Putnam
Ohio
Tax Exempt
Income
Fund
ANNUAL REPORT
May 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "A firm economy combined with sound fiscal management has resulted in
a $1.2 billion budget surplus for the state of Ohio this year -- this is
good news for municipal investors."
-- James M. Prusko, Manager,
Putnam Ohio Tax Exempt Income Fund
* "In the months ahead, municipal bond funds may begin to provide
investors fewer bumps and better returns, many bond analysts say . . . .
Investors are becoming skittish about the sky-high returns on equity
funds and are beginning to seek some less-risky tax-free income; yields
on municipal bonds hover around an attractive 6 percent range, and
investors in some tax-high states can do better on an after-tax basis
investing in municipals than in Treasuries."
-- The New York Times, April 7, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
16 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
One of the fascinating things about market watching is that you can
never tell what's going to trigger a defining event. Often what seems
like a defining event one moment is history the next. Who would have
guessed, for example, that a flat-tax proposal would swirl out of the
presidential primary election campaign to douse the municipal bond
market, only to blow away just as the rest of the bond market was
stumbling on statistics suggesting that inflation might flare up?
These were some of the challenges facing Putnam Ohio Tax Exempt Income
Fund's management team during the fiscal year that closed on May 31,
1996. Fund management handled them in stride as the results on the
following pages reveal.
I am pleased to announce that James M. Prusko has been named as your
fund's new manager. He replaces Richard Wyke, who has assumed other
responsibilities in Putnam's tax-exempt income group. Jim joined Putnam
in 1992 and has five years of investment experience.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
July 17, 1996
Report from the Fund Manager
James M. Prusko
While total return figures provide investors with the flavor of fund
performance over a given period of time, they often fall short of
illustrating the long-term effectiveness of a fund's strategy. Putnam
Ohio Tax Exempt Income Fund's results for the 12 months ended May 31,
1996, are an excellent example of this situation. The solid gains earned
during the greater part of the fund's fiscal year were somewhat foiled
by a rise in interest rates that rattled the bond markets in March. For
the annual reporting period, returns for your fund's class A, class B,
and class M shares totaled 3.30%, 2.63%, and 3.00%, respectively, all at
net asset value (-1.65%, -2.26%, and -0.34%, respectively, at public
offering price). For performance over longer periods, please see pages
8-10.
* MUNICIPALS SHOW FAVORABLE RELATIVE PERFORMANCE
Fixed-income markets began calendar 1996 on firm ground, but investor
enthusiasm for bonds abruptly changed to apprehension as evidence of
brisk economic activity late in the first quarter rekindled fears of
inflation. By mid-May, bond prices had recovered somewhat as further
economic news indicated a more moderate growth pace. The rally proved
short-lived, however; comments from several Federal Reserve officials
hinting at the prospect of higher short-term interest rates over the
next few months unnerved the market shortly after Memorial Day.
While this environment has been a difficult one for most fixed-income
securities, prices of tax-exempt bonds have fared better than taxables
since the beginning of this year. In fact, since last December,
municipal yields have fallen from approximately 89% of comparable
Treasury bonds to 83% as of late May.
The main reason for this outperformance is the apparent reduced
likelihood of a flat tax, which could jeopardize the tax advantages
enjoyed by municipals. Although we expect broader tax reform to become a
prominent campaign issue as the presidential election gets under way,
enactment of a flat tax appears to be off the table for the time being.
In our judgment, this development removes a large obstacle from the
municipal market, providing the potential for continued performance
improvement relative to taxable bonds.
Perhaps the brightest spot for municipals in the near term is the
possibility of a significant inflow of cash. In June and July, investors
are expected to receive over $60 billion from municipal bond calls,
maturities, and interest payments. Should even a portion of this cash
re-enter the municipal market, we suspect prices could react quite
favorably.
* STRUCTURE IS KEY TO ATTRACTIVE RETURNS
Since our last report, persistent attention to structural traits such as
a bond's coupon, maturity, and call features has proved essential in
achieving favorable performance. Differences in yield between the
highest-quality municipals and lower-rated bonds have remained slight,
making it difficult to justify the addition of significant credit risk.
Thus we have continued to steer your fund's holdings toward attractively
structured high-quality bonds.
Another factor influencing our current strategy is the diminishing level
of liquidity in the municipal marketplace. Cash flows into tax-exempt
mutual funds have slowed dramatically in the past 12 months, primarily
because of flat-tax concerns. As demand for municipals has waned, Wall
Street firms have tended to reduce the capital they commit to
underwriting and trading in tax-exempt bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]
Health care 24.4%
Water and sewerage 18.5%
Education 17.6%
Utilities 8.1%
Housing 6.1%
Footnote reads:
*Based on net assets as of 5/31/96. Holdings will vary over time.
In our opinion, an environment featuring narrow quality spreads and
decreased liquidity requires careful selection of actively traded issues
in order to protect the value of your fund. Consequently we continue to
avoid bonds with maturities of 30 years or more and have instead been
concentrating your fund's holdings in 10- to 20-year maturities. In
addition to their greater price stability relative to longer-term bonds,
municipals in the latter maturity range have enjoyed increasing
sponsorship from insurance companies and banks in the past year. Your
fund's holdings have benefited as buying interest from these
nontraditional sources has grown.
* EFFORT AIMED AT ENHANCED DIVERSIFICATION
A firm economy combined with sound fiscal management has resulted in a
$1.2 billion budget surplus for the state of Ohio this year. While this
is good news for municipal investors, the state's historically
conservative approach often yields little in the way of debt issuance.
Ohio's bond supply remains scant, with larger issues coming to market
relatively infrequently.
The limited availability of a variety of Ohio tax-exempt issues poses
one of our greatest challenges in managing your single-state fund --
portfolio diversification. One way that we have attempted to expand the
assortment of holdings in the fund is the incorporation of several high-
quality industrial revenue bonds.
Bonds supporting Broken Hill Properties, a leader in the metals and
mining industry, represent an example of a recent portfolio purchase.
Proceeds from the municipal issue are being used to fund the processing
and disposal of waste from a new steel mini-mill project.
Since industrial development issues tend to be structured as par bonds
(bonds that are selling at an amount equal to their face value), they
are likely to be less price sensitive than discount bonds (bonds selling
below their redemption value) when interest rates fall. Earlier in
calendar 1996, the Broken Hill bonds were overlooked as investor
attention was turned toward more price-sensitive municipals, allowing us
to purchase them at an attractive level. In addition to providing your
fund a valuable diversification opportunity, we expect these bonds will
continue to perform well as the economy strengthens.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW*]
A 13.3%
Aa 13.1%
Aaa 57.0%
Ba 2.5%
Baa 10.6%
VMIG1 3.5%
Footnote reads:
*As a percentage of market value as of 5/31/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions; percentages may also include unrated securities determined
by Putnam Management to be of comparable quality. Ratings will vary over
time.
* GUARDED APPROACH NECESSARY
A steadily growing economy presents a challenging environment for fixed-
income investing and clearly requires a more cautious strategy. Careful
attention to bond structure and emphasis on larger, well-known issuers
will play an important role in enhancing the price stability and
liquidity of your fund for the remainder of its fiscal period.
On a cheerier note, the summer months have historically been friendly to
municipal bonds, since cash from interest payments and bond calls is
frequently reinvested in the tax-exempt market. New-issue supply over
the next few months is not expected to keep pace with this year's
potential demand, creating the opportunity for a favorable supply/demand
imbalance.
Sustained interest from nontraditional buyers including banks and
insurance companies could provide further support. In addition, as the
risk of a flat tax diminishes, municipal returns could continue to
outpace those of taxables throughout the course of the year.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.
Perforamnce summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Ohio Tax Exempt Income Fund is designed for investors
seeking a high level of current income free from federal and state
income tax consistent with preservation of capital.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 5/31/96
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 3.30% -1.65% 2.63% -2.26% 3.00% -0.34%
- ------------------------------------------------------------------------
5 years 39.56 32.88 -- -- -- --
Annual average 6.89 5.85 -- -- -- --
- ------------------------------------------------------------------------
Life of class 56.79 49.40 9.35 6.55 6.14 2.74
Annual average 7.04 6.26 3.15 2.23 5.27 2.35
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
1 year 4.57% 2.89%
- ------------------------------------------------------------------------
5 years 41.06 15.49
Annual average 7.12 2.92
- ------------------------------------------------------------------------
Life of class A 62.31 24.68
Annual average 7.64 3.39
- ------------------------------------------------------------------------
Life of class B 12.69 8.45
Annual average 4.31 2.86
- ------------------------------------------------------------------------
Life of class M 8.04 3.44
Annual average 6.83 2.95
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Class A share
performance data do not take into account distribution fees prior to
implementation of the class A distribution plan in 1990. Investment
returns and net asset value will fluctuate so that an investor's shares,
when sold, may be worth more or less than their original cost. POP
assumes 4.75% maximum sales charge for class A shares and 3.25% for
class M shares. CDSC for class B shares assumes 5% maximum contingent
deferred sales charge.
TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calender quarter)
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 5.25% 0.24% 4.60% -0.40% 4.83% 1.37%
- ------------------------------------------------------------------------
5 years 40.64 34.02 -- -- -- --
Annual average 7.06 6.03 -- -- -- --
- ------------------------------------------------------------------------
Life of class 57.96 50.52 10.14 7.33 6.92 3.49
Annual average 7.07 6.30 3.32 2.42 5.50 2.78
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and net asset value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 10/23/89
Starting value (Insert ending Total)
$9,525 Fund's class A shares at POP $14,941
$10,000 Lehman Bros. Municipal Bond Index $16,231
$10,000 Consumer Price Index $12,468
(plot points for 10-year total return mountain chart)
Lehman Bros.
Date/year Fund at POP Muni Bond Index CPI
10/23/89 $9,525 $10,000 $10,000
5/31/90 9,814 10,453 10,287
5/31/91 10,706 11,506 10,796
5/31/92 11,739 12,636 11,123
5/31/93 13,141 14,148 11,481
5/31/94 13,387 14,497 11,744
5/31/95 14,464 15,522 12,118
5/31/96 14,941 16,231 12,468
Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 7/15/93 would have been
valued at $10,935 on 5/31/96 ($10,655 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 4/3/95 would have been valued at $10,614 at net asset
value on 5/31/96 ($10,274 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.482273 $0.423792 $0.456147
- ------------------------------------------------------------------------
Total $0.482273 $0.423792 $0.456147
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/95 $8.95 $9.40 $8.94 $8.95 $9.25
- ------------------------------------------------------------------------
5/31/96 8.76 9.20 8.75 8.76 9.05
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate1 5.37% 5.11% 4.71% 5.04% 4.88%
- ------------------------------------------------------------------------
Taxable equivalent2 9.61 9.15 8.43 9.02 8.73
- ------------------------------------------------------------------------
Current 30-day SEC yield3 4.95 4.71 4.29 4.64 4.49
- ------------------------------------------------------------------------
Taxable equivalent2 8.86 8.43 7.68 8.30 8.04
- ------------------------------------------------------------------------
Investment income may be subject to state and local taxes and, for some
investors, may be subject to the federal alternative minimum tax.
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Assumes maximum 44.13% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
3 Based only on investment income, calculated using SEC guidelines.
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.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such instructions,
it may take most investors a while to realize that risk has a
positive side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR
RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income inves-
tors. However, interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
International New Opportunities Fund
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments to help maximize your return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS+
Putnam money market funds:
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states.
+ Relative to above.
++ 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. Please call your financial advisor or Putnam at 1-800-
225-1581 to obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses. Please read it
carefully before you invest or send money.
Report of independent accountants
For the fiscal year ended May 31, 1996
To the Trustees and Shareholders of
Putnam Ohio Tax Exempt Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam Ohio Tax Exempt Income Fund, formerly known as the Putnam Ohio
Tax Exempt Income Fund II, including the portfolio of investments owned,
as of May 31, 1996, and the related statement of operations for the year
then ended, the statements 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, 1996, 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 as of May 31,
1996, 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 16, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31, 1996
Key to Abbreviations
AMBAC - AMBAC Indemnity Corporation
CLI Insd. - Connie Lee Insurance Insured
FGIC - Financial Guaranty Insurance Company
FHA Insd. - Federal Housing Administration Insured
FNMA Coll. - Federal National Mortgage Association Collateralized
GNMA Coll. - Government National Mortgage Association Collateralized
G.O. Bonds- General Obligation Bonds
IFB - Inverse Floating Rate Bonds
MBIA - Municipal Bond Investors Assurance Corporation
RAN - Revenue Anticipation Notes
VRDN - Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (101.2%) *
PRINCIPAL RATINGS ** VALUE
Ohio (90.5%)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$100,000 Akron-Wilbeth, Hsg. Dev. Corp. 1st Mtge. Rev. Bonds, FHA Insd., 7.9s, 8/1/03 A $116,000
1,990,000 Bedford, Hosp. Impt. Rev. Bonds (Bedford Cmnty. Hosp. Inc.), 8 1/2s, 5/15/09 AAA/P 2,243,725
1,500,000 Brecksville-Broadview Heights, City School Dist. G.O. Bonds, FGIC, 6 1/2s, 12/1/16 Aaa 1,588,125
1,625,000 Cincinnati, Student Loan Funding Corp. Rev. Bonds, Ser. B, 8 7/8s, 8/1/08 BBB/P 1,690,000
4,870,000 Cleveland, G.O. Bonds, Ser. B, AMBAC, 6 3/4s, 10/1/08 Aaa 5,411,788
Cleveland, City School Dist. G.O. Bonds
900,000 9s, 12/1/08 Aaa 1,015,875
2,500,000 8 1/4s, 12/1/08 Aaa 2,956,250
1,000,000 AMBAC, 7.35s, 12/1/08 Aaa 1,091,250
2,500,000 Cleveland, Pkg. Facs. Impt. Rev. Bonds, 8s, 9/15/12 BBB 2,671,875
1,900,000 Cleveland, Pub. Pwr. Syst. Impt. 1st Mtge. Rev. Bonds, 8 3/8s, 8/1/17 Aaa 2,033,000
Cleveland, Urban Renewal Increment Rev. Bonds (Rock & Roll Hall of Fame Project)
1,900,000 6 3/4s, 3/15/18 BBB/P 1,862,000
2,000,000 6 5/8s, 3/15/11 BBB/P 1,962,500
Cleveland, Waterworks 1st Mtge. Rev. Bonds
2,000,000 Ser. F-92A, AMBAC, 6 1/2s, 1/1/21 Aaa 2,195,000
3,000,000 Ser. G, MBIA, 5 1/2s, 1/1/21 Aaa 2,883,750
7,950,000 Ser. G, MBIA, 5 1/2s, 1/1/13 Aaa 7,840,688
1,000,000 Clyde, Elec. Syst. Mtge. Rev. Bonds, Ser. B, 8 3/8s, 11/15/14 BB/P 1,033,750
1,000,000 Cuyahoga Cnty., G.O. Bonds, 5.65s, 5/15/18 Aa 943,750
Cuyahoga Cnty., Hosp. Rev. Bonds
2,800,000 (Cleveland-Fairview Gen. Hosp. & Lutheran Med. Ctr.), MBIA, 6 1/4s, 8/15/10 Aaa 2,919,000
1,940,000 (U. Hosp.), Ser. A, 6s, 1/15/06 Aaa 2,041,850
1,250,000 Dayton, Arpt. Rev. Bonds (James M. Cox Dayton Intl. Arpt.), AMBAC, 5 1/4s, 12/1/08 Aaa 1,220,313
1,640,000 Delaware, School Dist. Rev. Bonds, FGIC, 5 3/4s, 12/1/15 Aaa 1,588,750
1,300,000 Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 Aa 1,374,750
1,625,000 Euclid, School Dist. Library Impt. G.O. Bonds, AMBAC, 5 1/8s, 12/1/11 Aaa 1,533,594
8,000,000 Franklin Cnty., Hosp. Rev. Bonds (Holy Cross Hlth. Syst. Corp.), 5.8s, 6/1/16 Aa 7,720,000
1,300,000 Franklin Cnty., Convention Facs. Auth. Tax & Lease RAN, MBIA, 7s, 12/1/19 Aaa 1,446,250
4,020,000 Geauga Cnty., Hosp. Hosp. Impt. Rev. Bonds (Geauga Hosp. Assn. Project), 8 3/4s,
11/15/13 Aa 4,278,365
Hamilton Cnty., Elec. Syst. Mtge. Rev. Bonds, Ser. B
700,000 FGIC, 8s, 10/15/22 Aaa 770,875
2,600,000 FGIC, 7 1/4s, 10/15/23 Aaa 2,775,500
2,100,000 Hamilton Cnty., Hosp. Fac. VRDN, 3.9s, 2/15/24 VMIG1 2,100,000
3,300,000 Hamilton Cnty., Swr. Syst. Rev. Bonds, Ser. A, FGIC, 5 1/2s, 12/1/17 Aaa 3,139,125
1,170,000 Hilliard, School Dist. G.O. Bonds, Ser. A, FGIC, 5s, 12/1/09 Aaa 1,105,650
1,000,000 Hubbard, Swr. Syst. Mtge. Rev. Bonds, 8.8s, 11/15/17 BBB/P 1,071,250
1,800,000 Huron Cnty., Human Svcs. Rev. Bonds, MBIA, 6.55s, 12/1/20 Aaa 1,955,250
1,320,000 Kirtland, G.O. Bonds, AMBAC, 7 1/2s, 12/1/16 Aaa 1,458,600
365,478 Lake Cnty., Indl. Dev. Rev. Bonds (Madison Inn Hlth. Ctr. Project), FHA Insd.,
12s, 5/1/14 BBB/P 393,803
1,000,000 Lakota, Local School Dist. Rev. Bonds, AMBAC, 7s, 12/1/10 Aaa 1,141,250
841,931 Logan Cnty., Indl. Dev. Rev. Bonds (Indian Lake Hlth. Project), FHA Insd.,
12s, 3/15/14 A/P 1,027,157
1,910,000 Lorain Cnty., Elderly Hsg. Corp. Multi-Fam. Rev. Bonds (Harr Plaza & Intl.),
Ser. A, 6 3/8s, 7/15/19 A 1,890,900
Lorain Cnty., Fac. Rev. Bonds (Laurel Lake Project)
1,500,000 7.3s, 12/15/14 BB/P 1,528,125
1,750,000 7 1/8s, 12/15/18 BB/P 1,763,125
5,325,000 Lorain Cnty., Hosp. Rev. Bonds (EMH Regl. Med. Ctr.), AMBAC, 7 3/4s, 11/1/13 Aaa 6,103,781
1,500,000 Mahoning Cnty., G.O. Bonds, MBIA, 5.7s, 12/1/05 Aaa 1,558,125
Marion Cnty., Hlth. Care Fac. Rev. Bonds (United Church Homes Project)
460,000 8 7/8s, 12/1/12 AAA/P 534,750
4,000,000 6 3/8s, 11/15/10 BBB 3,970,000
2,000,000 6.3s, 11/15/15 BBB 1,932,500
1,205,000 Massillon, Rev. Bonds (Lincoln Ctr. Phase II), AMBAC, 6.95s, 12/1/10 Aaa 1,369,181
1,895,000 Montgomery-Conifers, Hsg. Dev. Corp. Mtge. Rev. Bonds (Conifers Project),
FHA Insd., 8.45s, 6/1/28 Aa 1,982,644
2,800,000 Mount Vernon, Hosp. Rev. Bonds (Knox Cmnty. Hosp.), 7 7/8s, 6/1/12 BBB/P 2,807,000
Muskingum Cnty., Hosp. Rev. Bonds
1,100,000 (Franciscan Sisters), CLI Insd., 5 3/8s, 2/15/12 Aaa 1,020,250
1,000,000 (Bethesda Care Syst.), CLI Insd., 5.1s, 12/1/05 Aaa 978,750
North Royalton, School Dist. G.O. Bonds
1,885,000 MBIA, 6 5/8s, 12/1/06 Aaa 2,087,638
1,000,000 AMBAC, 5.65s, 12/1/08 Aaa 1,025,000
1,020,000 MBIA, zero %, 12/1/09 Aaa 470,475
835,000 Northwestern, School Dist. Rev. Bonds (Wayne & Ashland Cntys. School Impt.),
FGIC, 7.2s, 12/1/10 Aaa 965,469
3,000,000 OH Cap. Corp. Multi-Fam. Hsg. Rev. Bonds, Ser. A, FNMA Coll., 7.6s, 11/1/23 Aaa 3,187,500
6,614,000 OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB, Ser. A-2, GNMA Coll., 9.748s, 3/24/31 Aaa 6,903,363
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
640,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 Aaa 684,800
590,000 Ser. 85-A, FGIC, zero %, 1/15/15 # Aaa 90,713
OH State Bldg. Auth Rev. Bonds
1,000,000 Ser. A, AMBAC, 6s, 4/1/06 Aaa 1,052,500
7,000,000 Ser. B, 5s, 9/1/12 A 6,308,750
1,000,000 Ser. A, 4 7/8s, 10/1/10 A 907,500
1,015,000 (Workers Comp.-W. Green Bldg.), Ser. A, 4 3/4s, 4/1/14 A 883,050
OH State Econ. Dev. Rev. Bonds
1,510,000 (Sponge, Inc. Project), Ser. 5-A, 8 3/8s, 6/1/14 A 1,638,350
665,000 (Superior Forge & Steel Corp.), Ser. 3, 7 5/8s, 6/1/11 A 729,006
OH State Higher Ed. Fac. Rev. Bonds (Case Western Reserve U.)
4,500,000 6 1/4s, 10/1/18 Aa 4,618,125
1,000,000 6s, 10/1/14 Aa 1,007,500
4,920,000 OH State Infrastructure Impt. Rev. Bonds, 5.05s, 8/1/10 Aa 4,692,450
3,350,000 OH State Poll. Control Rev. Bonds (Standard Oil Co.), 6 3/4s, 12/1/15 Aa 3,726,875
1,000,000 OH State Pub. Comm. Mental Hlth. Cap. Fac. Auth. Rev. Bonds, Ser II, MBIA,
4 1/2s, 12/1/05 Aaa 945,000
OH State Wtr. Dev. Auth. Poll. Control Facs. Rev. Bonds
2,500,000 (PA Pwr. Project), Ser. B, 8.1s, 9/1/18 Baa 2,615,625
1,250,000 (Cleveland Elec. Illuminating Project), 8s, 10/1/23 BB 1,278,125
2,200,000 State Match Ser., MBIA, 6 1/2s, 6/1/05 Aaa 2,409,000
5,555,000 Wtr. Qlty. Ser., MBIA, 5 1/2s, 6/1/15 Aaa 5,318,913
OH State Wtr. Dev. Auth. Rev. Bonds
175,000 AMBAC, 9 3/8s, 12/1/18 Aaa 182,023
1,000,000 Ser. A, AMBAC, 7 3/4s, 12/1/09 Aaa 1,030,000
2,900,000 (Impt. Pure Wtr.), AMBAC, 5 1/2s, 12/1/11 Aaa 2,852,875
5,700,000 OH State Wtr. Dev. Auth. Solid Waste Disp. Rev. Bonds (North Star Broken Hill
Steel Project), 6.45s, 9/1/20 A 5,707,125
1,800,000 OH State Wtr. Dev. Auth. VRDN (Environmental Mead Co.), Ser. B, 3.6s, 11/1/15 VMIG1 1,800,000
2,275,000 Orrville, Elec. Syst. Mtge. Rev. Bonds, Ser. A, AMBAC, 7 1/2s, 12/1/10 Aaa 2,437,094
1,000,000 Oxford, Wtr. Supply Syst. Mtge. Rev. Bonds, AMBAC, 7 5/8s, 12/1/14 Aaa 1,098,750
1,000,000 Pickerington, Local School Dist. Construction & Impt. Rev. Bonds, FGIC,
5.8s, 12/1/09 Aaa 1,031,250
Sandusky Cnty., Hosp. Fac. Rev. Bonds (Memorial Hosp. Project)
1,750,000 7 3/4s, 12/1/09 BBB/P 1,673,438
795,000 7 3/8s, 12/1/01 BBB/P 777,113
Scioto Cnty., Hosp. Fac. VRDN (VHA Cent. Inc. Cap. Asset)
2,895,000 Ser. B, AMBAC, 3.5s, 12/1/25 VMIG1 2,895,000
1,400,000 Ser. E, AMBAC, 3.5s, 12/1/25 VMIG1 1,400,000
2,600,000 Southwest Local School Dist. G.O. Bonds (Hamilton Cnty.), AMBAC, 7.65s, 12/1/10 Aaa 2,928,250
1,500,000 Springboro Cmnty., School Dist. Rev. Bonds, AMBAC, 6s, 12/1/11 Aaa 1,548,750
2,925,000 Toledo, Swr. Syst. Mtge. Rev. Bonds, AMBAC, 6.2s, 11/15/12 Aaa 3,100,500
1,175,000 Toledo, Waterworks Mtge. Rev. Bonds, AMBAC, 6.2s, 11/15/12 Aaa 1,233,750
1,100,000 Tuscarawas Cnty., Hosp. Fac. Rev. Bonds (Union Hosp. Project), Ser. A,
6 1/2s, 10/1/21 Baa 1,016,125
1,000,000 Twin Valley, Cmnty. Local School Dist. Rev. Bonds, FGIC, 7.05s, 12/1/11 Aaa 1,136,250
3,240,000 U. of Ohio, Rev. Bonds, FGIC, 5s, 12/1/13 Aaa 2,968,650
1,150,000 Washington, Wtr. Syst. Mtge. Rev. Bonds, AMBAC, zero %, 12/1/09 Aaa 527,563
Westerville, School Dist. Rev. Bonds
1,610,000 (School Impt.), 6 1/4s, 12/1/09 A 1,702,575
1,590,000 (School Impt.), 6 1/4s, 12/1/08 A 1,693,350
3,000,000 Woodridge, School Dist. Rev. Bonds, AMBAC, 6.8s, 12/1/14 Aaa 3,341,250
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
220,000 FHA Insd., 7 3/8s, 10/1/21 Aaa 256,300
205,000 FHA Insd., 7 3/8s, 10/1/20 Aaa 238,825
185,000 FHA Insd., 7 3/8s, 10/1/19 Aaa 212,981
180,000 FHA Insd., 7 3/8s, 10/1/18 Aaa 209,700
160,000 FHA Insd., 7 3/8s, 10/1/17 Aaa 186,400
155,000 FHA Insd., 7 3/8s, 10/1/16 Aaa 180,575
------------
206,951,978
Puerto Rico (10.7%)
- ---------------------------------------------------------------------------------------------------------------------------
$4,000,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds, Ser. Y, MBIA,
6 1/2s, 7/1/06 Aaa $4,390,000
Cmnwlth. of PR, G.O. Bonds
1,100,000 MBIA, 6 1/2s, 7/1/08 Aaa 1,218,250
2,000,000 MBIA, 6 1/2s, 7/1/07 Aaa 2,217,500
1,350,000 Cmnwlth. of PR, Hwy. Auth. Rev. Bonds, Ser. Q, 7 3/4s, 7/1/16 Aaa 1,528,875
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
4,800,000 Ser. Y, 5 1/2s, 7/1/36 A 4,375,945
4,000,000 Ser. W, 5 1/2s, 7/1/15 A 3,805,000
$3,600,000 Cmnwlth. of PR, Impt. G.O. Bonds, 7.7s, 7/1/20 Aaa 4,068,000
1,500,000 Cmnwlth. of PR, Pub. Bldgs. Auth. Gtd. Edl. & Hlth. Facs. Rev.
Bonds, Ser. H, 7 7/8s, 7/1/16 Aaa 1,593,195
1,400,000 Cmnwlth. of PR, Tel. Auth. IFB, MBIA, 6.914s, 1/16/15 Aaa 1,268,750
------------
24,465,515
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $227,280,582) $231,417,493
- ---------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $228,783,265.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most
recent ratings available at May 31, 1996 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, 1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
Ratings are not covered by the Report of independent accountants.
*** The aggregate identified cost on a tax basis is $227,280,731, resulting in gross unrealized appreciation and
depreciation of $7,569,839 and $3,433,077 respectively, or net unrealized appreciation of $4,136,762.
# A portion of these securities were pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1996. The market value of securities segregated with the custodian for
transactions on futures contracts is $444,450 or 0.2% of net assets.
## When-issued securities (See Note 1).
The rates shown on IFBs which are securities paying interest rates that vary inversely to changes in the market
interest rates, and VRDNs are the current interest rates at May 31, 1996.
The fund had the following industry group concentrations greater than 10% on May 31, 1996 (as a percentage
of net assets):
Health Care 24.4%
Water & Sewerage 18.5
Education 17.6
The fund had the following insurance group concentrations greater than 10% on May 31, 1996 (as a percentage
of net assets):
AMBAC 21.1%
MBIA 15.7
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1996
(aggregate face value $20,970,105)
Aggregate
Face Expiration Unrealized
Total Value Value Date Appreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Short) $ 8,212,750 $ 8,253,230 Jun 96 $ 40,480
U.S. Treasury Bond
Futures (Short) 12,688,688 12,716,875 Sep 96 28,187
- --------------------------------------------------------------------------------------------
$ 68,667
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1996
Assets
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value (identified cost $227,280,582) (Note 1) $231,417,493
- -------------------------------------------------------------------------------------------------------------------
Interest receivable 4,621,210
- -------------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 212,079
- -------------------------------------------------------------------------------------------------------------------
Receivable for securities sold 4,816,773
- -------------------------------------------------------------------------------------------------------------------
Receivable for variation margin 101,813
- -------------------------------------------------------------------------------------------------------------------
Total assets 241,169,368
Liabilities
- -------------------------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 20,410
- -------------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 626,884
- -------------------------------------------------------------------------------------------------------------------
Payable for securities purchased 11,085,779
- -------------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 139,174
- -------------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 348,253
- -------------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 209
- -------------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,296
- -------------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 93,217
- -------------------------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 44,383
- -------------------------------------------------------------------------------------------------------------------
Other accrued expenses 26,498
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 12,386,103
- -------------------------------------------------------------------------------------------------------------------
Net assets $228,783,265
Represented by
- -------------------------------------------------------------------------------------------------------------------
Paid in-capital (Notes 1 and 4) $228,027,366
- -------------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 75,656
- -------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,525,335)
- -------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,205,578
- -------------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $228,783,265
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share ($186,633,031 divided by 21,305,292 shares) $8.76
- -------------------------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.76)* $9.20
- -------------------------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share ($41,655,023 divided by 4,761,991 shares)+ $8.75
- -------------------------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share ($495,211 divided by 56,528 shares) $8.76
- -------------------------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.76)** $9.05
- -------------------------------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000
or more and on group sales the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1996
<S> <C>
Tax exempt interest income: $14,378,380
- ----------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,379,995
- ----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 227,456
- ----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,726
- ----------------------------------------------------------------------------------------------------
Reports to shareholders 20,468
- ----------------------------------------------------------------------------------------------------
Auditing 32,476
- ----------------------------------------------------------------------------------------------------
Legal 12,537
- ----------------------------------------------------------------------------------------------------
Postage 27,294
- ----------------------------------------------------------------------------------------------------
Registration fees 6,447
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 384,848
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 320,710
- ----------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 900
- ----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,989
- ----------------------------------------------------------------------------------------------------
Other 17,361
- ----------------------------------------------------------------------------------------------------
Total expenses 2,450,207
- ----------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (200,829)
- ----------------------------------------------------------------------------------------------------
Net expenses 2,249,378
- ----------------------------------------------------------------------------------------------------
Net investment income 12,129,002
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,329,908
- ----------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (391,455)
- ----------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments and futures contracts during the year (5,934,894)
- ----------------------------------------------------------------------------------------------------
Net loss on investments (4,996,441)
- ----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,132,561
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
---------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -------------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income $12,129,002 $12,620,205
- -------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 938,453 (3,996,686)
- -------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (5,934,894) 8,118,467
- -------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 7,132,561 16,741,986
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------------------------------------
From net investment income:
- -------------------------------------------------------------------------------------------------------------
Class A (10,350,980) (11,195,160)
- -------------------------------------------------------------------------------------------------------------
Class B (1,781,308) (1,307,862)
- -------------------------------------------------------------------------------------------------------------
Class M (8,960) --
- -------------------------------------------------------------------------------------------------------------
From net realized gain on investments:
- -------------------------------------------------------------------------------------------------------------
Class A -- (258,158)
- -------------------------------------------------------------------------------------------------------------
Class B -- (33,773)
- -------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 7,768,385 9,988,121
- -------------------------------------------------------------------------------------------------------------
Total increase in net assets 2,759,698 13,935,154
- -------------------------------------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------------------------------------
Beginning of year 226,023,567 212,088,413
- -------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $75,656 and $4,919, respectively) $228,783,265 $226,023,567
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
(For a share outstanding throughout the period)
For the period
April 3, 1995
Year (commencement of
ended operations) to Year ended
May 31 May 31 May 31
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1996
- --------------------------------------------------------------------------------------------------------------------
Class M
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.95 $8.76 $8.94
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .45 .08 .42
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.18) .19 (.19)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .27 .27 .23
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.08) (.42)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.08) (.42)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.95 $8.75
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 3.00 3.05 (c) 2.63
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $495 $1 $41,655
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) 1.27 .20 (c) 1.61
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.85 .89 (c) 4.71
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.23 66.29 33.23
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
For the period
July 15, 1993
(commencement
Year ended of operations) to
May 31 May 31
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1996
- --------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.79 $9.37 $8.95
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .46 .40 .48
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .16 (.46) (.19)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .62 (.06) .29
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.46) (.40) (.48)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.01) (.12) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.52) (.48)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.94 $8.79 $8.76
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 7.39 (1.49)(c) 3.30
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $32,847 $17,959 $186,633
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) 1.58 1.42 (c) .96
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.24 4.35 (c) 5.39
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.29 44.45 33.23
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
Year ended May 31
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.80 $9.26 $8.78
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .52 .53 .54
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .15 (.35) .48
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations .67 .18 1.02
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net investment income (.51) (.52) (.54)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain on investments (.01) (.12) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.64) (.54)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.95 $8.80 $9.26
- --------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 8.04 1.88 11.94
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $193,176 $194,130 $177,879
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) .93 .99 1.04
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.97 5.68 5.90
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66.29 44.45 21.57
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights (continued)
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------
1992
- --------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------
Net asset value, beginning of period $8.55
- --------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------
Net investment income .57 (a)
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .23
- --------------------------------------------------------------------------
Total from investment operations .80
- --------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------
From net investment income (.57)
- --------------------------------------------------------------------------
From net realized gain on investments --
- --------------------------------------------------------------------------
Total distributions (.57)
- --------------------------------------------------------------------------
Net asset value, end of period $8.78
- --------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 9.65
- --------------------------------------------------------------------------
Net assets, end of period (in thousands) $140,309
- --------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(d) .90 (a)
- --------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.41 (a)
- --------------------------------------------------------------------------
Portfolio turnover (%) 15.20 (e)
- --------------------------------------------------------------------------
(a) Reflects an expense limitation. As a result,
net investment income for the year ended May 31, 1992
reflects expense reductions of approximately
$0.01 per class A share.
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) Not annualized.
(d) The ratio of expenses to average net assets for the year ended May 31,
1996 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts. (See Note 2)
(e) Portfolio turnover excludes the impact of assets received by the fund, then known as
Putnam Ohio Tax Exempt Income Fund II, from the acquisition of
Putnam Ohio Tax Exempt Income Fund.
</TABLE>
Notes to financial statements
May 31, 1996
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. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis
of valuations provided by a pricing service, approved by the Trustees,
which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and
various relationships between securities in determining value.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy
or sell is executed). Interest income is recorded on the accrual basis.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) 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 on securities held and for excise tax on income and capital
gains.
At May 31, 1996, the fund had a capital loss carryover of approximately
$2,917,000 available to offset future net capital gain, if any. The
amount of the carryover and the expiration dates are:
Loss Carryover Expiration
------------------------ --------------------------
$1,981,000 May 31, 2003
936,000 May 31, 2004
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions, if
any, are recorded on the ex-dividend date and paid annually. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles.
These differences include treatment of market discount, dividends
payable, capital loss carryover and realized and unrealized losses on
certain futures contracts. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
For the year ended May 31, 1996, the fund reclassified $82,983 to
increase undistributed net investment income and $352 to decrease paid-
in capital, with an increase to accumulated net realized losses of
$82,631. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
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. Discounts on zero coupon bonds and income on
original issue bonds are accreted according to the effective yield
method. Securities purchased or sold on a when-issued delay delivery
basis may be settled a month or more after the trade date; interest
income is not accrued until settlement date. Losses may arise due to
changes in the market value of the underlying securities or if the
counterparty does not perform under the contract.
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 Putnam Management on the fund's portfolio
transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $740 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended May 31, 1996, fund expenses were reduced by $200,829
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
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, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $33,619 and $259 from the sale
of class A and class M shares, respectively and $85,990 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended May 31, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received no monies on class A redemptions.
As part of the custodian contract between the subcustodian bank and
PFTC, the subcustodian bank has a lien on the securities of the fund to
the extent permitted by the funds investment restrictions to cover any
advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At May 31, 1996, the payable to the subcustodian
bank represents the amount due for cash advance for the settlement of a
security purchased.
Note 3
Purchase and sales of securities
During the year ended May 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $81,129,530 and
$74,001,915, respectively. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At May 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,664,704 $14,921,281
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distribution 739,838 6,620,990
- ----------------------------------------------------
2,404,542 21,542,271
Shares
repurchased (2,684,436) (23,982,793)
- ----------------------------------------------------
Net decrease (279,894) $(2,440,522)
- ----------------------------------------------------
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, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,827,306 $16,326,847
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 116,237 1,038,592
- ----------------------------------------------------
1,943,543 17,365,439
Shares
repurchased (855,573) (7,662,401)
- ----------------------------------------------------
Net increase 1,087,970 $ 9,703,038
- ----------------------------------------------------
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
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 56,781 $509,049
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 767 6,820
- ----------------------------------------------------
57,548 515,869
Shares
repurchased (1,135) (10,000)
- ----------------------------------------------------
Net increase 56,413 $505,869
- ----------------------------------------------------
For the period
April 3, 1995
(commencement of
operations) to
May 31, 1995
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 115 $1,006
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- ----------------------------------------------------
115 1,006
Shares
repurchased -- --
- ----------------------------------------------------
Net increase 115 $1,006
- ----------------------------------------------------
Federal Tax Information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
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
Ronald J. Jackson
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
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
James M. Prusko
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Ohio Tax
Exempt Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information, or to request a prospectus, call toll
free: 1-800-225-1581.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- -------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- -------------
25853-848/240/130 7/96
