Internal Revenue Code if the interest were exempt from federal income tax. Distributions by the Fund attributable to most other sources may be subject to the Pennsylvania corporate net income tax. It is the current position of the Pennsylvania Department of Revenue that Fund shares are considered exempt assets (with a pro rata exclusion based on the value of the Fund attributable to its investments in Pennsylvania Tax Exempt Securities and obligations of the United States, its territories and certain of its agencies and instrumentalities) for purposes of determining a corporation's capital stock value subject to the Commonwealth's capital stock or franchise tax. INVESTMENT RESTRICTIONS OF THE FUND AS FUNDAMENTAL INVESTMENT RESTRICTIONS, WHICH MAY NOT BE CHANGED WITHOUT A VOTE OF A MAJORITY OF THE OUTSTANDING VOTING SECURITIES, THE FUND MAY NOT AND WILL NOT: (1) Borrow money in excess of 10% of the value (taken at the lower of cost or current value) of its total assets (not including the amount borrowed) at the time the borrowing is made, and then only from banks as a temporary measure to facilitate the meeting of redemption requests (not for leverage) which might otherwise require the untimely disposition of portfolio investments or for extraordinary or emergency purposes. Such borrowings will be repaid before any additional investments are purchased. (2) Pledge, hypothecate, mortgage or otherwise encumber its assets in excess of 15% of its total assets (taken at current value) in connection with borrowings permitted by restriction 1 above. (3) Purchase securities on margin, except such short-term credits as may be necessary for the clearance of purchases and sales of securities, and except that it may make margin payments in connection with futures contracts and related options. (4) Make short sales of securities or maintain a short sale position for the account of the Fund unless at all times when a short position is open it owns an equal amount of such securities or owns securities which, without payment of any further consideration, are convertible into or exchangeable for securities of the same issue as, and equal in amount to, the securities sold short. (5) Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under certain federal securities laws. (6) Purchase or sell real estate, although it may purchase or sell securities which are secured by or represent interests in real estate. (7) Purchase or sell commodities or commodity contracts, except that the Fund may write and purchase financial futures contracts and related options. (8) Make loans, except by purchase of debt obligations in which the Fund may invest consistent with its investment policies, or by entering into repurchase agreements with respect to not more than 25% of its total assets (taken at current value). (9) Invest in securities of any issuer if, to the knowledge of the Fund, officers and Trustees of the Fund and officers and directors of Putnam Management who beneficially own more than 0.5% of the shares or securities of that issuer together own more than 5%. (10) With respect to 75% of its total assets, invest in securities of any issuer if, immediately after such investment, more than 5% of the total assets of the Fund (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest and principal by the U.S. government or its agencies or instrumentalities. (11) Acquire more than 10% of the voting securities of any issuer. (12) Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities and Pennsylvania Tax Exempt Securities, except obligations backed only by the assets and revenues of nongovernmental issuers) if as a result of such purchase more than 25% of the Fund's total assets would be invested in any one industry. (13) Purchase securities restricted as to resale, if, as a result, such investments would exceed 15% of the value of the Fund's net assets, excluding restricted securities that have been determined by the Trustees of the Fund (or the person designated by them to make such determinations) to be readily marketable. (14) Buy or sell oil, gas or other mineral leases, rights or royalty contracts. (15) Make investments for the purpose of gaining control of a company's management. (16) Issue any class of securities which is senior to the Fund's shares of beneficial interest. IT IS CONTRARY TO THE FUND'S PRESENT POLICY, WHICH MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL, TO: (1) Invest in (a) securities which at the time of such investment are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Fund's Trustees (or the person designated by the Fund's Trustees to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of the Fund's net assets (taken at current value) would then be invested in the aggregate in securities described in (a), (b) and (c) above. (2) Invest in warrants (other than warrants acquired by the Fund as part of a unit or attached to securities at the time of purchase). (3) Invest in securities of any issuer if the party responsible for payment, together with any predecessors, has been in operation for less than three consecutive years and, as a result of the investment, the aggregate of such investments would exceed 5% of the value of the Fund's net assets; provided, however, that this restriction shall not apply to any obligation of the United States or its agencies or instrumentalities, or to any obligation for the payment of which is pledged the faith, credit and taxing power of any person authorized to issue Pennsylvania Tax Exempt Securities. (4) Invest in the securities of other registered open-end investment companies, except as they may be acquired as part of a merger or consolidation or acquisition of assets. Although certain of the Fund's fundamental investment restrictions permit the Fund to borrow money to a limited extent, the Fund does not currently intend to do so and did not do so last year. --------------------- All percentage limitations on investments will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. The Investment Company Act of 1940 provides that a "vote of a majority of the outstanding voting securities" of the Fund means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. FUND CHARGES AND EXPENSES MANAGEMENT FEES Under a Management Contract dated July 11, 1991, the Fund pays a fee to Putnam Management based on the average net assets of the Fund, as determined at the close of each business day during the quarter, at an annual rate of 0.60% of the first $500 million of average net assets, 0.50% of the next $500 million, 0.45% of the next $500 million and 0.40% of any amount over $1.5 billion. For its 1993 fiscal year , pursuant to the Management Contract, the Fund incurred fees of $555,516, reflecting a reduction of $138,932 pursuant to an expense limitation in effect during that period . The expense limitation expired September 15, 1992. For its 1994 and 1995 fiscal years , the Fund incurred fees of $990,690 and $1,155,995, respectively , pursuant to the Management Contract. BROKERAGE COMMISSIONS Most purchases and sales of portfolio investments are with underwriters of or dealers in Pennsylvania Tax Exempt Securities and other tax-exempt securities, acting as principal. Accordingly, the Fund does not ordinarily pay significant brokerage commissions on agency transactions. During fiscal 1993, the Fund incurred no brokerage commissions on agency transactions. During fiscal 1994 and 1995 , the Fund incurred brokerage commissions of $11,715 and $2,612 , respectively, on agency transactions. In fiscal 1993, 1994 and 1995, the Fund incurred underwriting commissions aggregating $154,238, $652,200 and $155,926, respectively, on underwritten transactions. ADMINISTRATIVE EXPENSE REIMBURSEMENT The Fund reimbursed Putnam Management $8,865 for administrative services in fiscal 1995, including $8,110 for the compensation of certain officers of the Fund and their staff and contributions to the Putnam Investments, Inc. Profit Sharing Retirement Plan for their benefit. TRUSTEE FEES The Fund pays each Trustee a fee for his or her services. Each Trustee also receives fees for serving as Trustee of other Putnam funds. The Trustees periodically review their fees to assure that such fees continue to be appropriate in light of their responsibilities as well as in relation to fees paid to trustees of other mutual fund complexes. The Trustees meet monthly over a two-day period, except in August. The Compensation Committee, which consists solely of Trustees not affiliated with Putnam Management and is responsible for recommending Trustee compensation, estimates that Committee and Trustee meeting time together with the appropriate preparation requires the equivalent of at least three business days per Trustee meeting. The fees paid to each Trustee by the Fund and by all of the Putnam funds are shown below:
Year first Retirement elected as benefits Total a Trustee Aggregate accrued as compensation of the compensation part of Fund's from all Trustees Putnam funds from the Fund* expenses Putnam funds** - -------------------------------------------------------------------------------- Jameson A. Baxter 1994 $826 $0 $135,850 Hans H. Estin 1972 $818 0 141,850 John A. Hill 1985 $818 0 143,850 Elizabeth T. Kennan 1992 $810 0 141,850 Lawrence J. Lasser 1992 $818 0 141,850 Robert E. Patterson 1984 $826 0 144,850 Donald S. Perkins 1982 $810 0 139,850 William F. Pounds 1971 $818 0 143,850 George Putnam 1957 $818 0 141,850 George Putnam, III 1984 $818 0 141,850 Eli Shapiro*** 1995 N/A 0 N/A A.J.C. Smith 1986 $802 0 137,850 W. Nicholas Thorndike 1992 $826 0 144,850 - ---------------------------------------------------------------------------------- * Reflects amounts paid by the Fund for its fiscal year ended February 28, 1995. Includes an annual retainer and an attendance fee for each meeting attended. ** Reflects total payments received from all Putnam funds in the most recent calendar year. As of December 31, 1994, there were 86 funds in the Putnam family. *** Elected Trustee in April 1995. For the calendar year ended December 31, 1994, Dr. Shapiro received $38,577 in retirement benefits from the Putnam funds in respect of his prior service as a Trustee from 1984 to 1990, which benefits terminated at the end of 1994. /TABLE The Fund's Trustees have approved Retirement Guidelines for Trustees of the Putnam funds. These guidelines provide generally that a Trustee who retires after reaching age 72 and who has at least 10 years of continuous service will be eligible to receive a retirement benefit from each Putnam fund for which he or she served as a Trustee. The amount and form of such benefit is subject to determination annually by the Trustees and, unless otherwise determined by the Trustees, will be an annual cash benefit payable for life equal to one-half of the Trustee retainer fees paid by the Fund at the time of retirement. Several retired Trustees are currently receiving benefits pursuant to the Guidelines and it is anticipated that the current Trustees of the Fund will receive similar benefits upon their retirement. A Trustee who retired in the most recent calendar year and was eligible to receive benefits under these Guidelines would have received an annual benefit of $60,425, based upon the aggregate retainer fees paid by the Putnam funds for such year. The Trustees of the Fund reserve the right to amend or terminate such Guidelines and the related payments at any time, and may modify or waive the foregoing eligibility requirements when deemed appropriate. For additional information concerning the Fund's Trustees, see "Management of the Fund" in Part II of this Statement of Additional Information. OWNERSHIP OF FUND SHARES At May 31, 1995 the officers and Trustees of the Fund as a group owned less than 1% of the outstanding shares of any class of the Fund, and to the knowledge of the Fund no person owned of record or beneficially 5% or more of the shares of any class of the Fund , except that Merrill Lynch, Pierce, Fenner & Smith, Inc., 4800 Deer Lake Drive, Jacksonville, FL 32246, owned of record 6.40% of the Class B shares of the Fund. No Class M shares were outstanding at May 31, 1995 . CLASS A SALES CHARGES, CONTINGENT DEFERRED SALES CHARGES AND 12B- 1 FEES During fiscal 1993 , 1994 and 1995 , Putnam Mutual Funds received $1,999,642 , $1,283,881 and $1,113,142 , respectively, in sales charges on sales of Class A shares of the Fund, of which it retained $105,599 , $75,566 and $71,739 , respectively, after allowance of dealer concessions. During fiscal 1993 and 1995 , Putnam Mutual Funds did not receive any contingent deferred sales charges upon redemptions of Class A shares of the Fund. During fiscal 1994, Putnam Mutual Funds received $640 in contingent deferred sales charges upon redemptions of Class A shares of the Fund. During fiscal 1995 , the Fund incurred $334,268 in 12b-1 fees to Putnam Mutual Funds pursuant to the Fund's Class A Distribution Plan. CLASS B CONTINGENT DEFERRED SALES CHARGES AND 12B-1 FEES During fiscal 1994 and 1995 , Putnam Mutual Funds received $2,473 and $69,280, respectively, in contingent deferred sales charges upon redemptions of Class B shares of the Fund. During fiscal 1995 , the Fund incurred $215,603 in 12b-1 fees to Putnam Mutual Funds pursuant to the Fund's Class B Distribution Plan. INVESTOR SERVICING AND CUSTODY FEES AND EXPENSES During the 1995 fiscal year, the Fund incurred $135,312 in fees and out-of-pocket expenses for investor servicing and custody services provided by Putnam Fiduciary Trust Company. INVESTMENT PERFORMANCE OF THE FUND STANDARD PERFORMANCE MEASURES The tax-exempt yield for Class A shares for the thirty-day period ended February 28, 1995 was 5.41%. A shareholder in a 41.29% combined federal/Pennsylvania tax bracket would have to earn 9.21% from a taxable investment to produce an after-tax yield equal to a tax-exempt yield of 5.41%. The average annual total return (compounded annually) for Class A shares for the one- and five- year periods ended February 28, 1995 and the life of the class through February 28, 1995 was - 3.25%, 7.26% and 6.96%, respectively. Investment performance is adjusted to reflect the deduction of the maximum sales charge of 4.75%. The tax-exempt yield for Class B shares for the thirty- day period ended February 28, 1995 was 5.03%. A shareholder in a 41.29% combined federal/Pennsylvania tax bracket would have to earn 8.57% from a taxable investment to produce an after-tax yield equal to a tax-exempt yield of 5.03%. The average annual total return (compounded annually) for Class B shares for the one-year period ended February 28, 1995 and for the life of the class through February 28, 1995 was -3.85% and -0.40% , respectively, adjusted to reflect deduction of the applicable contingent deferred sales charge . The maximum contingent deferred sales charge is 5.0%. See "Other Performance Information" below for the inception date of each class. No Class M shares were outstanding at February 28, 1995 . See "Standard Performance Measures" in Part II of this Statement for information on how the Fund's investment return is calculated. PERFORMANCE RATINGS For the 1995 fiscal year, the Class A shares were ranked 10 of 46 Pennsylvania Municipal Debt funds by Lipper Analytical Services, Inc. and 206 of 862 Municipal Single State funds by CDA/Wiesenberger's Management Results. As of the end of the fiscal year, Class A shares were given a 4-star rating (out of 5-stars) by Morningstar, Inc. For the 1995 fiscal year, the Class B shares of the Fund were ranked 20 of 46 Pennsylvania Municipal Debt funds by Lipper Analytical Services, Inc. and 376 of 862 Municipal Single State funds by CDA/Wiesenberger's Management Results. The Class B shares of the Fund were not rated by Morningstar, Inc. No Class M shares were outstanding during fiscal 1995 . See "Comparison of Portfolio Performance" in Part II of this Statement for information about how these rankings and ratings are determined. Past performance is no guarantee of future results. OTHER PERFORMANCE INFORMATION The tables below show total return (capital changes plus reinvestment of all distributions) on a hypothetical investment in one share of the Fund during the life of the Fund. This was a period of fluctuating tax-exempt bond prices. The tables do not project the future performance of the Fund. No Class M shares were outstanding during these periods.
CLASS A SHARES CUMULATIVE MAXIMUM NET ASSET DISTRIBUTIONS NET ASSET VALUE FISCAL OFFERING VALUE ----------------- - AT YEAR-END YEAR PRICE AT ------------------ FROM FROM WITH ALL ENDED BEGINNING BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS FEBRUARY 28/29 OF YEAR OF YEAR YEAR INCOME GAINS REINVESTED - ----------------------------------------------------------------------------------------- 1990(1) $8.92 $8.50 $8.36 $0.36 $ --- $ 8.72 1991 8.78 8.36 8.42 0.62 --- 9.47 1992 8.84 8.42 8.76 0.61 ---10.57 1993 9.20 8.76 9.40 0.57 0.00512.09 1994 9.87 9.40 9.39 0.54 0.024 12.80 1995 9.86 9.39 8.98 0.53 0.013 13.01 ---- ------- Total distributions $3.23 $0.042 (1) Investment operations began July 21, 1989.
PERCENTAGE CHANGES DURING LIFE OF CLASS A SHARES PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND ------------------------------------------- FISCAL MAXIMUM OFFERING NET ASSET VALUE LEHMAN YEAR PRICE TO NET TO NET BROTHERS MUNICIPAL CONSUMER ENDED ASSET VALUE ASSET VALUE BOND INDEX PRICE INDEX FEBRUARY CUMULA- CUMULA- CUMULA- CUMULA- 28/29 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE - ------------------------------------------------------------------------------------------ 1990(1) --- -2.2% --- +2.6% --- +2.9% --- +2.9% 1991 +3.3% +6.1 +8.5% +11.4 +9.2% +12.4 +5.3% +8.4 1992 +6.4 +18.5 +11.7 +24.4 +10.0 +23.7 +2.8 +11.4 1993 +8.9 +35.5 +14.3 +42.2 +13.8 +40.7 +3.3 +15.0 1994 +0.9 +43.5 +5.9 +50.6 +5.5 +48.5 +2.5 +17.9 1995 -3.3 +45.8 +1.6 +53.0 +1.9 +51.3 +2.9 +21.3 (1) Investment operations began July 21, 1989. /TABLE
CLASS B SHARES CUMULATIVE FISCAL NET ASSET DISTRIBUTIONS NET ASSET VALUE YEAR VALUE ---------------------- AT YEAR-END ENDED ----------------- FROM FROM WITH ALL FEBRUARY BEGINNING END OF INVESTMENT CAPITAL DISTRIBUTIONS 28 OF PERIOD PERIOD INCOME GAINS REINVESTED - -------------------------------------------------------------------------------- 1994(1) $9.48 $9.38 $0.28 $.024 $9.69 1995 9.38 8.97 0.47 .013 9.78 ----- ----- Total distributions $0.75 $.037 ======= ====== (1) Class B shares were offered beginning July 15, 1993.
PERCENTAGE CHANGES DURING LIFE OF CLASS B SHARES PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND ----------------------- FISCAL NET ASSET VALUE LEHMAN BROTHERS YEAR TO NET MUNICIPAL CONSUMER ENDED ASSET VALUE BOND INDEX PRICE INDEX FEBRUARY CUMULA- CUMULA- CUMULA- 28 ANNUAL TIVE ANNUAL TIVE ANNUAL TIVE - -------------------------------------------------------------------------------------------- 1994(1) -- 2.18% -- 3.28% -- 1.59% 1995 0.93% 3.13 1.88% 5.23 2.86% 4.50 (1) Class B shares were offered beginning July 15, 1993. /TABLE The tables are not adjusted for any payment under the Fund's Class A Distribution Plan prior to its implementation in fiscal 1994 or taxes payable on reinvested distributions or for any contingent deferred sales charges which would be applied upon redemption of Class B shares . The total values for the Fund as of the end of each period reflect reinvestment of all distributions and all changes in net asset value. The Lehman Brothers Municipal Bond Index is an unmanaged list of approximately 20,000 investment-grade, fixed-rate, tax-exempt bonds. The average quality of bonds held in the index may differ from the average quality of those bonds in which the Fund invests. The index does not include bonds in certain of the lower-rating classifications in which the Fund may invest. The performance figures for the index reflect changes of market prices and reinvestment of all interest payments. Because the Fund is a managed portfolio investing primarily in Pennsylvania Tax Exempt Securities, the tax-exempt securities it owns will not match those in the index. The Consumer Price Index, prepared by the U.S. Bureau of Labor Statistics, is a commonly used measure of the rate of inflation. The index shows the average change in the cost of selected consumer goods and services and does not represent a return on an investment vehicle.
EQUIVALENT YIELDS: TAX-EXEMPT VERSUS TAXABLE SECURITIES The table below shows the effect of the tax status of Pennsylvania Tax Exempt Securities on the effective yield received by their individual holders under the federal income tax and Pennsylvania personal income tax laws currently in effect for 1995 . It gives the approximate yield a taxable security must earn at various income levels to produce after-tax yields equivalent to those of Pennsylvania Tax Exempt Securities yielding from 2% to 9%. 1995 COMBINED MARGINAL TAXABLE INCOME* PENNSYLVANIA TAX- EXEMPT YIELD : ------------------------ AND ------------------------------------------------------ FEDERAL TAX SINGLE JOINT RATE** 2% 3% 4% 5% 6% 7% 8% 9% - ------------------------------------------------------------------------------------------------------------------------ EQUIVALENT TAXABLE YIELD IF DOUBLE TAX-EXEMPT : $0- $23,350 $0- 39,000 17.38% 2.42% 3.63% 4.84% 6.05% 7.26% 8.47% 9.68% 10.89% $23,351-$56,550 $39,001-$94,250 30.02 2.86 4.29 5.72 7.14 8.57 10.00 11.4312.86 $56,551-$117,950***$94,251-$143,600*** 32.93 2.98 4.47 5.96 7.45 8.95 10.4411.9313.42 $117,951-$256,500***$143,601-$256,500*** 37.79 3.21 4.82 6.43 8.04 9.64 11.2512.8614.47 over $256,501*** over $256,501*** 41.29 3.41 5.11 6.81 8.52 10.22 11.9213.6315.33 - ----------------------------------------------------------------------------------------------------------------------- * This amount represents "taxable income" as defined in the Internal Revenue Code of 1986, as amended (the "Code")and the Pennsylvania income tax law . Pennsylvania taxable income may differ due to differences in exemptions, itemized deductions, and other items. ** For federal income tax purposes these combined rates reflect the marginal rates on taxable income currently in effect for 1995 . For Pennsylvania personal income tax purposes the combined rates reflect tax rates for 1995 . (These combined rates reflect the effect of deducting state taxes on the Federal return.) *** The amount of taxable income in this bracket may be affected by the phase-out of personal exemptions and the limitation on itemized deductions under the Code. /TABLE Of course, there is no assurance that the Fund will achieve any specific tax-exempt yield. While it is expected that the Fund will invest principally in obligations which pay interest exempt from federal income tax and Pennsylvania personal income tax, other income received by the Fund may be taxable. The table does not take into account any state or local taxes payable on Fund distributions except for Pennsylvania personal income tax. The tax rates shown above do not apply to corporate tax payers. ADDITIONAL OFFICERS OF THE FUND In addition to the persons listed as officers of the Fund in Part II of this Statement, the following persons are also officers of the Fund. Officers of Putnam Management hold the same offices in Putnam Management's parent company, Putnam Investments, Inc. GARY N. COBURN, Vice President. Senior Managing Director of Putnam Management . Director, Putnam Investments, Inc. Vice President of certain of the Putnam funds. JAMES E. ERICKSON, Vice President. Managing Director of Putnam Management . Vice President of certain of the Putnam funds. RICHARD P. WYKE, Vice President. Senior Vice President of Putnam Management . Vice President of certain of the Putnam funds. INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS Price Waterhouse LLP, 160 Federal Street, Boston, MA 02110, are the Fund's independent accountants, providing audit services, tax return review and other tax consulting services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The Report of Independent Accountants and financial statements included in the Fund's Annual Report for the fiscal year ended February 28, 1995 , filed electronically on May 10, 1995 (811- 5802), are incorporated by reference into this Statement of Additional Information. The financial highlights in the Prospectus and the financial statements incorporated by reference into the Prospectus and the Statement of Additional Information have been so included and incorporated in reliance upon the report of the independent accountants, given on their authority as experts in auditing and accounting. TABLE OF CONTENTS MISCELLANEOUS INVESTMENT PRACTICES . . . . . . . . . . . . . . . . . . II-1 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-22 MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . .II-27 DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . .II-36 HOW TO BUY SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-38 DISTRIBUTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49 INVESTOR SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . . .II-49 SIGNATURE GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . .II-55 SUSPENSION OF REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . .II-55 SHAREHOLDER LIABILITY. . . . . . . . . . . . . . . . . . . . . . . . .II-55 STANDARD PERFORMANCE MEASURES. . . . . . . . . . . . . . . . . . . . .II-56 COMPARISON OF PORTFOLIO PERFORMANCE. . . . . . . . . . . . . . . . . .II-57 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .II-62 THE PUTNAM FUNDS STATEMENT OF ADDITIONAL INFORMATION ("SAI") PART II The following information applies generally to your Fund and to the other Putnam funds. In certain cases the discussion applies to some but not all of the funds or their shareholders, and you should refer to your Prospectus to determine whether the matter is applicable to you or your Fund. You will also be referred to Part I for certain information applicable to your particular Fund. Shareholders who purchase shares at net asset value through employer-sponsored defined contribution plans should also consult their employer for information about the extent to which the matters described below apply to them. MISCELLANEOUS INVESTMENT PRACTICES YOUR FUND'S PROSPECTUS STATES WHICH OF THE FOLLOWING INVESTMENT PRACTICES ARE AVAILABLE TO YOUR FUND. THE FACT THAT YOUR FUND IS AUTHORIZED TO ENGAGE IN A PARTICULAR PRACTICE DOES NOT NECESSARILY MEAN THAT IT WILL ACTUALLY DO SO. YOU SHOULD DISREGARD ANY PRACTICE DESCRIBED BELOW WHICH IS NOT MENTIONED IN THE PROSPECTUS. SHORT-TERM TRADING In seeking the Fund's objective, Putnam Management will buy or sell portfolio securities whenever Putnam Management believes it appropriate to do so. In deciding whether to sell a portfolio security, Putnam Management does not consider how long the Fund has owned the security. From time to time the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. Portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities -- excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when Putnam Management considers a change in the Fund's portfolio. LOWER-RATED SECURITIES The Fund may invest in lower-rated fixed-income securities (commonly known as "junk bonds"), to the extent described in the Prospectus. The lower ratings of certain securities held by the Fund reflect a greater possibility that adverse changes in the financial condition of the issuer or in general economic conditions, or both, or an unanticipated rise in interest rates, may impair the ability of the issuer to make payments of interest and principal. The inability (or perceived inability) of issuers to make timely payment of interest and principal would likely make the values of securities held by the Fund more volatile and could limit the Fund's ability to sell its securities at prices approximating the values the Fund had placed on such securities. In the absence of a liquid trading market for securities held by it, the Fund may be unable at times to establish the fair value of such securities. The rating assigned to a security by Moody's Investors Service, Inc. or Standard & Poor's Corporation (or by any other nationally recognized securities rating organization) does not reflect an assessment of the volatility of the security's market value or the liquidity of an investment in the security. See the Prospectus or Part I of this Statement for a description of security ratings. Like those of other fixed-income securities, the values of lower-rated securities fluctuate in response to changes in interest rates. Thus, a decrease in interest rates will generally result in an increase in the value of the Fund's assets. Conversely, during periods of rising interest rates, the value of the Fund's assets will generally decline. In addition, the values of such securities are also affected by changes in general economic conditions and business conditions affecting the specific industries of their issuers. Changes by recognized rating services in their ratings of any fixed-income security and in the ability of an issuer to make payments of interest and principal may also affect the value of these investments. Changes in the value of portfolio securities generally will not affect cash income derived from such securities, but will affect the Fund's net asset value. The Fund will not necessarily dispose of a security when its rating is reduced below its rating at the time of purchase, although Putnam Management will monitor the investment to determine whether its retention will assist in meeting the Fund's investment objective. At times, a substantial portion of the Fund's assets may be invested in securities as to which the Fund, by itself or together with other funds and accounts managed by Putnam Management and its affiliates, holds a major portion or all of such securities. Although Putnam Management generally considers such securities to be liquid because of the availability of an institutional market for such securities, it is possible that, under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when Putnam Management believes it advisable to do so or may be able to sell such securities only at prices lower than if such securities were more widely held. Under such circumstances, it may also be more difficult to determine the fair value of such securities for purposes of computing the Fund's net asset value. In order to enforce its rights in the event of a default under such securities, the Fund may be required to take possession of and manage assets securing the issuer's obligations on such securities, which may increase the Fund's operating expenses and adversely affect the Fund's net asset value. In the case of tax-exempt funds, any income derived from the Fund's ownership or operation of such assets would not be tax-exempt. In addition, the Fund's intention to qualify as a "regulated investment company" under the Internal Revenue Code may limit the extent to which the Fund may exercise its rights by taking possession of such assets. Certain securities held by the Fund may permit the issuer at its option to "call", or redeem, its securities. If an issuer were to redeem securities held by the Fund during a time of declining interest rates, the Fund may not be able to reinvest the proceeds in securities providing the same investment return as the securities redeemed. If the Fund's Prospectus describes so-called "zero-coupon" bonds and "payment-in-kind" bonds as possible investments, the Fund may invest without limit in such bonds unless otherwise specified in the Prospectus. Zero-coupon bonds are issued at a significant discount from their principal amount in lieu of paying interest periodically. Payment-in-kind bonds allow the issuer, at its option, to make current interest payments on the bonds either in cash or in additional bonds. Because zero-coupon bonds do not pay current interest, their value is subject to greater fluctuation in response to changes in market interest rates than bonds which pay interest currently. Both zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to generate cash to meet current interest payments. Accordingly, such bonds may involve greater credit risks than bonds paying interest currently. Even though such bonds do not pay current interest in cash, the Fund is nonetheless required to accrue interest income on such investments and to distribute such amounts at least annually to shareholders. Thus, the Fund could be required at times to liquidate investments in order to satisfy its dividend requirements. The amount of information about the financial condition of an issuer of tax exempt securities may not be as extensive as that which is made available by corporations whose securities are publicly traded. Therefore, to the extent the Fund invests in tax exempt securities in the lower rating categories, the achievement of the Fund's goals is more dependent on Putnam Management's investment analysis than would be the case if the Fund were investing in securities in the higher rating categories. INVESTMENTS IN MISCELLANEOUS FIXED INCOME SECURITIES Unless otherwise specified in the Prospectus or elsewhere in this SAI, if the Fund may invest in inverse floating obligations, premium securities, or interest-only or principal-only classes of mortgage-backed securities, it may do so without limit. The Fund, however, currently does not intend to invest more than 15% of its assets in inverse floating obligations under normal market conditions. SECURITIES LOANS The Fund may make secured loans of its portfolio securities, on either a short-term or long-term basis, amounting to not more than 25% of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral consisting of cash or short-term debt obligations at least equal at all times to the value of the securities on loan, "marked-to-market" daily. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so to enable the Fund to exercise voting rights on any matters materially affecting the investment. The Fund may also call such loans in order to sell the securities. FORWARD COMMITMENTS The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") if the Fund holds, and maintains until the settlement date in a segregated account, cash or high-grade debt obligations in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. In the case of to-be- announced ("TBA") purchase commitments, the unit price and the estimated principal amount are established when the Fund enters into a contract, with the actual principal amount being within a specified range of the estimate. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if Putnam Management deems it appropriate to do so. The Fund may realize short-term profits or losses upon the sale of forward commitments. The Fund may enter into TBA sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities, or an offsetting TBA purchase commitment deliverable on or before the sale commitment date, are held as "cover" for the transaction. Unsettled TBA sale commitments are valued at current market value of the underlying securities. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the Fund delivers securities under the commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date the commitment was entered into. REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements up to the limit specified in the Prospectus. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. Putnam Management will monitor such transactions to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate. Pursuant to an exemptive order issued by the Securities and Exchange Commission, the Fund may transfer uninvested cash balances into a joint account, along with cash of other Putnam funds and certain other accounts. These balances may be invested in one or more repurchase agreements and/or short-term money market instruments. OPTIONS ON SECURITIES WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on optionable securities held in its portfolio, when in the opinion of Putnam Management such transactions are consistent with the Fund's investment objectives and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price. The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security. The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security in the event the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value. The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction, in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security owned by the Fund. If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin", or collateral, for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations. PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such protection is provided during the life of the put option since the Fund, as holder of the option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. In order for a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs. PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. RISK FACTORS IN OPTIONS TRANSACTIONS The successful use of the Fund's options strategies depends on the ability of Putnam Management to forecast correctly interest rate and market movements. For example, if the Fund were to write a call option based on Putnam Management's expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a price below the current market price. Similarly, if the Fund were to write a put option based on Putnam Management's expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to purchase the security upon exercise at a price higher than the current market price. When the Fund purchases an option, it runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction before the option's expiration. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying security, since the Fund will not realize a loss if the security's price does not change. The effective use of options also depends on the Fund's ability to terminate option positions at times when Putnam Management deems it desirable to do so. There is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price. If a secondary market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt its normal operations. A market may at times find it necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the Options Clearing Corporation, new series of options on that security will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, the Fund as a holder of an option would be able to realize profits or limit losses only by exercising the option, and the Fund, as option writer, would remain obligated under the option until expiration or exercise. Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If the Options Clearing Corporation were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit indefinitely the exercise of put options. The Fund, as holder of such a put option, could lose its entire investment if the prohibition remained in effect until the put option's expiration. Special risks are presented by internationally-traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States. Over-the-counter ("OTC") options purchased by the Fund and assets held to cover OTC options written by the Fund may, under certain circumstances, be considered illiquid securities for purposes of any limitation on the Fund's ability to invest in illiquid securities. FUTURES CONTRACTS AND RELATED OPTIONS Subject to applicable law, and unless otherwise specified in the Prospectus, the Fund may invest without limit in the types of futures contracts and related options identified in the Prospectus. A financial futures contract sale creates an obligation by the seller to deliver the type of financial instrument called for in the contract in a specified delivery month for a stated price. A financial futures contract purchase creates an obligation by the purchaser to take delivery of the type of financial instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken, respectively, at settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchange on which the futures contract sale or purchase was made. Futures contracts are traded in the United States only on commodity exchanges or boards of trade -- known as "contract markets" -- approved for such trading by the Commodity Futures Trading Commission (the "CFTC"), and must be executed through a futures commission merchant or brokerage firm which is a member of the relevant contract market. Although futures contracts (other than index futures) by their terms call for actual delivery or acceptance of commodities or securities, in most cases the contracts are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, he realizes a loss. In general 40% of the gain or loss arising from the closing out of a futures contract traded on an exchange approved by the CFTC is treated as short-term gain or loss, and 60% is treated as long-term gain or loss. Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract. Upon entering into a contract, the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. Government Securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds to finance the transactions. Rather, initial margin is similar to a performance bond or good faith deposit which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs. Subsequent payments, called "variation margin" or "maintenance margin", to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to the market." For example, when the Fund has purchased a futures contract on a security and the price of the underlying security has risen, that position will have increased in value and the Fund will receive from the broker a variation margin payment based on that increase in value. Conversely, when the Fund has purchased a security futures contract and the price of the underlying security has declined, the position would be less valuable and the Fund would be required to make a variation margin payment to the broker. The Fund may elect to close some or all of its futures positions at any time prior to their expiration in order to reduce or eliminate a hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs. OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. Options on future contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option. The Fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example, to hedge against a possible decrease in the value of its portfolio securities, the Fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, the Fund may purchase call options or write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the Fund expects to purchase. Such options generally operate in the same manner as options purchased or written directly on the underlying investments. As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected. The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above in connection with the discussion of futures contracts. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to Putnam Management's ability to predict movements in the direction of interest rates and other factors affecting securities markets. For example, if the Fund has hedged against the possibility of decline in the values of its investments and the values of its investments increase instead, the Fund will lose part or all of the benefit of the increase through payments of daily maintenance margin. The Fund may have to sell investments at a time when it may be disadvantageous to do so in order to meet margin requirements. Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution by exchanges of special procedures which may interfere with the timely execution of customer orders. To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract or option. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange for such contracts or options (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. If the Fund invests in tax-exempt securities issued by a governmental entity, the Fund may purchase and sell futures contracts and related options on U.S. Treasury securities when, in the opinion of Putnam Management, price movements in Treasury security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. U.S. Treasury security futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of U.S. Treasury security called for in the contract at a specified date and price. Options on U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a U.S. Treasury security futures contract at the specified option exercise price at any time during the period of the option. Successful use of U.S. Treasury security futures contracts by the Fund is subject to Putnam Management's ability to predict movements in the direction of interest rates and other factors affecting markets for debt securities. For example, if the Fund has sold U.S. Treasury security futures contracts in order to hedge against the possibility of an increase in interest rates which would adversely affect tax-exempt securities held in its portfolio, and the prices of the Fund's tax-exempt securities increase instead as a result of a decline in interest rates, the Fund will lose part or all of the benefit of the increased value of its securities which it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily maintenance margin requirements at a time when it may be disadvantageous to do so. There is also a risk that price movements in U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities. For example, if the Fund has hedged against a decline in the values of tax-exempt securities held by it by selling Treasury security futures and the values of Treasury securities subsequently increase while the values of its tax-exempt securities decrease, the Fund would incur losses on both the Treasury security futures contracts written by it and the tax-exempt securities held in its portfolio. Putnam Management will seek to reduce this risk by monitoring movements in markets for U.S. Treasury security futures and options and for tax-exempt securities closely. The Fund will only purchase or sell Treasury security futures or related options when, in the opinion of Putnam Management, price movements in Treasury security futures and related options will correlate closely with price movements in tax-exempt securities in which the Fund invests. INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective. The Fund may also purchase and sell options on index futures contracts. For example, the Standard & Poor's Composite 500 Stock Price Index ("S&P 500") is composed of 500 selected common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 assigns relative weightings to the common stocks included in the Index, and the value fluctuates with changes in the market values of those common stocks. In the case of the S&P 500, contracts are to buy or sell 500 units. Thus, if the value of the S&P 500 were $150, one contract would be worth $75,000 (500 units x $150). The stock index futures contract specifies that no delivery of the actual stocks making up the index will take place. Instead, settlement in cash must occur upon the termination of the contract, with the settlement being the difference between the contract price and the actual level of the stock index at the expiration of the contract. For example, if the Fund enters into a futures contract to buy 500 units of the S&P 500 at a specified future date at a contract price of $150 and the S&P 500 is at $154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If the Fund enters into a futures contract to sell 500 units of the stock index at a specified future date at a contract price of $150 and the S&P 500 is at $152 on that future date, the Fund will lose $1,000 (500 units x loss of $2). There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. Putnam Management will, however, attempt to reduce this risk by buying or selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the securities sought to be hedged. Successful use of index futures by the Fund for hedging purposes is also subject to Putnam Management's ability to predict movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurred, the Fund would lose money on the futures and also experience a decline in value in its portfolio securities. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased value of those securities it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements at a time when it is disadvantageous to do so. In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the portion of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result the futures market may attract more speculators than the securities market does. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by Putnam Management may still not result in a successful hedging transaction over a short time period. OPTIONS ON STOCK INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to its expiration date, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid. OPTIONS ON INDICES As an alternative to purchasing call and put options on index futures, the Fund may purchase and sell call and put options on the underlying indices themselves. Such options would be used in a manner identical to the use of options on index futures. INDEX WARRANTS The Fund may purchase put warrants and call warrants whose values vary depending on the change in the value of one or more specified securities indices ("index warrants"). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of exercise. In general, if the value of the underlying index rises above the exercise price of the index warrant, the holder of a call warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the value of the index and the exercise price of the warrant; if the value of the underlying index falls, the holder of a put warrant will be entitled to receive a cash payment from the issuer upon exercise based on the difference between the exercise price of the warrant and the value of the index. The holder of a warrant would not be entitled to any payments from the issuer at any time when, in the case of a call warrant, the exercise price is greater than the value of the underlying index, or, in the case of a put warrant, the exercise price is less than the value of the underlying index. If the Fund were not to exercise an index warrant prior to its expiration, then the Fund would lose the amount of the purchase price paid by it for the warrant. The Fund will normally use index warrants in a manner similar to its use of options on securities indices. The risks of the Fund's use of index warrants are generally similar to those relating to its use of index options. Unlike most index options, however, index warrants are issued in limited amounts and are not obligations of a regulated clearing agency, but are backed only by the credit of the bank or other institution which issues the warrant. Also, index warrants generally have longer terms than index options. Although the Fund will normally invest only in exchange-listed warrants, index warrants are not likely to be as liquid as certain index options backed by a recognized clearing agency. In addition, the terms of index warrants may limit the Fund's ability to exercise the warrants at such time, or in such quantities, as the Fund would otherwise wish to do. FOREIGN SECURITIES Under its current policy, which may be changed without shareholder approval, the Fund may invest up to the limit of its total assets specified in its Prospectus in securities principally traded in markets outside the United States. Eurodollar certificates of deposit are excluded for purposes of this limitation. Foreign investments can be affected favorably or unfavorably by changes in currency exchange rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees are generally higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. To hedge against possible variations in foreign exchange rates, the Fund may purchase and sell forward foreign currency contracts. These represent agreements to purchase or sell specified currencies at specified dates and prices. The Fund will only purchase and sell forward foreign currency contracts in amounts Putnam Management deems appropriate to hedge existing or anticipated portfolio positions and will not use such forward contracts for speculative purposes. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a subcustodian. FOREIGN CURRENCY TRANSACTIONS Unless otherwise specified in the Prospectus, the Fund may engage without limit in currency exchange transactions, as well as foreign currency forward and futures contracts, to protect against uncertainty in the level of future currency exchange rates. In addition, the Fund may write covered call and put options on foreign currencies for the purpose of increasing its current return. Generally, the Fund may engage in both "transaction hedging" and "position hedging". When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables, generally arising in connection with the purchase or sale of portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund will attempt to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is earned, and the date on which such payments are made or received. The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts. For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until the expiration of the option. A put option on a currency gives the Fund the right to sell the currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase the currency at the exercise price until the expiration of the option. When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and on foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis. The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. The Fund may seek to increase its current return or to offset some of the costs of hedging against fluctuations in current exchange rates by writing covered call options and covered put options on foreign currencies. The Fund receives a premium from writing a call or put option, which increases the Fund's current return if the option expires unexercised or is closed out at a net profit. The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an option having the same terms as the option written. The Fund's currency hedging transactions may call for the delivery of one foreign currency in exchange for another foreign currency and may at times not involve currencies in which its portfolio securities are then denominated. Putnam Management will engage in such "cross hedging" activities when it believes that such transactions provide significant hedging opportunities for the Fund. Cross hedging transactions by the Fund involve the risk of imperfect correlation between changes in the values of the currencies to which such transactions relate and changes in the value of the currency or other asset or liability which is the subject of the hedge. CURRENCY FORWARD AND FUTURES CONTRACTS. A forward foreign currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable forward contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A foreign currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Foreign currency futures contracts traded in the United States are designed by and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange. Forward foreign currency exchange contracts differ from foreign currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward foreign exchange contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit. At the maturity of a forward or futures contract, the Fund either may accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts. Positions in the foreign currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell foreign currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin. FOREIGN CURRENCY OPTIONS. In general, options on foreign currencies operate similarly to options on securities and are subject to many similar risks. Foreign currency options are traded primarily in the over-the-counter market, although options on foreign currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit ("ECU"). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Community's European Monetary System. The Fund will only purchase or write foreign currency options when Putnam Management believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specific time. Options on foreign currencies are affected by all of those factors which influence foreign exchange rates and investments generally. The value of any currency, including U.S. dollars and foreign currencies, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of foreign currencies (and therefore the values of foreign currency options) may be affected significantly, fixed, or supported directly or indirectly by U.S. and foreign government actions. Government intervention may increase risks involved in purchasing or selling foreign currency options, since exchange rates may not be free to fluctuate in response to other market forces. The value of a foreign currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because foreign currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of foreign currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying foreign currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of foreign currencies. There is no systematic reporting of last sale information for foreign currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets. SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments. For example, settlement of transactions involving foreign securities or foreign currency may occur within a foreign country, and the Fund may be required to accept or make delivery of the underlying securities or currency in conformity with any applicable U.S. or foreign restrictions or regulations, and may be required to pay any fees, taxes or charges associated with such delivery. Such investments may also involve the risk that an entity involved in the settlement may not meet its obligations. FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (the "spread") between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. RESTRICTED SECURITIES The SEC Staff currently takes the view that any designation by the Trustees of the authority to determine that a restricted security is readily marketable (as described in the investment restrictions of the Funds) must be pursuant to written procedures established by the Trustees. It is the present intention of the Funds' Trustees that, if the Trustees decide to delegate such determinations to Putnam Management or another person, they would do so pursuant to written procedures, consistent with the Staff's position. Should the Staff modify its position in the future, the Trustees would consider what action would be appropriate in light of the Staff's position at that time. TAXES TAXATION OF THE FUND. The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). In order so to qualify and to qualify for the special tax treatment accorded regulated investment companies and their shareholders, the Fund must, among other things: (a) Derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale of stock, securities and foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) derive less than 30% of its gross income from the sale or other disposition of certain assets (including stock or securities and certain options, futures contracts, forward contracts and foreign currencies) held for less than three months; (c) distribute with respect to each taxable year at least 90% of the sum of its taxable net investment income, its net tax-exempt income, and the excess, if any, of net short-term capital gains over net long-term capital losses for such year; and (d) diversify its holdings so that, at the end of each fiscal quarter, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items, U.S. Government securities, securities of other regulated investment companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities (other than those of the U.S. Government or other regulated investment companies) of any one issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses. If the Fund qualifies as a regulated investment company that is accorded special tax treatment, the Fund will not be subject to federal income tax on income paid to its shareholders in the form of dividends (including capital gain dividends). If the Fund failed to qualify as a regulated investment company accorded special tax treatment in any taxable year, the Fund would be subject to tax on its taxable income at corporate rates, and all distributions from earnings and profits, including any distributions of net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment. If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the undistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax. EXEMPT-INTEREST DIVIDENDS. The Fund will be qualified to pay exempt-interest dividends to its shareholders only if, at the close of each quarter of the Fund's taxable year, at least 50% of the total value of the Fund's assets consists of obligations the interest on which is exempt from federal income tax. Distributions that the Fund properly designates as exempt- interest dividends are treated by shareholders as interest excludable from their gross income for federal income tax purposes but may be taxable for federal alternative minimum tax purposes and for state and local purposes. If the Fund intends to be qualified to pay exempt-interest dividends, the Fund may be limited in its ability to enter into taxable transactions involving forward commitments, repurchase agreements, financial futures, and options contracts on financial futures, tax-exempt bond indices, and other assets. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of a Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users. A Fund which is qualified to pay exempt-interest dividends will inform investors within 60 days of the Fund's fiscal year-end of the percentage of its income distributions designated as tax-exempt. The percentage is applied uniformly to all distributions made during the year. The percentage of income designated as tax-exempt for any particular distribution may be substantially different from the percentage of the Fund's income that was tax-exempt during the period covered by the distribution. HEDGING TRANSACTIONS. If the Fund engages in transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund. Under the 30% of gross income test described above (see "Taxation of the Fund"), the Fund will be restricted in selling assets held or considered under Code rules to have been held for less than three months, and in engaging in certain hedging transactions (including hedging transactions in options and futures) that in some circumstances could cause certain Fund assets to be treated as held for less than three months. Certain of the Fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Fund's book income exceeds its taxable income, the distribution (if any) of such excess will be treated as a dividend to the extent of the Fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), and thereafter as a return of capital or as gain from the sale or exchange of a capital asset, as the case may be. If the Fund's book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment. RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to you in excess of its current and accumulated "earnings and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of your tax basis in your shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces your tax basis in your shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition by you of your shares. SECURITIES ISSUED OR PURCHASED AT A DISCOUNT. The Fund's investment in securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio that it otherwise would have continued to hold. CAPITAL LOSS CARRYOVER. The amounts and expiration dates of any capital loss carryovers available to the Fund are shown in Note 1 (Federal income taxes) to the financial statements included in Part I of this Statement or incorporated by reference into this Statement. FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities and certain foreign currency options, futures contracts, and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. If more than 50% of the Fund's assets at year end consists of the debt and equity securities of foreign corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the Fund to foreign countries. In such a case, shareholders will include in gross income from foreign sources their pro rata shares of such taxes. A shareholder's ability to claim a foreign tax credit or deduction in respect of foreign taxes paid by the Fund may be subject to certain limitations imposed by the Code, as a result of which a shareholder may not get a full credit or deduction for the amount of such taxes. Shareholders who do not itemize on their federal income tax returns may claim a credit (but no deduction) for such foreign taxes. Investment by the Fund in certain "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing fund." SALE OR REDEMPTION OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than 12 months, and otherwise as short-term capital gain or loss. However, if a shareholder sells shares at a loss within six months of purchase, any loss will be disallowed for Federal income tax purposes to the extent of any exempt- interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, to the extent of any long-term capital gain distributions received by the shareholder with respect to the shares. All or a portion of any loss realized upon a taxable disposition of Fund shares will be disallowed if other Fund shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. SHARES PURCHASED THROUGH TAX-QUALIFIED PLANS. Special tax rules apply to investments though defined contribution plans and other tax-qualified plans. Shareholders should consult their tax adviser to determine the suitability of shares of a fund as an investment through such plans and the precise effect of an investment on their particular tax situation. BACKUP WITHHOLDING. The Fund generally is required to withhold and remit to the U.S. Treasury 31% of the taxable dividends and other distributions paid to any individual shareholder who fails to furnish the Fund with a correct taxpayer identification number (TIN), who has underreported dividends or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. Shareholders who fail to furnish their currect TIN are subject to a penalty of $50 for each such failure unless the failure is due to reasonable cause and not wilful neglect. An individual's taxpayer identification number is his or her social security number. MANAGEMENT OF THE FUND TRUSTEES *+GEORGE PUTNAM, Chairman and President. Chairman and Director of Putnam Management and Putnam Mutual Funds. Director, The Boston Company, Inc., Boston Safe Deposit and Trust Company, Freeport-McMoRan, Inc., General Mills, Inc., Houghton Mifflin Company, Marsh & McLennan Companies, Inc. and Rockefeller Group, Inc. +WILLIAM F. POUNDS, Vice Chairman. Professor of Management, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of EG&G, Inc., Fisher Price, Inc., IDEXX, M/A-COM, Inc., and Sun Company, Inc. JAMESON A. BAXTER, Trustee. President, Baxter Associates, Inc. (consultants to management). Director of Avondale Federal Savings Bank, ASHTA Chemicals, Inc. and Banta Corporation. Chairman of the Board of Trustees, Mount Holyoke College. +HANS H. ESTIN, Trustee. Vice Chairman, North American Management Corp. (a registered investment adviser). Director of The Boston Company, Inc. and Boston Safe Deposit and Trust Company. ELIZABETH T. KENNAN, Trustee. President Emeritus and Professor, Mount Holyoke College. Director, the Kentucky Home Life Insurance Companies, NYNEX Corporation, Northeast Utilities and Talbots and Trustee of the University of Notre Dame. *LAWRENCE J. LASSER, Trustee and Vice President. President, Chief Executive Officer and Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director of Marsh & McLennan Companies, Inc. Vice President of the Putnam funds. JOHN A. HILL, Trustee. Chairman and Managing Director, First Reserve Corporation (a registered investment adviser). Director, Lantana Corporation, Maverick Tube Corporation, Snyder Oil Corporation and various First Reserve Funds. +ROBERT E. PATTERSON, Trustee. Executive Vice President, Cabot Partners Limited Partnership (a registered investment adviser). *DONALD S. PERKINS, Trustee. Chairman of the Board and Director, Kmart Corporation. Director of various corporations, including American Telephone & Telegraph Company, AON Corp., Cummins Engine Company, Inc., Illinois Power Company, Inland Steel Industries, Inc., LaSalle Street Fund, Inc., Springs Industries, Inc., TBG, Inc. and Time Warner Inc. *#GEORGE PUTNAM, III, Trustee. President, New Generation Research, Inc. (publisher of bankruptcy information). Director, World Environment Center. ELI SHAPIRO, Trustee. Alfred P. Sloan Professor of Management, Emeritus, Alfred P. Sloan School of Management, Massachusetts Institute of Technology. Director of Nomura Dividend Fund, Inc. (a privately held registered investment company managed by Putnam Management) and former Trustee of the Putnam funds (1984-1990). *A.J.C. SMITH, Trustee. Chairman, Chief Executive Officer and Director, Marsh & McLennan Companies, Inc. W. NICHOLAS THORNDIKE, Trustee. Director of various corporations and charitable organizations, including Courier Corporation and Providence Journal Co. Also, Trustee and President of Massachusetts General Hospital and Trustee of Bradley Real Estate Trust and Eastern Utilities Associates. OFFICERS CHARLES E. PORTER, Executive Vice President. Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Executive Vice President of the Putnam funds. PATRICIA C. FLAHERTY, Senior Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. WILLIAM N. SHIEBLER, Vice President. Director and Senior Managing Director of Putnam Investments, Inc. President, Chief Operating Officer and Director of Putnam Mutual Funds. Vice President of the Putnam funds. GORDON H. SILVER, Vice President. Senior Managing Director of Putnam Investments, Inc. and Putnam Investment Management, Inc. Director, Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. JOHN R. VERANI, Vice President. Senior Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. PAUL M. O'NEIL, Vice President. Vice President of Putnam Investments, Inc. and Putnam Investment Management, Inc. Vice President of the Putnam funds. JOHN D. HUGHES, Vice President and Treasurer. Vice President and Treasurer of the Putnam funds. KATHERINE HOWARD, Assistant Vice President. Assistant Vice President of the Putnam funds. BEVERLY MARCUS, Clerk and Assistant Treasurer. Clerk and Assistant Treasurer of the Putnam funds. *Trustees who are or may be deemed to be "interested persons" (as defined in the Investment Company Act of 1940) of the Fund, Putnam Management or Putnam Mutual Funds. +Members of the Executive Committee of the Trustees. The Executive Committee meets between regular meetings of the Trustees as may be required to review investment matters and other affairs of the Fund and may exercise all of the powers of the Trustees. #George Putnam, III is the son of George Putnam. ----------------- Certain other officers of Putnam Management are officers of your Fund. SEE "ADDITIONAL OFFICERS OF THE FUND" IN PART I OF THIS STATEMENT. The mailing address of each of the officers and Trustees is One Post Office Square, Boston, Massachusetts 02109. Except as stated below, the principal occupations of the officers and Trustees for the last five years have been with the employers as shown above, although in some cases they have held different positions with such employers. Prior to January, 1992, Ms. Baxter was Vice President and Principal, Regency Group, Inc. and Consultant, The First Boston Corporation. Prior to May, 1991, Dr. Pounds was Senior Advisor to the Rockefeller Family and Associates, Chairman of Rockefeller Trust Company and Director of Rockefeller Group, Inc. During the past five years Dr. Shapiro has provided economic and financial consulting services to various clients. Prior to November, 1990, Mr. Shiebler was President and Chief Operating Officer of the Intercapital Division of Dean Witter Reynolds, Inc., Vice President of the Dean Witter Funds and Director of Dean Witter Trust Company. Each Trustee of the Fund receives an annual fee and an additional fee for each Trustees' 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 and for special services rendered in that connection. All of the Trustees are Trustees of all the Putnam funds and each receives fees for his or her services. FOR DETAILS OF TRUSTEES' FEES PAID BY THE FUND, SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. The Agreement and Declaration of Trust of the Fund provides that the Fund will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Fund, except if it is determined in the manner specified in the Agreement and Declaration of Trust that they have not acted in good faith in the reasonable belief that their actions were in the best interests of the Fund or that such indemnification would relieve any officer or Trustee of any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Fund, at its expense, provides liability insurance for the benefit of its Trustees and officers. Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust Company are subsidiaries of Putnam Investments, Inc., a holding company which is in turn wholly owned by Marsh & McLennan Companies, Inc., a publicly owned holding company whose principal operating subsidiaries are international insurance and reinsurance brokers, investment managers and management consultants. Trustees and officers of the Fund who are also officers of Putnam Management or its affiliates or who are stockholders of Marsh & McLennan Companies, Inc. will benefit from the advisory fees, sales commissions, distribution fees (if any), custodian fees and transfer agency fees paid or allowed by the Fund. PUTNAM MANAGEMENT Putnam Management is one of America's oldest and largest money management firms. Putnam Management's staff of experienced portfolio managers and research analysts selects securities and constantly supervises the Fund's portfolio. By pooling an investor's money with that of other investors, a greater variety of securities can be purchased than would be the case individually; the resulting diversification helps reduce investment risk. Putnam Management has been managing mutual funds since 1937. Today, the firm serves as the investment manager for the funds in the Putnam Family, with over $67 billion in assets in over 4.1 million shareholder accounts at December 31, 1994. An affiliate, The Putnam Advisory Company, Inc., manages domestic and foreign institutional accounts and mutual funds, including the accounts of many Fortune 500 companies. Another affiliate, Putnam Fiduciary Trust Company, provides investment advice to institutional clients under its banking and fiduciary powers. At December 31, 1994, Putnam Management and its affiliates managed over $95 billion in assets, including over $15 billion in tax exempt securities and over $36 billion in retirement plan assets. THE MANAGEMENT CONTRACT Under a Management Contract between the Fund and Putnam Management, subject to such policies as the Trustees may determine, Putnam Management, at its expense, furnishes continuously an investment program for the Fund and makes investment decisions on behalf of the Fund. Subject to the control of the Trustees, Putnam Management also manages, supervises and conducts the other affairs and business of the Fund, furnishes office space and equipment, provides bookkeeping and clerical services (including determination of the Fund's net asset value, but excluding shareholder accounting services) and places all orders for the purchase and sale of the Fund's portfolio securities. Putnam Management may place Fund portfolio transactions with broker-dealers which furnish Putnam Management, without cost to it, certain research, statistical and quotation services of value to Putnam Management and its affiliates in advising the Fund and other clients. In so doing, Putnam Management may cause the Fund to pay greater brokerage commissions than it might otherwise pay. FOR DETAILS OF PUTNAM MANAGEMENT'S COMPENSATION UNDER THE MANAGEMENT CONTRACT, SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management's compensation under the Management Contract may be reduced in any year if the Fund's expenses exceed the limits on investment company expenses imposed by any statute or regulatory authority of any jurisdiction in which shares of the Fund are qualified for offer or sale. The term "expenses" is defined in the statutes or regulations of such jurisdictions, and generally, excludes brokerage commissions, taxes, interest, extraordinary expenses and, if the Fund has a Distribution Plan, payments made under such Plan. The only such limitation as of the date of this Statement (applicable to any Fund registered for sale in California) was 2.5% of the first $30 million of average net assets, 2% of the next $70 million and 1.5% of any excess over $100 million. Under the Management Contract, Putnam Management may reduce its compensation to the extent that the Fund's expenses exceed such lower expense limitation as Putnam Management may, by notice to the Fund, declare to be effective. The expenses subject to this limitation are exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expenses and, if the Fund has a Distribution Plan, payments required under such Plan. THE TERMS OF ANY EXPENSE LIMITATION FROM TIME TO TIME IN EFFECT ARE DESCRIBED IN EITHER THE PROSPECTUS OR PART I OF THIS STATEMENT. In addition to the fee paid to Putnam Management, the Fund reimburses Putnam Management for the compensation and related expenses of certain officers of the Fund and their assistants who provide certain administrative services for the Fund and the other funds in the Putnam Family, each of which bears an allocated share of the foregoing costs. The aggregate amount of all such payments and reimbursements is determined annually by the Trustees. THE AMOUNT OF THIS REIMBURSEMENT FOR THE FUND'S MOST RECENT FISCAL YEAR IS INCLUDED IN "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT. Putnam Management pays all other salaries of officers of the Fund. The Fund pays all expenses not assumed by Putnam Management including, without limitation, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Fund pays the cost of typesetting for its Prospectuses and the cost of printing and mailing any Prospectuses sent to its shareholders. Putnam Mutual Funds pays the cost of printing and distributing all other Prospectuses. The Management Contract provides that Putnam Management shall not be subject to any liability to the Fund or to any shareholder of the Fund for any act or omission in the course of or connected with rendering services to the Fund in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its duties on the part of Putnam Management. The Management Contract may be terminated without penalty by vote of the Trustees or the shareholders of the Fund, or by Putnam Management, on 30 days' written notice. It may be amended only by a vote of the shareholders of the Fund. The Management Contract also terminates without payment of any penalty in the event of its assignment. The Management Contract provides that it will continue in effect only so long as such continuance is approved at least annually by vote of either the Trustees or the shareholders, and, in either case, by a majority of the Trustees who are not "interested persons" of Putnam Management or the Fund. In each of the foregoing cases, the vote of the shareholders is the affirmative vote of a "majority of the outstanding voting securities" as defined in the Investment Company Act of 1940. PORTFOLIO TRANSACTIONS INVESTMENT DECISIONS. Investment decisions for the Fund and for the other investment advisory clients of Putnam Management and its affiliates are made with a view to achieving their respective investment objectives. Investment decisions are the product of many factors in addition to basic suitability for the particular client involved. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the security. In some instances, one client may sell a particular security to another client. It also sometimes happens that two or more clients simultaneously purchase or sell the same security, in which event each day's transactions in such security are, insofar as possible, averaged as to price and allocated between such clients in a manner which in Putnam Management's opinion is equitable to each and in accordance with the amount being purchased or sold by each. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients. BROKERAGE AND RESEARCH SERVICES. Transactions on U.S. stock exchanges, commodities markets and futures markets and other agency transactions involve the payment by the Fund of negotiated brokerage commissions. Such commissions vary among different brokers. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign investments often involve the payment of fixed brokerage commissions, which may be higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. In underwritten offerings, the price paid by the Fund includes a disclosed, fixed commission or discount retained by the underwriter or dealer. It is anticipated that most purchases and sales of securities by funds investing primarily in tax-exempt securities and certain other fixed-income securities will be with the issuer or with underwriters of or dealers in those securities, acting as principal. Accordingly, those funds would not ordinarily pay significant brokerage commissions with respect to securities transactions. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION CONCERNING COMMISSIONS PAID BY THE FUND. It has for many years been a common practice in the investment advisory business for advisers of investment companies and other institutional investors to receive brokerage and research services (as defined in the Securities Exchange Act of 1934, as amended (the "1934 Act")) from broker-dealers that execute portfolio transactions for the clients of such advisers and from third parties with which such broker-dealers have arrangements. Consistent with this practice, Putnam Management receives brokerage and research services and other similar services from many broker-dealers with which Putnam Management places the Fund's portfolio transactions and from third parties with which these broker-dealers have arrangements. These services include such matters as general economic and market reviews, industry and company reviews, evaluations of investments, recommendations as to the purchase and sale of investments, newspapers, magazines, pricing services, quotation services, news services and personal computers utilized by Putnam Management's managers and analysts. Where the services referred to above are not used exclusively by Putnam Management for research purposes, Putnam Management, based upon its own allocations of expected use, bears that portion of the cost of these services which directly relates to their non-research use. Some of these services are of value to Putnam Management and its affiliates in advising various of their clients (including the Fund), although not all of these services are necessarily useful and of value in managing the Fund. The management fee paid by the Fund is not reduced because Putnam Management and its affiliates receive these services even though Putnam Management might otherwise be required to purchase some of these services for cash. Putnam Management places all orders for the purchase and sale of portfolio investments for the Fund and buys and sells investments for the Fund through a substantial number of brokers and dealers. In so doing, Putnam Management uses its best efforts to obtain for the Fund the most favorable price and execution available, except to the extent it may be permitted to pay higher brokerage commissions as described below. In seeking the most favorable price and execution, Putnam Management, having in mind the Fund's best interests, considers all factors it deems relevant, including, by way of illustration, price, the size of the transaction, the nature of the market for the security or other investment, the amount of the commission, the timing of the transaction taking into account market prices and trends, the reputation, experience and financial stability of the broker-dealer involved and the quality of service rendered by the broker-dealer in other transactions. As permitted by Section 28(e) of the 1934 Act, and by the Management Contract, Putnam Management may cause the Fund to pay a broker-dealer which provides "brokerage and research services" (as defined in the 1934 Act) to Putnam Management an amount of disclosed commission for effecting securities transactions on stock exchanges and other transactions for the Fund on an agency basis in excess of the commission which another broker-dealer would have charged for effecting that transaction. Putnam Management's authority to cause the Fund to pay any such greater commissions is also subject to such policies as the Trustees may adopt from time to time. Putnam Management does not currently intend to cause the Fund to make such payments. It is the position of the staff of the Securities and Exchange Commission that Section 28(e) does not apply to the payment of such greater commissions in "principal" transactions. Accordingly Putnam Management will use its best effort to obtain the most favorable price and execution available with respect to such transactions, as described above. The Management Contract provides that commissions, fees, brokerage or similar payments received by Putnam Management or an affiliate in connection with the purchase and sale of portfolio investments of the Fund, less any direct expenses approved by the Trustees, shall be recaptured by the Fund through a reduction of the fee payable by the Fund under the Management Contract. Putnam Management seeks to recapture for the Fund soliciting dealer fees on the tender of the Fund's portfolio securities in tender or exchange offers. Any such fees which may be recaptured are likely to be minor in amount. Consistent with the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and subject to seeking the most favorable price and execution available and such other policies as the Trustees may determine, Putnam Management may consider sales of shares of the Fund (and, if permitted by law, of the other Putnam funds) as a factor in the selection of broker-dealers to execute portfolio transactions for the Fund. PRINCIPAL UNDERWRITER Putnam Mutual Funds is the principal underwriter of shares of the Fund and the other continuously offered Putnam funds. Putnam Mutual Funds is not obligated to sell any specific amount of shares of the Fund and will purchase shares for resale only against orders for shares. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION ON SALES CHARGES AND OTHER PAYMENTS RECEIVED BY PUTNAM MUTUAL FUNDS. INVESTOR SERVICING AGENT AND CUSTODIAN Putnam Investor Services, a division of Putnam Fiduciary Trust Company ("PFTC"), is the Fund's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Fund as an expense of all its shareholders. The fee paid to Putnam Investor Services is determined by the Trustees taking into account the number of shareholder accounts and transactions. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. Over 10,000 tests of 38 separate shareholders service components demonstrated that Putnam Investor Services exceeded the industry standard in all categories. PFTC is the custodian of the Fund's assets. In carrying out its duties under its custodian contract, PFTC may employ one or more subcustodians whose responsibilities will include safeguarding and controlling the Fund's cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Fund's investments. PFTC and any subcustodians employed by it have a lien on the securities of the Fund (to the extent permitted by the Fund's investment restrictions) to secure charges and any advances made by such subcustodians at the end of any day for the purpose of paying for securities purchased by the Fund. The Fund expects that such advances will exist only in unusual circumstances. Neither PFTC nor any subcustodian determines the investment policies of the Fund or decides which securities the Fund will buy or sell. PFTC pays the fees and other charges of any subcustodians employed by it. The Fund may from time to time pay custodial expenses in full or in part through the placement by Putnam Management of the Fund's portfolio transactions with the subcustodians or with a third- party broker having an agreement with the subcustodians. The Fund pays PFTC an annual fee based on the Fund's assets, securities transactions and securities holdings and reimburses PFTC for certain out-of-pocket expenses incurred by it or any subcustodian employed by it in performing custodial services. SEE "FUND CHARGES AND EXPENSES" IN PART I OF THIS STATEMENT FOR INFORMATION ON FEES AND REIMBURSEMENTS FOR INVESTOR SERVICING AND CUSTODY RECEIVED BY PFTC. THE FEES MAY BE REDUCED BY CREDITS ALLOWED BY PFTC. DETERMINATION OF NET ASSET VALUE The Fund determines the net asset value per share of each class of shares once each day the New York Stock Exchange (the "Exchange") is open. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and Christmas. The Fund determines net asset value as of the close of regular trading on the Exchange, currently 4:00 p.m. However, equity options held by the Fund are priced as of the close of trading at 4:10 p.m., and futures contracts on U.S. Government securities and index options held by the Fund are priced as of their close of trading at 4:15 p.m. Securities for which market quotations are readily available are valued at prices which, in the opinion of the Trustees or Putnam Management, most nearly represent the market values of such securities. Currently, such prices are determined using the last reported sale price or, if no sales are reported (as in the case of some securities traded over-the-counter), the last reported bid price, except that certain U.S. Government securities are stated at the mean between the last reported bid and asked prices. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. All other securities and assets are valued at their fair value following procedures approved by the Trustees. Liabilities are deducted from the total, and the resulting amount is divided by the number of shares of the class outstanding. Reliable market quotations are not considered to be readily available for long-term corporate bonds and notes, certain preferred stocks, tax-exempt securities, and certain foreign securities. These investments are stated at fair value on the basis of valuations furnished by pricing services approved by the Trustees, which determine valuations for normal, institutional-size trading units of such securities using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. If any securities held by the Fund are restricted as to resale, Putnam Management determines their fair value following procedures approved by the Trustees. The fair value of such securities is generally determined as the amount which the Fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the Fund in connection with such disposition). In addition, specific factors are also generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class, the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer. Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. The values of these securities used in determining the net asset value of the Fund's shares are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. Government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of the Fund's net asset value. If events materially affecting the value of such securities occur during such period, then these securities will be valued at their fair value following procedures approved by the Trustees. Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the Investment Company Act of 1940. HOW TO BUY SHARES General The Prospectus contains a general description of how investors may buy shares of the Fund and states whether the Fund offers more than one class of shares. This Statement contains additional information which may be of interest to investors. Class A shares and Class M shares are sold with a sales charge payable at the time of purchase (except for Class A shares and Class M shares of money market funds). As used in this Statement and unless the context requires otherwise, the term "Class A shares" includes shares of Funds that offer only one class of shares. The Prospectus contains a table of applicable sales charges. For information about how to purchase Class A shares of a Putnam fund at net asset value through an employer's defined contribution plan, please consult your employer. Certain purchases of Class A shares and Class M shares may be exempt from a sales charge or, in the case of Class A shares, may be subject to a contingent deferred sales charge ("CDSC"). See "General-- Sales without sales charges or contingent deferred sales charges", "Additional Information About Class A and Class M Shares", and "Contingent Deferred Sales Charges--Class A shares". Class B shares and Class C shares are sold subject to a CDSC payable upon redemption within a specified period after purchase. The Prospectus contains a table of applicable CDSCs. Class Y shares, which are available only to employer-sponsored defined contribution plans initially investing at least $250 million in a combination of Putnam funds and other investments managed by Putnam Management or its affiliates, are not subject to sales charges or a CDSC. Certain purchase programs described below are not available to defined contribution plans. Consult your employer for information on how to purchase shares through your plan. The Fund is currently making a continuous offering of its shares. The Fund receives the entire net asset value of shares sold. The Fund will accept unconditional orders for shares to be executed at the public offering price based on the net asset value per share next determined after the order is placed. In the case of Class A shares and Class M shares, the public offering price is the net asset value plus the applicable sales charge, if any. No sales charge is included in the public offering price of other classes of shares. In the case of orders for purchase of shares placed through dealers, the public offering price will be based on the net asset value determined on the day the order is placed, but only if the dealer receives the order before the close of regular trading on the Exchange. If the dealer receives the order after the close of the Exchange, the price will be based on the net asset value next determined. If funds for the purchase of shares are sent directly to Putnam Investor Services, they will be invested at the public offering price based on the net asset value next determined after receipt. Payment for shares of the Fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Initial and subsequent purchases must satisfy the minimums stated in the Prospectus, except that (i) individual investments under certain employee benefit plans or Tax Qualified Retirement Plans may be lower, (ii) persons who are already shareholders may make additional purchases of $50 or more by sending funds directly to Putnam Investor Services (see "Your Investing Account" below), and (iii) for investors participating in systematic investment plans and military allotment plans, the initial and subsequent purchases must be $25 or more. Information about these plans is available from investment dealers or from Putnam Mutual Funds. As a convenience to investors, shares may be purchased through a systematic investment plan. Preauthorized monthly bank drafts for a fixed amount (at least $25) are used to purchase Fund shares at the applicable public offering price next determined after Putnam Mutual Funds receives the proceeds from the draft (normally the 20th of each month, or the next business day thereafter). Further information and application forms are available from investment dealers or from Putnam Mutual Funds. Except for Putnam funds that declare a distribution daily, distributions to be reinvested are reinvested without a sales charge in shares of the same class as of the ex-dividend date using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Dividends for Putnam money market funds are credited to a shareholder's account on the payment date. Distributions for Putnam Tax-Free Income Trust and Putnam Preferred Income Fund are reinvested without a sales charge as of the last day of the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. Distributions for all other Putnam funds that declare a distribution daily are reinvested without a sales charge as of the next day following the period for which distributions are paid using the net asset value determined on that date, and are credited to a shareholder's account on the payment date. PAYMENT IN SECURITIES. In addition to cash, the Fund may accept securities as payment for Fund shares at the applicable net asset value. Generally, the Fund will only consider accepting securities to increase its holdings in a portfolio security, or if Putnam Management determines that the offered securities are a suitable investment for the Fund and in a sufficient amount for efficient management. While no minimum has been established, it is expected that the Fund would not accept securities with a value of less than $100,000 per issue as payment for shares. The Fund may reject in whole or in part any or all offers to pay for purchases of Fund shares with securities, may require partial payment in cash for such purchases to provide funds for applicable sales charges, and may discontinue accepting securities as payment for Fund shares at any time without notice. The Fund will value accepted securities in the manner described in the section "Determination of Net Asset Value" for valuing shares of the Fund. The Fund will only accept securities which are delivered in proper form. The Fund will not accept options or restricted securities as payment for shares. The acceptance of securities by certain Funds in exchange for Fund shares are subject to additional requirements. In the case of Putnam American Government Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds: Balanced Portfolio, Putnam Asset Allocation Funds: Conservative Portfolio, Putnam Asset Allocation Funds: Growth Portfolio, Putnam Capital Appreciation Fund, Putnam Preferred Income Fund, Putnam Diversified Equity Trust, Putnam Equity Income Fund, Putnam Europe Growth Fund, The Putnam Fund for Growth & Income, Putnam Global Governmental Income Trust, Putnam Growth and Income Fund II, Putnam High Yield Advantage Fund, Putnam Investment Funds, Putnam Intermediate Tax Exempt Fund, Putnam Investment-Grade Bond Fund, Putnam Municipal Income Fund, Putnam Natural Resources Fund, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund, Putnam Tax Exempt Income Fund and Putnam Tax-Free Income Trust, transactions involving the issuance of Fund shares for securities or assets other than cash will be limited to a bona-fide re-organization or statutory merger and to other acquisitions of portfolio securities that meet all the following conditions: (a) such securities meet the investment objectives and policies of the Fund; (b) such securities are acquired for investment and not for resale; (c) such securities are liquid securities which are not restricted as to transfer either by law or liquidity of market; and (d) such securities have a value which is readily ascertainable, as evidenced by a listing on the American Stock Exchange, the New York Stock Exchange or NASDAQ. In addition, Putnam Global Governmental Income Trust may accept only investment grade bonds with prices regularly stated in publications generally accepted by investors, such as the London Financial Times and the Association of International Bond Dealers manual, or securities listed on the New York or American Stock Exchanges or with NASDAQ, and Putnam Diversified Income Trust may accept only bonds with prices regularly stated in publications generally accepted by investors. For federal income tax purposes, a purchase of Fund shares with securities will be treated as a sale or exchange of such securities on which the investor will realize a taxable gain or loss. The processing of a purchase of Fund shares with securities involves certain delays while the Fund considers the suitability of such securities and while other requirements are satisfied. For information regarding procedures for payment in securities, contact Putnam Mutual Funds. Investors should not send securities to the Fund except when authorized to do so and in accordance with specific instructions received from Putnam Mutual Funds. SALES WITHOUT SALES CHARGES OR CONTINGENT DEFERRED SALES CHARGES. The Fund may sell shares without a sales charge or CDSC to: (i) current and retired Trustees of the Fund; officers of the Fund; directors and current and retired U.S. full-time employees of Putnam Management, Putnam Mutual Funds, their parent corporations and certain corporate affiliates; family members of and employee benefit plans for the foregoing; and partnerships, trusts or other entities in which any of the foregoing has a substantial interest; (ii) employee benefit plans, for the repurchase of shares in connection with repayment of plan loans made to plan participants (if the sum loaned was obtained by redeeming shares of a Putnam fund sold with a sales charge) (not offered by tax-exempt funds); (iii) clients of administrators of tax-qualified employee benefit plans which have entered into agreements with Putnam Mutual Funds (not offered by tax-exempt funds); (iv) registered representatives and other employees of broker-dealers having sales agreements with Putnam Mutual Funds; employees of financial institutions having sales agreements with Putnam Mutual Funds or otherwise having an arrangement with any such broker-dealer or financial institution with respect to sales of Fund shares; and their spouses and children under age 21 (Putnam Mutual Funds is regarded as the dealer of record for all such accounts); (v) investors meeting certain requirements who sold shares of certain Putnam closed-end funds pursuant to a tender offer by such closed-end fund; (vi) a trust department of any financial institution purchasing shares of the Fund in its capacity as trustee of any trust, if the value of the shares of the Fund and other Putnam funds purchased or held by all such trusts exceeds $1 million in the aggregate; and (vii) "wrap accounts" maintained for clients of broker- dealers, financial institutions or financial planners who have entered into agreements with Putnam Mutual Funds with respect to such accounts. In addition, the Fund may issue its shares at net asset value in connection with the acquisition of substantially all of the securities owned by other investment companies or personal holding companies. PAYMENTS TO DEALERS. Putnam Mutual Funds may, at its expense, pay concessions in addition to the payments disclosed in the Prospectus to dealers which satisfy certain criteria established from time to time by Putnam Mutual Funds relating to increasing net sales of shares of the Putnam funds over prior periods, and certain other factors. ADDITIONAL INFORMATION ABOUT CLASS A AND CLASS M SHARES The underwriter's commission is the sales charge shown in the Prospectus less any applicable dealer discount. Putnam Mutual Funds will give dealers ten days' notice of any changes in the dealer discount. Putnam Mutual Funds retains the entire sales charge on any retail sales made by it. Putnam Mutual Funds offers several plans by which an investor may obtain reduced sales charges on purchases of Class A shares and Class M shares. The variations in sales charges reflect the varying efforts required to sell shares to separate categories of purchasers. These plans may be altered or discontinued at any time. COMBINED PURCHASE PRIVILEGE. The following persons may qualify for the sales charge reductions or eliminations shown in the Prospectus by combining into a single transaction the purchase of Class A shares or Class M shares with other purchases of any class of shares: (i) an individual, or a "company" as defined in Section 2(a)(8) of the Investment Company Act of 1940 (which includes corporations which are corporate affiliates of each other); (ii) an individual, his or her spouse and their children under twenty-one, purchasing for his, her or their own account; (iii) a trustee or other fiduciary purchasing for a single trust estate or single fiduciary account (including a pension, profit-sharing, or other employee benefit trust created pursuant to a plan qualified under Section 401 of the Internal Revenue Code); (iv) tax-exempt organizations qualifying under Section 501(c)(3) of the Internal Revenue Code (not including 403(b) plans); and (v) employee benefit plans of a single employer or of affiliated employers, other than 403(b) plans. A combined purchase currently may also include shares of any class of other continuously offered Putnam funds (other than money market funds) purchased at the same time through a single investment dealer, if the dealer places the order for such shares directly with Putnam Mutual Funds. CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). A purchaser of Class A shares or Class M shares may qualify for a cumulative quantity discount by combining a current purchase (or combined purchases as described above) with certain other shares of any class of Putnam funds already owned. The applicable sales charge is based on the total of: (i) the investor's current purchase; and (ii) the maximum public offering price (at the close of business on the previous day) of: (a) all shares held by the investor in all of the Putnam funds (except money market funds); and (b) any shares of money market funds acquired by exchange from other Putnam funds; and (iii) the maximum public offering price of all shares described in paragraph (ii) owned by another shareholder eligible to participate with the investor in a "combined purchase" (see above). To qualify for the combined purchase privilege or to obtain the cumulative quantity discount on a purchase through an investment dealer, when each purchase is made the investor or dealer must provide Putnam Mutual Funds with sufficient information to verify that the purchase qualifies for the privilege or discount. The shareholder must furnish this information to Putnam Investor Services when making direct cash investments. STATEMENT OF INTENTION. Investors may also obtain the reduced sales charges for Class A shares or Class M shares shown in the Prospectus for investments of a particular amount by means of a written Statement of Intention, which expresses the investor's intention to invest that amount (including certain "credits," as described below) within a period of 13 months in shares of any class of the Fund or any other continuously offered Putnam fund (excluding money market funds). Each purchase of Class A shares or Class M shares under a Statement of Intention will be made at the public offering price applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Statement. A Statement of Intention may include purchases of shares made not more than 90 days prior to the date that an investor signs a Statement; however, the 13-month period during which the Statement is in effect will begin on the date of the earliest purchase to be included. An investor may receive a credit toward the amount indicated in the Statement equal to the maximum public offering price as of the close of business on the previous day of all shares he or she owns on the date of the Statement which are eligible for purchase under a Statement (plus any shares of money market funds acquired by exchange of such eligible shares). Investors do not receive credit for shares purchased by the reinvestment of distributions. Investors qualifying for the "combined purchase privilege" (see above) may purchase shares under a single Statement of Intention. The Statement of Intention is not a binding obligation upon the investor to purchase the full amount indicated. The minimum initial investment under a Statement of Intention is 5% of such amount, and must be invested immediately. Class A shares or Class M shares purchased with the first 5% of such amount will be held in escrow to secure payment of the higher sales charge applicable to the shares actually purchased if the full amount indicated is not purchased. When the full amount indicated has been purchased, the escrow will be released. If an investor desires to redeem escrowed shares before the full amount has been purchased, the shares will be released from escrow only if the investor pays the sales charge that, without regard to the Statement of Intention, would apply to the total investment made to date. To the extent that an investor purchases more than the dollar amount indicated on the Statement of Intention and qualifies for a further reduced sales charge, the sales charge will be adjusted for the entire amount purchased at the end of the 13-month period, upon recovery from the investor's dealer of its portion of the sales charge adjustment. Once received from the dealer, which may take a period of time or may never occur, the sales charge adjustment will be used to purchase additional shares at the then current offering price applicable to the actual amount of the aggregate purchases. These additional shares will not be considered as part of the total investment for the purpose of determining the applicable sales charge pursuant to the Statement of Intention. No sales charge adjustment will be made unless and until the investor's dealer returns any excess commissions previously received. To the extent that an investor purchases less than the dollar amount indicated on the Statement of Intention within the 13- month period, the sales charge will be adjusted upward for the entire amount purchased at the end of the 13-month period. This adjustment will be made by redeeming shares from the account to cover the additional sales charge, the proceeds of which will be paid to the investor's dealer and Putnam Mutual Funds in accordance with the Prospectus. If the account exceeds an amount that would otherwise qualify for a reduced sales charge, that reduced sales charge will be applied. Statements of Intention are not available for certain employee benefit plans. Statement of Intention forms may be obtained from Putnam Mutual Funds or from investment dealers. Interested investors should read the Statement of Intention carefully. REDUCED SALES CHARGE FOR GROUP PURCHASES OF CLASS A SHARES. Members of qualified groups may purchase Class A shares of the Fund at a group sales charge rate of 4.5% of the public offering price (4.71% of the net amount invested). The dealer discount on such sales is 3.75% of the offering price. To receive the group rate, group members must purchase Class A shares through a single investment dealer designated by the group. The designated dealer must transmit each member's initial purchase to Putnam Mutual Funds, together with payment and completed application forms. After the initial purchase, a member may send funds for the purchase of Class A shares directly to Putnam Investor Services. Purchases of Class A shares are made at the public offering price based on the net asset value next determined after Putnam Mutual Funds or Putnam Investor Services receives payment for the shares. The minimum investment requirements described above apply to purchases by any group member. Only Class A shares are included in calculating the purchased amount. Qualified groups include the employees of a corporation or a sole proprietorship, members and employees of a partnership or association, or other organized groups of persons (the members of which may include other qualified groups) provided that: (i) the group has at least 25 members of which at least 10 members participate in the initial purchase; (ii) the group has been in existence for at least six months; (iii) the group has some purpose in addition to the purchase of investment company shares at a reduced sales charge; (iv) the group's sole organizational nexus or connection is not that the members are credit card holders of a company, policy holders of an insurance company, customers of a bank or broker-dealer, clients of an investment adviser or security holders of a company; (v) the group agrees to provide its designated investment dealer access to the group's membership by means of written communication or direct presentation to the membership at a meeting on not less frequently than an annual basis; (vi) the group or its investment dealer will provide annual certification in form satisfactory to Putnam Investor Services that the group then has at least 25 members and that at least ten members participated in group purchases during the immediately preceding 12 calendar months; and (vii) the group or its investment dealer will provide periodic certification in form satisfactory to Putnam Investor Services as to the eligibility of the purchasing members of the group. Members of a qualified group include: (i) any group which meets the requirements stated above and which is a constituent member of a qualified group; (ii) any individual purchasing for his or her own account who is carried on the records of the group or on the records of any constituent member of the group as being a good standing employee, partner, member or person of like status of the group or constituent member; or (iii) any fiduciary purchasing shares for the account of a member of a qualified group or a member's beneficiary. For example, a qualified group could consist of a trade association which would have as its members individuals, sole proprietors, partnerships and corporations. The members of the group would then consist of the individuals, the sole proprietors and their employees, the members of the partnerships and their employees, and the corporations and their employees, as well as the trustees of employee benefit trusts acquiring Class A shares for the benefit of any of the foregoing. A member of a qualified group may, depending upon the value of Class A shares of the Fund owned or proposed to be purchased by the member, be entitled to purchase Class A shares of the Fund at non-group sales charge rates shown in the Prospectus which may be lower than the group sales charge rate, if the member qualifies as a person entitled to reduced non-group sales charges. Such a group member will be entitled to purchase at the lower rate if, at the time of purchase, the member or his or her investment dealer furnishes sufficient information for Putnam Mutual Funds or Putnam Investor Services to verify that the purchase qualifies for the lower rate. Interested groups should contact their investment dealer or Putnam Mutual Funds. The Fund reserves the right to revise the terms of or to suspend or discontinue group sales at any time. EMPLOYEE BENEFIT PLANS; INDIVIDUAL ACCOUNT PLANS. The term "employee benefit plan" means any plan or arrangement, whether or not tax-qualified, which provides for the purchase of Class A shares. The term "affiliated employer" means employers who are affiliated with each other within the meaning of Section 2(a)(3)(C) of the Investment Company Act of 1940. The term "individual account plan" means any employee benefit plan whereby (i) Class A shares are purchased through payroll deductions or otherwise by a fiduciary or other person for the account of participants who are employees (or their spouses) of an employer, or of affiliated employers, and (ii) a separate Investing Account is maintained in the name of such fiduciary or other person for the account of each participant in the plan. The table of sales charges in the Prospectus applies to sales to employee benefit plans, except that the Fund may sell Class A shares at net asset value to employee benefit plans, including individual account plans, of employers or of affiliated employers which have at least 750 employees to whom such plan is made available, in connection with a payroll deduction system of plan funding (or other system acceptable to Putnam Investor Services) by which contributions or account information for plan participation are transmitted to Putnam Investor Services by methods acceptable to Putnam Investor Services. The Fund may also sell Class A shares at net asset value to employee benefit plans of employers or of affiliated employers which have at least 750 employees, if such plans are qualified under Section 401 of the Internal Revenue Code. Additional information about employee benefit plans and individual account plans is available from investment dealers or from Putnam Mutual Funds. CONTINGENT DEFERRED SALES CHARGES CLASS A SHARES. Class A shares purchased at net asset value by shareholders investing $1 million or more, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, are subject to a CDSC of 1.00% or 0.50%, respectively, if redeemed within the first or second year after purchase. The Class A CDSC is imposed on the lower of the cost and the current net asset value of the shares redeemed. The CDSC does not apply to shares sold without a sales charge through participant-directed qualified retirement plans and shares purchased by certain investors investing $1 million or more that have made arrangements with Putnam Mutual Funds and whose dealer of record waived the commission described in the next paragraph. Except as stated below, Putnam Mutual Funds pays investment dealers of record commissions on sales of Class A shares of $1 million or more based on an investor's cumulative purchases of such shares, including purchases pursuant to any Combined Purchase Privilege, Right of Accumulation or Statement of Intention, during the one-year period beginning with the date of the initial purchase at net asset value and each subsequent one- year period beginning with the first net asset value purchase following the end of the prior period. Such commissions are paid at the rate of 1.00% of the amount under $3 million, 0.50% of the next $47 million and 0.25% thereafter. On sales at net asset value to a participant-directed qualified retirement plan initially investing less than $20 million in Putnam funds and other investments managed by Putnam Management or its affiliates (including a plan sponsored by an employer with more than 750 employees), Putnam Mutual Funds pays commissions on cumulative purchases during the life of the account at the rate of 1.00% of the amount under $3 million and 0.50% thereafter. On sales at net asset value to all other participant-directed qualified retirement plans, Putnam Mutual Funds pays commissions on the initial investment and on subsequent net quarterly sales (gross sales minus gross redemptions during the quarter) at the rate of 0.15%. Money market fund shares are excluded from all commission calculations, except for determining the amount initially invested by a participant-directed qualified retirement plan. Commissions on sales at net asset value to such plans are subject to Putnam Mutual Funds' right to reclaim such commissions if the shares are redeemed within two years. Different CDSC and commission rates may apply to shares purchased before April 1, 1994. CLASS B AND CLASS C SHARES. Investors who set up an Automatic Cash Withdrawal Plan (ACWP) for a Class B and Class C share account (see "Plans Available To Shareholders -- Automatic Cash Withdrawal Plan") may withdraw through the ACWP up to 12% of the net asset value of the account (calculated as set forth below) each year without incurring any CDSC. Shares not subject to a CDSC (such as shares representing reinvestment of distributions) will be redeemed first and will count toward the 12% limitation. If there are insufficient shares not subject to a CDSC, shares subject to the lowest CDSC liability will be redeemed next until the 12% limit is reached. The 12% figure is calculated on a pro rata basis at the time of the first payment made pursuant to a ACWP and recalculated thereafter on a pro rata basis at the time of each ACWP payment. Therefore, shareholders who have chosen a ACWP based on a percentage of the net asset value of their account of up to 12% will be able to receive ACWP payments without incurring a CDSC. However, shareholders who have chosen a specific dollar amount (for example, $100 per month from a fund that pays income distributions monthly) for their periodic ACWP payment should be aware that the amount of that payment not subject to a CDSC may vary over time depending on the net asset value of their account. For example, if the net asset value of the account is $10,000 at the time of payment, the shareholder will receive $100 free of the CDSC (12% of $10,000 divided by 12 monthly payments). However, if at the time of the next payment the net asset value of the account has fallen to $9,400, the shareholder will receive $94 free of any CDSC (12% of $9,400 divided by 12 monthly payments) and $6 subject to the lowest applicable CDSC. This ACWP privilege may be revised or terminated at any time. ALL SHARES. No CDSC is imposed on shares of any class subject to a CDSC ("CDSC Shares") to the extent that the CDSC Shares redeemed (i) are no longer subject to the holding period therefor, (ii) resulted from reinvestment of distributions on CDSC Shares, or (iii) were exchanged for shares of another Putnam fund, provided that the shares acquired in such exchange or subsequent exchanges (including shares of a Putnam money market fund) will continue to remain subject to the CDSC, if applicable, until the applicable holding period expires. In determining whether the CDSC applies to each redemption of CDSC Shares, CDSC Shares not subject to a CDSC are redeemed first. The Fund will waive any CDSC on redemptions, in the case of individual or Uniform Transfers to Minors Act accounts, in case of death or disability or for the purpose of paying benefits pursuant to tax-qualified retirement plans. Such payments currently include, without limitation, (1) distributions from an IRA due to death or disability, (2) a return of excess contributions to an IRA or 401(k) plan, and (3) distributions from retirement plans qualified under section 401(a) or section 403(b)(7) (a "403(b) plan") of the Internal Revenue Code of 1986, as amended (the "Code"), due to death, disability, retirement or separation from service. The Fund will also waive any CDSC in the case of the death of one joint tenant. These waivers may be changed at any time. Additional waivers may apply to IRA accounts opened prior to February 1, 1994. DISTRIBUTION PLAN If the Fund or a class of shares of the Fund has adopted a Distribution Plan, the Prospectus describes the principal features of the Plan. This Statement contains additional information which may be of interest to investors. Continuance of a Plan is subject to annual approval by a vote of the Trustees, including a majority of the Trustees who are not interested persons of the Fund and who have no direct or indirect interest in the Plan or related arrangements (the "Qualified Trustees"), cast in person at a meeting called for that purpose. All material amendments to a Plan must be likewise approved by the Trustees and the Qualified Trustees. No Plan may be amended in order to increase materially the costs which the Fund may bear for distribution pursuant to such Plan without also being approved by a majority of the outstanding voting securities of the Fund or the relevant class of the Fund, as the case may be. A Plan terminates automatically in the event of its assignment and may be terminated without penalty, at any time, by a vote of a majority of the Qualified Trustees or by a vote of a majority of the outstanding voting securities of the Fund or the relevant class of the Fund, as the case may be. If Plan payments are made to reimburse Putnam Mutual Funds for payments to dealers based on the average net asset value of Fund shares attributable to shareholders for whom the dealers are designated as the dealer of record, "average net asset value" attributable to a shareholder account means the product of (i) the Fund's average daily share balance of the account and (ii) the Fund's average daily net asset value per share (or the average daily net asset value per share of the class, if applicable). For administrative reasons, Putnam Mutual Funds may enter into agreements with certain dealers providing for the calculation of "average net asset value" on the basis of assets of the accounts of the dealer's customers on an established day in each quarter. Financial institutions receiving payments from Putnam Mutual Funds as described above may be required to comply with various state and federal regulatory requirements, including among others those regulating the activities of securities brokers or dealers. INVESTOR SERVICES SHAREHOLDER INFORMATION Each time shareholders buy or sell shares, they will receive a statement confirming the transaction and listing their current share balance. (Under certain investment plans, a statement may only be sent quarterly.) Shareholders will receive a statement confirming reinvestment of distributions in additional Fund shares (or in shares of other Putnam funds for Dividends Plus accounts) promptly following the quarter in which the reinvestment occurs. To help shareholders take full advantage of their Putnam investment, they will receive a Welcome Kit and a periodic publication covering many topics of interest to investors. The Fund also sends annual and semiannual reports that keep shareholders informed about its portfolio and performance, and year-end tax information to simplify their recordkeeping. Easy-to-read, free booklets on special subjects such as the Exchange Privilege and IRAs are available from Putnam Investor Services. Shareholders may call Putnam Investor Services toll-free weekdays at 1-800-225-1581 between 8:30 a.m. and 7:00 p.m. Boston time for more information, including account balances. YOUR INVESTING ACCOUNT The following information provides more detail concerning the operation of a Putnam Investing Account. For further information or assistance, investors should consult Putnam Investor Services. Shareholders who purchase shares through a defined contribution plan should note that not all of the services or features described below may be available to them, and they should contact their employer for details. A shareholder may reinvest a recent cash distribution without a front-end sales charge or without the reinvested shares being subject to a CDSC, as the case may be, by delivering to Putnam Investor Services the uncashed distribution check, endorsed to the order of the Fund. Putnam Investor Services must receive the properly endorsed check within 30 days after the date of the check. Upon written notice to shareholders, the Fund may permit shareholders who receive cash distributions to reinvest amounts representing returns of capital without a sales charge or without being subject to the CDSC. The Investing Account also provides a way to accumulate shares of the Fund. In most cases, after an initial investment of $500, a shareholder may send checks to Putnam Investor Services for $50 or more, made payable to the Fund, to purchase additional shares at the applicable public offering price next determined after Putnam Investor Services receives the check. For Putnam Preferred Income Fund, the minimum initial investment is $25,000 and the minimum subsequent investment is $5,000. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Putnam Investor Services acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, shares will be purchased through the investment dealer designated by the shareholder. Shareholders may change investment dealers at any time by written notice to Putnam Investor Services, provided the new dealer has a sales agreement with Putnam Mutual Funds. Shares credited to an account are transferable upon written instructions in good order to Putnam Investor Services and may be sold to the Fund as described under "How to buy shares, sell shares and exchange shares" in the Prospectus. Money market funds and certain other funds will not issue share certificates. A shareholder may send any certificates which have been previously issued to Putnam Investor Services for safekeeping at no charge to the shareholder. Putnam Mutual Funds, at its expense, may provide certain additional reports and administrative material to qualifying institutional investors with fiduciary responsibilities to assist these investors in discharging their responsibilities. Institutions seeking further information about this service should contact Putnam Mutual Funds, which may modify or terminate this service at any time. Putnam Investor Services may make special services available to shareholders with investments exceeding $1,000,000. Contact Putnam Investor Services for details. The Fund pays Putnam Investor Services' fees for maintaining Investing Accounts. REINSTATEMENT PRIVILEGE An investor who has redeemed shares to the Fund may reinvest (within 1 year) the proceeds of such sale in shares of the same class of the Fund, or may be able to reinvest (within 1 year) the proceeds in shares of the same class of one of the other continuously offered Putnam funds (through the Exchange Privilege described in the Prospectus), including, in the case of shares subject to a CDSC, the amount of CDSC charged on the redemption. Any such reinvestment would be at the net asset value of the shares of the fund(s) the investor selects, next determined after Putnam Mutual Funds receives a Reinstatement Authorization. The time that the previous investment was held will be included in determining any applicable CDSC due upon redemptions and, in the case of Class B shares, the eight-year period for conversion to Class A shares. Shareholders will receive from Putnam Mutual Funds the amount of any CDSC paid at the time of redemption as part of the reinstated investment, which may be treated as capital gains to the shareholder for tax purposes. Exercise of the Reinstatement Privilege does not alter the federal income tax treatment of any capital gains realized on a sale of Fund shares, but to the extent that any shares are sold at a loss and the proceeds are reinvested in shares of the Fund, some or all of the loss may be disallowed as a deduction. Consult your tax adviser. Investors who desire to exercise this Privilege should contact their investment dealer or Putnam Investor Services. EXCHANGE PRIVILEGE Except as otherwise set forth in this section, by calling Putnam Investor Services, investors may exchange shares valued up to $500,000 between accounts with identical registrations, provided that no certificates are outstanding for such shares and no address change has been made within the preceding 15 days. During periods of unusual market changes and shareholder activity, shareholders may experience delays in contacting Putnam Investor Services by telephone to exercise the Telephone Exchange Privilege. Putnam Investor Services also makes exchanges promptly after receiving a properly completed Exchange Authorization Form and, if issued, share certificates. If the shareholder is a corporation, partnership, agent, or surviving joint owner, Putnam Investor Services will require additional documentation of a customary nature. Because an exchange of shares involves the redemption of Fund shares and reinvestment of the proceeds in shares of another Putnam fund, completion of an exchange may be delayed under unusual circumstances if the Fund were to suspend redemptions or postpone payment for the Fund shares being exchanged, in accordance with federal securities laws. Exchange Authorization Forms and prospectuses of the other Putnam funds are available from Putnam Mutual Funds or investment dealers having sales contracts with Putnam Mutual Funds. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain Putnam funds are not available to residents of all states. The Fund reserves the right to change or suspend the Exchange Privilege at any time. Shareholders would be notified of any change or suspension. Additional information is available from Putnam Investor Services. Shares of the Fund must be held at least 15 days by the shareholder requesting an exchange. There is no holding period if the shareholder acquired the shares to be exchanged through reinvestment of distributions, transfer from another shareholder, prior exchange or certain employer-sponsored defined contribution plans. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder requesting the exchange. Shareholders of other Putnam funds may also exchange their shares at net asset value for shares of the Fund, as set forth in the current prospectus of each fund. For federal income tax purposes, an exchange is a sale on which the investor generally will realize a capital gain or loss depending on whether the net asset value at the time of the exchange is more or less than the investor's basis. The Exchange Privilege may be revised or terminated at any time. Shareholders would be notified of any such change or suspension. DIVIDENDS PLUS Shareholders may invest the Fund's distributions of net investment income or distributions combining net investment income and short-term capital gains in shares of the same class of another continuously offered Putnam fund (the "receiving fund") using the net asset value per share of the receiving fund determined on the date the Fund's distribution is payable. No sales charge or CDSC will apply to the purchased shares unless the Fund is a money market fund. The prospectus of each fund describes its investment objective(s) and policies, and shareholders should obtain a prospectus and consider these objective(s) and policies carefully before investing their distributions in the receiving fund. Shares of certain Putnam funds are not available to residents of all states. The minimum account size requirement for the receiving fund will not apply if the current value of your account in this Fund is more than $5,000. Shareholders of other Putnam funds (except for money market funds, whose shareholders must pay a sales charge or become subject to a CDSC) may also use their distributions to purchase shares of the Fund at net asset value. For federal tax purposes, distributions from the Fund which are reinvested in another fund are treated as paid by the Fund to the shareholder and invested by the shareholder in the receiving fund and thus, to the extent comprised of taxable income and deemed paid to a taxable shareholder, are taxable. The Dividends PLUS program may be revised or terminated at any time. PLANS AVAILABLE TO SHAREHOLDERS The Plans described below are fully voluntary and may be terminated at any time without the imposition by the Fund or Putnam Investor Services of any penalty. All Plans provide for automatic reinvestment of all distributions in additional shares of the Fund at net asset value. The Fund, Putnam Mutual Funds or Putnam Investor Services may modify or cease offering these Plans at any time. AUTOMATIC CASH WITHDRAWAL PLAN. An investor who owns or buys shares of the Fund valued at $10,000 or more at the current public offering price may open a Withdrawal Plan and have a designated sum of money ($50 or more) paid monthly, quarterly, semi-annually or annually to the investor or another person. (Payments from the Fund can be combined with payments from other Putnam funds into a single check through a Designated Payment Plan.) Shares are deposited in a Plan account, and all distributions are reinvested in additional shares of the Fund at net asset value (except where the Plan is utilized in connection with a charitable remainder trust). Shares in a Plan account are then redeemed at net asset value to make each withdrawal payment. Payment will be made to any person the investor designates; however, if shares are registered in the name of a trustee or other fiduciary, payment will be made only to the fiduciary, except in the case of a profit-sharing or pension plan where payment will be made to a designee. As withdrawal payments may include a return of principal, they cannot be considered a guaranteed annuity or actual yield of income to the investor. The redemption of shares in connection with a Withdrawal Plan generally will result in a gain or loss for tax purposes. Some or all of the losses realized upon redemption may be disallowed pursuant to the so-called wash sale rules if shares of the same fund from which shares were redeemed are purchased (including through the reinvestment of fund distributions) within a period beginning 30 days before, and ending 30 days after, such redemption. In such a case, the basis of the replacement shares will be increased to reflect the disallowed loss. Continued withdrawals in excess of income will reduce and possibly exhaust invested principal, especially in the event of a market decline. The maintenance of a Withdrawal Plan concurrently with purchases of additional shares of the Fund would be disadvantageous to the investor because of the sales charge payable on such purchases. For this reason, the minimum investment accepted while a Withdrawal Plan is in effect is $1,000, and an investor may not maintain a Plan for the accumulation of shares of the Fund (other than through reinvestment of distributions) and a Withdrawal Plan at the same time. The cost of administering these Plans for the benefit of those shareholders participating in them is borne by the Fund as an expense of all shareholders. The Fund, Putnam Mutual Funds or Putnam Investor Services may terminate or change the terms of the Withdrawal Plan at any time. A Withdrawal Plan will be terminated if communications mailed to the shareholder are returned as undeliverable. Investors should consider carefully with their own financial advisers whether the Plan and the specified amounts to be withdrawn are appropriate in their circumstances. The Fund and Putnam Investor Services make no recommendations or representations in this regard. TAX QUALIFIED RETIREMENT PLANS; 403(B) AND SEP PLANS. (NOT OFFERED BY FUNDS INVESTING PRIMARILY IN TAX-EXEMPT SECURITIES.) Investors may purchase shares of the Fund through the following Tax Qualified Retirement Plans, available to qualified individuals or organizations: Standard and variable profit-sharing (including 401(k)) and money purchase pension plans; and Individual Retirement Account Plans (IRAs). Each of these Plans has been qualified as a prototype plan by the Internal Revenue Service. Putnam Investor Services will furnish services under each plan at a specified annual cost. Putnam Fiduciary Trust Company serves as trustee under each of these Plans. Forms and further information on these Plans are available from investment dealers or from Putnam Mutual Funds. In addition, specialized professional plan administration services are available on an optional basis; contact Putnam Defined Contribution Plan Services at 1-800-225-2465, extension 8600. A 403(b) Retirement Plan is available for employees of public school systems and organizations which meet the requirements of Section 501(c)(3) of the Internal Revenue Code. Forms and further information on the 403(b) Plan are also available from investment dealers or from Putnam Mutual Funds. Shares of the Fund may also be used in simplified employee pension (SEP) plans. For further information on the Putnam prototype SEP plan, contact an investment dealer or Putnam Mutual Funds. Consultation with a competent financial and tax adviser regarding these Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974, or otherwise, is recommended. SIGNATURE GUARANTEES Redemption requests for shares having a net asset value of $100,000 or more must be signed by the registered owners or their legal representatives and must be guaranteed by a bank, broker/dealer, municipal securities dealer or broker, government securities dealer or broker, credit union, national securities exchange, registered securities association, clearing agency, savings association or trust company, provided such institution is acceptable under and conforms with Putnam Fiduciary Trust Company's signature guarantee procedures. A copy of such procedures is available upon request. If you want your redemption proceeds sent to an address other than your address as it appears on Putnam's records, you must provide a signature guarantee. Putnam Investor Services usually requires additional documentation for the sale of shares by a corporation, partnership, agent or fiduciary, or a surviving joint owner. Contact Putnam Investor Services for details. SUSPENSION OF REDEMPTIONS The Fund may not suspend shareholders' right of redemption, or postpone payment for more than seven days, unless the New York Stock Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the Securities and Exchange Commission during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the Commission for protection of investors. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Fund. However, the Agreement and Declaration of Trust disclaims shareholder liability for acts or obligations of the Fund and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trustees. The Agreement and Declaration of Trust provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. The likelihood of such circumstances is remote. STANDARD PERFORMANCE MEASURES Yield and total return data for the Fund may from time to time be presented in Part I of this Statement and in advertisements. In the case of funds with more than one class of shares, all performance information is calculated separately for each class. The data is calculated as follows. Total return for one-, five- and ten-year periods (or for such shorter periods as the Fund has been in operation or shares of the relevant class have been outstanding) is determined by calculating the actual dollar amount of investment return on a $1,000 investment in the Fund made at the beginning of the period, at the maximum public offering price for Class A shares and Class M shares and net asset value for other classes of shares, and then calculating the annual compounded rate of return which would produce that amount. Total return for a period of one year is equal to the actual return of the Fund during that period. Total return calculations assume deduction of the Fund's maximum sales charge or CDSC, if applicable, and reinvestment of all Fund distributions at net asset value on their respective reinvestment dates. The Fund's yield is presented for a specified thirty-day period (the "base period"). Yield is based on the amount determined by (i) calculating the aggregate amount of dividends and interest earned by the Fund during the base period less expenses accrued for that period, and (ii) dividing that amount by the product of (A) the average daily number of shares of the Fund outstanding during the base period and entitled to receive dividends and (B) the per share maximum public offering price for Class A shares or Class M shares, as appropriate and net asset value for other classes of shares on the last day of the base period. The result is annualized on a compounding basis to determine the yield. For this calculation, interest earned on debt obligations held by the Fund is generally calculated using the yield to maturity (or first expected call date) of such obligations based on their market values (or, in the case of receivables-backed securities such as GNMA's, based on cost). Dividends on equity securities are accrued daily at their stated dividend rates. If the Fund is a money market fund, yield is computed by determining the percentage net change, excluding capital changes, in the value of an investment in one share over the seven-day period for which yield is presented (the "base period"), and multiplying the net change by 365/7 (or approximately 52 weeks). Effective yield represents a compounding of the yield by adding 1 to the number representing the percentage change in value of the investment during the base period, raising that sum to a power equal to 365/7, and subtracting 1 from the result. If the Fund is a tax-exempt fund, the tax-equivalent yield during the base period may be presented for shareholders in one or more stated tax brackets. Tax-equivalent yield is calculated by adjusting the tax-exempt yield by a factor designed to show the approximate yield that a taxable investment would have to earn to produce an after-tax yield equal, for that shareholder, to the tax-exempt yield. The tax-equivalent yield will differ for shareholders in other tax brackets. At times, Putnam Management may reduce its compensation or assume expenses of the Fund in order to reduce the Fund's expenses. The per share amount of any such fee reduction or assumption of expenses during the Fund's past ten fiscal years (or for the life of the Fund, if shorter) is reflected in the table in the section entitled "Financial history" in the Prospectus. Any such fee reduction or assumption of expenses would increase the Fund's yield and total return during the period of the fee reduction or assumption of expenses. All data are based on past performance and do not predict future results. COMPARISON OF PORTFOLIO PERFORMANCE Independent statistical agencies measure the Fund's investment performance and publish comparative information showing how the Fund, and other investment companies, performed in specified time periods. Three agencies whose reports are commonly used for such comparisons are set forth below. From time to time, the Fund may distribute these comparisons to its shareholders or to potential investors. THE AGENCIES LISTED BELOW MEASURE PERFORMANCE BASED ON THEIR OWN CRITERIA RATHER THAN ON THE STANDARDIZED PERFORMANCE MEASURES DESCRIBED IN THE PRECEDING SECTION. LIPPER ANALYTICAL SERVICES, INC. distributes mutual fund rankings monthly. The rankings are based on total return performance calculated by Lipper, reflecting generally changes in net asset value adjusted for reinvestment of capital gains and income dividends. They do not reflect deduction of any sales charges. Lipper rankings cover a variety of performance periods, for example year-to-date, 1-year, 5-year, and 10-year performance. Lipper classifies mutual funds by investment objective and asset category. MORNINGSTAR, INC. distributes mutual fund ratings twice a month. The ratings are divided into five groups: highest, above average, neutral, below average and lowest. They represent a fund's historical risk/reward ratio relative to other funds with similar objectives. The performance factor is a weighted-average assessment of the Fund's 3-year, 5-year, and 10-year total return performance (if available) reflecting deduction of expenses and sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. The ratings are derived from a purely quantitative system that does not utilize the subjective criteria customarily employed by rating agencies such as Standard & Poor's Corporation and Moody's Investor Service, Inc. CDA/WIESENBERGER'S MANAGEMENT RESULTS publishes mutual fund rankings and is distributed monthly. The rankings are based entirely on total return calculated by Weisenberger for periods such as year-to-date, 1-year, 3-year, 5-year and 10-year. Mutual funds are ranked in general categories (e.g., international bond, international equity, municipal bond, and maximum capital gain). Weisenberger rankings do not reflect deduction of sales charges or fees. Independent publications may also evaluate the Fund's performance. Certain of those publications are listed below, at the request of Putnam Mutual Funds, which bears full responsibility for their use and the descriptions appearing below. From time to time the Fund may distribute evaluations by or excerpts from these publications to its shareholders or to potential investors. The following illustrates the types of information provided by these publications. BUSINESS WEEK publishes mutual fund rankings in its Investment Figures of the Week column. The rankings are based on 4-week and 52-week total return reflecting changes in net asset value and the reinvestment of all distributions. They do not reflect deduction of any sales charges. Funds are not categorized; they compete in a large universe of over 2000 funds. The source for rankings is data generated by Morningstar, Inc. INVESTOR'S BUSINESS DAILY publishes mutual fund rankings on a daily basis. The rankings are depicted as the top 25 funds in a given category. The categories are based loosely on the type of fund, e.g., growth funds, balanced funds, U.S. government funds, GNMA funds, growth and income funds, corporate bond funds, etc. Performance periods for sector equity funds can vary from 4 weeks to 39 weeks; performance periods for other fund groups vary from 1 year to 3 years. Total return performance reflects changes in net asset value and reinvestment of dividends and capital gains. The rankings are based strictly on total return. They do not reflect deduction of any sales charges. Performance grades are conferred from A+ to E. An A+ rating means that the fund has performed within the top 5% of a general universe of over 2000 funds; an A rating denotes the top 10%; an A- is given to the top 15%, etc. BARRON'S periodically publishes mutual fund rankings. The rankings are based on total return performance provided by Lipper Analytical Services. The Lipper total return data reflects changes in net asset value and reinvestment of distributions, but does not reflect deduction of any sales charges. The performance periods vary from short-term intervals (current quarter or year-to-date, for example) to long-term periods (five-year or ten-year performance, for example). Barron's classifies the funds using the Lipper mutual fund categories, such as Capital Appreciation Funds, Growth Funds, U.S. Government Funds, Equity Income Funds, Global Funds, etc. Occasionally, Barron's modifies the Lipper information by ranking the funds in asset classes. "Large funds" may be those with assets in excess of $25 million; "small funds" may be those with less than $25 million in assets. THE WALL STREET JOURNAL publishes its Mutual Fund Scorecard on a daily basis. Each Scorecard is a ranking of the top-15 funds in a given Lipper Analytical Services category. Lipper provides the rankings based on its total return data reflecting changes in net asset value and reinvestment of distributions and not reflecting any sales charges. The Scorecard portrays 4-week, year-to-date, one-year and 5-year performance; however, the ranking is based on the one-year results. The rankings for any given category appear approximately once per month. FORTUNE magazine periodically publishes mutual fund rankings that have been compiled for the magazine by Morningstar, Inc. Funds are placed in stock or bond fund categories (for example, aggressive growth stock funds, growth stock funds, small company stock funds, junk bond funds, Treasury bond funds, etc.), with the top-10 stock funds and the top-5 bond funds appearing in the rankings. The rankings are based on 3-year annualized total return reflecting changes in net asset value and reinvestment of distributions and not reflecting sales charges. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. MONEY magazine periodically publishes mutual fund rankings on a database of funds tracked for performance by Lipper Analytical Services. The funds are placed in 23 stock or bond fund categories and analyzed for five-year risk adjusted return. Total return reflects changes in net asset value and reinvestment of all dividends and capital gains distributions and does not reflect deduction of any sales charges. Grades are conferred (from A to E): the top 20% in each category receive an A, the next 20% a B, etc. To be ranked, a fund must be at least one year old, accept a minimum investment of $25,000 or less and have had assets of at least $25 million as of a given date. FINANCIAL WORLD publishes its monthly Independent Appraisals of Mutual Funds, a survey of approximately 1000 mutual funds. Funds are categorized as to type, e.g., balanced funds, corporate bond funds, global bond funds, growth and income funds, U.S. government bond funds, etc. To compete, funds must be over one year old, have over $1 million in assets, require a maximum of $10,000 initial investment, and should be available in at least 10 states in the United States. The funds receive a composite past performance rating, which weighs the intermediate- and long-term past performance of each fund versus its category, as well as taking into account its risk, reward to risk, and fees. An A+ rated fund is one of the best, while a D-rated fund is one of the worst. The source for Financial World rating is Schabacker investment management in Rockville, MD. FORBES magazine periodically publishes mutual fund ratings based on performance over at least two bull and bear market cycles. The funds are categorized by type, including stock and balanced funds, taxable bond funds, municipal bond funds, etc. Data sources include Lipper Analytical Services and CDA Investment Technologies. The ratings are based strictly on performance at net asset value over the given cycles. Funds performing in the top 5% receive an A+ rating; the top 15% receive an A rating; and so on until the bottom 5% receive an F rating. Each fund exhibits two ratings, one for performance in "up" markets and another for performance in "down" markets. KIPLINGER'S PERSONAL FINANCE MAGAZINE (formerly Changing Times), periodically publishes rankings of mutual funds based on one-, three- and five-year total return performance reflecting changes in net asset value and reinvestment of dividends and capital gains and not reflecting deduction of any sales charges. Funds are ranked by tenths: a rank of 1 means that a fund was among the highest 10% in total return for the period; a rank of 10 denotes the bottom 10%. Funds compete in categories of similar funds--aggressive growth funds, growth and income funds, sector funds, corporate bond funds, global governmental bond funds, mortgage-backed securities funds, etc. Kiplinger's also provides a risk-adjusted grade in both rising and falling markets. Funds are graded against others with the same objective. The average weekly total return over two years is calculated. Performance is adjusted using quantitative techniques to reflect the risk profile of the fund. U.S. NEWS AND WORLD REPORT periodically publishes mutual fund rankings based on an overall performance index (OPI) devised by Kanon Bloch Carre & Co., a Boston research firm. Over 2000 funds are tracked and divided into 10 equity, taxable bond and tax-free bond categories. Funds compete within the 10 groups and three broad categories. The OPI is a number from 0-100 that measures the relative performance of funds at least three years old over the last 1, 3, 5 and 10 years and the last six bear markets. Total return reflects changes in net asset value and the reinvestment of any dividends and capital gains distributions and does not reflect deduction of any sales charges. Results for the longer periods receive the most weight. THE 100 BEST MUTUAL FUNDS YOU CAN BUY (1992), authored by Gordon K. Williamson. The author's list of funds is divided into 12 equity and bond fund categories, and the 100 funds are determined by applying four criteria. First, equity funds whose current management teams have been in place for less than five years are eliminated. (The standard for bond funds is three years.) Second, the author excludes any fund that ranks in the bottom 20 percent of its category's risk level. Risk is determined by analyzing how many months over the past three years the fund has underperformed a bank CD or a U.S. Treasury bill. Third, a fund must have demonstrated strong results for current three-year and five-year performance. Fourth, the fund must either possess, in Mr. Williamson's judgment, "excellent" risk-adjusted return or "superior" return with low levels of risk. Each of the 100 funds is ranked in five categories: total return, risk/volatility, management, current income and expenses. The rankings follow a five-point system: zero designates "poor"; one point means "fair"; two points denote "good"; three points qualify as a "very good"; four points rank as "superior"; and five points mean "excellent." In addition, Putnam Mutual Funds may distribute to shareholders or prospective investors illustrations of the benefits of reinvesting tax-exempt or tax-deferred distributions over specified time periods, which may include comparisons to fully taxable distributions. These illustrations use hypothetical rates of tax-advantaged and taxable returns and are not intended to indicate the past or future performance of any fund. DEFINITIONS "Putnam Management" -- Putnam Investment Management, Inc., the Fund's investment manager. "Putnam Mutual Funds" -- Putnam Mutual Funds Corp., the Fund's principal underwriter. "Putnam Fiduciary Trust -- Putnam Fiduciary Trust Company, Company" the Fund's custodian. "Putnam Investor Services" -- Putnam Investor Services, a division of Putnam Fiduciary Trust Company, the Fund's investor servicing agent. PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND FORM N-1A PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Index to Financial Statements and Supporting Schedules: (1) Financial Statements: Statement of assets and liabilities -- February 28, 1995(a) . Statement of operations -- year ended February 28, 1995(a) . Statement of changes in net assets -- years ended February 28, 1995 and February 28, 1994(a) . Financial highlights (a)(b). Notes to financial statements(a). (2) Supporting Schedules: Schedule I - Portfolio of investments owned - February 28, 1995(a) . Schedules II through IX omitted because the required matter is not present. -------------------------- (a) Incorporated by reference into Parts A and B. (b) Included in Part A. (b) Exhibits: 1. Agreement and Declaration of Trust dated April 1, 1989 - - Incorporated by reference to the Registrant's Initial Registration Statement. 2. By-Laws, as amended through February 1, 1994 - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 3. Not applicable. 4a. Class A Specimen share certificate - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 4b. Class B Specimen share certificate - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 4c. Class M Specimen share certificate -- Exhibit 1. 4d. Portions of Agreement and Declaration of Trust Relating to Shareholders' Rights - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 4e . Portions of By-Laws Relating to Shareholders' Rights - - Incorporated by reference to Post- Effective Amendment No. 6 to the Registrant's Registration Statement. 5. Copy of Management Contract dated July 11, 1991 - -Incorporated by reference to Post-Effective Amendment No . 4 to the Registrant's Registration Statement. 6a. Copy of Distributor's Contract dated May 6, 1994 -- Exhibit 2 . 6b. Copy of Specimen Dealer Sales Contract - - Exhibit 3 . 6c. Copy of Specimen Financial Institution Sales Contract - - Exhibit 4 . 7. Not applicable. 8. Copy of Custodian Agreement with Putnam Fiduciary Trust Company dated May 3, 1991, as amended July 13, 1992 - - Incorporated by reference to Post- Effective Amendment No. 6 to the Registrant's Registration Statement. 9. Copy of Investor Servicing Agreement dated June 3, 1991 with Putnam Fiduciary Trust Company - - Incorporated by reference to Post-Effective Amendment No. 4 to the Registrant's Registration Statement. 10. Opinion of Ropes & Gray, including consent - - Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's Registration Statement. 11. Not applicable. 12. Not applicable. 13a. Investment Letter for Class A shares from Putnam Financial Services, Inc. to the Registrant - - Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's Registration Statement. 14. Not applicable. 15a. Copy of Class A Distribution Plan and Agreement dated July 8, 1993 - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 15b. Copy of Class B Distribution Plan and Agreement dated July 15, 1993 - - Incorporated by reference to Post-Effective Amendment No. 6 to the Registrant's Registration Statement. 15c. Form of Class M Distribution Plan and Agreement -- Exhibit 5 . 15d . Copy of Specimen Dealer Service Agreement - - Exhibit 6 . 15e . Copy of Specimen Financial Institution Service Agreement - - Exhibit 7 . 16. Schedules for computation of performance quotations - Exhibit 8 . 17a. Financial Data Schedule for Class A shares -- Exhibit 9. 17b. Financial Data Schedule for Class B shares --Exhibit 10. ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. ITEM 26. NUMBER OF HOLDERS OF SECURITIES As of May 31, 1995, there were 5,348 and 1,765 holders , respectively, of the Registrant's Class A and Class B shares of beneficial interest. No Class M shares were outstanding as of that date. ITEM 27. INDEMNIFICATION The information required by this item is incorporated herein by reference from the Registrant's Initial Registration Statement on Form N-1A under the Investment Company Act of 1940 (File No. 811-5802). Item 28. Business and Other Connections of Investment Adviser Except as set forth below, the directors and officers of the Registrant's investment adviser have been engaged during the past two fiscal years in no business, vocation or employment of a substantial nature other than as directors or officers of the investment adviser or certain of its corporate affiliates. Certain officers of the investment adviser serve as officers of some or all of the Putnam funds. The address of the investment adviser, its corporate affiliates and the Putnam Funds is One Post Office Square, Boston, Massachusetts 02109. NAME NON-PUTNAM BUSINESS AND OTHER CONNECTIONS John V. Adduci Prior to July, 1993, Human Resources Assistant Vice President Manager, First Security Services, 80 Main St., Reading, MA 01867 Gail S. Attridge Prior to November, 1993, International Vice President Analyst, Keystone Custodian Funds, 200 Berkeley Street, Boston, MA 02116 James D. Babcock Prior to June, 1994, Interest Assistant Vice President Supervisor, Salomon Brothers, Inc. 7 World Trade Center, New York, NY 10048 Prior to June, 1993, Audit Manager, Coopers & Lybrand, One Sylvan Way, Parsipanny, NJ 07054 Robert K. Baumbach Prior to August, 1994, Vice President Vice President and Analyst, Keystone Custodian Funds, 200 Berkeley St., Boston, MA 02110 Sharon A. Berka Prior to January, 1994, Vice Vice President President - Compensation Manager, BayBanks, Inc., 175 Federal Street, Boston, MA 02110 Matthew G. Bevin Prior to February, 1995, Consultant, Assistant Vice President SEI Corporation, 680 East Swedesford Road, Wayne, PA 19807 Thomas Bogan Prior to November, 1994, Analyst Senior Vice President Lord, Abbett & Co., 767 Fifth Avenue, New York, NY 10153 Michael F. Bouscaren Prior to May, 1994, President and Senior Vice President Chairman of the Board of Directors at Salomon Series Funds, Inc. and a Director of Salomon Brothers Asset Management, 7 World Trade Center, New York, NY 10048 Brett Browchuk Prior to April, 1994, Managing Managing Director Director, Fidelity Investments, 82 Devonshire St., Boston, MA 02109 Carolyn S. Bunten Prior to July, 1993, Assistant Trader, Assistant Vice President Scudder Stevens & Clark, Inc., 175 Federal St., Boston, MA 02110 Andrea Burke Prior to August, 1994, Vice President Vice President and Portfolio Manager, Back Bay Advisors, 399 Boylston St., Boston, MA 02116 Peter Carman Prior to August, 1993, Chief Senior Managing Director Investment Officer, Chairman, U.S. Equity Investment Policy Committee, Member of Board of Directors, Sanford C. Bernstein & Co., Inc., 767 Fifth Avenue, New York, NY 10153 Joseph M. Carrabes Prior to June, 1993, Senior Financial Vice President Services Officer, The Boston Company, Inc., One Boston Place, Boston, MA Steven Cheshire Prior to January, 1994, Assistant Vice President Vice President, Wellington Management, 75 State Street, Boston, MA 02109 Kenneth L. Daly Prior to August, 1993, Vice Senior Vice President President, Fidelity Investments, 82 Devonshire St., Boston, MA 02109 John A. DeTore Prior to January, 1994, Director of Managing Director Quantitative Portfolio Management, Wellington Management, 75 State Street, Boston, MA 02109 Theodore J. Deutz Prior to January, 1995, Senior Vice Vice President President, Metropolitan West Securities, Inc. 10880 Wilshire Blvd., Suite 200, Los Angeles, CA 90024 Michael G. Dolan Prior to February, 1994, Senior Assistant Vice President Financial Analyst, General Electric Company, 1000 Western Ave., Lynn, MA 01905 Joseph J. Eagleeye Prior to August, 1994, Associate, Assistant Vice President David Taussig & Associates, 424 University Ave., Sacramento, CA 95813 Michael T. Fitzgerald Prior to September, 1994, Senior Senior Vice President Vice President, Vantage Global Advisers, 1201 Morningside Dr., Manhattan Beach, CA 90266 Roland Gillis Prior to March, 1995, Vice President Senior Vice President and Senior Portfolio Manager, Keystone Group, Inc., 200 Berkeley St., Boston, MA 02116 Mark D. Goodwin Prior to May, 1994, Manager, Audit & Assistant Vice President Operations Analysis, Mitre Corporation, 202 Burlington Rd., Bedford, MA 01730 Stephen A. Gorman Prior to July, 1994, Financial Assistant Vice President Analyst, Boston Harbor Trust Company, 100 Federal St., Boston, MA 02110 Jill Grossberg Prior to March, 1995, Associate Assistant Vice President Counsel, 440 Financial Group of and Associate Counsel Worcester, Inc., 440 Lincoln St., Worcester, MA 01653; Prior to November, 1993, Counsel, Berman DeValerio & Pease, One Liberty Square, Boston, MA 02109 Deborah R. Healey Prior to June, 1994, Senior Equity Senior Vice President Trader, Fidelity Management & Research Company, 82 Devonshire St., Boston, MA 02109 Lisa A. Heitman Prior to July, 1994, Securities Senior Vice President Analyst, Lord, Abbett & Company, 767 Fifth Ave., New York, NY 10153 Michael F. Hotchkiss Prior to May, 1994, Vice President, Vice President Massachusetts Financial Services, 500 Boylston St., Boston, MA 02116 Walter Hunnewell, Jr. Prior to April, 1994, Managing Vice President Director, Veronis, Suhler & Associates, 350 Park Avenue, New York, NY 10022 Joseph Joseph Prior to October, 1994, Managing Vice President Director, Vert Independent Capital Research, 53 Wall St., New York, NY 10052 Prior to August, 1993, Manager, Price Waterhouse, 6th Avenue, New York, NY 10036 Mary E. Kearney Prior to February, 1995, Partner, Managing Director Price Waterhouse, 160 Federal St., Boston, MA 02110 D. William Kohli Prior to September, 1994, Executive Senior Vice President Vice President and Co-Director of Global Bond Management; Prior to 1993, Portfolio Manager, Franklin Advisors/Templeton Investment Counsel, 777 Mariners Island Blvd., San Mateo, CA 94404 Karen R. Korn Prior to June, 1994, Vice President, Vice President Assistant to the President, Designs, Inc. 1244 Boylston St., Chestnut Hill, MA 02167 Peter B. Krug Prior to January, 1995, Owner and Vice President Director, Griswold Special Care, 42 Ethan Allen Drive, Acton, MA 01720 Lawrence J. Lasser Director, Marsh & McLennan Companies, President, Director Inc., 1221 Avenue of the Americas, and Chief Executive New York, NY 10020 Officer Director, INROADS/Central New England, Inc., 99 Bedford St., Boston, MA 02111 Jeffrey R. Lindsey Prior to April, 1994, Vice President Vice President and Board Member, Strategic Portfolio Management, 900 Ashwood Parkway, Suite 290, Atlanta, GA 30338 James W. Lukens Prior to February, 1995, Vice Senior Vice President President of Institutional Marketing, Keystone Group, Inc., 200 Berkeley St., Boston, MA 02116 Michael Martino Prior to January, 1994, Executive Managing Director Vice President and Chief Investment Officer until 1992 Susan A. McCormack Prior to May, 1994, Associate Vice President Investment Banker, Merrill Lynch & Co., 350 South Grand Ave., Suite 2830, Los Angeles, CA 90071 Carol McMullen Prior to June, 1995, Senior Vice, Managing Director President and Senior Portfolio Manager, Baring Asset Management, 125 High Street, Boston, MA 02110 Maziar Minovi Prior to January, 1995, Associate Vice President Privatization Specialist, The International Bank for Reconstruction and Development, 1818 H St. N.W., Washington, DC 20433 Michael J. Mufson Prior to June, 1993, Senior Equity Senior Vice President Analyst, Stein Roe & Farnham, One South Wacker Drive, Chicago, IL 60606 Paul G. Murphy Prior to January, 1995, Section Assistant Vice President Manager, First Data Corp., 53 State Street, Boston, MA 02109 Warren S. Naphtal Prior to January, 1994, Managing Senior Vice President Director, Continental Bank, 231 So. Lasalle St., Chicago, IL 60697 C. Patrick O'Donnell, Jr. Prior to May, 1994, President, Managing Director Exeter Research, Inc., 163 Water Street, Exeter, New Hampshire, 03833 Brian O'Keefe Prior to December, 1993, Vice Vice President President - Foreign Exchange Trader, Bank of Boston, 100 Federal Street, Boston, MA 02109 Margaret Pietropaolo Prior to January, 1994, Data Base/ Assistant Vice President Production Analyst, Wellington Management, 75 State Street, Boston, MA 02109 Jane E. Price Prior to February, 1995, Associate Assistant Vice President ERISA Attorney, Hale & Dorr, 60 State St., Boston, MA 02109 George Putnam Chairman and Director, Putnam Mutual Chairman and Director Funds Corp. Director, The Boston Company, Inc., One Boston Place, Boston, MA 02108 Director, Boston Safe Deposit and Trust Company, One Boston Place, Boston, MA 02108 Director, Freeport-McMoRan, Inc., 200 Park Avenue, New York, NY 10166 Director, General Mills, Inc., 9200 Wayzata Boulevard, Minneapolis, MN 55440 Director, Houghton Mifflin Company, One Beacon Street, Boston, MA 02108 Director, Marsh & McLennan Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020 Director, Rockefeller Group, Inc., 1230 Avenue of the Americas, New York, NY 10020 Thomas Rosalanko Prior to February, 1995, Senior Senior Vice President Account Manager, SEI Corporation, 680 East Swedesford Road, Wayne, PA 19807 Michael Scanlon Prior to February, 1995, Senior Assistant Vice President Financial Analyst, Massachusetts Financial Services, 500 Boylston St., Boston, MA 02116 Robert M. Shafto Prior to January, 1995, Account Assistant Vice President Manager, IBM Corporation, 404 Wyman St., Waltham, MA 02254 Mark J. Siegel Prior to June, 1993, Vice President, Senior Vice President Salomon Brothers International, Ltd., Victoria Plaza, 111 Buckingham Palace Road, London SW1W 0SB, England Karen F. Smith Prior to May, 1994, Consultant and Assistant Vice President Portfolio Manager, Wyatt Asset Services, Inc., 1211 W.W. 5th Ave., Portland, OR 97204 Joanne Soja Prior to June, 1993, Managing Senior Vice President Director/Portfolio Manager, Chancellor Capital Management, 153 East 53rd Street, New York, NY 10002 Steven Spiegel Prior to December, 1994, Managing Senior Managing Director Director/Retirement, Lehman Brothers, Inc., 200 Vesey St., World Financial Center, New York, NY 10285 George W. Stairs Prior to July, 1994, Equity Research Vice President Analyst, ValueQuest Limited, Roundy's Hill, Marblehead, MA 01945 Roger Sullivan Prior to December, 1994, Vice Senior Vice President President, State Street Research & Management Co., One Financial Center, Boston, MA 02111 Jerry H. Tempelman Prior to May, 1994, Senior Money Assistant Vice President Market Trader, State Street Bank & Trust Co., 225 Franklin, Street, Boston, MA 02110 Hillary F. Till Prior to May, 1994, Fixed-Income Vice President Derivative Trader, Bank of Boston, 100 Federal Street, Boston, MA 02109 Prior to December, 1993, Equity Analyst, Harvard Management Company, 600 Atlantic St., Boston, MA 02109 Elizabeth A. Underhill Prior to August, 1994, Vice President Senior Vice President and Senior Equity Analyst, State Street Bank and Trust Company, 225 Franklin St., Boston, MA 02110 Charles C. Van Vleet Prior to August, 1994, Vice President Senior Vice President and Fixed-Income Manager, Alliance Capital Management, 1345 Avenue of the Americas, New York, NY 10105 Francis P. Walsh Prior to November, 1994, Research Vice President Analyst, Furman, Selz, Inc. 230 Park Avenue, New York, NY 10169 Prior to December, 1993, Strategic Marketing Analyst, Lotus Development, Corporation 55 Cambridge Parkway, Cambridge, MA 02142 Michael R. Weinstein Prior to March, 1994, Management Vice President Consultant, Arthur D. Little, Acorn Park, Cambridge, MA 02140 Item 29. Principal Underwriter (a) Putnam Mutual Funds Corp. is the principal underwriter for each of the following investment companies, including the Registrant: Putnam Adjustable Rate U.S. Government Fund, Putnam American Government Income Fund, Putnam Arizona Tax Exempt Income Fund, Putnam Asia Pacific Growth Fund, Putnam Asset Allocation Funds, Putnam Balanced Retirement Fund, Putnam California Tax Exempt Income Trust, Putnam California Tax Exempt Money Market Fund, Putnam Capital Appreciation Fund, Putnam Capital Manager Trust, Putnam Convertible Income-Growth Trust, Putnam Diversified Equity Trust, Putnam Diversified Income Trust, Putnam Dividend Growth Fund, Putnam Equity Income Fund, Putnam Europe Growth Fund, Putnam Federal Income Trust, Putnam Florida Tax Exempt Income Fund, The Putnam Fund for Growth and Income, The George Putnam Fund of Boston, Putnam Global Governmental Income Trust, Putnam Global Growth Fund, Putnam Growth Fund, Putnam Growth and Income Fund II, Putnam Health Sciences Trust, Putnam High Yield Trust, Putnam High Yield Advantage Fund, Putnam Income Fund, Putnam Intermediate Tax Exempt Income Fund, Putnam Intermediate U.S. Government Income Fund, Putnam Investment Funds, Putnam Investment-Grade Bond Fund, Putnam Investors Fund, Putnam Massachusetts Tax Exempt Income Fund II, Putnam Michigan Tax Exempt Income Fund II, Putnam Minnesota Tax Exempt Income Fund II, Putnam Money Market Fund, Putnam Municipal Income Fund, Putnam Natural Resources Fund, Putnam New Jersey Tax Exempt Income Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income Trust, Putnam New York Tax Exempt Money Market Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax Exempt Income Fund II, Putnam OTC Emerging Growth Fund, Putnam Overseas Growth Fund, Putnam Pennsylvania Tax Exempt Income Fund, Putnam Preferred Income Fund, Putnam Tax Exempt Income Fund, Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income Trust, Putnam U.S. Government Income Trust, Putnam Utilities Growth and Income Fund, Putnam Vista Fund, Putnam Voyager Fund
(b) The directors and officers of the Registrant's principal underwriter are: Positions and Offices Positions and Offices Name with Underwriter with Registrant John V. Adduci Assistant Vice President None Christopher S. Alpaugh Vice President None Paulette C. Amisano Vice President None Ronald J. Anwar Vice President None Karen M. Apatow Assistant Vice President None Steven E. Asher Senior Vice President None Scott A. Avery Vice President None Hallie L. Baron Assistant Vice President None Ira G. Baron Senior Vice President None John L. Bartlett Senior Vice President None Steven M. Beatty Vice President None Matthew F. Beaudry Vice President None John J. Bent Vice President None Thomas A. Beringer Vice President None Sharon A. Berka Vice President None Suzanne J. Bessett Vice President None Maureen L. Boisvert Vice President None Keith R. Bouchard Vice President None Linda M. Brady Assistant Vice President None Leslee R. Bresnahan Senior Vice President None James D. Brockelman Senior Vice President None Scott C. Brown Vice President None Gail D. Buckner Senior Vice President None Robert W. Burke Senior Managing Director None Susan Dwyer Cabana Vice President None Ellen S. Callahan Vice President None Thomas C. Callahan Assistant Vice President None Peter J. Campagna Vice President None William A. Campagna Senior Vice President None Charles A. Carey Vice President None Patricia A. Cartwright Assistant Vice President None Janet Casale-Sweeney Vice President None Stephen J. Chaput Assistant Vice President None Daniel J. Church Vice President None James E. Clinton Assistant Vice President None Kathleen M. Collman Managing Director None Mark L. Coneeny Vice President None Donald A. Connelly Senior Vice President None Anna Coppola Vice President None F. Nicholas Corvinus Senior Vice President None Chad H. Cristo Assistant Vice President None Lisa M. D'Allesandro Assistant vice President None Jessica E. Dahill Vice President None Kenneth L. Daly Senior Vice President None Edward H. Dane Vice President None Nancy M. Days Assistant Vice President None Pamela De Oliveira-Smith Assistant Vice President None Joseph C. DeSimone Assistant Vice President None Daniel J. Delianedis Vice President None Teresa F. Dennehy Assistant Vice President None J. Thomas Despres Senior Vice President None Michael G. Dolan Assistant Vice President None Scott M. Donaldson Vice President None Emily J. Durbin Vice President None David B. Edlin Senior Vice President None James M. English Senior Vice President None Vincent Esposito Managing Director None Mary K. Farrell Assistant Vice President None Michael J. Fechter Vice President None Susan H. Feldman Vice President None Paul F. Fichera Senior Vice President None C. Nancy Fisher Senior Vice President None Mitchell B. Fishman Senior Vice President None Joseph C. Fiumara Vice President None Patricia C. Flaherty Senior Vice President None Judy P. Frodigh Vice President None Samuel F. Gagliardi Vice President None Judy S. Gates Vice President None Richard W. Gauger Assistant Vice President None Joseph P. Gennaco Vice President None Stephen E. Gibson Managing Director None Mark P. Goodfellow Assistant Vice President None Robert Goodman Managing Director None Mark D. Goodwin Assistant Vice President None Anthony J. Grace Assistant Vice President None Linda K. Grace Assistant Vice President None Robert G. Greenly Vice President None Jill Grossberg Assistant Vice President None Jeffrey P. Gubala Vice President None James E. Halloran Vice President None Thomas W. Halloran Vice President None Bruce D. Harrington Assistant Vice President None Marilyn M. Hausammann Senior Vice President None Howard W. Hawkins, III Vice President None Deanna R. Hayes-Castro Vice President None Paul P. Heffernan Vice President None Susan M. Heimanson Vice President None Joanne Heyman Assistant Vice President None Bess J.M. Hochstein Vice President None Maureen A. Holmes Assistant Vice President None Paula J. Hoyt Assistant Vice President None William J. Hurley Senior Vice President None Gregory E. Hyde Senior Vice President None Dwight D. Jacobsen Senior Vice President None Douglas B. Jamieson Senior Managing Director, Director None Jay M. Johnson Vice President None Kevin M. Joyce Senior Vice President None Karen R. Kay Senior Vice President None Mary E. Kearney Managing Director None John P. Keating Vice President None A. Siobahn Kelly Assistant Vice President None Brian J. Kelly Vice President None Deborah H. Kirk Senior Vice President None Jill A. Koontz Assistant Vice President None Linda G. Kraunelis Assistant Vice President None Howard H. Kreutzberg Senior Vice President None Marjorie B. Krieger Assistant Vice President None Charles Lacasia Assistant Vice President None Arthur B. Laffer, Jr. Vice President None James D. Lathrop Vice President None Edward V. Lewandowski Senior Vice President None Edward V. Lewandowski, Jr. Vice President None Samuel L. Lieberman Vice President None David M. Lifsitz Assistant Vice President None Ann Marie Linehan Assistant Vice President None Maura A. Lockwood Vice President None Rufino R. Lomba Vice President None Robert F. Lucey Senior Managing Director, Director None Kathryn A. Lucier Assistant Vice President None Alana Madden Vice President None Ann Malatos Assistant Vice President None Renee L. Maloof Assistant Vice President None Frederick S. Marius Assistant Vice President None Karen E. Marotta Vice President None Kathleen M. McAnulty Assistant Vice President None Anne B. McCarthy Assistant Vice President None Paul McConville Vice President None Marla J. McDougall Assistant Vice President None Walter S. McFarland Vice President None Mark J. McKenna Senior Vice President None Gregory J. McMillan Vice President None Robert E. McMurtrie Vice President None Claye A. Metelmann Vice President None J. Chris Meyer Senior Vice President None Douglas W. Miller Vice President None Jeffery M. Miller Senior Vice President None Ronald K. Mills Vice President None Peter M. Moore Assistant Vice President None Timothy P. Moran Treasurer None Mitchell Moret Senior Vice President None Donald E. Mullen Vice President None Paul G. Murphy Assistant Vice President None Brendan R. Murray Vice President None Robert Nadherny Vice President None Alexander L. Nelson Managing Director None Jane M. Nickodemus Vice President None John P. Nickodemus Vice President None Michael C. Noonis Assistant Vice President None Kristen P. O'Brien Vice President None Kevin L. O'Shea Senior Vice President None Nathan D. O'Steen Assistant Vice President None Joseph R. Palombo Managing Director None Scott A. Papes Vice President None Cynthia O. Parr Vice President None John D. Pataccoli Vice President None John G. Phoenix Vice President None Joseph Phoenix Senior Vice President None Jeffrey E. Place Senior Vice President None Keith Plapinger Vice President None Jane E. Price Assistant Vice President None Douglas H. Powell Vice President None Susannah Psomas Vice President None George Putnam Director Chairman & President Debra V. Rothman Vice President None Robert B. Rowe Vice President None Kevin A. Rowell Senior Vice President None Thomas C. Rowley Vice President None Charles A. Ruys de Perez Senior Vice President None Deborah A. Ryan Assistant Vice President None Robert M. Santosuosso Assistant Vice President None Debra J. Sarkisian Assistant Vice President None Catherine A. Saunders Senior Vice President None Robbin L. Saunders Assistant Vice President None Karl W. Saur Vice President None Michael Scanlon Assistant Vice President None Christine A. Scordato Vice President None Joseph W. Scott Assistant Vice President None John B. Shamburg Vice President None Kathleen G. Sharpless Managing Director None John F. Sharry Managing Director None Vincent P. Sheehan Vice President None Stuart D. Sheppard Assistant Vice President None William N. Shiebler Director and President Vice President Daniel S. Shore Vice President None Mark J. Siebold Assistant Vice President None Gordon H. Silver Senior Managing Director Vice President John Skistimas, Jr. Assistant Vice President None Barry Sommers Vice President None Steven Spiegel Senior Managing Director None Nicholas T. Stanojev Senior Vice President None Brian L. Sullivan Vice President None Kevin J. Sullivan Vice President None Moira Sullivan Vice President None James S. Tambone Managing Director None B. Iris Tanner Assistant Vice President None Louis Tasiopoulos Managing Director None David S. Taylor Vice President None John R. Telling Vice President None Richard B. Tibbetts Senior Vice President None Patrice M. Tirado Vice President None Janet E. Tosi Assistant Vice President None John C. Tredinnick Vice President None Bonnie L. Troped Vice President None Christine M. Twigg Assistant Vice Presient None Larry R. Unger Vice President None Douglas J. Vander Linde Senior Vice President None Edward F. Whalen Vice President None Robert J. Wheeler Senior Vice President None John B. White Vice President None Kirk E. Williamson Senior Vice President None Leigh T. Williamson Vice President None Benjamin I. Woloshin Vice President None William H. Woolverton Senior Vice President None Timothy R. Young Vice President None SooHee L. Zebedee Vice President None Laura J. Zografos Vice President None
The principal business address of each person listed above is One Post Office Square, Boston, MA 02109, except for: Mr. Alpaugh, 5980 Richmond Highway, Alexandria, VA 22303 Mr. Anwar, 3000 Valley Forge Circle, King of Prussia, PA 19406 Mr. Avery, 7031 Spring Ridge Rd., Cary NC 27511 Mr. Baron, 31 Cala Moreya, Laguna Niguel, CA 92667 Mr. Bartlett, 7 Fairfield St., Boston, MA 02116 Mr. Beringer, 3722 West 50th St., Edina,MN 55410 Ms. Besset, 1140 North LaSalle Blvd, Chicago, IL 60610 Mr. Bouchard, 18 Brice Rd., Annapolis, MD 21401 Mr. Brown, 2012 West Grove Drive, Gibson, PA 15044 Ms. Buckner, 8338 Timber Trail, Pittsburgh, PA 15237 Mr. Busher, 12005 Ridge Knoll Drive, Fairfax, VA 22033 Mr. Campagna, 2179-D Lake Park Drive, Smyrna, GA 30080 Ms. Castro, 26 Gould Road, Andover, MA 01810 Mr. Church, 4504 Sir Winston Place, Charlotte, NC 28211 Mr. Cristo, 11 Schenck Ave., Great Neck, NY 11021 Mr. Connelly, 4634 Mirada Way, Sarasota, FL 34238 Mr. Corvinus, 208 Water St., Newburyport, MA 01950 Ms. Dahill, 270-1C Iven Ave., St David's, PA 19087 Mr. Deliandis, 206 Promontory Drive, Newport Beach, CA 92660 Mr. Edlin, 7 River Road, 305 Palmer Point, Cos Cob, CT 06807 Mr. English, 1184 Pintail Circle, Boulder, CO 80303 Mr. Goodman, 14 Clover Place, Cos Cob, CT 06807 Mr. Gubala, 490 Beacon Knoll Lane, Ft. Mill, SC 29715 Mr. J. Halloran, 978 W. Creek Lane, Westlake Village, CA 91362 Mr. T. Halloran, 19449 Misty Lake Dr., Strongsville, OH 44136 Mr. Hyde, 3305 Sulky, Marietta, GA 30067 Mr. Jacobsen, 2744 Joyce Ridge Drive, Chesterfield, MO 63017 Mr. Johnson, 200 Clock Tower Place, Carmel, CA 93923 Mr. Keating, 5521 Greenville Avenue, Dallas, TX 75206 Ms. Kirk, 124 Rivermist Dr., Buffalo, NY 14202 Mr. Lathrop, 14814 Straub Hill Lane, Chesterfield, MO 63017 Mr. Lewandowski, 805 Darrell Road, Hillsborough, CA 94010 Mr. Lewandowski, Jr., 2120 The Strand, Manhattan Beach, CA 90266 Mr. Lieberman, 200 Roy St., Seattle, WA 98199 Ms. Madden, 8649 North Himes Avenue, Tampa, FL 33614 Mr. McConville, 515 S. Arlington Heights Rd., Arlington Heights, IL 6005 Mr. McFarland, 8012 Dancing Fern Trail, Chattanooga, TN 37421 Mr. McMillan, 203 D. Zigler St., Zelienople, PA 16063 Mr. McMurtrie, 14529 Glastonbury, Detroit, MI 48223 Mr. Miller, 70 Williams St., Greenwich, CT 06830 Mr. Moret, 4519 Lawn Avenue, Western Springs, IL 60558 Mr. Murray, 13 Ridge Court, Saratoga Springs, NY 12866 Mr. Nadherny, 9714 Marmount Drive, Seattle, WA 98117 Mr. and Mrs. Nickodemus, 463 Village Oaks Court, Ann Arbor, MI 48103 Mr. Padgett, Jr., 7709 Charleston Drive, Bethesda, MD 20817 Mr. Papes, 3102 Wood View Bridge Drive, Kansas City, KS 66103 Mr. Pataccoli, 1500 Bay Rd., Miami, FL 33139 Mr. Phoenix, 1426 Asbury Avenue, Hubbard Woods, IL 60093 Mr. Place, 4211 Loch Highland Parkway, Roswell, GA 30075 Mr. Powell, 1508 Ruth Lane, Newport Beach, CA 92660 Mr. Rowe, 109 Shore Drive, Longwood, FL 32779 Mr. Rowell, 1508 Ruth Lane, Newport Beach, CA 92660 Mr. Rowley, 237 Peeke Avenue, Kirkwood, MO 63122 Ms. Saunders, 39939 Stevenson Common, Freemont, CA 94538 Mr. Shamburg, 10603 N. 100th Street, Scottsdale, AZ 85260 Mr. Sheehan, Parkway Center, 1150 Galapago, Denver, CO 80204 Mr. Shore, 2870 Pharr Court South, N.W., Atlanta, GA 30305 Mr. Sommers, 397 North Little Tour, New City, NY 10956 Mr. B. Sullivan, 777 Pinoake Road, Mt. Lebanon, PA 15243 Ms. M. Sullivan, 493 Zinfandel Lane, St. Helena, CA 94574 Ms. Sweeney, 8 Surf Street, Marblehead, MA 01945 Mr. Syring, 7540 Mandarian Dr., Boca Raton, FL 33433 Mr. Tambone, 10 Commercial Wharf, Boston, MA 02110 Mr. Tredinnick, 2995 Glenwood Drive, Boulder, CO 80301 Mr. Telling, 1995 Delaware Ave., Buffalo, NY 14216 Mr. Unger, 212 E. Broadway, New York, NY 10002 Mr. Vessels, 7 Riverview Drive, Norwalk, CT 06850 Mr. Williamson, 640-4 Tete L'Ours, Mandeville, LA 70471 Mr. White, 10 Mannion Place, Littleton, MA 01460 Mr. Woloshin, 730 North Bundy Drive, Los Angeles, CA 90049 ITEM 30. LOCATION OF ACCOUNTS AND RECORDS Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder are Registrant's Clerk, Beverly Marcus; Registrant's investment adviser, Putnam Investment Management, Inc.; Registrant's principal underwriter, Putnam Mutual Funds Corp.; Registrant's custodian, Putnam Fiduciary Trust Company ("PFTC"); and Registrant's transfer and dividend disbursing agent, Putnam Investor Services, a division of PFTC. The address of the Clerk, investment adviser, principal underwriter, custodian and transfer and dividend disbursing agent is One Post Office Square, Boston, Massachusetts 02109. ITEM 31. MANAGEMENT SERVICES None. ITEM 32. UNDERTAKINGS The Registrant undertakes to furnish to each person to whom a prospectus of the Registrant is delivered a copy of the Registrant's latest annual report to shareholders, upon request and without charge. ---------------------------- CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus and Statement of Additional Information constituting parts of this Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A (File No. 33-28321) (the "Registration Statement") of our report dated April 17, 1995 , relating to the financial statements and financial highlights appearing in the February 28, 1995 Annual Report of Putnam Pennsylvania Tax Exempt Income Fund, which financial statements and financial highlights are also incorporated by reference into the Registration Statement. We also consent to the references to us under the heading "Independent Accountants and Financial Statements" in such Statement of Additional Information and under the heading "Financial highlights" in such Prospectus. PRICE WATERHOUSE LLP Boston, Massachusetts June 19, 1995 POWER OF ATTORNEY I, the undersigned Trustee of Putnam Pennsylvania Tax Exempt Income Fund, hereby severally constitute and appoint George Putnam, Charles E. Porter, Gordon H. Silver, Edward A. Benjamin, Timothy W. Diggins and John W. Gerstmayr, and each of them singly, my true and lawful attorneys, with full power to them and each of them, to sign for me, and in my name and in the capacity indicated below, the Registration Statement on Form N-1A of Putnam Pennsylvania Tax Exempt Income Fund and any and all amendments (including post-effective amendments) to said Registration Statement and to file the same with all exhibits thereto, and other documents in connection therewith , with the Securities and Exchange Commission, granting unto my said attorneys, and each of them acting alone, full power and authority to do and perform each and every act and thing requisite or necessary to be done in the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratify and confirm all that said attorneys or any of them may lawfully do or cause to be done by virtue thereof. WITNESS my hand and seal on the date set forth below. SIGNATURE TITLE DATE /s/ Eli Shapiro - --------------------- Trustee April 19, 1995 Eli Shapiro NOTICE A copy of the Agreement and Declaration of Trust of Putnam Pennsylvania Tax Exempt Income Fund is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Registrant. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston, and The Commonwealth of Massachusetts, on the 19th day of June, 1995 . PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND By: Gordon H. Silver, Vice President Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement of Putnam Pennsylvania Tax Exempt Income Fund has been signed below by the following persons in the capacities and on the dates indicated: Signature Title George Putnam President and Chairman of the Board; Principal Executive Officer; Trustee William F. Pounds Vice Chairman; Trustee John D. Hughes Vice President; Treasurer and Principal Financial Officer Paul G. Bucuvalas Assistant Treasurer and Principal Accounting Officer Jameson A. Baxter Trustee Hans H. Estin Trustee John A. Hill Trustee Elizabeth T. Kennan Trustee Lawrence J. Lasser Trustee Robert E. Patterson Trustee Donald S. Perkins Trustee George Putnam, III Trustee Eli Shapiro Trustee A.J.C. Smith Trustee W. Nicholas Thorndike Trustee By: Gordon H. Silver, as Attorney-in-Fact June 19, 1995 EX-99.B4 2 HOLDERS RTS PUTNAM INVESTMENTS (Logo) PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND Class M Shares Trust Certificate Account No. Certificate No. Shares CUSIP 746852 30 0 THIS CERTIFIES THAT is the owner of Class M shares of beneficial interest in Putnam Pennsylvania Tax Exempt Income Fund, fully paid and nonassessable, the said shares being issued, received and held under and subject to the terms and provisions of the Agreement and Declaration of Trust dated as of April 20, 1989, establishing Putnam Pennsylvania Tax Exempt Income Fund, and all amendments thereto, copies of which are on file with the Secretary of State of The Commonwealth of Massachusetts. The said owner by accepting this certificate agrees to and is bound by all of the said terms and provisions. The shares represented hereby are transferable in writing by the owner thereof in person or by attorney upon surrender of this certificate to the Trustees properly endorsed for transfer. This certificate is executed on behalf of the Trustees as Trustees and not individually and the obligations hereof are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Trust. This certificate is not valid unless countersigned by the Investor Servicing Agent. In Witness Whereof the Trustees of Putnam Pennsylvania Tax Exempt Income Fund have caused the following facsimile signatures to be affixed to this certificate. Dated: COUNTERSIGNED: PUTNAM INVESTOR SERVICES a division of Putnam Fiduciary Trust Company INVESTOR SERVICING AGENT BY FOR THE TRUSTEES AUTHORIZED SIGNATURE A24-28 EX-99.B6 3 DISTR CONTR PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND DISTRIBUTOR'S CONTRACT Distributor's Contract dated May 6, 1994, by and between PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND, a Massachusetts business trust (the "Fund"), and PUTNAM MUTUAL FUNDS CORP., a Massachusetts corporation ("Putnam"). WHEREAS, the Fund and Putnam are desirous of entering into this agreement to provide for the distribution by Putnam of shares of the Fund; NOW, THEREFORE, in consideration of the mutual agreements contained in the Terms and Conditions of Distributor's Contract attached to and forming a part of this Contract (the "Terms and Conditions"), the Fund hereby appoints Putnam as a distributor of shares of the Fund, and Putnam hereby accepts such appointment, all as set forth in the Terms and Conditions. A copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Fund. IN WITNESS WHEREOF, PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND and PUTNAM MUTUAL FUNDS CORP. have each caused this Distributor's Contract to be signed in duplicate in its behalf, all as of the day and year first above written. PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND /s/ Charles E. Porter By: ----------------------------- Executive Vice President PUTNAM MUTUAL FUNDS CORP. /s/ William N. Shiebler By: ----------------------------- President TERMS AND CONDITIONS OF DISTRIBUTOR'S CONTRACT 1. RESERVATION OF RIGHT NOT TO SELL. The Fund reserves the right to refuse at any time or times to sell any of its shares of beneficial interest ("shares") hereunder for any reason deemed adequate by it. 2. PAYMENTS TO PUTNAM. In connection with the distribution of shares of the Fund, Putnam will be entitled to receive: (a) payments pursuant to any Distribution Plan and Agreement from time to time in effect between the Fund and Putnam with respect to the Fund or any particular class of shares of the Fund, (b) any contingent deferred sales charges applicable to the redemption of shares of the Fund or of any particular class of shares of the Fund, determined in the manner set forth in the then current Prospectus and Statement of Additional Information of the Fund and (c) subject to the provisions of Section 3 below, any front-end sales charges applicable to the sale of shares of the Fund or of any particular class of shares of the Fund, less any applicable dealer discount. 3. SALES OF SHARES TO PUTNAM AND SALES BY PUTNAM. Putnam will have the right, as principal, to sell shares of the Fund to investment dealers against orders therefor (a) at the public offering price (calculated as described below) less a discount determined by Putnam, which discount shall not exceed the amount of the sales charge referred to below, or (b) at net asset value. Upon receipt of an order to purchase Fund shares from an investment dealer with whom Putnam has a Sales Contract, Putnam will promptly purchase shares from the Fund to fill such order. The public offering price of a class of shares shall be the net asset value of such shares then in effect, plus any applicable front-end sales charge determined in the manner set forth in the then current Prospectus and Statement of Additional Information of the Fund or as permitted by the Investment Company Act of 1940, as amended, and the Rules and Regulations of the Securities and Exchange Commission promulgated thereunder. In no event shall the public offering price exceed 1000/915ths of such net asset value, and in no event shall any applicable sales charge exceed 8 1/2% of the public offering price. The net asset value of the shares shall be determined in the manner provided in the Agreement and Declaration of Trust of the Fund as then amended and when determined shall be applicable to transactions as provided for in the then current Prospectus and Statement of Additional Information of the Fund. Putnam will also have the right, as principal, to purchase shares from the Fund at their net asset value and to sell such shares to the public against orders therefor at the public offering price or at net asset value. Putnam will also have the right, as principal, to sell shares at their net asset value and not subject to a contingent deferred sales charge to such persons as may be approved by the Trustees of the Fund, all such sales to comply with the provisions of the Investment Company Act of 1940, as amended, and the Rules and Regulations of the Securities and Exchange Commission promulgated thereunder. Putnam will also have the right, as agent for the Fund, to sell shares at the public offering price or at net asset value to such persons and upon such conditions as the Trustees of the Fund may from time to time determine. On every sale the Fund shall receive the applicable net asset value of the shares. Putnam will reimburse the Fund for any increased issue tax paid on account of sales charges. Upon receipt of registration instructions in proper form and payment for shares, Putnam will transmit such instructions to the Fund or its agent for registration of the shares purchased. 4. SALES OF SHARES BY THE FUND. The Fund reserves the right to issue shares at any time directly to its shareholders as a stock dividend or stock split and to sell shares to its shareholders or to other persons approved by Putnam at not less than net asset value. 5. REPURCHASE OF SHARES. Putnam will act as agent for the Fund in connection with the repurchase of shares by the Fund upon the terms and conditions set forth in the then current Prospectus and Statement of Additional Information of the Fund. 6. BASIS OF PURCHASES AND SALES OF SHARES. Putnam will use its best efforts to place shares sold by it on an investment basis. Putnam does not agree to sell any specific number of shares. Shares will be sold by Putnam only against orders therefor. Putnam will not purchase shares from anyone other than the Fund except in accordance with Section 5, and will not take "long" or "short" positions in shares contrary to the Agreement and Declaration of Trust of the Fund. 7. RULES OF NASD, ETC. Putnam will conform to the Rules of Fair Practice of the National Association of Securities Dealers, Inc. and the sale of securities laws of any jurisdiction in which it sells, directly or indirectly, any shares. Putnam also agrees to furnish to the Fund sufficient copies of any agreements or plans it intends to use in connection with any sales of shares in adequate time for the Fund to file and clear them with the proper authorities before they are put in use, and not to use them until so filed and cleared. 8. PUTNAM INDEPENDENT CONTRACTOR. Putnam shall be an independent contractor and neither Putnam nor any of its officers or employees as such is or shall be an employee of the Fund. Putnam is responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents or employees. Putnam assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder. Putnam will maintain at its own expense insurance against public liability in such an amount as the Trustees of the Fund may from time to time reasonably request. 9. EXPENSES. Putnam will pay all expenses of qualifying shares of the Fund for sale under the so-called "Blue Sky" laws of any state (except expenses of any action by the Fund relating to its Agreement and Declaration of Trust or other matters in which the Fund has a direct concern), and expenses of preparing, printing and distributing advertising and sales literature (apart from expenses of registering shares under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and the preparation and printing of Prospectuses and Statements of Additional Information and reports as required by said Acts and the direct expenses of the issue of shares, except that Putnam will pay the cost of the preparation and printing of Prospectuses and Statements of Additional Information and shareholders' reports used by it and by others in the sale of Fund shares to the extent such cost is not paid by others). 10. INDEMNIFICATION OF FUND. Putnam agrees to indemnify and hold harmless the Fund and each person who has been, is, or may hereafter be a Trustee of the Fund against expenses reasonably incurred by any of them in connection with any claim or in connection with any action, suit or proceeding to which any of them may be a party, which arises out of or is alleged to arise out of any misrepresentation or omission to state a material fact, or out of any alleged misrepresentation or omission to state a material fact, on the part of Putnam or any agent or employee of Putnam or any other person for whose acts Putnam is responsible or is alleged to be responsible unless such misrepresentation or omission was made in reliance upon written information furnished by the Fund. Putnam also agrees likewise to indemnify and hold harmless the Fund and each such person in connection with any claim or in connection with any action, suit or proceeding which arises out of or is alleged to arise out of Putnam's (or an affiliate of Putnam's) failure to exercise reasonable care and diligence with respect to its services rendered in connection with investment, reinvestment, automatic withdrawal and other plans for shares. The term "expenses" includes amounts paid in satisfaction of judgments or in settlements which are made with Putnam's consent. The foregoing rights of indemnification shall be in addition to any other rights to which the Fund or a Trustee may be entitled as a matter of law. 11. ASSIGNMENT TERMINATES THIS CONTRACT; AMENDMENTS OF THIS CONTRACT. This Contract shall automatically terminate, without the payment of any penalty, in the event of its assignment. This Contract may be amended only if such amendment be approved either by action of the Trustees of the Fund or at a meeting of the shareholders of the Fund by the affirmative vote of a majority of the outstanding shares of the Fund, and by a majority of the Trustees of the Fund who are not interested persons of the Fund or of Putnam by vote cast in person at a meeting called for the purpose of voting on such approval. 12. EFFECTIVE PERIOD AND TERMINATION OF THIS CONTRACT. This Contract shall take effect upon the date first above written and shall remain in full force and effect continuously (unless terminated automatically as set forth in Section 11) until terminated: (a) Either by the Fund or Putnam by not more than sixty (60) days' nor less than ten (10) days' written notice delivered or mailed by registered mail, postage prepaid, to the other party; or (b) If the continuance of this Contract after January 31, 1995 is not specifically approved at least annually by the Trustees of the Fund or the shareholders of the Fund by the affirmative vote of a majority of the outstanding shares of the Fund, and by a majority of the Trustees of the Fund who are not interested persons of the Fund or of Putnam by vote cast in person at a meeting called for the purpose of voting on such approval. Action by the Fund under (a) above may be taken either (i) by vote of its Trustees or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund. The requirement under (b) above that continuance of this Contract be "specifically approved at least annually" shall be construed in a manner consistent with the Investment Company Act of 1940, as amended, and the Rules and Regulations thereunder. Termination of this Contract pursuant to this Section 12 shall be without the payment of any penalty. 13. CERTAIN DEFINITIONS. For the purposes of this Contract, the "affirmative vote of a majority of the outstanding shares of the Fund" means the affirmative vote, at a duly called and held meeting of shareholders of the Fund, (a) of the holders of 67% or more of the shares of the Fund present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Fund entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Fund entitled to vote at such meeting, whichever is less. For the purposes of this Contract, the terms "interested person" and "assignment" shall have the meanings defined in the Investment Company Act of 1940, as amended, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission under said Act. S:\shared\discon1 EX-99.B6 4 DISTR CONTR DEALER SALES CONTRACT Between: PUTNAM MUTUAL FUNDS CORP. and General Distributor of The Putnam Family of Mutual Funds One Post Office Square Boston, MA 02109 As general distributor of The Putnam Family of Mutual Funds (the "Funds"), we agree to sell you shares of beneficial interest issued by the Funds (the "Shares"), subject to any limitations imposed by any of the Funds and to confirmation by us in each instance of such sales. By your acceptance hereof, you agree to all of the following terms and conditions: 1. OFFERING PRICE AND FEES The public offering price at which you may offer the Shares is the net asset value thereof, as computed from time to time, plus any applicable sales charge described in the then-current Prospectus of the applicable Fund. As compensation for each sale of Shares made by you, you will be allowed the dealer discount if any, on such Shares described in the then-current Prospectus of the Fund whose Shares are sold. We reserve the right to revise the dealer discount referred to herein upon ten days' written notice to you. We will furnish you upon request with the public offering prices for the Shares, and you agree to quote such prices in connection with any Shares offered by you for sale. Your attention is specifically called to the fact that each sale is always made subject to confirmation by us at the public offering price next computed after receipt of the order. There is no sales charge or dealer discount to dealers on the reinvestment of dividends and distributions. In addition to the dealer discount, if any, allowed pursuant to the foregoing provisions of this Section 1, we may, at our expense, provide additional promotional incentives or payments to dealers. If non-cash concessions are provided, each dealer earning such a concession may elect to receive an amount in cash equivalent to the cost of providing such concessions. Notice of the availability of concessions will be given to you by us. All dealer discounts, promotional incentives, payments and concessions will be made by us in accordance with National Association of Securities Dealers, Inc. ("NASD") guidelines and rules. 2. MANNER OF OFFERING, SELLING AND PURCHASING SHARES We have delivered to you a copy of each Fund's current Prospectus and will provide you with such number of copies of each Fund's Prospectus, Statement of Additional Information and shareholder reports and of supplementary sales materials prepared by us, as you may reasonably request. You will offer and sell the Shares only in accordance with the terms and conditions of the current Prospectus and Statement of Additional Information of the applicable Fund. Neither you nor any other person is authorized to give any information or to make any representations other than those contained in such Prospectuses, Statements of Additional Information and shareholder reports or in such supplementary sales materials. You agree that you will not use any other offering materials for the Funds without our written consent. You hereby agree: (i) to exercise your best efforts to find purchasers for the Shares of the Funds, (ii) to furnish to each person to whom any sale is made a copy of the then-current Prospectus of the applicable fund, (iii) to transmit to us promptly upon receipt any and all orders received by you, and (iv) to pay to us the offering price, less any dealer discount to which you are entitled, within three (3) business days of our confirmation of your order, or such shorter time as may be required by law. If such payment is not received within said time period, we reserve the right, without prior notice, to cancel the sale, or at our option to return the Shares to the issuer for redemption or repurchase. In the latter case, we shall have the right to hold you responsible for any loss resulting to us. Should payment be made by check on your local bank, liquidation of Shares may be delayed pending clearance of your check. You agree to issue confirmations promptly for all accepted purchase orders for accounts held in street name. You shall make all sales subject to our confirmation. All orders are subject to acceptance or rejection by us in our sole discretion, and by the Funds in their sole discretion. The procedure stated herein relating to the pricing and handling of orders shall be subject to instructions which we may forward to you from time to time. 3. COMPLIANCE WITH LAW You hereby represent that you are registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and are licensed and qualified as a broker-dealer or otherwise authorized to offer and sell the Shares under the laws of each jurisdiction in which the Shares will be offered and sold by you. You further confirm that you are a member in good standing of the NASD and agree to maintain such membership in good standing or, in the alternative, you are a foreign dealer not eligible for membership in the NASD. You agree that in selling Shares you will comply with all applicable laws, rules and regulations, including the applicable provisions of the Securities Act of 1933, as amended, the applicable rules and regulations of the NASD, and the applicable rules and regulations of any jurisdiction in which you sell, directly or indirectly, any Shares. You agree not to offer for sale or sell the Shares in any jurisdiction in which the Shares are not qualified for sale or in which you are not qualified as a broker-dealer. 4. RELATIONSHIP WITH DEALERS In offering and selling Shares under this Contract, you shall be acting as principal and nothing herein shall be construed to constitute you or any of your agents, employees or representatives as our agent or employee, or as an agent or employee of the Funds. As general distributor of the Funds, we shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the distribution of the Shares. We shall not be under any obligation to you, except for obligations expressly assumed by us in this Contract. 5. TERMINATION Either party hereto may terminate this Contract, without cause, upon ten days' written notice to the other party. We may terminate this Contract for cause upon the violation by you of any of the provisions hereof, such termination to become effective on the date such notice of termination is mailed to you. This Contract shall terminate automatically if either Party ceases to be a member of the NASD. 6. ASSIGNABILITY This Contract is not assignable or transferable, except that we may assign or transfer this Contract to any successor which becomes general distributor of the Funds. 7. GOVERNING LAW This Contract and the rights and obligations of the parties hereunder shall be governed by and construed under the laws of The Commonwealth of Massachusetts. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Contract as of the date set forth below. Please indicate which best Dealer:------------- describes your firm's entity: / / Partnership -------------------- / / Corporation By: -------------------- / / Other - please specify: Authorized Signature, Title --------------------- ------------------------- Please provide your organization's Tax Identification Number on the ------------------------- following line: Address - ---------------------------- Dated:------------------- Please return the signed Putnam copy to Putnam Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203 Approval:--------------------- Date required:---------------- NF-22.94 EX-99.B6 5 DISTR CONTR FINANCIAL INSTITUTION SALES CONTRACT Between: and PUTNAM MUTUAL FUNDS CORP. General Distributor of The Putnam Family of Mutual Funds One Post Office Square Boston, MA 02109 As general distributor of The Putnam Family of Mutual Funds (the "Funds"), we agree that you will make available to your customers, under an agency relationship with your customers, shares of beneficial interest issued by the Funds (the "Shares"), subject to any limitations imposed by any of the Funds and to confirmation by us of each transaction. By your acceptance hereof, you agree to all of the following terms and conditions: 1. OFFERING PRICES AND FEES The public offering price at which you may make the Shares available to your customers is the net asset value thereof, as computed from time to time, plus any applicable sales charge described in the then-current Prospectus of the applicable Fund. In the case of purchases by you, as agent for your customers, of Shares sold with a sales charge, you shall receive an agency commission consisting of a portion of the public offering price, determined on the same basis as the "dealer discount" described in the then-current Prospectus of the Fund, and such other compensation to dealers as may be described therein, which shall be payable to you at the same time and on the same basis as the same is paid to such dealers, consistent with applicable law, rules and regulations. In determining the amount of any agency commission payable to you hereunder, we reserve the right to exclude any purchases for any accounts which we reasonably determine are not made in accordance with the terms of the applicable Fund Prospectus and the provisions of this Contract. We reserve the right to revise the agency commission referred to herein upon ten days' written notice to you. We will furnish you upon request with the public offering prices for the Shares, and you agree to quote such prices in connection with any Shares made available by you as agent for your customers. Your attention is specifically called to the fact that each purchase of Shares by your customers is always made subject to confirmation by us at the public offering price next computed after receipt of the order. There is no sales charge or agency commission to you on the reinvestment of dividends and distributions. 2. MANNER OF MAKING SHARES AVAILABLE FOR PURCHASE We will, upon request, deliver to you a copy of each Fund's then- current Prospectus and will provide you with such number of copies of each Fund's then-current Prospectus, Statement of Additional Information and shareholder reports and of supplementary sales materials prepared by us, as you may reasonably request. It shall be your obligation to ensure that all such information and materials are distributed to your customers who own Shares, in accordance with securities and/or banking law and regulations and any other applicable regulations. Neither you nor any other person is authorized to give any information or to make any representations other than those contained in such Prospectuses, Statements of Additional Information and shareholder reports or in such supplementary sales materials. You shall not furnish or cause to be furnished to any person, display or publish any information or materials relating to any Fund (including, without limitation, promotional materials and sales literature, advertisements, press releases, announcements, statements, posters, signs or other similar material), except such information and materials as may be furnished to you by us or the Fund, and such other information and materials as may be approved in writing by us. You hereby agree: (i) to not purchase any Shares as agent for any customer, unless you deliver or cause to be delivered to such customer, at or prior to the time of such purchase, a copy of the then-current Prospectus of the applicable Fund unless such customer has acknowledged receipt of the Prospectus of such Fund. You hereby represent that you understand your obligation to deliver a prospectus to customers who purchase Shares pursuant to federal securities laws and you have taken all necessary steps to comply with such prospectus delivery requirements; (ii) to transmit to us promptly upon receipt any and all orders received by you, it being understood that no conditional orders will be accepted; (iii) to obtain from each customer for whom you act as agent for the purchase of Shares any taxpayer identification number certification and backup withholding information required under the Internal Revenue Code of 1986, as amended from time to time (the "Code"), and the regulations promulgated thereunder, or other sections of the Code which may become applicable, and to provide us or our designee with timely written notice of any failure to obtain such taxpayer identification number certification or information in order to enable the implementation of any required backup withholding in accordance with the Code and the regulations thereunder; and (iv) to pay to us the offering price, less any agency commission to which you are entitled, within three (3) business days of our confirmation of your customer's order, or such shorter time as may be required by law. You may, subject to our approval, remit the total public offering price to us, and we will return to you your agency commission. If such payment is not received within said time period, we reserve the right, without prior notice, to cancel the sale, or at our option to return the Shares to the issuer for redemption or repurchase. In the latter case, we shall have the right to hold you responsible for any loss resulting to us. Should payment be made by local bank check, liquidation of Shares may be delayed pending clearance of your check. Unless otherwise mutually agreed in writing or except as provided below, each transaction placed by you shall be promptly confirmed by us in writing to you, and shall be confirmed to the customer promptly upon receipt by us of instructions from you as to such customer. In the case of a purchase order by customer's application, each transaction shall be promptly confirmed in writing directly to the customer and a copy of each confirmation shall be sent simultaneously to you. We reserve the right, at our discretion and without notice, to suspend the sale of Shares or withdraw entirely the sale of Shares of any or all of the Funds. All orders are subject to acceptance or rejection by us in our sole discretion, and by the Funds in their sole discretion. The procedure stated herein relating to the pricing and handling of orders shall be subject to instructions which we may forward to you from time to time. 3. COMPLIANCE WITH LAW You hereby represent that you are either (1) a "bank" as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and at the time of each transaction in shares of the Funds, are not required to register as a broker- dealer under the Exchange Act or regulations thereunder; or (2) registered as a broker-dealer under the Exchange Act, a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and affiliated with a bank. (a) If you are a bank, not required to register as a broker- dealer under the Exchange Act: You further represent and warrant to us that with respect to any sales in the United States, you will use your best efforts to ensure that any purchase of Shares by your customers constitutes a suitable investment for such customers. You shall not effect any transaction in, or induce any purchase or sale of, any Shares by means of any manipulative, deceptive or other fraudulent device or contrivance, and shall otherwise deal equitably and fairly with your customers with respect to transactions in Shares of a Fund. (b) If you are a NASD member broker-dealer affiliated with a bank and registered under the Exchange Act: You further represent and warrant to us that with respect to any sales in the United States, you agree to abide by all of the applicable laws, rules and regulations including applicable provisions of the Securities Act of 1933, as amended, and the applicable rules and regulations of the NASD, including, without limitation, its Rules of Fair Practice, and the applicable rules and regulations of any jurisdiction in which you make Shares available for sale to your customers. You agree not to make available for sale to your customers the Shares in any jurisdiction in which the Shares are not qualified for sale or in which you are not qualified as a broker-dealer. We shall have no obligation or responsibility as to your right to make Shares of any Funds available to your customers in any jurisdiction. You agree to notify us immediately in the event of (i) your expulsion or suspension from the NASD or your becoming subject to any enforcement action by the Securities and Exchange Commission, NASD, or any other self- regulatory organization, or (ii) your violation of any applicable federal or state law, rule or regulation including, but not limited to, those of the SEC, NASD or other self-regulatory organization, arising out of or in connection with this Agreement, or which may otherwise affect in any material way your ability to act in accordance with the terms of this Contract. You shall not make Shares of any Fund available to your customers, including your fiduciary customers, except in compliance with all federal and state laws and rules and regulations of regulatory agencies or authorities applicable to you, or any of your affiliates engaging in such activity, which may affect your business practices. You confirm that you are not in violation of any banking law or regulations as to which you are subject. 4. RELATIONSHIP WITH CUSTOMER With respect to any and all transactions in the Shares of any Fund pursuant to this Contract, it is understood and agreed in each case that: (a) you shall be acting solely as agent for the account of your customer; (b) each transaction shall be initiated solely upon the order of your customer; (c) we shall execute transactions only upon receiving instructions from you acting as agent for your customer or upon receiving instructions directly from your customer; (d) as between you and your customer, your customer will have full beneficial ownership of all Shares; (e) each transaction shall be for the account of your customer and not for your account; and (f) unless otherwise agreed in writing we will serve as a clearing broker for you on a fully disclosed basis, and you shall serve as the introducing agent for your customers' accounts. Subject to the foregoing, however, and except for Shares sold subject to a contingent deferred sales charge, you may maintain record ownership of such customers' Shares in an account registered in your name or the name of your nominee, for the benefit of such customers. With respect to Shares sold subject to a contingent deferred sales charge, you agree not to hold shares of such Funds in an account registered in your name or in the name of your nominee for the benefit of certain of your customers. You understand that such Shares must be held in a separate account for each shareholder of such Funds. Each transaction shall be without recourse to you provided that you act in accordance with the terms of this Agreement. You represent and warrant to us that you will have full right, power and authority to effect transactions (including, without limitation, any purchases and redemptions) in Shares on behalf of all customer accounts provided by you. 5. RELATIONSHIP WITH FINANCIAL INSTITUTION Neither this Contract nor the performance of the services of the respective parties hereunder shall be considered to constitute an exclusive arrangement, or to create a partnership, association or joint venture between you and us. In making available Shares of the Funds under this Contract, nothing herein shall be construed to constitute you or any of your agents, employees or representatives as our agent or employee, or as an agent or employee of the Funds, and you shall not make any representations to the contrary. As general distributor of the Funds, we shall have full authority to take such action as we may deem advisable in respect of all matters pertaining to the distribution of the Shares. We shall not be under any obligation to you, except for obligations expressly assumed by us in this Contract. 6. TERMINATION Either party hereto may terminate this Contract, without cause, upon ten days' written notice to the other party. We may terminate this Contract for cause upon the violation by you of any of the provisions hereof, such termination to become effective on the date such notice of termination is mailed to you. If you are registered as a broker-dealer and affiliated with a bank, this Contract shall terminate automatically if either Party ceases to be a member of the NASD. 7. ASSIGNABILITY This Contract is not assignable or transferable, except that we may assign or transfer this Contract to any successor which becomes general distributor of the Funds. 8. MISCELLANEOUS (a) All communications mailed to us should be sent to the above address. Any notice to you shall be duly given if mailed or delivered to you at the address specified by you below. (b) This Contract constitutes the entire agreement and understanding between the parties and supercedes any and all prior agreements between the parties. (c) This Contract and the rights and obligations of the parties hereunder shall be governed by and construed under the laws of The Commonwealth of Massachusetts. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Contract as of the date set forth below. Financial Institution: --------------------------- By: ---------------------------- Authorized Signature, Title ---------------------------- ---------------------------- Address Dated: ---------------------------- Please return the signed Putnam copy of this sales Contract to Putnam Mutual Funds Corp., P. O. Box 41203, Providence, RI 02940-1203 NF-59.94 EX-99.B15 6 12B1 PLAN PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND CLASS M DISTRIBUTION PLAN AND AGREEMENT This Plan and Agreement (the "Plan") constitutes the Distribution Plan for the Class M shares of Putnam Pennsylvania Tax Exempt Income Fund, a Massachusetts business trust (the "Trust"), adopted pursuant to the provisions of Rule 12b-1 under the Investment Company Act of 1940 (the "Act") and the related agreement between the Trust and Putnam Mutual Funds Corp. ("PMF"). During the effective term of this Plan, the Trust may incur expenses primarily intended to result in the sale of its Class M shares upon the terms and conditions hereinafter set forth: SECTION 1. The Trust shall pay to PMF a monthly fee at the annual rate of 1.00% of the average net asset value of the Class M shares of the Trust, as determined at the close of each business day during the month, to compensate PMF for services provided and expenses incurred by it in connection with the offering of the Trust's Class M shares, which may include, without limitation, payments by PMF to investment dealers with respect to Class M shares, as set forth in the then current Prospectus or Statement of Additional Information of the Trust, including the payment of a service fee of up to 0.25% of such net asset value for the purpose of maintaining or improving services provided to shareholders by PMF and investment dealers. Such fees shall be payable for each month within 15 days after the close of such month. A majority of the Qualified Trustees, as defined below, may, from time to time, reduce the amount of such payments, or may suspend the operation of the Plan for such period or periods of time as they may determine. SECTION 2. This Plan shall not take effect until: (a) it has been approved by a vote of a majority of the outstanding Class M shares of the Trust; (b) it has been approved, together with any related agreements, by votes of the majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the Act or the rules and regulations thereunder) of both (i) the Trustees of the Trust, and (ii) the Qualified Trustees of the Trust, cast in person at a meeting called for the purpose of voting on this Plan or such agreement; and (c) the Trust has received the proceeds of the initial public offering of its Class M shares. SECTION 3. This Plan shall continue in effect for a period of more than one year after it takes effect only so long as such continuance is specifically approved at least annually in the manner provided for approval of this Plan in Section 2(b). SECTION 4. PMF shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. SECTION 5. This Plan may be terminated at any time by vote of a majority of the Qualified Trustees or by vote of the majority of the outstanding Class M shares of the Trust. SECTION 6. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide: (a) that such agreement may be terminated at any time, without payment of any penalty, by vote of a majority of the Qualified Trustees or by vote of a majority of the outstanding Class M shares of the Trust, on not more than 60 days' written notice to any other party to the agreement; and (b) that such agreement shall terminate automatically in the event of its assignment. SECTION 7. This Plan may not be amended to increase materially the amount of distribution expenses permitted pursuant to Section 1 hereof without the approval of a majority of the outstanding Class M shares of the Trust and all material amendments to this Plan shall be approved in the manner provided for approval of this Plan in Section 2(b). SECTION 8. As used in this Plan, (a) the term "Qualified Trustees" shall mean those Trustees of the Trust who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the term "majority of the outstanding Class M shares of the Trust" means the affirmative vote, at a duly called and held meeting of Class M shareholders of the Trust, (i) of the holders of 67% or more of the Class M shares of the Trust present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding Class M shares of the Trust entitled to vote at such meeting are present in person or by proxy, or (ii) of the holders of more than 50% of the outstanding Class M shares of the Trust entitled to vote at such meeting, whichever is less, and (c) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. SECTION 9. A copy of the Agreement and Declaration of Trust of the Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually, and that the obligations of or arising out of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. Executed as of , 1995. PUTNAM MUTUAL FUNDS CORP. PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND By: ---------------------- By: -------------------------- William N. Shiebler Charles E. Porter President Executive Vice President EX-99.B15 7 12B1 PLAN DEALER SERVICE AGREEMENT Between: and PUTNAM MUTUAL FUNDS CORP. General Distributor of The Putnam Family of Mutual Funds One Post Office Square Boston, MA 02109 We are pleased to inform you that, pursuant to the terms of this Dealer Service Agreement, we are authorized to pay you service fees in connection with the accounts of your customers that hold shares of certain Putnam funds listed in SCHEDULE 1 that have adopted distribution plans pursuant to Rule 12b-1 (the "12b-1 Funds"). Payment of the service fees is subject to your initial and continuing satisfaction of the following terms and conditions which may be revised by us from time to time: 1. QUALIFICATION REQUIREMENTS (a) You have entered into a Sales Contract with us with respect to the Putnam Family of Mutual Funds (the "Putnam Funds"). (b) You are the dealer of record for accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (DEALER FIRM REQUIREMENTS) during the period for which a service fee is to be paid. Putnam Fund accounts are accounts in any open-end Putnam Fund, but excluding any accounts for your firm's own retirement plans. (c) One or more of your current employees must be the designated registered representative(s) on accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (REGISTERED REPRESENTATIVE REQUIREMENTS) during the period for which a service fee is to be paid. (d) You will provide the following information and agree that we will be entitled to rely on the accuracy of such information in updating our records for determining the levels of service fees payable to you under the terms of this Agreement. You understand that such payments will be based solely on Putnam's records. For each Putnam Fund account registered in the name of one of your customers, you will advise us, preferably by electronic means, before the end of the second month in each calendar quarter, of the registered representative's name, identification number, branch number, and telephone number. 2. SERVICE FEES (a) If you meet the qualification requirements set forth above in Paragraph 1, you will be paid a service fee on assets in the 12b-1 Funds for which you are the dealer of record and which are serviced by a registered representative of your firm meeting the Registered Representative Requirements, if any, at the annual rates specified in SCHEDULE 3 (excluding any accounts for your firm's own retirement plans). (b) You understand and agree that: (i) all service fee payments are subject to the limitations contained in each 12b-1 Fund's Distribution Plan, which may be varied or discontinued at any time; (ii) your failure to provide the services described in Paragraph 4 below as may be amended by us from time to time, or otherwise comply with the terms of this Agreement, will render you ineligible to receive service fees; and (iii) failure of an assigned registered representative to provide services required by this Agreement will render that representative's accounts ineligible as accounts on which service fees are paid. 3. PAYMENTS AND COMMUNICATIONS TO REGISTERED REPRESENTATIVES (a) You will pass through to your registered representatives a significant share of the service fees paid to you pursuant to this Agreement. (b) You will assist us in distributing to your registered representatives periodic statements which we will have prepared showing the aggregate average net asset value of shares in Putnam Funds with which they are credited on our records. 4. REQUIRED SERVICES (a) You will assign one of your registered representatives to each Putnam Fund account on your records and reassign the Putnam Fund account should that representative leave your firm. (b) You and your registered representatives will assist us and our affiliates in providing the following services to shareholders of the Putnam Funds: (i) Maintain regular contact with shareholders in assigned accounts and assist in answering inquiries concerning the Putnam Funds. (ii) Assist in distributing sales and service literature provided by us, particularly to the beneficial owners of accounts registered in your name (nominee name accounts). (iii) Assist us and our affiliates in the establishment and maintenance of shareholder accounts and records. (iv) Assist shareholders in effecting administrative changes, such as changing dividend options, account designations, address, automatic investment programs or systematic investment plans. (v) Assist in processing purchase and redemption transactions. (vi) Provide any other information or services as the customer or we may reasonably request. (c) You will support our marketing efforts by granting reasonable requests for visits to your offices by our wholesalers and by including all Putnam Funds on your "approved" list. (d) Your compliance with the service requirements set forth in this Agreement will be evaluated by us from time to time by surveying shareholder satisfaction with service, by monitoring redemption levels of shareholder accounts assigned to you and by such other methods as we deem appropriate. (e) The provisions of this Paragraph 4 may be amended by us from time to time upon notice to you. 5. AMENDMENT This Agreement, including any Schedule hereto, shall be deemed amended as provided in any written notice delivered by us to you. 6. EFFECTIVE PERIOD AND TERMINATION The provisions of this Agreement shall remain in effect for not more than one year from the date of its execution or adoption and thereafter for successive annual periods only so long as such continuance is specifically approved at least annually by the Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). This Agreement shall automatically terminate in the event of its assignment (as defined by the 1940 Act). In addition, this Agreement may be terminated at any time, without the payment of any penalty, by either party upon written notice delivered or mailed by registered mail, postage prepaid, to the other party, or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees of any 12b-1 Fund or by the vote of the holders of the outstanding voting securities of any 12b-1 Fund. 7. WRITTEN REPORTS Putnam Mutual Funds Corp. shall provide the Trustees of each of the 12b-1 Funds, and such Trustees shall review at least quarterly, a written report of the amounts paid to you under this Agreement and the purposes for which such expenditures were made. 8. MISCELLANEOUS (a) All communications mailed to us should be sent to the address listed below. Any notice to you shall be duly given if mailed or delivered to you at the address specified by you below. (b) The provisions of this Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: ------------------------------ William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Agreement as of the date set forth below. Dealer: ------------------------- By: ---------------------------- Authorized Signature, Title ------------------------------ ------------------------------ Address Dated: ------------------------- Please return the signed Putnam copy of this Agreement to Putnam Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203. EX-99.B15 8 12B1 PLAN FINANCIAL INSTITUTION SERVICE AGREEMENT Between: and PUTNAM MUTUAL FUNDS CORP. General Distributor of The Putnam Family of Mutual Funds One Post Office Square Boston, MA 02109 We are pleased to inform you that, pursuant to the terms of this FINANCIAL INSTITUTION SERVICE AGREEMENT, we are authorized to pay you service fees in connection with the accounts of your customers that hold shares of certain Putnam funds listed in SCHEDULE 1 that have adopted distribution plans pursuant to Rule 12b-1 (the "12b-1 Funds"). Payment of the service fees is subject to your initial and continuing satisfaction of the following terms and conditions which may be revised by us from time to time: 1. QUALIFICATION REQUIREMENTS (a) You have entered into a Financial Institution Sales Contract with us with respect to the Putnam Family of Mutual Funds (the "Putnam Funds"), whose shares you have agreed to make available to your customers on an agency basis. (b) You are the financial institution of record for accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (FINANCIAL INSTITUTION REQUIREMENTS) during the period for which a service fee is to be paid. Putnam Fund accounts are accounts in any open-end Putnam Fund but excluding any accounts for your organization's own retirement plans. (c) One or more of your current employees must be the designated registered representative(s) in the case of a bank affiliated dealer, or agent representative(s) in the case of a bank (both referred to as "representatives"), on accounts in Putnam Funds having an aggregate average net asset value of at least the minimum amount set forth in SCHEDULE 2 (REPRESENTATIVE REQUIREMENTS) during the period for which a service fee is to be paid. (d) You will provide the following information and agree that we will be entitled to rely on the accuracy of such information in updating our records for determining the levels of service fees payable to you under the terms of this Agreement. You understand that such payments will be based solely on Putnam's records: For each Putnam Fund account registered in the name of one of your customers, you will advise us, preferably by electronic means, before the end of the second month in each calendar quarter, of the representative's name, identification number, branch number, and telephone number. 2. SERVICE FEES (a) If you meet the qualification requirements set forth above in Paragraph 1, you will be paid, at the end of each calendar quarter, a service fee on assets of your customers in the 12b-1 Funds for which you are the financial institution of record and which are serviced by a representative of your organization meeting the Representative Requirements, if any at the annual rates specified in SCHEDULE 3 (excluding any accounts for your organization's own retirement plans), provided that you have evaluated such service fees and have concluded that it is consistent with applicable laws, rules, regulations and regulatory interpretations for you to receive such service fees. (b) You understand and agree that: (i) all service fee payments are subject to the limitations contained in each 12b-1 Fund's Distribution Plan, which may be varied or discontinued at any time; (ii) your failure to provide the services described in Paragraph 4 below as may be amended by us from time to time, or otherwise comply with the terms of this Agreement, will render you ineligible to receive service fees; and (iii) failure of an assigned representative to provide services required by this Agreement will render that representative's accounts ineligible as accounts on which service fees are paid. 3. PAYMENTS AND COMMUNICATIONS TO REPRESENTATIVES (a) Where consistent with applicable laws, rules, regulations and regulatory interpretations, you will pass through to your representatives a significant share of the service fees paid to you pursuant to this Agreement, or you will otherwise use the payments of service fees to advance the objective of providing and improving service to shareholders of the Putnam Funds in a manner specifically approved by Putnam Mutual Funds (for example, via training courses for representatives or shareholder seminars). (b) You will assist us in distributing to your representatives periodic statements which we will have prepared showing the aggregate average net asset value of shares in Putnam Funds with which they are credited on our records. 4. REQUIRED SERVICES (a) You will assign one of your representatives to each Putnam Fund account on your records and reassign the Putnam Fund account should that representative leave your organization. (b) You and your representatives will assist us and our affiliates in providing the following services to shareholders of the Putnam Funds: (i) Maintain regular contact with shareholders in assigned accounts and assist in answering inquiries concerning the Putnam Funds. (ii) Assist in distributing sales and service literature provided by us, particularly to the beneficial owners of accounts registered in your name (nominee name accounts). (iii) Assist us and our affiliates in the establishment and maintenance of shareholder accounts and records. (iv) Assist shareholders in effecting administrative changes, such as changing dividend options, account designations, address, automatic investment programs or systematic investment plans. (v) Assist in processing purchase and redemption transactions. (vi) Provide any other information or services as the customer or we may reasonably request. (c) You will grant reasonable requests for visits to your offices by our wholesalers and include all Putnam Funds on your menu or list of investments made available by you to your customers. (d) Your compliance with the service requirements set forth in this Agreement will be evaluated by us from time to time by surveying shareholder satisfaction with service, by monitoring redemption levels of shareholder accounts assigned to you and by such other methods as we deem appropriate. (e) The provisions of this Paragraph 4 may be amended by us from time to time upon notice to you. 5. AMENDMENT This Agreement, including any Schedule hereto, shall be deemed amended as provided in any written notice delivered by us to you. 6. EFFECTIVE PERIOD AND TERMINATION The provisions of this Agreement shall remain in effect for one year from the date of its execution or adoption and thereafter for successive annual periods only so long as such continuance is specifically approved at least annually by the Trustees of each of the 12b-1 Funds in conformity with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). This Agreement shall automatically terminate in the event of its assignment (as defined by the 1940 Act). In addition, this Agreement may be terminated at any time, without the payment of any penalty, by either party upon written notice to the other party, or, as provided in Rule 12b-1 under the 1940 Act, by the Trustees of any 12b-1 Fund or by the vote of the holders of the outstanding voting securities of any 12b-1 Fund. 7. WRITTEN REPORTS Putnam Mutual Funds Corp. shall provide the Trustees of each of the 12b-1 Funds, and such Trustees shall review at least quarterly, a written report of the amounts paid to you under this Agreement and the purposes for which such expenditures were made. 8. COMPLIANCE WITH LAWS With respect to the receipt of service fees under the terms of this Agreement, you will comply with all applicable federal and state laws and rules, and all applicable regulations and interpretations of regulatory agencies or authorities, which may affect your business practices, including any requirement of written authorization or consent by your customers to your receipt of service fees, and any requirement to provide disclosure to your customers of such service fees. 9. MISCELLANEOUS (a) All communications mailed to us should be sent to the address listed below. Any notice to you shall be duly given if mailed or delivered to you at the address specified by you below. (b) The provisions of this Agreement shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts. Very truly yours, PUTNAM MUTUAL FUNDS CORP. By: -------------------------- William N. Shiebler, President and Chief Executive Officer We accept and agree to the foregoing Agreement as of the date set forth below. Financial Institution: -------------------------- By: -------------------------- Authorized Signature, Title -------------------------- -------------------------- Address Dated: -------------------------- Please return the signed Putnam copy of this Agreement to Putnam Mutual Funds Corp., P.O. Box 41203, Providence, RI 02940-1203. EX-99.B16 9 PERF QUOT SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Pennsylvania Tax Exempt Income Fund-- Class A Shares# Fiscal period ending: 2/28/95 Inception date (if less than 10 years of performance): 7/21/89 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 $1,000 $1,000 ERV = Ending Redeemable Value $967.53 $1,419.94 $1,458.23 T = Average Annual Total Return -3.25% +7.26% +6.96%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $915,499 Expenses $118,171 Reimbursement $0 Average shares 18,974,157 NAV $8.98 Sales Charge 4.75% POP $9.43 Yield at POP 5.41% TAX-EXEMPT EQUIVALENT YIELD Formula: 30 day yield --------------- = TAX EQUIVALENT YIELD 1-(Highest Individual Tax Rate) 5.41% 5.41% - ------ = ------ = 9.21% 1-41.29% 58.71% SCHEDULES FOR COMPUTATION OF PERFORMANCE QUOTATIONS Fund name: Putnam Pennsylvania Tax Exempt Income Fund-- Class B Shares Fiscal period ending: 2/28/95 Inception date (if less than 10 years of performance): 7/15/93 TOTAL RETURN Formula -- Average Annual Total Return: ERV = P(1+T)^n n = Number of Time Periods 1 Year 5 Years 10 Years* P = Initial Investment $1,000 N/A $1,000 ERV = Ending Redeemable Value $961.50 N/A 993.46 T = Average Annual Total Return -3.85% N/A -0.40%* *Life of fund, if less than 10 years YIELD Formula: Interest + Dividends - Expenses 2 (-------------------------------------------------- +1)(6) -1 POP x Average shares Interest and Dividends $189,059 Expenses $43,145 Reimbursement $0 Average shares 3,918,759 NAV $ 8.97 Maximum Contingent Deferred Sales Charge 5.0% Yield at NAV 5.03% TAX-EXEMPT EQUIVALENT YIELD Formula: 30 day yield --------------- = TAX EQUIVALENT YIELD 1-(Highest Individual Tax Rate) 5.03% 5.03% - ------ = ------ = 8.57% 1-41.29% 58.71% EX-27.CLASSA 10 FINANCIAL DATA SCHEDULE CLASS A WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Pennsylvania Tax Exempt Class A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR FEB-28-1995 FEB-28-1995 200,326,226 204,653,888 5,301,410 3,709,552 0 213,664,850 4,250,645 0 1,176,446 5,427,091 0 204,667,314 19,101,804 18,296,064 90,838 0 (848,055) 0 4,327,662 208,237,759 0 13,212,959 0 1,935,860 11,277,099 (381,727) (7,009,417) 3,536,158 0 (9,864,312) (143,524) (98,516) 4,764,552 (4,589,936) 631,124 23,848,389 4,404 169,770 0 0 1,155,995 0 1,935,860 167,308,100 9.39 .53 (.40) (9.53) (.01) 0 8.98 .92 0 0
EX-27.CLASSB 11 FINANCIAL DATA SCHEDULE CLASS B
6 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM Putnam Pennsylvania Tax Exempt Class B AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR FEB-28-1995 FEB-28-1995 200,326,226 204,653,888 5,301,410 3,709,552 0 213,664,850 4,250,645 0 1,176,446 5,427,091 0 204,667,314 4,086,943 1,346,295 90,838 0 (848,055) 0 4,327,662 208,237,759 0 13,212,959 0 1,935,860 11,277,099 (381,727) (7,009,417) 3,536,158 0 (1,330,727) (26,246) (18,015) 2,977,430 (328,507) 91,725 23,848,389 4,404 169,770 0 0 1,155,995 0 1,935,860 25,466,404 9.38 .47 (.40) (.47) (.01) 0 8.97 1.57 0 0
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