<PAGE> 1
PUTNAM
OHIO
TAX EXEMPT
INCOME FUND II
SEMIANNUAL REPORT
November 30, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
-- The fund's class A shares have earned Morningstar's rating
of four stars out of a possible five, based on risk-adjusted three- and
five-year performance as of November 30, 1994.*
-- Performance should always be considered in light of a fund's
investment strategy. Putnam Ohio Tax Exempt Income Fund II is designed
for investors seeking a high level of current income free from
federal and state income tax consistent with preservation of capital.
SEMIANNUAL RESULTS AT A GLANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B
TOTAL RETURN NAV POP NAV CDSC
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
6 months ended 11/30/94
(change in value
during period
plus reinvested
distributions) -3.59% -8.18% -3.78% -8.46%
</TABLE>
<TABLE>
<CAPTION>
SHARE VALUE NAV POP NAV
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5/31/94 $8.80 $9.24 $8.79
11/30/94 8.23 8.64 8.23
DISTRIBUTIONS NO. INCOME CAPITAL GAINS(1) TOTAL
CLASS A 6 $0.260938 -- $0.260938
CLASS B 6 0.234256 -- 0.234256
CURRENT RETURN NAV POP NAV
- --------------------------------------------------------------------------------
END OF PERIOD
CURRENT DIVIDEND RATE(2) 6.24% 5.94% 5.61%
TAXABLE EQUIVALENT(3) 11.17 10.63 10.04
CURRENT 30-DAY SEC YIELD(4) 5.88 5.60 5.12
TAXABLE EQUIVALENT(3) 10.52 10.02 9.16
</TABLE>
Performance data represent past results. For performance over
longer periods, see pages 8 and 9. POP assumes 4.75% maximum sales charge.
CDSC assumes 5% maximum contingent deferred sales charge. (1)Capital gains, if
any, are taxable for federal and, in most cases, state tax purposes. For some
investors, investment income may also be subject to the federal Alternative
Minimum Tax. Investment income may be subject to state and local taxes.
(2)Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period. (3)Assumes maximum combined state and federal
tax rates of 44.13%. Results for investors subject to lower tax rates would
not be as advantageous. (4)Based only on investment income, calculated using
SEC guidelines.
*Morningstar is an independent research firm that rates funds relative to
funds with similar objectives, based on risk-adjusted performance, as
applicable, and adjusted for sales charges. Ratings are updated monthly. A
four-star rating put the fund in the top 32.5% of the 624 rated funds in the
category. Past performance is not indicative of future results.
2
<PAGE> 3
FROM THE CHAIRMAN [PHOTO]
(c) Karsh, Ottawa
DEAR SHAREHOLDER:
AS WE BEGIN A NEW YEAR, MOST INVESTORS WON'T REGRET THE PASSING OF THE
OLD. SINCE LAST FEBRUARY, WHEN THE FEDERAL RESERVE BOARD BEGAN A SERIES
OF INCREASES IN INTEREST RATES, 1994 WAS MARKED BY SHARP CORRECTIONS
FOLLOWED BY SMALL GAINS AND EXTENDED UNCERTAINTY FOR VIRTUALLY ALL
FINANCIAL MARKETS.
WELL IN ADVANCE OF THE FED'S FIRST INCREASE, FUND MANAGER THOMAS
GOGGINS HAD ADOPTED DEFENSIVE STRATEGIES DESIGNED TO REDUCE THE IMPACT
OF RISING RATES ON PUTNAM OHIO TAX EXEMPT INCOME FUND II'S PORTFOLIO.
WHILE DEFENSIVE STRATEGIES PROVED RELATIVELY SUCCESSFUL, FUND
PERFORMANCE GENERALLY EDGED INTO THE NEGATIVE NUMBERS.
BONDS BORE THE BRUNT OF THE DOWNTURN AND TAX-FREE MUNICIPALS
INCURRED THE STEEPEST DECLINE. ALTHOUGH SHIFTS IN THE MARKET AS A WHOLE
INEVITABLY AFFECT YOUR FUND, PUTNAM MANAGEMENT'S PHILOSOPHY OF
SELECTING SECURITIES ON AN ISSUE-BY-ISSUE BASIS WITH A THOROUGH
EXAMINATION OF EACH ISSUER'S CREDIT QUALITY SHOULD CONTINUE TO HELP
PROTECT YOUR FUND'S PORTFOLIO.
IN THE ACCOMPANYING REPORT, TOM DISCUSSES THE FIRST HALF OF THE FISCAL
YEAR AND PROSPECTS FOR THE SECOND HALF IN THE CHALLENGING MONTHS AHEAD.
RESPECTFULLY YOURS,
/S/GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 18, 1995
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
THOMAS C. GOGGINS
The investment environment for municipal bonds was virtually unchanged
during the first half of Putnam Ohio Tax Exempt Income Fund II's
fiscal year. Strong economic growth continued to fuel inflation fears,
causing the Federal Reserve Board to adhere to its tight monetary
policy of periodically raising short-term interest rates. The overall
effect of the Fed's actions was higher interest rates across the
board, which triggered steep declines in bond prices.
We believe the psychological impact of rising rates, rather than
any indication of poor market fundamentals, was the main cause of the
more recent declines. But nevertheless, your fund, like many other
fixed-income investments, was adversely affected by these events. For
the six months ended November 30, l994, the fund's total return was
-3.59% for class A shares and -3.78% for class B shares, both at net
asset value.
While higher interest rates led to a disappointing total return, they
have been positive for your fund's income stream. At the end of the
period, your fund's dividend rate was 6.24% for class A shares and
5.61% for class B shares at NAV. Ohio residents in the combined
maximum federal and state income tax bracket of 44.13% would have had
to earn 11.17% and 10.04%, respectively, in a taxable investment to
match these results. Investors in lower tax brackets would also have
benefited, though not to the same extent.
- -- ADOPTING A DEFENSIVE STRATEGY
As interest rates rose, we purchased bonds with higher coupon rates
and longer call dates. We believed the higher-yielding bonds would
provide a boost to your fund's income stream, and the longer call
dates would help prolong the benefits of those yields
4
<PAGE> 5
in the event of an interest rate decline. Bonds are frequently issued
with provisions for early redemption. This allows them to be called in
before maturity if current interest rates drop below the rates
that prevailed when the bonds were issued. By investing in bonds with
higher yields and longer call dates, we believe your fund can continue
to providde a relatively stable income stream combined with attractive
total return potential.
- -- FINDING THE SILVER LINING
Turbulence of the magnitude the markets experienced during the first
half of your fund's fiscal year cannot be ignored. In such
environments, we take defensive measures in order to maintain your
fund's current-income objective. At the same time, however, we take a
longer view, which may mean sacrificing some current performance
gains in order to position the fund for what we believe will be a more
favorable market later. We believe the current market environment
offers excellent potential for stronger long- term performance. There
are three reasons for our optimism.
TAX-FREE VERSUS TAXABLE BONDS YIELDS
[LINE GRAPH]
The graph compares average yields available on tax-free bonds relative
to those available on fully taxable long-term U.S. Treasury bonds
since the start of 1994. Yields do not represent those of the
fund. As of November 30, 1994, yields on municipal bonds were 95.6% of
those on long-term Treasury bonds. Sources: Lehman Brothers Long-Term
Treasury Bond Index (taxable bonds), Bond Buyer Municipal Bond Index
(tax-free bonds).
5
<PAGE> 6
First, we see a more favorable supply/demand situation. In the coming
months, we expect the supply of Ohio municipal bonds to decrease.
However, we do not anticipate a decline in the demand for these
securities. This supply/demand dynamic should increase the value of the
bonds already in the portfolio. The dearth of supply is largely because
bond issuers are reluctant to refinance their old debt during a
rising-interest-rate environment. In addition, the current trend toward
fiscal conservatism on the part of many municipalities makes them
unwilling to fund development projects and to take on more debt.
Second, because of the steep decline in bond prices over the past year,
many securities are now undervalued. So, the silver lining behind
this year's sustained market weakness is that we believe we were able
to add significant value to your fund by using that weakness to invest
in new bonds at attractive prices.
Third, your fund has access to Putnam's superior research capabilities
to diversify the portfolio among a broad spectrum of municipal issues.
The fund does not concentrate its investments in any one sector;
rather, it spreads its holdings over a wide variety of investment-grade
issues.
- -- LOOKING AHEAD
We are optimistic about the prospects for the Ohio economy and your
fund. The state has recently experienced strong economic growth, along
with the rest of the region in which many mining and heavy
manufacturing companies are located. We expect this trend to continue.
Our outlook for the Ohio municipal bond market is also positive.
Ohio's solid economic growth has already prompted credit upgrades on a
number of the state's securities, and we believe those we hold in the
portfolio have the potential to appreciate in value.
We will continue to take a defensive approach to managing your fund, at
least in the short term. Municipal bond yields are relatively high
compared with Treasury securities and some taxable investments, and we
believe we will be able to take advantage of the attractive prices and
yields in the months ahead.
6
<PAGE> 7
<TABLE>
<CAPTION>
TOP INDUSTRY SECTORS*
- ----------------------------------------------
<S> <C>
Utilities 28.7%
- ----------------------------------------------
Hospital/Health Care 16.5%
- ----------------------------------------------
Housing 12.7%
- ----------------------------------------------
Education 12.4%
- ----------------------------------------------
Transportation 1.4%
- ----------------------------------------------
<FN>
* Based on net assets on 11/30/94
</TABLE>
As experienced bond investors have learned, time generally favors those
with persistence and vision. Corrections are not only a natural part of any
business cycle, but frequently bring about rewarding opportunities. We will
do our best to take advantage of them over the rest of fiscal 1995.
The views expressed throughout the report are exclusively those of
Putnam Management. They are not meant as investment advice. Although the
described holdings were viewed favorably as of November 30, 1994,
there is no guarantee the fund will continue to hold these securities in
the future.
7
<PAGE> 8
PERFORMANCE SUMMARY
This section provides, at a glance, information about your
fund's performance. Total return shows how the value of the fund's
shares changed over time, assuming you held the shares through the
entire period and reinvested all distributions back into the fund.
We show total return in two ways: on a cumulative long-term basis
and on average how the fund might have grown each year over varying
periods. For comparative purposes, we show how the fund performed
relative to appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 11/30/94
<CAPTION>
LEHMAN BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months -3.59% -8.18% -3.78% -8.46% -3.48% 1.49%
- ---------------------------------------------------------------------------------------
1 year -5.50 -10.02 -6.10 -10.49 -5.25 2.68
- ---------------------------------------------------------------------------------------
5 years 34.73 28.40 -- -- 37.52 18.90
Annual average 6.14 5.13 -- -- 6.58 3.52
- ---------------------------------------------------------------------------------------
Life of class A 35.44 29.06 -- -- 39.92 19.19
Annual average 6.12 5.12 -- -- 6.79 3.49
- ---------------------------------------------------------------------------------------
Life of class B -- -- -4.54 -8.05 -2.73 3.67
Annual average -- -- -3.31 -5.90 -1.99 2.65
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<CAPTION>
CLASS A CLASS B
NAV POP NAV CDSC
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year -5.05% -9.60% -5.72% -10.20%
- ---------------------------------------------------------------------------------------
5 years 36.45 30.04 -- --
Annual average 6.41 5.39 -- --
- ---------------------------------------------------------------------------------------
Life of class A 38.22 31.71 -- --
Annual average 6.43 5.45 -- --
- ---------------------------------------------------------------------------------------
Life of class B -- -- -2.71 -6.28
Annual average -- -- -1.86 -4.35
- ---------------------------------------------------------------------------------------
<FN>
POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent
deferred sales charge. Capital gains are taxable for federal and, in most
cases, state tax purposes. Fund performance data do not take into account
any adjustment for taxes payable on reinvested distributions. The fund
began operations on October 23, 1989, offering what are now known as class
A shares. Effective July 15, 1993, the fund began offering class B shares.
Performance data represent past results, will differ for each share class
and are no guarantee of future performance. Investment returns and
principal value will fluctuate so an investor's shares, when sold, may be
worth more or less than their original cost.
</TABLE>
8
<PAGE> 9
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
BOND BUYER MUNICIPAL BOND INDEX is an unmanaged list of tax-exempt bonds
that is frequently used as a general gauge of the municipal bond market.
LEHMAN BROTHERS LONG-TERM TREASURY BOND INDEX is an unmanaged list of
publicly issued U.S. Treasury obligations with maturities of 10 years or
more that is representative of the Treasury bond market.
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
9
<PAGE> 10
PUTNAM FAMILY OF FUNDS
<TABLE>
<S> <C>
PUTNAM GROWTH FUNDS Income Fund
Asia Pacific Growth Fund U.S. Government Income Trust
Capital Appreciation Fund
Diversified Equity Trust PUTNAM TAX-FREE
Europe Growth Fund INCOME FUNDS
Global Growth Fund Intermediate Tax-Exempt Fund
Health Sciences Trust Municipal Income Fund
Investors Fund Tax Exempt Income Fund
Natural Resources Fund* Tax-Free High Yield Fund
New Opportunities Fund Tax-Free Insured Fund
OTC Emerging Growth Fund
Overseas Growth Fund STATE TAX-FREE INCOME FUNDS+
Vista Fund Arizona, California, Florida, Massachusetts,
Voyager Fund Michigan, Minnesota, New Jersey, New York,
Ohio, and Pennsylvania
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income - Growth Trust LIFESTAGE[SM] FUNDS
Dividend Growth Fund Putnam Asset Allocation Funds -
Equity Income Fund three investment portfolios
The George Putnam Fund of Boston that spread your money across
The Putnam Fund for Growth and Income a variety of stocks, bonds,
Managed Income Trust and money market investments
Utilities Growth and Income Fund to help maximize your return
and reduce your risk.
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund The three portfolios:
Balanced Government Fund Putnam Asset Allocation:
Corporate Asset Trust Balanced Portfolio
Diversified Income Trust Putnam Asset Allocation:
Federal Income Trust Conservative Portfolio:
Global Governmental Income Trust Putnam Asset Allocation;
High Yield Advantage Fund Growth Portfolio
High Yield Trust
MOST CONSERVATIVE
Please call your financial advisor INVESTMENTS++
or Putnam to obtain a prospectus PUTNAM MONEY MARKET FUNDS:
for any Putnam fund. It contains Money Market Fund[ss]
more complete information, including Tax Exempt Money Market
changes and expenses. Read it
carefully before you invest or send CDS AND SAVINGS ACCOUNTS**
money.
*Formerly Energy-Resource Trust
+Not available in all states.
++Relative to above.
[ss]Formerly Daily Dividend Trust
**Not offered by Putnam
Investments. Certificates
of deposit offer a fixed rate
of return and may be insured,
up to certain limits, by
federal/state agencies.
Savings accounts may also be
insured up to certain limits.
</TABLE>
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.1%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
OHIO (93.3%)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,815,000 Akron-Mayflower Hsg. Corp. Multi. Fam.
Rev. Bonds, 63\4s, 4/1/11 A $1,690,218
100,000 Akron-Wilbeth, Hsg. Dev. Corp. 1st Mtge.
Rev. Bonds, Federal Housing Administration
(FHA) Insd., 7.9s, 8/1/03 A 109,500
5,000,000 Alliance, Wtr. Works Rev. Bonds, Federal
Guaranty Insurance Co. (FGIC), 6.65s, 10/15/17 AAA 4,962,500
2,150,000 Bedford, Hosp. Impt., Rev. Bonds
(Bedford Cmnty. Hosp. Inc.), 81\2s, 5/15/09 BB 2,187,624
Cincinnati, Student Loan Funding Corp. Rev. Bonds
2,025,000 87\8s, 8/1/08 BBB/P 2,019,938
2,225,000 Ser. B, 63\4s, 1/1/07 BBB 2,085,938
Cleveland, City School Dist. Bonds General
Obligation (G.O.)
900,000 9s, 12/1/08 Aaa 1,024,875
2,500,000 81\4s, 12/1/08 Aaa 2,859,375
1,000,000 Americn Municipal Bond Assurance Corporation
(AMBAC), 7.35s, 12/1/08 AAA 1,081,250
4,870,000 Cleveland, G.O. Bonds,
Ser. B, AMBAC, 63\4s, 10/1/08 AAA 5,162,200
2,500,000 Cleveland, Parking Facs. Impt. Rev. Bonds
8s, 9/15/12 BBB 2,493,750
Cleveland, Pub. Pwr. Syst. Impt. 1st Mtge.
Rev. Bonds
1,900,000 8 3\8s, 8/1/17 AAA 2,073,375
2,145,000 zero%, 11/15/13 AAA 576,468
2,775,000 Ser. A, Municipal Bond Insurance Association
(MBIA), zero%, 11/15/12 AAA 808,218
3,000,000 Ser. A, MBIA, zero%, 11/15/11 AAA 941,250
3,000,000 Ser. A, MBIA, zero%, 11/15/10 AAA 1,016,250
2,450,000 Ser. A, MBIA, zero%, 11/15/09 AAA 894,250
2,000,000 Cleveland, Inverse Floating (I/F), Bonds
Ser. 9A, AMBAC, 6.052s, 9/1/04 (acquired
4/30/93, cost $1,985,480)(c) AAA 1,672,500
Cleveland, Urban Renewal Increment Rev. Bonds
(Rock & Roll Hall of Fame Project)
1,900,000 63\4s, 3/15/18 BBB 1,695,750
2,000,000 65\8s, 3/15/11 BBB 1,810,000
Cleveland, Waterworks 1st Mtge. Rev. Bonds
2,000,000 Ser. F-92A, AMBAC, 61\2s, 1/1/21 AAA 2,082,500
3,000,000 Ser. G, MBIA, 51\2s, 1/1/21 AAA 2,531,250
7,950,000 Ser. G, MBIA, 51\2s, 1/1/13 AAA 6,976,125
3,000,000 Ser. G, MBIA, 51\2s, 1/1/08 AAA 2,677,500
615,000 Ser. G, MBIA, 51\2s, 1/1/07 AAA 556,575
1,000,000 Clyde, Elec. Syst. Mtge. Rev. Bonds,
Ser. B, 83\8s, 11/15/14 BB 1,007,500
500,000 Columbus, G.O. Bonds, Ser. B, 61\2s, 1/1/10 AA 496,250
</TABLE>
11
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<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C>
$ 500,000 Columbus, Swr. Rev. Bonds 61\4s, 6/1/08 AA $ 484,375
1,000,000 Cuyahoga Cnty., G.O. Bonds 5.65s, 5/15/18 AA 860,000
2,000,000 Cuyahoga Cnty., Hosp. Impt. Rev. Bonds
(Univ.Hosp. Hlth. Project), 6s, 1/15/22 AA 1,730,000
275,000 Dayton, Arpt. Rev. Bonds
(James M. Cox Intl. Arpt.), AMBAC, 81\4s, 1/1/16 AAA 287,375
Dublin G.O. Bonds
450,000 Ser. A, 6.4s, 12/1/14 Aa 431,437
1,300,000 Ser. B, 6.4s, 12/1/14 Aa 1,246,375
2,200,000 Erie Cnty., Hosp. Impt. Rev. Bonds
(Firelands Cmnty. Hosp.), 87\8s, 1/1/15 AAA 2,376,000
1,300,000 Franklin Cnty., Convention Facs. Auth. Tax & Lease
Revenue Anticipation Bonds (MBIA), 7s, 12/1/19(d) AAA 1,395,875
1,250,000 Franklin Cnty., Rev. Bonds
(Online Computer Library Ctr.), 93\4s, 7/15/09 BBB 1,295,312
700,000 Gateway Econ. Dev. Corp. Excise Tax Rev. Bonds,
71\2s, 9/1/05 A 742,000
4,020,000 Geauga Cnty., Hosp. Impt. Rev. Bonds
(Geauga Hosp. Assn. Project), 83\4s, 11/15/13 BBB 4,165,725
Granville, School Dist. G.O. Bonds, AMBAC
1,100,000 zero%, 12/1/15 AAA 265,375
1,375,000 zero%, 12/1/13 AAA 383,280
1,380,000 zero%, 12/1/11 AAA 439,875
Hamilton, Elec. Syst. Mtge. Rev. Bonds, Ser. B, FGIC
700,000 8s, 10/15/22 AAA 770,875
2,600,000 71\4s, 10/15/23 AAA 2,756,000
1,000,000 Hubbard, Swr. Syst. Mtge. Rev. Bonds
8.8s, 11/15/17 BBB 1,070,000
1,800,000 Huran Cnty., Human Svcs. Rev. Bonds
MBIA, 6.55s, 12/1/20 AAA 1,721,250
1,320,000 Kirtland, G.O. Bonds, AMBAC, 71\2s, 12/1/16 AAA 1,374,450
374,230 Lake Cnty., Ind. Dev. Rev. Bonds
(Madison Inn Hlth. Ctr. Project), FHA Insd., 12s,
5/1/14 BBB/P 395,280
1,000,000 Lakota Local School Dist., Rev. Bonds,
AMBAC, 7s, 12/1/10 AAA 1,040,000
860,407 Logan Cnty., Indl. Dev. Rev. Bonds
(Indian Lake Hlth. Project), FHA Insd., 12s, 3/15/14 BBB/P 1,081,961
Lorain Cnty., Fac. Rev. Bonds
1,500,000 (Laurel Lake Project), 7.3s, 12/15/14 BB/P 1,348,125
1,750,000 (Laurel Lake Project), 71\8s, 12/15/18 BB/P 1,559,687
2,100,000 Lucas Cnty. Hosp. Rev. Bonds
(Toledo Hosp. Impt.), MBIA, 51\4s, 11/15/15 AAA 1,716,750
18,000,000 Lucas Plaza Hsg. Dev. Corp. Mtge. Rev. Bonds,
FHA Insd., zero%, 6/1/24 Aaa 2,115,000
Marion Cnty., Hlth. Care Fac. Rev. Bonds
(United Church Homes Project)
460,000 87\8s, 12/1/12 BBB 531,300
4,000,000 63\8s, 11/15/10 BBB 3,560,000
2,000,000 6.3s, 11/15/15 BBB 1,715,000
1,755,000 Massillon, City School Dist. Rev. Bonds,
AMBAC, zero%, s, 12/1/10 AAA 607,668
1,205,000 Massillon, Lincoln Ctr. Phase II Bonds,
AMBAC, 6.95s, 12/1/10 AAA 1,247,175
875,000 Montgomery Cnty., Hlth. Care Facs. Rev. Bonds
(Friendship Village of Dayton), Ser. A, 91\4s, 2/1/16 BB 864,063
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
$ 1,895,000 Montgomery Conifers, Hsg. Dev. Corp. Mtge.
Rev. Bonds (Conifers Project), FHA Insd.,
8.45s, 6/1/28 A $1,921,056
2,800,000 Mount Vernon, Hosp. Rev. Bonds
(Knox Cmnty. Hosp.), 77\8s, 6/1/12 BB/P 2,814,000
North Royalton City School Dest. G.O. Bonds
1,885,000 MBIA, 65\8s, 12/1/06 AAA 1,941,550
1,000,000 AMBAC, 5.65s, 12/1/08 AAA 933,750
1,020,000 North Royalton City School Dist. G.O. Bonds,
zero%, 12/1/09 AAA 376,125
835,000 Northwestern Local School Dist. Rev. Bonds
(Wayne & Ashland Cntys. School Impt.),
FGIC, 7.2s, 12/1/10 AAA 873,619
250,000 OH Air Quality Dev. Auth. Poll. Control
Rev. Bonds (Toledo Edison), Ser. B, 8s, 5/15/19 BB 240,313
3,000,000 OH Cap. Hsg. Corp. Multi-Fam. Rev. Bonds,
Ser. A, Federal National Mortgage Assn.
(FNMA), 7.6s, 11/1/23 AAA 3,052,500
OH Econ. Dev. Rev. Bonds
1,580,000 (Sponge, Inc. Project), Ser. 5-A, 83\8s, 6/1/14 A 1,676,775
700,000 (Superior Forge & Steel Corp.), Ser. 3, 75\8s, 6/1/11 A 713,125
OH Higher Ed. Fac. Rev. Bonds
(Case Western Reserve Univ.)
4,500,000 61\4s, 10/1/18 AA 4,190,625
750,000 61\2s, 10/1/20 AA 722,813
OH Hsg. Fin. Agcy. Single Fam. Mtge. Bonds
10,000,000 GNMA Coll. stepped coupon, zero%,
(9s, 9/1/01), 9/1/18 (e) AAA 6,925,000
6,864,000 Ser. A-2, GNMA Coll., 9.223s, 3/1/31 AAA 6,237,660
575,000 Ser. C, GNMA Coll., 81\8s, 3/1/20 AAA 592,969
740,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 AAA 765,900
925,645 Ser. 85-A, FGIC, zero%, 1/15/15 AAA 134,219
OH Poll. Control Rev. Bonds
2,350,000 (Standard Oil Co.), 63\4s, 12/1/15 AA 2,276,563
OH State Air Quality Dev. Auth. Poll.
Control Rev. Bonds
4,125,000 (Cincinnati Gas & Elec.), 101\8s, 12/1/15 Baa 4,387,969
OH State Building Auth. Rev. Bonds
100,000 (Senator Ocasek Govt. Office Bldg.),
Ser. A, 9.1s, 10/1/04 A 105,750
1,935,000 6s, 8/1/10 AA 1,816,481
OH State G.O. Bonds
7,640,000 zero%, 8/1/13 AA 2,167,850
OH State Higher Ed. Fac. Rev. Bonds
1,000,000 6s, 10/1/14 AA 920,000
OH State Pub. Fac. Rev. Bonds
4,000,000 MBIA, 51\2s, 12/1/06 AAA 3,665,000
OH State Wtr. Dev. Auth. Poll.
Control Facs. Rev. Bonds
550,000 (PA Pwr. Co. Project), 12s, 12/1/14 BBB 566,500
4,400,000 (OH Edison Co. Project), 105\8s, 7/1/15 Baa 4,675,000
2,500,000 (PA Pwr. Co. Project), Ser. B, 8.1s, 9/1/18 BBB 2,596,875
1,250,000 (Cleveland Elec. Illuminating Project), 8s, 10/1/23 BB 1,259,375
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
OH State Wtr. Dev. Auth. Rev. Bonds
$ 380,000 AMBAC, 93\8s, 12/1/18 AAA $ 397,100
1,000,000 Ser. A, AMBAC, 73\4s, 12/1/09 AAA 1,068,750
3,300,000 (Mid-American Waste Syst. Inc. Project),
73\4s, 9/1/07 BB/P 3,093,750
2,000,000 OH Water Dev. Auth. Poll. Control. Fac.
Rev. Bonds, 75\8s, 7/1/23 BB 2,005,000
400,000 Oberlin Swr., 1st Mtge., Rev. Bonds,
Bond Investors Guaranty Insurance (BIGI),
7.8s, 12/15/08 AAA 439,000
500,000 Olmsted Falls, Local School Dist. Rev. Bonds,
FGIC, 7.05s, 12/15/11 AAA 514,375
2,275,000 Orrville, Elec. Syst. Mtge. Rev. Bonds,
Ser. A & B, AMBAC, 71\2s, 12/1/10 AAA 2,445,625
1,000,000 Oxford, Wtr. Supply Syst. Mtge. Rev. Bonds,
AMBAC, 75\8s, 12/1/14 AAA 1,091,250
1,000,000 Pickerington Local School Dist., Construction &
Impt. Rev. Bonds, FGIC, 5.8s, 12/2/09 AAA 918,750
890,000 Portage Cnty., Hosp. Rev. Bonds
(Robinson Memorial Hosp.), 93\8s, 10/1/07 A 941,175
Sandusky Cnty., Hosp. Fac. Rev. Bonds
(Memorial Hosp. Project)
1,750,000 73\4s, 12/1/09 BB 1,642,813
795,000 73\8s, 12/1/01 BB 760,219
2,600,000 Southwest Local School Dist. G.O. Bonds
(Hamilton Cnty.), AMBAC, 7.65s, 12/1/10 AAA 2,882,750
Stark Cnty., Hosp. Rev. Bonds
(Doctors Hosp. Inc.)
800,000 85\8s, 4/1/18 Baa 889,000
5,000,000 6s, 4/1/24 Baa 3,818,750
Summit Cnty., Hosp. Fac. Rev. Bonds
1,000,000 (Cuyahoga Falls Gen. Hosp. Project),
Ser. A, 6.65s, 7/1/14 AA/P 906,250
2,925,000 Toledo, Swr. Syst. Mtge. Rev. Bonds,
AMBAC, 6.2s, 11/15/12 AAA 2,771,438
1,175,000 Toledo, Water-works Mtge. Rev. Bonds,
AMBAC, 6.2s, 11/15/12 AAA 1,107,438
1,100,000 Tuscarawas Cnty., Hosp. Facs. Rev. Bonds
(Union Hosp. Project), Ser. A, 61\2s, 10/1/21 Baa 895,125
1,000,000 Twin Valley, Cmnty. Loc. School Dist.
Rev. Bonds, 7.05s, 12/1/11 AAA 1,038,750
1,150,000 Washington, Wtr. Syst. Mtge. Rev. Bonds, zero%
AMBAC, s, 12/1/09 AAA 424,064
1,610,000 Westerville Cnty. School Dist. Rev. Bonds
(UT School Impt.) 61\4s, 12/1/09 A 1,545,600
475,000 Wood Cnty., Swr. Dist. Water Assmt. Impt.
Rev. Bonds, 6.55s, 12/1/14 A 458,375
3,000,000 Woodridge, School Dist. Rev. Bonds,
AMBAC, 6.8s, 12/1/14 AAA 3,037,500
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
220,000 73\8s, 10/1/21 AAA 226,600
205,000 73\8s, 10/1/20 AAA 211,150
185,000 73\8s, 10/1/19 AAA 190,550
180,000 73\8s, 10/1/18 AAA 185,400
160,000 73\8s, 10/1/17 AAA 164,800
155,000 73\8s, 10/1/16 AAA 159,650
------------
189,850,876
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS (B) VALUE
PUERTO RICO (4.8%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,000,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth.
VRDN, Ser. X, 2.2s, 7/1/99 VMIG1 $ 1,000,000
Cmnwlth. of Puerto Rico, Hwy. Auth. Rev. Bonds
50,000 Ser. O, 8s, 7/1/05 AAA 54,750
1,350,000 Ser. Q, 73\4s, 7/1/16 AAA 1,496,813
3,600,000 Cmnwlth. of Puerto Rico, Pub. Impt. G.O. Bonds,
7.7s, 7/1/20 AAA 3,982,500
450,000 Cmnwlth. of Puerto Rico, Urban Renewal
& Hsg. Corp. Rev. Bonds, 77\8s, 10/1/04 Baa 484,875
950,000 Puerto Rico, Muni. Fin. Agcy. Rev. Bonds,
Ser. A, 81\4s, 7/1/08 A 1,022,438
Puerto Rico, Pub. Bldg. Auth. Edl. & Hlth. Fac.
Rev. Bonds, Ser. H
1,500,000 77\8s, 7/1/16 AAA 1,620,000
330,000 zero%, 7/1/05 A 161,288
------------
9,822,664
------------
TOTAL INVESTMENTS
(cost $209,592,999)(f) $199,673,540
- --------------------------------------------------------------------------------------------
<FN>
(a) Percentages indicated are based on net assets of $203,592,328, which correspond
to a net asset value per Class A share and Class B share of $8.23.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent
ratings available at November 30, 1994 for the securities listed. Ratings are generally
ascribed to securities at the time of issuance. While the rating agencies may from time
to time revise such ratings, they undertake no obligation to do so, and the ratings
indicated do not necessarily represent ratings which the agencies would ascribe to
these securities at November 30, 1994. Securities rated by Putnam are indicated by "/P"
and are not publicly rated.
(c) Restricted as to public resale. At the date of acquisition this security was valued at
cost. There were no outstanding unrestricted securities of the same class as that held.
Total market value of the restricted security owned at November 30, 1994 was $1,672,500
or 0.8% of net assets.
(d) A portion of this security was pledged to cover margin requirements for future contracts
at November 30, 1994. The market value segregated with the custodian at November 30, 1994
for transactions in future contract was $1,395,875.
(e) The interest rate and date shown parenthetically represent the new interest rate to be
paid and the date the fund will begin receiving interest at this rate.
(f) The aggregate identified cost on a tax basis is $209,592,999 resulting in gross unrealized
appreciation and depreciation of $3,831,302 and $13,750,761, respectively, or net unrealized
depreciation of $9,919,459.
</TABLE>
<TABLE>
U.S. Treasury Bond Futures Outstanding at November 30,1994
<CAPTION>
AGGREGATE EXPIRATION UNREALIZED
TOTAL VALUE FACE VALUE DATE DEPRECIATION
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Bond Futures(Sell) $3,922,500 3,920,000 Mar/95 (2,500)
--------------------------------------------------------------------------------
</TABLE>
The rates shown on Residual Interest Bonds (RIBS), Variable Rate Demand
Notes (VRDN) and Inverse Rate Floaters (I/F), which are securities paying
variable interest rates that vary inversely to changes in market interest
rates, are the current interest rates at November 30, 1994, which are
subject to change based on the terms of the security.
15
<PAGE> 16
<TABLE>
The Fund had the following industry group concentrations greater than 10%
on November 30, 1994 (as a percentage of net assets):%
<S> <C>
Utilities 28.7%
Hospitals/Healthcare 16.5
Housing 12.7
Education 12.3
</TABLE>
<TABLE>
The Fund had the following insurance group concentrations greater than 10%
at November 30, 1994 (as a percentage of net assets):
<S> <C>
AMBAC 15.6%
MBIA 14.7
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------
Investments in securities at value (identified cost $209,592,999) (Note 1) $199,673,540
- ----------------------------------------------------------------------------------------------------
Cash 208,680
- ----------------------------------------------------------------------------------------------------
Interest receivable 4,093,701
- ----------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 460,308
- ----------------------------------------------------------------------------------------------------
Receivable for securities sold 977,257
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS 205,413,486
LIABILITIES
- ----------------------------------------------------------------------------------------------------
Payable for securities purchased 237,710
- ----------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 430,319
- ----------------------------------------------------------------------------------------------------
Distributions payable to shareholders 685,815
- ----------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 314,561
- ----------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,332
- ----------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 126
- ----------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 77,953
- ----------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 27,024
- ----------------------------------------------------------------------------------------------------
Payable for variation margin on Futures contracts 26,385
- ----------------------------------------------------------------------------------------------------
Other accrued expenses 17,933
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,821,158
- ----------------------------------------------------------------------------------------------------
NET ASSETS $203,592,328
- ----------------------------------------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $215,793,702
Distributions in excess of net investment income (59,203)
Accumulated net realized loss on investments (2,220,212)
Net unrealized depreciation of investments and futures contracts (9,921,959)
- ----------------------------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $203,592,328
- ----------------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------------------------------------
Net asset value and redemption of class A shares
($180,077,419 divided by 21,877,858 shares) $ 8.23
- ----------------------------------------------------------------------------------------------------
Offering price per share (100/95.25 of $8.23)* $ 8.64
- ----------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($23,514,909 divided by 2,858,911 shares)+ $ 8.23
- ----------------------------------------------------------------------------------------------------
<FN>
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group sales the
offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
<TABLE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1994 (Unaudited)
<S> <C>
TAX EXEMPT INTEREST INCOME $ 7,450,188
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 632,095
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 76,910
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,389
- -------------------------------------------------------------------------------
Auditing 11,832
- -------------------------------------------------------------------------------
Legal 7,620
- -------------------------------------------------------------------------------
Reports to shareholders 10,027
- -------------------------------------------------------------------------------
Registration fees 845
- -------------------------------------------------------------------------------
Administrative services (Note 2) 4,011
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 5,446
- -------------------------------------------------------------------------------
Distribution fees--Class A 191,433
- -------------------------------------------------------------------------------
Distribution fees--Class B 91,478
- -------------------------------------------------------------------------------
OTHER EXPENSES 10,589
- -------------------------------------------------------------------------------
TOTAL EXPENSES 1,047,675
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 6,402,513
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,124,984)
- -------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (5,846)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures
contracts during the period (11,943,964)
- -------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (14,074,794)
- -------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(7,672,281)
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
NOVEMBER 30 MAY 31
----------------------------
1994* 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------
Net investment income $ 6,402,513 $ 11,358,662
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (2,124,984) 1,382,639
- --------------------------------------------------------------------------------------------
Net realized gain (loss) on futures contracts (5,846) 705,130
- --------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (11,943,964) (10,780,015)
- --------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (7,672,281) 2,666,416
- --------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------------------------------------------------
From net investment income:
class A (5,767,894) (10,890,642)
class B (578,400) (418,444)
- --------------------------------------------------------------------------------------------
From net realized gains:
class A -- (2,534,385)
class B -- (107,263)
- --------------------------------------------------------------------------------------------
Increase from capital shares transactions (Notes 4 and 5) 5,522,490 45,493,937
- --------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,496,085) 34,209,619
NET ASSETS
- --------------------------------------------------------------------------------------------
Beginning of year 212,088,413 177,878,794
- --------------------------------------------------------------------------------------------
END OF PERIOD (including distributions
in excess of net investment income of
$59,203 and $115,422 respectively) $203,592,328 $212,088,413
- --------------------------------------------------------------------------------------------
<FN>
*Unaudited.
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the year)
<CAPTION>
FOR THE PERIOD
JULY 15, 1993
SIX MONTHS (COMMENCEMENT SIX MONTHS YEAR
ENDED OF OPERATIONS) ENDED ENDED
NOVEMBER 30 TO MAY 31 NOVEMBER 30 MAY 31
- ------------------------------------------------------------------------------------------- -----------------------------
1994* 1994 1994* 1994
- ------------------------------------------------------------------------------------------- -----------------------------
CLASS B CLASS A
- ------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.79 $ 9.37 $ 8.80 $ 9.26
- ------------------------------------------------------------------------------------------- -----------------------------
Investment operations
- ------------------------------------------------------------------------------------------- -----------------------------
Net investment income .23 .40 .26 (.53)
- ------------------------------------------------------------------------------------------- -----------------------------
Net realized and unrealized gain (loss) on investments (.56) (.46) (.57) (.35)
- ------------------------------------------------------------------------------------------- -----------------------------
TOTAL FROM INVESTMENT OPERATIONS (.33) (.06) (.31) .18
- ------------------------------------------------------------------------------------------- -----------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------- -----------------------------
Net investment income (.23) (.40) (.26) (.52)
- ------------------------------------------------------------------------------------------- -----------------------------
Net realized gain on investments -- (.12) -- (.12)
- ------------------------------------------------------------------------------------------- -----------------------------
TOTAL DISTRIBUTIONS (.23) (.52) (.26) (.64)
- ------------------------------------------------------------------------------------------- -----------------------------
NET ASSET VALUE, END OF PERIOD $ 8.23 $ 8.79 $ 8.23 $ 8.80
- ------------------------------------------------------------------------------------------- -----------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(B) (3.78)(C) (.79)(C) (3.59)(C) 1.88
- ------------------------------------------------------------------------------------------- -----------------------------
NET ASSETS, END OF PERIOD (in thousands) $23,515 $17,959 $180,077 $194,130
- ------------------------------------------------------------------------------------------- -----------------------------
Ratio of expenses to average net assets (%) .79(c) 1.42(c) .46(c) .99
- ------------------------------------------------------------------------------------------- -----------------------------
Ratio of net investment income to average net assets (%) 2.74(c) 4.35(c) 3.02(c) 5.68
- ------------------------------------------------------------------------------------------- -----------------------------
Portfolio turnover (%) 31.89(c) 44.45(c) 31.89(c) 44.45
- ------------------------------------------------------------------------------------------- -----------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1989
(COMMENCEMENT OF
OPERATIONS)
YEAR ENDED MAY 31 MAY 31
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.78 $ 8.55 $ 8.40 $ 8.50
- ----------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income .54 .57(a) .59(a) .35(a)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .48 .23 .14 (.10)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.02 .80 .73 .25
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (.54) (.57) (.58) (.35)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.54) (.57) (.58) (.35)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.26 $ 8.78 $ 8.55 $ 8.40
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(B) 11.94 9.65 9.09 2.99(c)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $177,879 $140,309 $21,136 $7,684
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.04 .90(a) .87(a) .47(a)(c)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.90 6.41(a) 6.83(a) 4.19(a)(c)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 21.57 15.20(d) 17.40 23.27(c)
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Unaudited.
(a) Reflects an expense limitation, and, during the period ended May 31, 1990, an absorption of expenses incurred
by the Fund. As a result, net investment income of the Fund for years ended 1992, 1991, and the period
ended May 31, 1990 reflect expense reductions of approximately $0.01, $0.05, 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.
(d) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Ohio Tax Exempt
Income Fund.
</TABLE>
21
<PAGE> 22
NOTES TO FINANCIAL STATEMENTS
November 30 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management investment company.
The fund seeks as high a level of current income exempt from federal income
tax and Ohio personal income tax as Putnam Management believes is
consistent with preservation of capital by investing primarily in a portfolio
of Ohio tax-exempt securities.
The fund offers both class A and class B shares. The fund commenced
its public offering of class B shares on July 15, 1993. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and may be subject to a contingent deferred sales charge
if those shares are redeemed within four years of purchase. Expenses of the
fund are borne pro-rata by the holders of both classes of shares, except
that each class bears expenses unique to that class (including the
distribution fees applicable to such class) and votes as a class only with
respect to its own distribution plan or other matters on which a class vote is
required by law or determined by the Trustees. Shares of each class would
receive their pro-rata share of the net assets of the fund, if the fund were
liquidated. In addition, the Trustees declare separate dividends on each class
of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from
bond dealers, market transactions in comparable securities and various
relationships between securities in determining value.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C FUTURES A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract the fund is required to pledge to the broker an amount of cash or
tax exempt securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the fund as unrealized gains or losses. When the
contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was open and
the value at the time it was closed. The potential risk to the fund is that
the change in value of the underlying securities may not correspond to the
change in value of the futures contracts.
22
<PAGE> 23
D FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by the fund
and are distributed monthly. Capital gains distributions, if any, are
recorded on the ex-dividend date and paid annually, or as necessary to meet the
distribution requirements described above.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include treatment
of losses on wash sale transactions and realized and unrealized gains and
losses on futures contracts.
F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a yield-
to-maturity basis. Discount on zero-coupon bonds is accreted according to the
effective yield method.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization, its registration with the Securities and Exchange
Commission and with various states, and the initial public offering of its
shares aggregated $15,011. These expenses are being amortized over a five-year
period based on projected net assets of the fund.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., the fund's Manager, a
wholly-owned subsidiary of Putnam Investments, Inc., for management and
investment advisory services is accrued daily and paid quarterly based on the
average net assets of the fund. Such fee is based on the following annual
rates: 0.6% of the first $500 million of average net assets, 0.5% of the next
$500 million, 0.45% of the next $500 million and 0.4% of any amount over $1.5
billion, subject to reduction in any year by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of the manager of
the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative
services to the fund. The aggregate amount of all such reimbursements is
determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $740 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested
persons of the Manager and who serve on committees of the Trustees receive
additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust Company
(PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of
operations for the six months ended November 30, 1994 have been reduced by
credits allowed by PFTC.
23
<PAGE> 24
The fund has adopted a distribution plan with respect to class A shares
(the "Class A Plan") pursuant to Rule 12b-1 of the Investment Company Act
of 1940. The purpose of the Class A Plan is to compensate Putnam Mutual
Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred in distributing class A shares. The
Trustees have approved payments by the fund to Putnam Mutual Funds Corp.
at an annual rate of 0.20% of average net assets attributable to class
A shares.
The fund has been informed that during the six months ended November 30,
1994, Putnam Mutual Funds Corp., acting as an underwriter, received net
commissions of $17,082 from the sale of class A shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more.
For the six months ended November 30, 1994, Putnam Mutual Funds Corp.,
acting as an underwriter, received no money on such redemptions.
The fund has adopted a separate distribution plan with respect to its class
B shares (the "Class B Plan") pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate
Putnam Mutual Funds Corp. for services provided and expenses incurred in
distributing class B shares. The Class B Plan provides for payments by the
fund to Putnam Mutual Funds Corp. at an annual rate of 0.85% of the fund's
average net assets attributable to class B shares.
Putnam Mutual Funds Corp., acting as an underwriter, also receives the
proceeds of the contingent deferred sales charges levied on class B share
redemptions within four years of purchase. The charge is based on declining
rates, which begin at 5.0% of the net asset value of the redeemed shares.
Putnam Mutual Funds Corp. received $36,362 in contingent deferred sales
charges from such redemptions for the six months ended November 30, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended November 30, 1994, purchases and sales of
investment securities other than short-term municipal obligation aggregated
$69,922,237 and $65,992,902 respectively. Purchases and sales of short-term
municipal obligations aggregated $15,700,000 and $14,700,000, respectively.
In determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
<TABLE>
<CAPTION>
SALES OF FUTURES CONTRACTS
- ---------------------------------------------------------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Contracts opened 555 $(55,579,219)
Contracts closed (515) $(51,659,219)
- ----------------------------------------------------------------------------
Contracts open
at end of period 40 $ 3,920,000
- ---------------------------------------------------------------------------
</TABLE>
NOTE 4
CAPITAL SHARES
At November 30, 1994, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
shares. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30, 1994
- ---------------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C>
Shares sold 861,176 $ 7,436,896
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 423,267 3,656,257
- ---------------------------------------------------------------------------
1,284,443 11,093,153
Shares
repurchased (1,474,540) (12,641,247)
- ---------------------------------------------------------------------------
NET DECREASE (190,097) $(1,548,094)
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, 1994
- ------------------------------------------------
CLASS A SHARES AMOUNT
- ------------------------------------------------
<S> <C> <C>
Shares sold 3,670,439 $ 31,805,692
- ------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 948,291 10,995,305
- ------------------------------------------------
4,618,730 42,800,997
Shares
repurchased (1,764,710) (16,222,202)
- ------------------------------------------------
NET INCREASE 2,854,020 $ 26,578,795
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED NOVEMBER 30, 1994
- ------------------------------------------------
CLASS B SHARES AMOUNT
- ------------------------------------------------
<S> <C> <C>
Shares sold 949,667 $ 8,194,114
- ------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 41,642 359,074
- ------------------------------------------------
991,309 8,553,188
Shares
repurchased (174,701) (1,482,604)
- ------------------------------------------------
NET INCREASE 816,608 $ 7,070,584
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD JULY 15, 1993
(COMMENCEMENT OF OPERATIONS)
TO MAY 31, 1994
- ------------------------------------------------
CLASS B SHARES AMOUNT
- ------------------------------------------------
<S> <C> <C>
Shares sold 2,105,600 $19,494,216
- ------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 35,468 323,882
- ------------------------------------------------
2,141,068 19,818,098
Shares
repurchased (98,765) (902,956)
- ------------------------------------------------
NET INCREASE 2,042,303 $18,915,142
- ------------------------------------------------
</TABLE>
25
<PAGE> 26
OUR COMMITMENT TO QUALITY SERVICE
- -- CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service
Seal for the past five years, through 1994. DALBAR, an independent
research firm, ran more than 10,000 tests of 38 shareholder service
components. In every category, Putnam outperformed the industry
standard.
- -- HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a
month from a Putnam money market fund or from your checking or
savings account.*
- -- SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change
or termination.)
- -- ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day
at the then-current net asset value, which may be more or less
than their original cost.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and speak
with a helpful Putnam representative.
- -- To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number:
1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or protect
against a loss in a declining market. Investors should consider their
ability to continue purchasing shares during periods of low price
levels.
26
<PAGE> 27
FUND INFORMATION
<TABLE>
<S> <C>
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109 Charles E. Porter
Executive Vice President
MARKETING SERVICES Patricia C.Flaherty
Putnam Mutual Funds Corp. Senior Vice President
One Post Office Square Lawrence J. Lasser
Boston, MA 02109 Vice President
Gordon H. Silver
CUSTODIAN Vice President
Putnam Fiduciary Trust Company Gary N. Coburn
Vice President
LEGAL COUNSEL James E. Erickson
Ropes & Gray Vice President
Thomas C. Goggins
TRUSTEES Vice President and Fund Manager
George Putnam, Chairman William N. Shiebler
William F. Pounds, Vice Chairman Vice President
Jameson Adkins Baxter John R. Verani
Hans H. Estin Vice President
John A. Hill Paul M. O'Neil
Elizabeth T. Kennan Vice President
Lawrence J. Lasser John D. Hughes
Robert E. Patterson Vice President and Treasurer
Donald S. Perkins Beverly Marcus
George Putnam, III Clerk and Assistant Treasurer
A.J.C. Smith
W. Nicholas Thorndike
This report is for the
information of shareholders of
Putnam Ohio Tax Exempt Income
Fund II. It may also be used as
sales literature when preceded
or accompanied by the current
prospectus, which gives details
of sales charges, investment
objectives, and operating
policies of the fund, and the
most recent copy of Putnam's
Quarterly Performance Summary.
For more information or
to request a prospectus, call
toll-free: 1-800-225-1581.
</TABLE>
27
<PAGE> 28
PUTNAM INVESTMENTS
--------------
The Putnam Funds Bulk Rate
One Post Office Square U.S. Postage
Boston, Massachusetts 02109 PAID
Putnam
Investments
--------------
848/240-15819
