<PAGE>
PUTNAM
OHIO
TAX EXEMPT
INCOME FUND II
ANNUAL REPORT
May 31, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"If you're bullish on bonds, probably the best place to be now is the
municipal bond market . . . munis are trading at their most attractive
levels against Treasuries in nearly a decade."
--Barron's, July 3, 1995
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
----------------------------------------------------------------------
--
(change in value during
period plus reinvested
distributions)
12 months ended 5/31/95 8.04% 2.90% 7.39% 2.39%
----------------------------------------------------------------------
--
CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
----------------------------------------------------------------------
--
5/31/94 $8.80 $9.24 $8.79 -- --
4/3/95
(Inception of
M shares) -- -- -- $8.76 $9.05
5/31/95 8.95 9.40 8.94 8.95 9.25
----------------------------------------------------------------------
--
CAPITAL GAINS(1)
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
----------------------------------------------------------------------
--
Class A 13 $0.509906 $0.012 $0.00 $0.521906
Class B 13 0.456959 0.012 0.00 0.468959
Class M 2 0.076013 -- -- 0.076013
----------------------------------------------------------------------
--
CLASS A CLASS B
CURRENT RETURN: NAV POP NAV
----------------------------------------------------------------------
--
End of period
Current dividend rate(2) 5.40% 5.14% 4.81%
Taxable equivalent(3) 9.67 9.20 8.61
Current 30-day SEC yield(4) 5.13 4.88 4.48
Taxable equivalent(3) 9.18 8.73 8.02
----------------------------------------------------------------------
--
<FN>
Performance data represent past results and are not indicative of
future results. For performance over longer periods, see pages 8 and
9. POP assumes 4.75% maximum sales charge for class A shares and 3.25%
for class M shares. CDSC assumes 5% maximum contingent deferred sales
charge. Performance for class M shares is not shown because of the
brevity of the reporting period. (1) Capital gains 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.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
PUTNAM OHIO TAX EXEMPT INCOME FUND II'S MANAGER, RICHARD WYKE,
COULDN'T BE MORE PLEASED WITH THE MUNICIPAL BOND MARKET'S IMPRESSIVE
COMEBACK FROM THE SUSTAINED DECLINE OF 1994. MINDFUL OF THE
UNCERTAINTIES STILL HOVERING IN THE BACKGROUND, HOWEVER, HE HAS BEGUN
TAKING STEPS AIMED AT PRESERVING SOME OF THE FUND'S GAINS ACHIEVED
DURING THE FINAL MONTHS OF THE FISCAL YEAR ENDED MAY 31, 1995.
AT THE SAME TIME, RICK IS OPTIMISTIC ABOUT PROSPECTS FOR FISCAL 1996.
THE RECOVERY IN THE TAX-EXEMPT BOND MARKET, WHILE SUBSTANTIAL, HAS
LAGGED THAT OF OTHER FIXED-INCOME MARKETS, LEADING HIM TO BELIEVE THE
RALLY MAY HAVE SOME STAYING POWER.
MUNICIPAL BOND INVESTORS HAVE ALREADY SHAKEN OFF THE JITTERS IGNITED
BY A FLAT-TAX PROPOSAL RECENTLY THROWN INTO THE LEGISLATIVE HOPPER. IN
ITS PUREST FORM, A FLAT TAX WOULD ELIMINATE THE FEDERAL INCOME TAX
ADVANTAGE OF MUNICIPAL BONDS. WE DO NOT BELIEVE CONGRESS WOULD ENACT
ANY SUCH RESTRICTIVE PROVISION.
RICK PROVIDES MORE DISCUSSION OF THESE AND OTHER ISSUES IN THE REPORT
THAT FOLLOWS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JULY 19, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
RICHARD P. WYKE
The municipal bond market has done a dramatic about-face since our
semiannual report dated November 30, 1994, reminding us once again
that markets always move in cycles. Last spring, what initially
appeared to be a short-term market correction turned into a painfully
protracted bear market. The market endured the Federal Reserve Board's
repeated interest-rate increases in the months that followed, and, as
a result, the skies slowly began to brighten.
Consequently, Putnam Ohio Tax Exempt Income Fund II has been able to
complete fiscal 1995 with solid results: a total return of 8.04% for
class A shares (7.39% for class B shares) at net asset value for the
12 months ended May 31, 1995.
STAYING THE COURSE PROVED REWARDING
The market turbulence of late 1994, particularly during October and
November, tested the mettle of even the most experienced bond fund
managers. Throughout it all, however, we believed that level-
headedness and experience would prevail.
Consequently, as institutional and individual investors rushed to
liquidate their holdings, we opted to stick with our strategy of
focusing on the very positive underlying fundamentals of the Ohio
municipal market: a healthy, diversified economy; the potential for
further credit upgrades as the state restores its financial reserves;
and a shrinking supply of new bonds. Indeed, for the most part, your
fund stayed fully invested throughout fiscal 1995.
As we anticipated, evidence of a slowing national economy, a decrease
in bond issuance, diminishing inflation fears, and ongoing demand for
tax relief finally combined to propel the municipal market -- and your
fund -- forward.
FLAT-TAX PROPOSAL CAUSED MARKET TO FALTER BRIEFLY
While most fixed-income investments have enjoyed a spectacular year-to-
date rally, the municipal market's forward momentum
<PAGE>
experienced a brief interruption in late April. Investors became
spooked by the possible effects of the flat-tax proposal now headed
for congressional hearings. A flat tax, if approved, would deprive
municipal bonds of their exclusivity as tax-exempt investments.
The uneasiness caused by this rhetoric, however, was short- lived.
Investors soon realized the flat tax was only one of many proposals
that will be debated in Washington -- and that its passage was far
from certain. Once their initial fears were calmed, investors renewed
their interest in the market, pushing municipal-bond prices higher by
period's end.
HEALTHY YIELD AND SOLID TOTAL RETURN: ONGOING GOALS
To achieve your fund's current income objective during the market's
tumult, we undertook certain defensive measures, such as purchasing
bonds with higher coupon rates and longer call dates. We never lost
sight, however, of the possibility of an eventual market turnaround.
We maintained a longer view and sought to select portfolio holdings
for a combination of income and appreciation potential.
To enhance appreciation potential, we began increasing the fund's
weighting in AAA-rated and insured bonds this past fall,
[LINE CHART]
MUNICIPAL BONDS CURRENTLY OFFER AN EXCELLENT BUYING OPPORTUNITY
----------------------------------------------------------------------
--
It is usually considered a buying signal when municipal bonds yield
between 78% and 82% of Treasuries.
Date
11/94 84.2
84.0
12/94 82.5
82.2
1/95 80.7
79.2
2/95 78.9
79.7
3/95 79.9
78.5
4/95 80.5
82.9
5/95 84.9
This chart shows the yield of an average 30-year general obligation
bond as a percentage of the yield of an average 30-year U.S. Treasury
bond, plotted biweekly. Treasury bonds are backed by the full faith
and credit of the U.S. government.
Source: Bloomberg.
<PAGE>
when their depressed prices became too compelling to ignore. Because
of their high-quality rating, these securities are typically the first
securities to be sold in the event of a market downturn. However, once
such a selling trend starts, the prices of these higher-rated bonds
may decline in response to reduced demand -- which, in turn, causes
the yield spread between higher- and lower-rated bonds to narrow.
Conversely, in times of market recovery, investors traditionally
pursue these bonds first. Their prices then tend to appreciate, and
their yields tend to decline, thereby widening the yield spread.
As the market has rallied, these AAA-rated/insured bonds have
performed well. However, investors' appetite for yield has caused the
yield spread to remain relatively narrow. In this environment, we
believe yield-hungry investors are not being adequately compensated
for the additional risk they are undertaking in lower-rated bonds.
Consequently, if the yield spread widens, higher-rated bonds stand to
appreciate even further.
At period's end, nearly 60% of the fund's assets were invested in AAA-
rated and insured bonds. We've also clustered nearly 25% of the fund's
assets in BBB- and BB-rated bonds because they help provide the fund
with an attractive income stream and an element of price stability.
Through intense research, we've been able to purchase attractively
priced premium and discount bonds. Premium bonds -- those selling at
prices above par value -- typically offer coupons that are higher than
current rates and usually provide greater price stability. Discount
bonds -- those selling at prices below par value -- are attractive for
their significant appreciation potential. A Lorain County Hospital
Revenue Bond, the EMH Regional Medical Center 7 3/4% 11/1/13, is
typical of the type of bond that fits into the premium/discount
balance.
MARKET DYNAMICS POINT TO CONTINUED STRENGTH
The national economic recovery, now in its fifth year, has begun to
show concrete signs of slowing. Lower employment figures, declines in
consumer spending, and a slowdown in manufacturing have given the
broad fixed-income market
<PAGE>
[BAR CHART]
TOP INDUSTRY SECTORS*
----------------------------------------------------------------------
--
Utilities 25.9%
Hospitals/health care 18.1%
Education 16.3%
Housing 6.8%
*Based on net assets on 5/31/95. Portfolio holdings will vary over
time.
another boost, rekindling investors' hopes for a Fed cut in short-term
interest rates. In Ohio, however, we believe the economic outlook
remains stable. We believe several factors, such as an expanding
service sector, strong export activity, and stable real estate and
financial services industries, position Ohio for continued employment
and income growth.
With nearly $96 billion worth of bonds due to mature or be called this
summer -- and the lower volume of new tax-exempt bonds on both the
state and national levels -- the prospects for brisk demand and higher
prices remain bright. We believe the combination of national and local
economic forces, in addition to a shrinking bond supply, has set the
stage for a lasting turnaround in the Ohio municipal bond market.
Of course, the tax-reform dialogue bears careful monitoring. However,
we don't foresee a revision of the income tax code until after the
1996 presidential election. And what is now being proposed will most
likely undergo several revisions before being approved, if it is
enacted at all. Rest assured, our investment strategy in the months
ahead will take into consideration the possible effects of any reform.
<PAGE>
PERFORMANCE SUMMARY
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 5/31/95, there is
no guarantee the fund will continue to hold these securities in the
future.
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.
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.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
LEHMAN BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
----------------------------------------------------------------------
--
1 year 8.04% 2.90% 7.39% 2.39% 9.11% 3.19%
----------------------------------------------------------------------
--
5 years 47.37 40.36 -- -- 51.33 17.80
Annual average 8.06 7.02 -- -- 8.64 3.33
----------------------------------------------------------------------
--
Life of class A 51.78 44.63 -- -- 58.18 21.18
Annual average 7.72 6.80 -- -- 8.52 3.48
----------------------------------------------------------------------
--
Life of class B -- -- 6.55 2.73 9.97 5.40
Annual average -- -- 3.43 1.44 5.18 2.84
----------------------------------------------------------------------
--
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
NAV POP NAV CDSC
----------------------------------------------------------------------
--
1 year 7.12% 2.08% 6.51% 1.51%
----------------------------------------------------------------------
--
5 years 44.45 37.57 -- --
Annual average 7.63 6.59 -- --
----------------------------------------------------------------------
--
Life of class A 49.68 42.63 -- --
Annual average 7.35 6.44 -- --
----------------------------------------------------------------------
--
Life of class B -- -- 5.05 1.29
Annual average -- -- 2.54 0.66
----------------------------------------------------------------------
--
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions or for class A shares
distribution fees prior to implementation of the class A plan in 1992.
The fund began operations on 10/23/89 offering shares now known as
class A. Effective 7/15/93, the fund began offering class B shares and
on 4/3/95 class M shares commenced operations. Performance for class M
shares is not shown because of the brevity of the reporting period.
Performance data represent past results, will differ for each share
class, and are not indicative of future results. Investment returns
and net asset value will fluctuate so an investor's shares, when sold,
may be worth more or less than their original cost.
<PAGE>
[MOUNTAIN CHART]
GROWTH OF A $10,000 INVESTMENT
----------------------------------------------------------------------
--
Lehman Bros.
Municipal
Date POP Bond Index CPI
----------------------------------------------------------------------
--
10/23/89 $9,595 $10,000 $10,000
5/31/90 9814 $10,453 $10,287
5/31/91 10706 $11,506 $10,796
5/31/92 11739 $12,636 $11,123
5/31/93 13141 $14,148 $11,481
5/31/94 13387 $14,497 $11,744
5/31/95 14463 $15,818 $12,118
Past performance is no assurance of future results. A $10,000
investment in the fundOs class B shares at inception on (7/15/93)
would have been valued at $10,655 on 5/31/95 ($10,273 with a
redemption at the end of the period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares, not
including any initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus
the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales charge
for class A shares and 3.25% for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at the
end of the period. Your fund's CDSC declines from a 5% maximum during
the first year to 1% during the sixth year. After the sixth year, the
CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended May 31, 1995
To the Trustees and Shareholders of
Putnam Ohio Tax Exempt Income Fund II
We have audited the accompanying statement of assets and liabilities
of Putnam Ohio Tax Exempt Income Fund II, including the portfolio of
investments owned, as of May 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
"Financial Highlights" for each of the periods indicated therein.
These financial statements and "Financial Highlights" are the
responsibility of the fund's management. Our responsibility is to
express an opinion on these financial statements and "Financial
Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and "Financial Highlights" are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of May 31, 1995 by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and "Financial Highlights"
referred to above present fairly, in all material respects, the
financial position of Putnam Ohio Tax Exempt Income Fund II as of May
31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then
ended, and the "Financial Highlights" for each of the periods
indicated therein, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 17, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1995
KEY TO ABBREVIATIONS
AMBAC--AMBAC Indemnity Corporation
FGIC--Federal Guaranty Insurance Corporation
FHA Insd.--Federal Housing Administration Insured
FNMA Coll.--Federal National Mortgage Association Collateralized
FSA--Financial Security Assurance
GNMA Coll.--Government National Mortgage Association Collateralized
G.O. Bonds--General Obligation Bonds
IFB--Inverse Floating Rate Bonds
MBIA--Municipal Bond Investors Assurance Corporation
VRDN--Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (101.2%)*
PRINCIPAL AMOUNT RATINGS** VALUE
OHIO (91.4%)
----------------------------------------------------------------------
--
$ 100,000 Akron-Wilbeth, Hsg. Dev. Corp.
1st Mtge. Rev. Bonds, FHA Insd.,
7.9s, 8/1/03 AAA $ 118,119
1,200,000 Allen Cnty., G. O. Bonds, AMBAC,
5.3s, 12/1/15 AAA 1,135,500
3,000,000 Aurora School Dist. Impt. Rev.
Bonds, FGIC, 5.8s, 12/1/16 AAA 3,000,000
2,070,000 Bedford, Hosp. Impt. Rev. Bonds
(Bedford Cmnty. Hosp. Inc.),
8 1/2s, 5/15/09 AAA/P 2,442,600
1,905,000 Cincinnati, Student Loan Funding
Corp. Rev. Bonds, 8 7/8s, 8/1/08 BBB/P 2,012,156
2,000,000 Clermont Cnty., Swr. Sys. Rev.
Bonds, AMBAC, 5.2s, 12/1/21 AAA 1,845,000
Cleveland, City School Dist. G.O. Bonds
900,000 9s, 12/1/08 Aaa 1,047,375
2,500,000 8 1/4s, 12/1/08 Aaa 3,031,250
1,000,000 AMBAC, 7.35s, 12/1/08 AAA 1,111,250
4,870,000 Cleveland, G.O. Bonds, Ser. B, AMBAC,
6 3/4s, 10/1/08 AAA 5,497,013
2,500,000 Cleveland, Pkg. Facs. Impt. Rev.
Bonds, 8s, 9/15/12 BBB 2,653,125
Cleveland, Pub. Pwr. Syst. Impt. 1st Mtge. Rev. Bonds
1,900,000 8 3/8s, 8/1/17 AAA 2,094,750
2,145,000 Ser. A, MBIA, zero %, 11/15/13 AAA 753,431
2,775,000 Ser. A, MBIA, zero %, 11/15/12 AAA 1,040,625
3,000,000 Ser. A, MBIA, zero %, 11/15/11 AAA 1,200,000
3,000,000 Ser. A, MBIA, zero %, 11/15/10 AAA 1,278,750
2,450,000 Ser. A, MBIA, zero %, 11/15/09 AAA 1,111,688
Cleveland, Urban Renewal Increment Rev. Bonds
(Rock & Roll Hall of Fame Project)
1,900,000 6 3/4s, 3/15/18 BBB/P 1,885,750
2,000,000 6 5/8s, 3/15/11 BBB/P 1,982,500
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OHIO (continued)
----------------------------------------------------------------------
--
Cleveland, Waterworks 1st Mtge. Rev. Bonds
$2,000,000 Ser. F-92A, AMBAC, 6 1/2s, 1/1/21 AAA $ 2,230,000
4,000,000 Ser. G, MBIA, 5 1/2s, 1/1/21 AAA 3,925,000
7,950,000 Ser. G, MBIA, 5 1/2s, 1/1/13 AAA 7,910,250
1,000,000 Clyde, Elec. Syst. Mtge. Rev. Bonds,
Ser. B, 8 3/8s, 11/15/14 BB/P 1,048,750
1,000,000 Cuyahoga Cnty., G.O. Bonds,
5.65s, 5/15/18 A 967,500
275,000 Dayton, Arpt. Rev. Bonds
(James M. Cox Intl. Arpt.),
AMBAC, 8 1/4s, 1/1/16 AAA 286,688
1,300,000 Dublin, G.O. Bonds, Ser. B,
6.4s, 12/1/14 Aa 1,417,000
2,200,000 Erie Cnty., Hosp. Impt. Rev. Bonds
(Firelands Cmnty. Hosp.),
8 7/8s, 1/1/15 AAA 2,376,000
2,000,000 Evendale, Indl. Dev. VRDN
(SHV Real Estate Inc.), 4.1s, 9/1/15 Aa 2,000,000
1,300,000 Franklin Cnty., Convention Facs.
Auth. Tax & Lease Revenue Anticipation
Bonds, MBIA, 7s, 12/1/19# AAA 1,470,625
1,250,000 Franklin Cnty., Rev. Bonds (Online
Computer Library Ctr.), 9 3/4s, 7/15/09BBB 1,279,688
4,020,000 Geauga Cnty., Hosp. Impt. Rev. Bonds
(Geauga Hosp. Assn. Project),
8 3/4s, 11/15/13 Baa 4,351,650
Granville, School Dist. G.O. Bonds
1,100,000 AMBAC, zero %, 12/1/15 AAA 346,500
1,375,000 AMBAC, zero %, 12/1/13 AAA 489,844
1,380,000 AMBAC, zero %, 12/1/11 AAA 548,550
Hamilton, Elec. Syst. Mtge. Rev. Bonds, Ser. B
700,000 FGIC, 8s, 10/15/22 AAA 789,250
2,600,000 FGIC, 7 1/4s, 10/15/23 AAA 2,827,500
1,400,000 Hamilton Cnty., Hlth. Care Syst. Rev.
Bonds (Sisters of Charity), MBIA,
5 1/4s, 5/15/13 AAA 1,310,750
2,000,000 Hamilton Cnty., Swr. Syst. Impt. Rev.
Bonds (Metro. Swr. Dist.), Ser. A, FGIC,
5 1/4s, 12/1/16 AAA 1,905,000
2,855,000 Hillard, School Dist. Impt. Rev. Bonds,
Ser. A, FGIC, zero %, 12/1/11 AAA 1,134,863
1,000,000 Hubbard, Swr. Syst. Mtge. Rev. Bonds,
8.8s, 11/15/17 BBB/P 1,097,500
1,800,000 Huran Cnty., Human Svcs. Rev. Bonds,
MBIA, 6.55s, 12/1/20 AAA 1,995,750
1,320,000 Kirtland, G.O. Bonds, AMBAC, 7 1/2s,
12/1/16 AAA 1,465,200
370,963 Lake Cnty., Indl. Dev. Rev. Bonds
(Madison Inn Hlth. Ctr. Project),
FHA Insd., 12s, 5/1/14 BBB/P 408,459
1,000,000 Lakota Local School Dist. Rev. Bonds,
AMBAC, 7s, 12/1/10 AAA 1,163,750
855,431 Logan Cnty., Indl. Dev. Rev. Bonds
(Indian Lake Hlth. Project), FHA Insd.,
12s, 3/15/14 A/P 1,092,730
1,910,000 Lorain Cnty., Elderly Hsg. Corp.
Multi-Fam. Rev. Bonds (Harr Plaza &
Intl.), Ser. A, 6 3/8s, 7/15/19 A 1,912,388
Lorain Cnty., Fac. Rev. Bonds (Laurel
Lake Project)
1,500,000 7.3s, 12/15/14 BB/P 1,490,625
1,750,000 7 1/8s, 12/15/18 BB/P 1,743,438
5,325,000 Lorain Cnty., Hosp. Rev. Bonds
(EMH Regl. Med. Ctr.), AMBAC,
7 3/4s, 11/1/13 AAA 6,223,594
2,100,000 Lucas Cnty., Hosp. Rev. Bonds
(Toledo Hosp. Impt.), MBIA,
5 1/4s, 11/15/15 AAA 1,976,625
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OHIO (continued)
----------------------------------------------------------------------
--
Marion Cnty., Hlth. Care Fac. Rev. Bonds
(United Church Homes Project)
$ 460,000 8 7/8s, 12/1/12 BBB $ 549,700
4,000,000 6 3/8s, 11/15/10 BBB 3,915,000
2,000,000 6.3s, 11/15/15 BBB 1,900,000
1,755,000 Massillon, City School Dist. Rev.
Bonds, AMBAC, zero %, 12/1/10 AAA 750,263
1,205,000 Massillon, Lincoln Ctr. Phase II Rev.
Bonds, AMBAC, 6.95s, 12/1/10 AAA 1,396,294
1,895,000 Montgomery, Conifers Hsg. Dev. Corp.
Mtge. Rev. Bonds (Conifers Project),
FHA Insd., 8.45s, 6/1/28 A 2,001,594
2,800,000 Mount Vernon, Hosp. Rev. Bonds
(Knox Cmnty. Hosp.), 7 7/8s, 6/1/12 BBB/P 2,919,000
North Royalton City School Dist. G.O. Bonds
1,885,000 MBIA, 6 5/8s, 12/1/06 AAA 2,122,981
1,000,000 AMBAC, 5.65s, 12/1/08 AAA 1,037,500
1,020,000 MBIA, zero %, 12/1/09 AAA 457,725
835,000 Northwestern Local School Dist. Rev.
Bonds (Wayne & Ashland Cntys. School
Impt.), FGIC, 7.2s, 12/1/10 AAA 976,950
3,000,000 OH Cap. Hsg. Corp. Multi-Fam. Rev.
Bonds, Ser. A, FNMA Coll.,
7.6s, 11/1/23 AAA 3,225,000
OH Econ. Dev. Rev. Bonds
1,580,000 (Sponge, Inc. Project), Ser. 5-A,
8 3/8s, 6/1/14 A 1,745,900
690,000 (Superior Forge & Steel Corp.), Ser.
3, 7 5/8s, 6/1/11 A 765,900
OH Higher Ed. Fac. Rev. Bonds
(Case Western Reserve U.)
4,500,000 6 1/4s, 10/1/18 AA 4,848,750
1,000,000 6s, 10/1/14 AA 1,052,500
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
6,764,000 IFB, Ser. A-2, GNMA Coll.,
9.224s, 3/1/31 AAA 7,364,305
540,000 Ser. C, GNMA Coll., 8 1/8s, 3/1/20 AAA 573,075
710,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 AAA 757,925
810,645 Ser. 85-A, FGIC, zero %, 1/15/15 AAA 121,597
3,350,000 OH Poll. Control Rev. Bonds
(Standard Oil Co.), 6 3/4s, 12/1/15 AA 3,902,750
OH State Air Quality Dev. Auth. Rev. Bonds
4,125,000 (Cincinnati Gas & Elec. Co.),
10 1/8s, 12/1/15 Baa 4,336,406
3,095,000 (Poll. Ctl.-OH Edison Co.),
Ser. B, AMBAC, 5 5/8s, 11/15/29 AAA 3,052,444
1,015,000 OH State Bldg. Auth. Rev. Bonds
(Workers Comp.-W. Green Bldg.)
Ser. A, 4 3/4s, 4/1/14 A 898,275
7,640,000 OH State G. O. Bonds, MBIA,
zero %, 8/1/13 AAA 2,759,950
OH State Wtr. Dev. Auth. Poll. Control Facs. Rev. Bonds
4,400,000 (OH Edison Co. Project),
10 5/8s, 7/1/15 Baa 4,548,500
2,500,000 (PA Pwr. Project), Ser. B,
8.1s, 9/1/18 Baa 2,671,875
1,250,000 (Cleveland Elec. Illuminating Project),
8s, 10/1/23 AAA/P 1,287,500
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OHIO (continued)
----------------------------------------------------------------------
--
OH State Wtr. Dev. Auth. Rev. Bonds
$ 320,000 AMBAC, 9 3/8s, 12/1/18 AAA $ 335,200
1,000,000 Ser. A, AMBAC, 7 3/4s, 12/1/09 AAA 1,063,750
2,250,000 (Mid-American Waste Syst. Inc.
Project), 7 3/4s, 9/1/07 BB/P 2,179,688
2,500,000 (Impt. Pure Wtr.), AMBAC,
5 1/2s, 12/1/18 AAA 2,443,750
2,900,000 (Impt. Pure Wtr.), AMBAC,
5 1/2s, 12/1/11 AAA 2,896,375
4,500,000 (Coll. Wtr. Cincinnati Gas),
Ser. A, MBIA, 5.45s, 1/1/24 AAA 4,303,125
4,400,000 Ohio Port Auth. Econ. Dev. VRDN
(Kenwood Office Assn. Project),
2.2s, 9/1/25 A 4,400,000
2,275,000 Orrville, Elec. Syst. Mtge. Rev.
Bonds, Ser. A & B, AMBAC,
7 1/2s, 12/1/10 AAA 2,502,500
1,000,000 Oxford, Wtr. Supply Syst. Mtge.
Rev. Bonds, AMBAC, 7 5/8s, 12/1/14 AAA 1,120,000
1,000,000 Pickerington Local School Dist.
Construction & Impt. Rev. Bonds,
FGIC, 5.8s, 12/1/09 AAA 1,030,000
890,000 Portage Cnty., Hosp. Rev. Bonds
(Robinson Memorial Hosp.),
9 3/8s, 10/1/07 A 922,530
Sandusky Cnty., Hosp. Fac. Rev.
Bonds (Memorial Hosp. Project)
1,750,000 7 3/4s, 12/1/09 BB 1,754,375
795,000 7 3/8s, 12/1/01 BB 795,000
2,600,000 Southwest Local School Dist. G.O.
Bonds (Hamilton Cnty.), AMBAC,
7.65s, 12/1/10 AAA 2,993,250
5,000,000 Stark Cnty., Hosp. Rev. Bonds
(Doctors Hosp. Inc.) 6s, 4/1/24 Baa 4,275,000
2,925,000 Toledo, Swr. Syst. Mtge. Rev.
Bonds, AMBAC, 6.2s, 11/15/12 AAA 3,159,000
1,175,000 Toledo, Waterworks Mtge. Rev.
Bonds, AMBAC, 6.2s, 11/15/12 AAA 1,255,781
1,100,000 Tuscarawas Cnty., Hosp. Facs.
Rev. Bonds (Union Hosp. Project),
Ser. A, 6 1/2s, 10/1/21 Baa 1,035,375
1,000,000 Twin Valley, Cmnty. Local School
Dist. Rev. Bonds, FGIC, 7.05s, 12/1/11AAA 1,166,250
1,955,000 U. Toledo, Gen. Recpt. Rev. Bonds,
FGIC, 5.35s, 6/1/25 AAA 1,832,813
1,150,000 Washington, Wtr. Syst. Mtge. Rev.
Bonds, AMBAC, zero %, 12/1/09 AAA 521,813
Westerville, City School Dist. Rev. Bonds
1,610,000 (UT School Impt.), 6 1/4s, 12/1/09 A 1,724,713
1,590,000 (School Impt.), 6 1/4s, 12/1/08 A 1,703,288
3,000,000 Woodridge, School Dist. Rev. Bonds,
AMBAC, 6.8s, 12/1/14 AAA 3,453,750
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
220,000 7 3/8s, 10/1/21 AAA 263,175
205,000 7 3/8s, 10/1/20 AAA 245,231
185,000 7 3/8s, 10/1/19 AAA 221,306
180,000 7 3/8s, 10/1/18 AAA 215,325
160,000 7 3/8s, 10/1/17 AAA 191,400
155,000 7 3/8s, 10/1/16 AAA 185,419
------------
206,555,190
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PUERTO RICO (9.8%)
----------------------------------------------------------------------
--
$1,350,000 Cmnwlth. of PR, Hwy. Auth.
Rev. Bonds, Ser. Q, 7 3/4s, 7/1/16 AAA $ 1,574,438
3,500,000 Cmnwlth. of PR, IFB, FSA,
7.382s, 7/1/20 AAA 3,556,875
3,600,000 Cmnwlth. of PR Rev. Bonds,
7.7s, 7/1/20 AAA 4,194,000
Cmnwlth. of PR Hwy. & Trans. Auth. Hwy. Rev. Bonds
4,000,000 Ser. W, 5 1/2s, 7/1/15 A 3,850,000
1,250,000 Ser. X, 5s, 7/1/22 A 1,087,500
2,500,000 Cmnwlth. of PR, Hwy. & Trans.
Auth. VRDN, Ser. X, 3.45s, 7/1/99 VMIG1 2,500,000
1,250,000 Cmwlth. of PR, G.O. Bonds, AMBAC,
5 1/4s, 7/1/18 AAA 1,175,000
1,310,000 PR Elec. Pwr. Auth. Rev. Bonds,
Ser. N, 5s, 7/1/12 A 1,188,825
1,500,000 PR Pub. Bldgs. Auth., Gtd. Edl. &
Hlth. Fac. Rev. Bonds, Ser. H,
7 7/8s, 7/1/16 AAA 1,642,500
1,400,000 PR Tel. Auth. IFB, MBIA,
6.458s, 1/16/15 AAA 1,344,000
-------------
22,113,138
----------------------------------------------------------------------
--
TOTAL INVESTMENTS (cost $218,443,481)*** $228,668,328
----------------------------------------------------------------------
--
<PAGE>
NOTES
----------------------------------------------------------------------
--
* Percentages indicated are based on net assets of $226,023,567,
which correspond to a net asset value per class A, class B and
class M shares of $8.95, $8.94 and $8.95, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at May 31, 1995 for the
securities listed. Ratings are generally ascribed to securities
at the time of issuance. While the agencies may from time to time
revise such ratings, they undertake no obligation to do so, and
the ratings do not necessarily represent what the agencies would
ascribe to these securities at May 31, 1995. Securities rated by
Putnam are indicated by "/P" and are not publicly rated. Ratings
are not covered by the Report of Independent Accountants.
# This security was pledged to cover margin requirements for future
contracts at May 31, 1995. The market value of the security
segregated with the custodian for transactions on future
contracts is $1,470,625 or 0.7% of net assets.
*** The aggregate identified cost for federal income tax purposes is
$218,443,346, resulting in gross unrealized appreciation and
depreciation of $16,293,902 and $6,068,920, respectively, or net
unrealized appreciation of $10,224,982.
The fund had the following insurance concentrations greater than
10% at May 31, 1995 (as a percentage of net assets):
AMBAC 22.8%
MBIA 15.5
The fund had the following industry group concentrations greater
than 10% at May 31, 1995 (as a percentage of net assets):
Utilities 25.9%
Hospitals/Health Care 18.1
Education 16.3
The rates shown on VRDN's and IFB's, which are securities paying
variable interest rates that vary inversely to changes in the
market interest rates, are the current interest rates at May 31,
1995, which are subject to change based on the terms of the
security.
Futures Contracts Outstanding
at May 31, 1995
</TABLE>
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
-
TOTAL AGGREGATE EXPIRATION UNREALIZED
VALUE FACE VALUE DATE DEPRECIATION
-----------------------------------------------------------------
-
Municipal Bond
Futures (Sell) $1,887,500 $1,803,125 June95 $(84,375)
-----------------------------------------------------------------
-
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
<TABLE><CAPTION>
<S> <C>
ASSETS
----------------------------------------------------------------------
--
Investments in securities, at value
(identified cost $218,443,481) (Note 1) $228,668,328
----------------------------------------------------------------------
--
Cash 470,796
----------------------------------------------------------------------
--
Interest receivable 4,388,013
----------------------------------------------------------------------
--
Receivable for shares of the fund sold 333,567
----------------------------------------------------------------------
--
TOTAL ASSETS $233,860,704
LIABILITIES
----------------------------------------------------------------------
--
Payable for securities purchased 6,255,766
----------------------------------------------------------------------
--
Payable for shares of the fund repurchased 438,950
----------------------------------------------------------------------
--
Distributions payable to shareholders 688,217
----------------------------------------------------------------------
--
Payable for compensation of Manager (Note 2) 336,217
----------------------------------------------------------------------
--
Payable for administrative services (Note 2) 1,534
----------------------------------------------------------------------
--
Payable for compensation of Trustees (Note 2) 189
----------------------------------------------------------------------
--
Payable for distribution fees (Note 2) 87,184
----------------------------------------------------------------------
--
Payable for investor servicing and custodian fees (Note 2) 1,959
----------------------------------------------------------------------
--
Payable for variation margin on futures contracts 3,125
----------------------------------------------------------------------
--
Other accrued expenses 23,996
----------------------------------------------------------------------
--
TOTAL LIABILITIES 7,837,137
----------------------------------------------------------------------
--
NET ASSETS $226,023,567
----------------------------------------------------------------------
--
REPRESENTED BY
----------------------------------------------------------------------
--
Paid-in capital (Note 4) $220,259,333
----------------------------------------------------------------------
--
Undistributed net investment income 4,919
----------------------------------------------------------------------
--
Accumulated net realized loss on investments (4,381,157)
----------------------------------------------------------------------
--
Net unrealized appreciation of investments and
futures contracts 10,140,472
----------------------------------------------------------------------
--
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $226,023,567
----------------------------------------------------------------------
--
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
----------------------------------------------------------------------
--
Net asset value and redemption price of class A shares
($193,175,969 divided by 21,585,186 shares) $8.95
----------------------------------------------------------------------
--
Offering price per share (100/95.25 of $8.95)* $9.40
----------------------------------------------------------------------
--
Net asset value and offering price of class B shares
($32,846,569 divided by 3,674,021 shares)+ $8.94
----------------------------------------------------------------------
--
Net asset value and redemption price of class M shares
($1,029 divided by 115 shares) $8.95
----------------------------------------------------------------------
--
Offering price per share (100/96.75 of $8.95)** $9.25
----------------------------------------------------------------------
--
<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.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended May 31, 1995
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $14,784,644
----------------------------------------------------------------------
--
EXPENSES:
----------------------------------------------------------------------
--
Compensation of Manager (Note 2) 1,286,605
----------------------------------------------------------------------
--
Investor servicing and custodian fees (Note 2) 173,281
----------------------------------------------------------------------
--
Compensation of Trustees (Note 2) 11,129
----------------------------------------------------------------------
--
Auditing 17,937
----------------------------------------------------------------------
--
Legal 21,860
----------------------------------------------------------------------
--
Postage 540
----------------------------------------------------------------------
--
Reports to shareholders 38,862
----------------------------------------------------------------------
--
Registration fees 1,049
----------------------------------------------------------------------
--
Administrative services (Note 2) 8,635
----------------------------------------------------------------------
--
Amortization of organization expenses (Note 1) 5,446
----------------------------------------------------------------------
--
Distribution fees -- Class A 378,971
----------------------------------------------------------------------
--
Distribution fees -- Class B 212,438
----------------------------------------------------------------------
--
Other expenses 7,686
----------------------------------------------------------------------
--
TOTAL EXPENSES 2,164,439
----------------------------------------------------------------------
--
NET INVESTMENT INCOME 12,620,205
----------------------------------------------------------------------
--
Net realized loss on investments (Notes 1 and 3) (3,810,935)
----------------------------------------------------------------------
--
Net realized loss on written options (Notes 1 and 3) (57,856)
----------------------------------------------------------------------
--
Net realized loss on futures contracts (Notes 1 and 3) (127,895)
----------------------------------------------------------------------
--
Net unrealized appreciation of investments during the year 8,202,842
----------------------------------------------------------------------
--
Net unrealized depreciation of futures contracts during the year(84,375)
----------------------------------------------------------------------
--
NET GAIN ON INVESTMENTS 4,121,781
----------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,741,986
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
Year ended May 31
-----------------------------
1995 1994
----------------------------------------------------------------------
--
Increase in net assets
----------------------------------------------------------------------
--
Operations:
----------------------------------------------------------------------
--
Net investment income $12,620,205 $11,358,662
----------------------------------------------------------------------
--
Net realized gain (loss) on investments,
written options and futures contracts (3,996,686) 2,087,769
----------------------------------------------------------------------
--
Net unrealized appreciation (depreciation)
of investments and futures contracts 8,118,467 (10,780,015)
----------------------------------------------------------------------
--
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS 16,741,986 2,666,416
----------------------------------------------------------------------
--
Distributions to shareholders:
----------------------------------------------------------------------
--
From net investment income:
----------------------------------------------------------------------
--
class A (11,195,160) (10,890,642)
----------------------------------------------------------------------
--
class B (1,307,862) (418,444)
----------------------------------------------------------------------
--
From net realized gains:
----------------------------------------------------------------------
--
class A (258,158) (2,534,385)
----------------------------------------------------------------------
--
class B (33,773) (107,263)
----------------------------------------------------------------------
--
Increase from capital shares
transactions (Note 4) 9,988,121 45,493,937
----------------------------------------------------------------------
--
TOTAL INCREASE IN NET ASSETS 13,935,154 34,209,619
----------------------------------------------------------------------
--
NET ASSETS
----------------------------------------------------------------------
--
Beginning of year 212,088,413 177,878,794
----------------------------------------------------------------------
--
END OF YEAR (including undistributed net
investment income and distributions in
excess of net investment income of $4,919
and $115,422, respectively) $226,023,567 $212,088,413
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C>
FOR THE PERIOD FOR THE PERIOD
APRIL 3, 1995 JULY 15, 1993
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) TO YEAR ENDED OF OPERATIONS) TO
MAY 31 MAY 31 MAY 31
------------------- ------------- ------------------
1995 1995 1994
----------------------------------------------------------------------
--
Class M Class B
----------------------------------------------------------------------
--
NET ASSET VALUE,
BEGINNING OF PERIOD $8.76 $8.79 $9.37
----------------------------------------------------------------------
--
INVESTMENT OPERATIONS
Net investment income .08 .46 .40
Net realized and unrealized
gain (loss) on investments .19 .16 (.46)
----------------------------------------------------------------------
--
TOTAL FROM INVESTMENT
OPERATIONS .27 .62 (.06)
----------------------------------------------------------------------
--
LESS DISTRIBUTIONS FROM:
Net investment income (.08) (.46) (.40)
Net realized gain
on investments -- (.01) (.12)
----------------------------------------------------------------------
--
TOTAL DISTRIBUTIONS (.08) (.47) (.52)
----------------------------------------------------------------------
--
NET ASSET VALUE,
END OF PERIOD $8.95 $8.94 $8.79
----------------------------------------------------------------------
--
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(b) 3.05(c) 7.39 (1.49)(c)
----------------------------------------------------------------------
--
NET ASSETS, END OF
PERIOD (in thousands) $1 $32,847 $17,959
----------------------------------------------------------------------
--
Ratio of expenses to
average net assets (%) 0.20(c) 1.58 1.42(c)
----------------------------------------------------------------------
--
Ratio of net investment
income to average
net assets (%) 0.89(c) 5.24 4.35(c)
----------------------------------------------------------------------
--
Portfolio turnover (%) 66.29 66.29 44.45
----------------------------------------------------------------------
--
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C>
Year ended May 31
----------------------------------------------------------------------
--
1995 1994 1993 1992 1991
----------------------------------------------------------------------
--
Class A
----------------------------------------------------------------------
--
$8.80 $9.26 $8.78 $8.55 $8.40
----------------------------------------------------------------------
--
.52 .53 .54 .57(a) .59(a)
.15 (.35) .48 .23 .14
----------------------------------------------------------------------
--
.67 .18 1.02 .80 .73
----------------------------------------------------------------------
--
(.51) (.52) (.54) (.57) (.58)
(.01) (.12) -- -- --
----------------------------------------------------------------------
--
(.52) (.64) (.54) (.57) (.58)
----------------------------------------------------------------------
--
$8.95 $8.80 $9.26 $8.78 $8.55
----------------------------------------------------------------------
--
8.04 1.88 11.94 9.65 9.09
----------------------------------------------------------------------
--
$193,176 $194,130 $177,879 $140,309 $21,136
----------------------------------------------------------------------
--
.93 .99 1.04 .90(a) .87(a)
----------------------------------------------------------------------
--
5.97 5.68 5.90 6.41(a) 6.83(a)
----------------------------------------------------------------------
--
66.29 44.45 21.57 15.20(d) 17.40
----------------------------------------------------------------------
--
<FN>
(a) Reflects an expense limitation in effect during the period. As a
result, net investment income of the fund for the years ended May
31, 1992 and 1991, reflect expense reductions of approximately
$0.01 and $0.05, per class A 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>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995
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 Investment
Management, Inc. ("Putnam Management"), the fund's manager, a wholly-
owned subsidiary of Putnam Investments, Inc., believes is consistent
with preservation of capital by investing primarily in a portfolio of
Ohio tax-exempt securities.
The fund offers class A, class B and class M shares. The fund
commenced operations of class M shares on April 3, 1995, however,
there were no shares sold to non-affiliates as of May 31, 1995. 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. Class M shares are sold with a maximum front
end sales charge of 3.25% and an ongoing distribution fee that is
higher than class A shares and lower than class B shares. Expenses of
the fund are borne pro-rata by the holders of each class of shares,
except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a
class only with respect to its own distribution plan or other matters
on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of
the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The 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 The fund may purchase and sell financial futures contracts
to hedge against changes in the values of tax-exempt municipal
securities the fund owns or expects to purchase.
A futures contract is an agreement between two parties to buy or sell
units of a particular index or a certain amount of a U.S. government
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 securities equal to the minimum
"initial margin" requirements of the futures contract. Pursuant to the
contract, the fund agrees to receive from or pay to the
<PAGE>
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 opened and the value at the time it was closed.
The potential risk to the fund is that the change in value of futures
contracts primarily corresponds with the value of underlying
instruments which may not correspond to the change in value of the
hedged instruments. In addition, there is a risk that the fund may not
be able to close out its futures positions due to an illiquid
secondary market.
D OPTION ACCOUNTING PRINCIPLES The fund may, to the extent
consistent with its investment objective and policies, seek to
increase its current returns by writing covered call and put options
on securities it owns or in which it may invest. When the fund writes
a call or put option, an amount equal to the premium received by the
fund is included in the fund's "Statement of assets and liabilities"
as an asset and an equivalent liability. The amount of the liability
is subsequently "marked-to- market" to reflect the current market
value of an option written. The current market value of an option is
the last sale price or, in the absence of a sale, the last offering
price. If an option expires on its stipulated expiration date, or if
the fund enters into a closing purchase transaction, the fund realizes
a gain (or loss if the closing purchase transaction exceeds the
premium received when the option was written) without regard to any
unrealized gain or loss on the underlying security, and the liability
related to such option is extinguished. If a written call option is
exercised, the fund realizes a gain or loss from the sale of the
underlying security and the proceeds of the sale are increased by the
premium originally received. If a written put option is exercised, the
amount of the premium originally received reduces the cost of the
security that the fund purchases upon exercise of the option.
The risk in writing a call option is that the fund relinquishes the
opportunity to profit if the market price of the underlying security
increases and the option is exercised. In writing a put option, the
fund assumes the risk of incurring a loss if the market price of the
underlying security decreases and the option is exercised. In
addition, there is the risk the fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
The fund may also, to the extent consistent with its investment
objectives and policies, buy put options to protect its portfolio
holdings in an underlying security against a decline in market value.
The fund may buy call options to hedge against an increase in the
price of the securities that the fund ultimately wants to buy. The
fund may also buy and sell combinations of put and call options on the
same underlying security to earn additional income. The premium paid
by a fund for the purchase of a put or call option is included in the
fund's "Statement of assets and liabilities" as an investment and is
subsequently "marked-to-market" to reflect the current market value of
the option. If an option the fund has purchased expires on the
stipulated expiration date, the fund realizes a loss in the amount of
the cost of the option. If the fund enters into a closing sale
transaction, the fund realizes a gain or loss, depending on whether
proceeds from the closing sale transaction are greater or less than
the cost of the option. If the fund exercises a call option, the cost
of securities acquired
<PAGE>
by exercising the call is increased by the premium paid to buy the
call. If the fund exercises a put option, it realizes a gain or loss
from the sale of the underlying security and the proceeds from such
sale are decreased by the premium originally paid. The risk associated
with purchasing options is limited to the premium originally paid.
E FEDERAL TAXES It is the policy of the fund to distribute all of
its income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to
distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Internal Revenue Code of 1986. 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.
At May 31, 1995, the fund had a capital loss carryover of
approximately $1,981,000 which may be available to offset realized
gains, if any, to the extent provided by regulations. This amount will
expire May 31, 2003. To the extent that capital loss carryovers are
used to offset realized capital gains, it is unlikely that gains so
offset will be distributed to shareholders, since any such
distribution might be taxable as ordinary income.
F 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, post-October
losses, dividends payable, loss deferrals, capital loss carryovers and
realized gains and losses on futures contracts.
For the year ended May 31, 1995, the fund reclassified $3,158 to
increase undistributed net investment income and $3,158 to increase
accumulated net realized loss on investment transactions.
G 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.
H 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 were
amortized over a five-year period based on projected net assets of the
fund, which concluded during the year ended May 31, 1995.
<PAGE>
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.60% of
the first $500 million of average net assets, 0.50% of the next $500
million, 0.45% of the next $500 million and 0.40% of any amount over
$1.5 billion, subject, under current law, 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 year ended May 31, 1995 have been reduced by
credits allowed by PFTC.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly- owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred
by it in distributing shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate up
to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.20%, 0.85% and
0.50% of the average net assets attributable to class A, class B and
class M shares, respectively.
For the year ended May 31, 1995, Putnam Mutual Funds Corp., acting as
the underwriter, received net commissions of $30,918 from the sale of
class A shares and no monies for the sale of class M shares. There was
$60,907 in contingent deferred sales charges from redemptions of class
B shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares purchased as part of an investment of $1
million or more. For the year ended May 31, 1995, Putnam Mutual Funds
Corp., acting as the underwriter, received no money on class A
redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended May 31, 1995, purchases and sales of investment
securities other than short-term municipal obligations aggregated
$152,303,339 and $139,563,661, respectively. Purchases and sales of
short-term municipal obligations
<PAGE>
aggregated $17,700,000 and $15,700,000, respectively. In determining
the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
The following is a summary of written options activity during the
year:
<TABLE><CAPTION>
<S> <C> <C>
CONTRACT PREMIUM
AMOUNT RECEIVED
----------------------------------------------------------------------
--
Options written 27,000,000 $483,787
----------------------------------------------------------------------
--
Options closed (27,000,000) (483,787)
----------------------------------------------------------------------
--
Written options outstanding
at end of year -- $ --
----------------------------------------------------------------------
--
</TABLE>
NOTE 4
CAPITAL SHARES
At May 31, 1995, there was an unlimited number of shares of beneficial
interest authorized, divided into three classes, class A, class B and
class M capital stock. Class M shares became effective on April 3,
1995 and 115 shares were sold to Putnam Investments, Inc. for $1,001.
Transactions in capital shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED MAY 31
----------------------------------------------------------------------
--
1995
----------------------------------------------------------------------
--
CLASS A SHARES AMOUNT
----------------------------------------------------------------------
--
Shares sold 1,641,894 $14,154,333
Shares issued in connection with
reinvestment of distribution 851,961 7,339,952
----------------------------------------------------------------------
--
2,493,855 21,494,285
----------------------------------------------------------------------
--
Shares repurchased (2,976,624) (25,590,365)
----------------------------------------------------------------------
--
NET DECREASE (482,769) $(4,096,080)
----------------------------------------------------------------------
--
YEAR ENDED MAY 31
----------------------------------------------------------------------
--
1994
----------------------------------------------------------------------
--
CLASS A SHARES AMOUNT
----------------------------------------------------------------------
--
Shares sold 3,670,439 $31,805,692
Shares issued in connection with
reinvestment of distribution 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
----------------------------------------------------------------------
--
YEAR ENDED MAY 31
----------------------------------------------------------------------
--
1995
----------------------------------------------------------------------
--
CLASS B SHARES AMOUNT
----------------------------------------------------------------------
--
Shares sold 1,872,645 $16,128,281
Shares issued in connection with
reinvestment of distributions 94,617 814,451
----------------------------------------------------------------------
--
1,967,262 16,942,732
----------------------------------------------------------------------
--
Shares repurchased (335,544) (2,859,532)
----------------------------------------------------------------------
--
NET INCREASE 1,631,718 $14,083,200
----------------------------------------------------------------------
--
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT
OF OPERATIONS) TO
MAY 31
----------------------------------------------------------------------
--
1994
----------------------------------------------------------------------
--
CLASS B SHARES AMOUNT
----------------------------------------------------------------------
--
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>
----------------------------------------------------------------------
--
TAX INFORMATION
The fund has designated all dividends paid from net investment income
during the fiscal year as exempt-interest dividends. Thus, 100% of
these distributions are exempt from federal income tax. For residents
of the state of Ohio, 100% of the fund's distributions are also exempt
from Ohio personal income tax.
In addition, the fund paid long-term capital gains of $0.012 per share
for class A and class B.
The Form 1099 you will receive in January 1996 will tell you the tax
status of any capital gain distributions paid to your account in
calendar 1995.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Richard P. Wyke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
THE PUTNAM FUNDS
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
19005-848/240
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND
EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
