Putnam
Ohio
Tax Exempt
Income Fund
ANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "The fund's number one priority remains high current income.
However, in a market with downside risk, we're balancing the need for
income with the need for total return strategies that build net asset
value."
-- Howard Manning, manager
Putnam Ohio Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
Putnam Ohio Tax Exempt Income Fund began fiscal 1997 on a hopeful, yet
cautious note in June 1996 after a somewhat tumultuous year for the municipal
bond market. The hope was warranted, as the market rallied in the fall. The
caution was also justified, for the rally ended abruptly in late winter, cut
short by investor worries that inflation and interest rates would both rise in
the wake of an economy still growing too fast.
From the vantage point of the fiscal year's close on May 31, 1997, we can see
that the volatility, while somewhat nerve-racking for many investors, was low
by historical standards. By spring, even the Federal Reserve Board's increase
in the federal funds rate in late March, the source of considerable earlier
anxiety, caused little stir.
It is in this context that Fund Manager Howard Manning discusses your fund's
performance for the year just past and his view of its prospects for the year
ahead. His report begins on the following page.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Howard K. Manning
Putnam Ohio Tax Exempt Income Fund ended fiscal 1997 on a cheery note,
benefiting from positive supply/demand trends and the narrowing of credit
spreads. For the 12 months ended May 31, 1997, the fund's class A shares
provided a total return of 8.05% at net asset value and 2.89% at public
offering price. Results for other share classes and for longer periods
can be found on pages 9 and 10.
* MARKET CHARACTERIZED BY ABNORMALLY LOW VOLATILITY
Compared with its experience in other years in the not-too-distant past, the
municipal bond market was characterized by abnormally low volatility in all
dimensions during fiscal 1997. This covers not only interest-rate movements,
but changes in bond spreads as well. Even the Federal Reserve Board's
quarter-point increase in the federal funds rate in late March was virtually a
nonevent, primarily because the long-awaited rise had already been priced into
the market. Throughout the period, interest rates moved up and down in a
relatively narrow trading range, which produced modest appreciation in net
asset value while keeping dividends at an attractive level.
At both its May and July policy-setting meetings, the Fed once again evaluated
the economy's strength, but took no action on interest rates. The municipal
bond market reaction appeared subdued, but bond prices did respond favorably.
Until there is more conclusive evidence of inflation, we believe the bond
markets will continue to show some uncertainty while they await further Fed
action.
A well-balanced supply/demand relationship, coupled with the elimination of
flat-tax concerns, helped the municipal bond market outperform the Treasury
market over the past year. Supply is running slightly below the pace of one
year ago, while demand -- from individual investors and insurance companies --
has remained steady.
Amidst robust economic growth, and with yields on long-term municipal bonds
near historic lows, we have adopted a defensive strategy in managing your
fund. This means moving toward a slightly shorter duration and placing an
emphasis on premium bonds. Shorter durations can help preserve portfolio value
as interest rates rise. Longer durations can mean a more volatile net asset
value if rates change, but also one more likely to appreciate substantially if
rates decline. Premium bonds sell at prices above par, carry higher coupons,
and tend to be more stable in price when interest rates are rising.
* PORTFOLIO SHIFTS FAVOR Baa-RATED BONDS AND SHORTER DURATION
When interest rates are low and their confidence level is strong, bond
investors are often more comfortable with higher-risk investments such as
lower-rated higher-yielding bonds. Consequently, in such an environment, the
gap between yields of low-rated versus higher-rated securities often narrows.
That explains why the continued tightening of quality spreads between higher-
and lower-quality bonds became one of the defining events of your fund's
fiscal year. In fact, Baa-rated municipal bonds were the top performing
securities for the period, followed by A-rated bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS
Health care 22.4%
Education 16.6%
Water and
sewerage 12.0%
Housing 10.5%
Utilities 9.1%
Footnote reads:
*Based on net assets as of 5/31/97. Holdings will vary over time.
As more investors opt for higher-yielding bonds, their prices appreciate. The
fund's Baa-rated bonds made up 17.4% of total assets at period's end, up from
9.5% a year earlier.
After the market's positive performance during the summer and fall of 1996, we
saw signs of overvaluation and took steps to reduce the fund's effective
duration to 7.05 years by the end of the period. We also repositioned the
portfolio away from a barbell structure, which favors a focus on holdings at
both the short-term and long-term ends of the yield curve, to a bulleted
structure, which emphasizes bonds clustered in a rather narrow range along the
yield curve. In this case, we are concentrating on the 9- to 15-year maturity
range, which we consider the best relative value. In a market that still has
downside risk, we believe this strategy is best for the fund's objective of
high current income with price stability and appreciation potential.
* MAINTAINING QUALITY AND INCOME DESPITE SCARCITY OF BONDS IN OHIO
A high-quality portfolio has always been one of your fund's top priorities. At
the end of the fiscal year, investment-grade bonds, those rated Baa or above,
made up more than 90% of the portfolio. Furthermore, close to 65% of the
holdings were rated in the highest quality category, Aaa. For many of these
holdings, timely payment of principal and interest is insured by major
municipal bond insurance companies, adding an extra degree of comfort for
investors.
While a well-balanced supply/demand relationship has characterized the overall
municipal bond market, supply is extremely limited in Ohio. While tight supply
can hinder our search for attractive bonds, our rigorous standards and solid
credit research provide effective surveillance of the municipal marketplace.
Our efforts to increase the health-care sector's allocation have been
particularly hampered by lack of supply. Nevertheless, we were able to raise
the level of hospital holdings by period's end, mainly through appreciation of
Baa-rated securities, which benefited from the yield-spread compression during
the past 12 to 18 months.
[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW]
PORTFOLIO QUALITY OVERVIEW*
A -- 8.9%
Aa -- 4.9%
Aaa -- 63.9%
Ba -- 3.8%
Baa -- 18.5%
Footnote reads:
*As a percentage of market value as of 5/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions, unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
Another focus has been industrial development and essential-service bonds,
which have benefited from Ohio's economic resurgence. These municipal service
bonds, such as Cleveland Water and Sewer, are self-funding; that is, the fees
paid by users of the services become the sources of the bonds' payments to
investors. Since the issuers have the ability to set user fees, cash flows
from these projects are relatively secure. Consequently, these securities
generally represent lower credit risk than other types of municipal bonds.
While these holdings, along with others discussed in this report, were viewed
favorably at the end of the period, all are subject to review and adjustment in
accordance with the fund's investment strategy, and may vary in the future.
* DEFENSIVE STRATEGIES SHOULD REMAIN IN PLACE
Looking ahead, we consider continuation of the market's current low volatility
to be an unrealistic expectation. As steady economic growth continues, we will
maintain a defensive portfolio that emphasizes high current income and price
stability if rates move up. Our large, highly experienced staff of research
analysts will concentrate on seeking to identify undervalued issues,
particularly of A-rated and Baa-rated bonds, to generate an attractive and
competitive income for the fund. In this environment, attention to credit and
sector selection becomes especially important in providing stability, steady
income, and liquidity.
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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance 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 high current income free from federal and state income taxes,
consistent with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
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 8.05% 2.89% 7.35% 2.35% 7.85% 4.39%
- ------------------------------------------------------------------------------
5 years 37.53 30.96 32.66 30.66 35.45 31.01
Annual average 6.58 5.54 5.82 5.49 6.26 5.55
- ------------------------------------------------------------------------------
Life of fund 69.42 61.44 59.82 59.82 64.64 59.33
Annual average 7.18 6.50 6.36 6.36 6.78 6.32
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Lehman Bros. Consumer
Municipal Bond Price
Index Index
- ------------------------------------------------------------------------------
1 year 8.29% 2.23%
- ------------------------------------------------------------------------------
5 years 41.80 14.60
Annual average 7.24 2.76
- ------------------------------------------------------------------------------
Life of fund 79.18 27.47
Annual average 8.00 3.25
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
The one-year, five-year, and life of fund returns for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its implementation.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of $10,000 investment since 10/23/89
Fund's
class A Lehman Bros. Consumer
shares Municipal Price
Date at POP Bond Index Index
-------- --------- ---------- ----------
10/23/89 9,529 10,000 10,000
1989 9,653 10,258 10,040
1990 10,265 11,006 10,653
1991 11,429 12,342 10,979
1992 12,497 13,429 11,298
1993 13,872 15,078 11,609
1994 13,213 14,302 11,918
1995 15,283 16,799 12,221
1996 15,842 17,545 12,627
5/31/97 16,144 17,918 12,747
Footnote reads:
Past performance is no assurance of future results. At the end
of the same time period, a $10,000 investment in the fund's
class B shares would have been valued at $15,982 (and no contingent
deferred sales charges would apply). A $10,000 investment in the
fund's class M shares would have been valued at $16,464 at net asset
value ($15,933 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.460609 $0.401764 $0.433218
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.460609 $0.401764 $0.433218
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/96 $8.76 $9.20 $8.75 $8.76 $9.05
- ------------------------------------------------------------------------------
5/31/97 8.99 9.44 8.98 9.00 9.30
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend
rate2 5.21% 4.96% 4.56% 4.90% 4.74%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.28 8.83 8.12 8.72 8.44
- ------------------------------------------------------------------------------
Current 30-day SEC
yield4 5.04 4.80 4.39 4.74 4.58
- ------------------------------------------------------------------------------
Taxable equivalent3 8.97 8.55 7.82 8.44 8.15
- ------------------------------------------------------------------------------
1Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
3Assumes maximum 43.83% combined federal, state, and city tax rate.
Results for investors subject to lower tax rates would not be as
advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar 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 7.85% 2.72% 7.19% 2.19% 7.54% 4.01%
- ------------------------------------------------------------------------------
5 years 36.39 29.96 31.70 29.70 34.34 29.98
- ------------------------------------------------------------------------------
Annual average 6.40 5.38 5.66 5.34 6.08 5.38
- ------------------------------------------------------------------------------
Life of fund 70.81 62.77 61.11 61.11 65.80 60.45
- ------------------------------------------------------------------------------
Annual average 7.21 6.54 6.40 6.40 6.80 6.34
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. Please see page 9 for the method of performance
calculation.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 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. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the fiscal year ended May 31, 1997
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, including the portfolio of investments owned, as
of May 31, 1997, and the related statement of operations for the year then
ended and 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, 1997, 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, 1997, the results of its
operations for the year then ended and 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 10, 1997
<TABLE>
<CAPTION>
Portfolio of investments owned
May 31, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
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
RAN -- Revenue Anticipation Notes
MUNICIPAL BONDS AND NOTES (99.0%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Ohio (82.5%)
- ------------------------------------------------------------------------------------------------------------
$100,000 Akron-Wilbeth, Hsg. Dev. Corp. 1st Mtge. Rev. Bonds,
FHA Insd., 7.9s, 8/1/03 A $115,500
1,900,000 Bedford, Hosp. Impt. Rev. Bonds (Bedford Cmnty.
Hosp. Inc.), 8 1/2s, 5/15/09 AAA/P 2,094,750
1,500,000 Brecksville-Broadview Heights, City School Dist.
G.O. Bonds, FGIC, 6 1/2s, 12/1/16 Aaa 1,648,125
5,000,000 Butler Cnty., Hosp. Impt. Rev. Bonds (Fort Hamilton-
Hughes), 7 1/2s, 1/1/10 Baa 5,337,500
1,390,000 Cincinnati, Student Loan Funding Corp. Rev. Bonds,
Ser. B, 8 7/8s, 8/1/08 BBB/P 1,445,600
4,870,000 Cleveland G.O. Bonds, Ser. B, AMBAC, 6 3/4s,
10/1/08 # Aaa 5,387,438
Cleveland, City School Dist. G.O. Bonds
900,000 9s, 12/1/08 Aaa 981,000
2,500,000 8 1/4s, 12/1/08 Aaa 2,925,000
1,000,000 AMBAC, 7.35s, 12/1/08 Aaa 1,066,250
2,500,000 Cleveland, Pkg. Fac. Impt. Rev. Bonds, 8s, 9/15/12 BB/P 2,928,125
5,000,000 Cleveland Pub. Pwr. Syst. Rev. Bonds 1st Mtge.,
Ser. 1, MBIA, 5s, 11/15/24 Aaa 4,575,000
Cleveland Urban Renewal Increment Rev. Bonds
(Rock & Roll Hall of Fame)
1,900,000 6 3/4s, 3/15/18 BBB/P 1,964,125
2,000,000 6 5/8s, 3/15/11 BBB/P 2,065,000
Cleveland, Waterworks 1st Mtge. Rev. Bonds
2,000,000 Ser. F-92A, AMBAC, 6 1/2s, 1/1/21 Aaa 2,192,500
3,000,000 Ser. G, MBIA, 5 1/2s, 1/1/21 Aaa 2,996,250
7,950,000 Ser. G, MBIA, 5 1/2s, 1/1/13 Aaa 8,069,250
1,350,000 Cleveland-Cuyahoga Cnty., Port Auth. Rev. Bonds
(Rock & Roll Hall of Fame), 5.2s, 12/1/03 BBB/P 1,346,625
1,000,000 Clyde, Elec. Syst. Mtge. Rev. Bonds, Ser. B, 8 3/8s,
11/15/14 BB/P 1,035,000
Cuyahoga Cnty., Hosp. Rev. Bonds
5,050,000 (Cleveland-Fairview Gen. Hosp. & Lutheran
Med. Ctr.), MBIA, 6 1/4s, 8/15/10 Aaa 5,371,938
2,000,000 (Metrohlth. Syst.), MBIA, 5 1/2s, 2/15/27 Aaa 1,947,500
1,940,000 (U. Hosp.), Ser. A, MBIA, 6s, 1/15/06 Aaa 2,068,525
1,300,000 Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 Aa 1,441,375
1,300,000 Franklin Cnty., Convention Fac. Auth. Tax & Lease
RAN,, MBIA, 7s, 12/1/19 Aaa 1,431,625
Hamilton Cnty, Elec. Syst. Mtge. Rev. Bonds, Ser. B,
700,000 FGIC, 8s, 10/15/22 Aaa 749,875
2,600,000 FGIC, 7 1/4s, 10/15/23 Aaa 2,710,500
2,750,000 Hamilton Cnty., Hlth. Syst. Rev. Bonds
(Providence Hosp.), 6 7/8s, 7/1/15 Baa 2,884,063
1,000,000 Hubbard, Swr. Syst. Mtge. Rev. Bonds, 8.8s, 11/15/17 BBB/P 1,048,710
1,800,000 Huron Cnty., Human Svcs. Rev. Bonds, MBIA, 6.55s,
12/1/20 Aaa 2,029,500
1,320,000 Kirtland G.O. Bonds, AMBAC, 7 1/2s, 12/1/16 Aaa 1,468,500
359,417 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 BBB/P 385,026
1,000,000 Lakota, Local School Dist. Rev. Bonds, AMBAC, 7s,
12/1/10 Aaa 1,172,500
826,382 Logan Cnty. Indl. Dev. Rev. Bonds (Indian Lake Hlth.),
FHA Insd., 12s, 3/15/14 AAA/P 958,604
1,910,000 Lorain Cnty., Elderly Hsg. Corp. Multi-Fam. Rev.
Bonds (Harr Plaza & Intl.), Ser. A, 6 3/8s, 7/15/19 A 1,924,325
Lorain Cnty. Fac. Rev. Bonds (Laurel Lake)
1,500,000 7.3s, 12/15/14 BB/P 1,567,500
1,750,000 7 1/8s, 12/15/18 BB/P 1,809,063
Lorain Cnty., Hosp. Rev. Bonds
5,325,000 (EMH Regl. Med. Ctr.), AMBAC, 7 3/4s, 11/1/13 Aaa 6,263,531
1,500,000 (Catholic Heatlhcare Partners), MBIA, 6s, 9/1/06 Aaa 1,605,000
3,100,000 Lucas Cnty., Indl. Dev. Rev. Bonds (Kroger Co.),
8 1/2s, 7/1/11 Baa 3,518,500
Marion Cnty., Hlth. Care Fac. Rev. Bonds
(United Church Homes)
460,000 8 7/8s, 12/1/12 BBB/P 522,100
4,000,000 6 3/8s, 11/15/10 BBB 4,115,000
2,000,000 6.3s, 11/15/15 BBB 2,027,500
1,205,000 Massillon Rev. Bonds (Lincoln Ctr. Phase II), AMBAC,
6.95s, 12/1/10 Aaa 1,408,344
2,500,000 Miami, Cnty., Hosp. Fac. Rev. Bonds (Upper Valley
Med. Ctr.), Ser. A, 6 3/8s, 5/15/26 Baa 2,525,000
2,000,000 Montgomery Cnty., Hlth. Syst. Rev. Bonds
(Franciscan Brothers Hosp.), Ser. B-1, 8.1s, 7/1/18 Baa 2,332,500
2,705,000 Mount Vernon, Hosp. Rev. Bonds (Knox Cmnty.
Hosp.), 7 7/8s, 6/1/12 BBB/P 2,782,038
5,200,000 North Olmsted, G.O. Bonds, AMBAC, 6.2s, 12/1/11 Aaa 5,655,000
1,885,000 North Royalton City School Dist. G.O. Bonds,
MBIA, 6 5/8s, 12/1/06 Aaa 2,130,050
835,000 Northwestern, School Dist. Rev. Bonds (Wayne
& Ashland Cntys. School Impt.), FGIC, 7.2s,
12/1/10 Aaa 990,519
3,000,000 OH Cap.Corp. Multi-Fam. Rev. Bonds, Ser. A,
FNMA Coll., 7.6s, 11/1/23 Aaa 3,178,020
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
6,064,000 Ser. A-2, GNMA Coll., 9.517s, 3/24/31 Aaa 6,662,820
5,850,000 Ser. G-2, GNMA Coll., 9.981s, 3/2/23 AAA 6,807,938
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
565,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 Aaa 602,431
425,000 Ser. 85-A, FGIC, zero %, 1/15/15 Aaa 73,313
3,000,000 OH Hsg. Finl. Agcy. Mtg. Rev Bonds, Ser. A, GNMA,
6.05s, 9/1/17 AAA 3,030,000
1,000,000 OH State Bldg. Auth. Rev. Bonds (Adult
Correctional Fac.), Ser. A, AMBAC, 6s, 4/1/06 Aaa 1,073,750
OH State Econ. Dev. Rev. Bonds
1,475,000 (Sponge, Inc.), Ser. 5-A, 8 3/8s, 6/1/14 A 1,583,781
640,000 (Superior Forge & Steel Corp.), Ser. 3, 7 5/8s,
6/1/11 A 704,000
OH State Higher Ed. Fac. Rev. Bonds (Case
Western Reserve U.)
4,500,000 6 1/4s, 10/1/18 Aa 4,955,625
1,000,000 6s, 10/1/14 Aa 1,068,750
1,800,000 OH State Indl. Dev. Auth. Rev. Bonds (Kroger Co.),
8.65s, 6/1/11 Baa 2,049,750
3,350,000 OH State Poll. Control Rev. Bonds (Standard
Oil Co.), 6 3/4s, 12/1/15 AA 3,856,688
OH State Wtr. Dev. Auth. Poll. Control Fac.
Rev. Bonds
2,500,000 (PA Pwr.), Ser. B, 8.1s, 9/1/18 Baa 2,565,575
1,250,000 (Cleveland Elec. Illuminating), 8s, 10/1/23 Ba 1,295,313
2,200,000 (State Match Loan Fund), Ser. 95, MBIA, 6 1/2s,
6/1/05 Aaa 2,428,250
5,700,000 OH State Wtr. Dev. Auth. Solid Waste Disp. Rev.
Bonds (North Star Broken Hill Steel), 6.45s,
9/1/20 A 5,928,000
2,275,000 Orrville, Elec. Syst. Mtge. Rev. Bonds, Ser. A,
AMBAC, 7 1/2s, 12/1/10 Aaa 2,417,188
1,000,000 Oxford, Wtr. Supply Syst. Mtge. Rev. Bonds,
AMBAC, 7 5/8s, 12/1/14 Aaa 1,070,000
1,000,000 Pickerington, Local School Dist. Construction &
Impt. Rev. Bonds, FGIC, 5.8s, 12/1/09 Aaa 1,063,750
Sandusky Cnty., Hosp. Fac. Rev. Bonds
(Memorial Hosp.)
1,750,000 7 3/4s, 12/1/09 BBB/P 1,761,025
795,000 7 3/8s, 12/1/01 BBB/P 795,223
2,600,000 Southwest, Local School Dist. G.O. Bonds
(Hamilton Cnty.), AMBAC, 7.65s, 12/1/10 Aaa 2,879,500
1,500,000 Sprigboro Cmnty., City School Dist. G.O. Bonds,
AMBAC, 6s, 12/1/11 Aaa 1,612,500
2,925,000 Toledo Swr. Syst. Mtge. Rev. Bonds, AMBAC, 6.2s,
11/15/12 Aaa 3,195,563
1,175,000 Toledo Waterworks Mtge. Rev. Bonds, AMBAC, 6.2s,
11/15/12 Aaa 1,283,688
1,100,000 Tuscarawas Cnty., Hosp. Fac. Rev. Bonds (Union
Hosp.), Ser. A, 6 1/2s, 10/1/21 Baa 1,100,000
1,000,000 Twin Valley, Cmnty. Local School Dist. Rev. Bonds,
FGIC, 7.05s, 12/1/11 Aaa 1,176,250
3,000,000 U. of Cincinnati COP (U. of Cincinnati Ctr.), MBIA,
5 1/8s, 6/1/24 Aaa 2,778,750
Westerville, City School Dist. Rev. Bonds
(School Impt.)
1,610,000 6 1/4s, 12/1/09 A 1,760,938
1,590,000 6 1/4s, 12/1/08 A 1,747,013
3,000,000 Woodridge School Dist. Rev. Bonds, AMBAC,
6.8s, 12/1/14 Aaa 3,480,000
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
FHA Insd.,
220,000 7 3/8s, 10/1/21 Aaa 262,350
205,000 7 3/8s, 10/1/20 Aaa 244,463
185,000 7 3/8s, 10/1/19 Aaa 220,613
180,000 7 3/8s, 10/1/18 Aaa 214,650
160,000 7 3/8s, 10/1/17 Aaa 190,600
155,000 7 3/8s, 10/1/16 Aaa 184,644
--------------
192,319,961
Puerto Rico (16.5%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds, Ser. Y,
MBIA, 6 1/2s, 7/1/06 Aaa 4,490,000
Cmnwlth. of PR, G.O. Bonds, MBIA
1,100,000 6 1/2s, 7/1/08 Aaa 1,244,375
5,425,000 6 1/2s, 7/1/07 Aaa 6,109,906
3,600,000 Cmnwlth. of PR, Impt. G.O. Bonds, 7.7s, 7/1/20 Aaa 4,009,500
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Z, MBIA, 6 1/4s, 7/1/15 Aaa 1,110,000
4,000,000 Ser. W, 5 1/2s, 7/1/15 A 3,965,000
1,350,000 Cmnwlth. of PR, Hwy. Auth. Rev. Bonds, Ser. Q,
7 3/4s, 7/1/16 Aaa 1,505,250
4,180,000 Cmnwlth of PR, Muni. Fin. Agcy. Rev. Bonds, Ser. A,
FSA, 6s, 7/1/11 Aaa 4,503,950
Cmnwlth of PR, Pub. Bldg. Auth. Rev. Bonds, Ser. A
1,100,000 6 1/4s, 7/1/15 Aaa 1,221,000
1,440,000 6 1/4s, 7/1/12 Aaa 1,596,600
3,875,000 6 1/4s, 7/1/11 Aaa 4,296,399
3,000,000 Cmnwlth. of PR, Pub. Bldg. Auth. Ed. & Hlth. Fac.
Rev. Bonds, 4.8s, (5.7s, 7/1/98), 7/1/16 ++ A 2,891,250
1,400,000 Cmnwlth. of PR, Tel. Auth. IFB, MBIA, 6.56s, 1/16/15 Aaa 1,363,250
--------------
38,306,480
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $221,788,337) *** $230,626,441
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $232,990,511.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1997 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, 1997. 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 for federal tax purposes is $221,788,337, resulting in gross unrealized
appreciation and depreciation of $9,656,271 and $818,167 respectively, or net unrealized appreciation of
$8,838,104.
++ The interest rate and date shown parenthetically represent the new interest rate to be paid and the date
the fund will begin receiving interest at this rate.
# A portion of these securities were pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1997.
The rates shown on IFBs which are securities paying interest rates that vary inversely to changes in the market
interest rates are the current interest rates at May 31, 1997.
The fund had the following industry group concentrations greater than 10% at May 31, 1997
(as a percentage of net assets):
Health Care 22.4%
Education 16.6
Water & Sewer 12.0
Housing 10.5
The fund had the following insurance concentrations greater than 10% at May 31, 1997
(as a percentage of net assets):
MBIA 19.6%
AMBAC 17.8
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1997
(aggregate face value $14,489,062)
Aggregate
Total Face Expiration Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Muni Index
Future (Short) $10,530,000 $10,107,187 Jun-97 $(422,813)
U.S. Treasury Bond
Future (Short) 4,401,250 4,381,875 Jun-97 (19,375)
- ----------------------------------------------------------------------------------------
$(442,188)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(Identified cost $221,788,337) (Note 1) 230,626,441
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 4,566,033
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 151,619
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 155,000
- ---------------------------------------------------------------------------------------------------
Total assets 235,499,093
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 1,170,394
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 56,875
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 646,026
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 109,216
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 351,530
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 46,921
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,840
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,171
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 96,237
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 24,372
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,508,582
- ---------------------------------------------------------------------------------------------------
Net assets $232,990,511
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $226,093,087
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 210,370
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (1,708,862)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 8,395,916
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $232,990,511
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($185,030,468 divided by 20,571,635 shares) $8.99
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.99)* $9.44
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($47,049,517 divided by 5,237,778 shares) + $8.98
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($910,526 divided by 101,197 shares) $9.00
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.00)** $9.30
- ---------------------------------------------------------------------------------------------------
* 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 charges.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1997
<S> <C>
Tax exempt interest income: $14,323,814
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,395,593
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 256,544
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 17,201
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,037
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 373,686
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 380,053
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,424
- --------------------------------------------------------------------------------------------------
Reports to shareholders 28,572
- --------------------------------------------------------------------------------------------------
Registration fees 6,366
- --------------------------------------------------------------------------------------------------
Auditing 28,156
- --------------------------------------------------------------------------------------------------
Legal 13,838
- --------------------------------------------------------------------------------------------------
Postage 33,573
- --------------------------------------------------------------------------------------------------
Other 33,185
- --------------------------------------------------------------------------------------------------
Total expenses 2,577,228
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (102,879)
- --------------------------------------------------------------------------------------------------
Net expenses 2,474,349
- --------------------------------------------------------------------------------------------------
Net investment income 11,849,465
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,361,864
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 483,147
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 4,190,338
- --------------------------------------------------------------------------------------------------
Net gain on investments 6,035,349
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $17,884,814
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
-------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $11,849,465 $12,129,002
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,845,011 938,453
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 4,190,338 (5,934,894)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 17,884,814 7,132,561
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,691,029) (10,350,980)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,018,939) (1,781,308)
- ----------------------------------------------------------------------------------------------------------------------
Class M (32,971) (8,960)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (1,934,629) 7,768,385
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 4,207,246 2,759,698
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 228,783,265 226,023,567
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $210,370 and $75,656, respectively) $232,990,511 $228,783,265
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- --------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.95 $8.80 $9.26 $8.78
- --------------------------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------------------------
Net investment income .46 .48 .52 .53 .54
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 (.19) .15 (.35) .48
- --------------------------------------------------------------------------------------------------------------------
Total from
investment operations .69 .29 .67 .18 1.02
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------
From net
investment income (.46) (.48) (.51) (.52) (.54)
- --------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.01) (.12) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (.46) (.48) (.52) (.64) (.54)
- --------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.99 $8.76 $8.95 $8.80 $9.26
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.05 3.30 8.04 1.88 11.94
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $185,030 $186,633 $193,176 $194,130 $177,879
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .96 .93 .99 1.04
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.22 5.39 5.97 5.68 5.90
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.92 33.23 66.29 44.45 21.57
- --------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts. (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------
For the period
Per-share July 15, 1993+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.75 $8.94 $8.79 $9.37
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .41 .42 .46 .40
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .22 (.19) .16 (.46)
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations .63 .23 .62 (.06)
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.42) (.46) (.40)
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.01) (.12)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.40) (.42) (.47) (.52)
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.98 $8.75 $8.94 $8.79
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.35 2.63 7.39 (1.49)*
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $47,050 $41,655 $32,847 $17,959
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.63 1.61 1.58 1.42 *
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.56 4.71 5.24 4.35 *
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.92 33.23 66.29 44.45
- ------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts. (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------
For the period
Per-share April 3, 1995+
operating performance Year ended May 31 to May 31
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.95 $8.76
- ---------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------
Net investment income .44 .45 .08
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 (.18) .19
- ---------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 .27 .27
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.46) (.08)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (.43) (.46) (.08)
- ---------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.00 $8.76 $8.95
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.85 3.00 3.05 *
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $911 $495 $1
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.28 1.27 .20 *
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.87 4.85 .89 *
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.92 33.23 66.29
- ---------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts. (Note 2).
</TABLE>
Notes to financial statements
May 31, 1997
Note 1
Significant accounting policies
Putnam Ohio Tax Exempt Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax and 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 in conformity with generally accepted
accounting principles 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At May 31, 1997, the fund had a capital loss carryover of approximately
$1,216,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
------------------------------------
$825,000 May 31, 2003
$391,000 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 at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles.
These differences include treatment of market discount, capital loss
carryovers and realized and unrealized gains and 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, 1997, the fund reclassified $28,188 to increase
undistributed net investment income and $350 to increase paid-in-capital, with
an increase to accumulated net realized loss on investments of $28,538. The
calculation of net investment income per share in the financial highlights
table excludes these adjustments.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds,
original issue discount and stepped-coupon bonds are accreted according to the
effective yield method.
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
average net assets, 0.50% of the next $500 million, 0.45% of the next $500
million, 0.40% of the next $5 billion, 0.375% of the next 5 billion, 0.355% of
the next $5 billion, 0.340% of the next $5 billion and 0.33% of any excess
thereafter. Prior to September 20, 1996, any amount over $1.5 billion was
based on 0.40%.
As part of the custodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., 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, 1997, the payable to the subcustodian bank
represents the amount due for cash advance for the settlement of a security
purchased.
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.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended May 31, 1997, fund expenses were reduced by $102,879 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.
Trustees of the fund receive an annual Trustees fee of $450 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 has 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 in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $21,347 and $321 from the sale of
class A and class M shares, respectively and $152,734 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, 1997, Putnam Mutual Funds Corp., acting as underwriter received
no monies on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $78,439,981 and
$76,875,643, respectively. There were no purchases and sales of U.S.
government obligations. 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,198,774 $10,700,758
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 689,750 6,142,339
- ------------------------------------------------------------
1,888,524 16,843,097
Shares
repurchased (2,622,181) (23,383,041)
- ------------------------------------------------------------
Net decrease (733,657) $(6,539,944)
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,664,704 $14,921,281
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 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, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,305,642 $11,620,146
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 131,755 1,171,868
- ------------------------------------------------------------
1,437,397 12,792,014
Shares
repurchased (961,610) (8,580,550)
- ------------------------------------------------------------
Net increase 475,787 $4,211,464
- ------------------------------------------------------------
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, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 44,589 $393,371
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,895 25,792
- ------------------------------------------------------------
47,484 419,163
Shares
repurchased (2,815) (25,312)
- ------------------------------------------------------------
Net increase 44,669 $393,851
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 99.4% 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 1998 will show the tax
status of all distributions paid to your account in calender 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGERS]
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
International Growth and Income Fund
New Value Fund
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 [SECTION MARK]
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.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
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 [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGERS] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to
maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
[2 DBL. DAGGERS] 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.
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
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
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Howard K. Manning
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
34416-848/240/130 7/97
