Putnam
Ohio
Tax Exempt
Income Fund
ANNUAL REPORT
May 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Your fund continues to deliver the result it set out to achieve: a
reliable stream of income exempt from federal and state income taxes
along with relatively low share price volatility."
-- Jerome J. Jacobs, manager
Putnam Ohio Tax Exempt Income Fund
* "Municipals are one of the few cheap sectors of the bond market."
-- BusinessWeek, June 15, 1998
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:
Analyzing risk premiums, yield spreads, call dates, yield curves, credit
ratings, supply-and-demand dynamics, taxable versus tax-exempt yield
relationships, and a host of other factors is all in a day's work for Putnam's
Tax-Exempt Bond Group. The result was another period of competitive
performance for Putnam Ohio Tax Exempt Income Fund's fiscal year that closed
on May 31, 1998.
I am pleased to inform you that Jerome J. Jacobs has been named the manager of
your fund. Jerry, who joined Putnam in 1996, is also chief investment officer
of the Tax-Exempt Fixed-Income Group. He was previously with the Vanguard
Group of Investment Companies and Butcher and Singer and has 18 years of
investment experience.
In the following report, Jerry discusses the fund's performance during fiscal
1998 and then takes a look at prospects for the tax-exempt market, especially
with regard to Ohio, in the months ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 15, 1998
Report from the Fund Manager
Jerome J. Jacobs
Municipal bond securities are in the midst of a renaissance. With yields
currently equal to about 90% of the yields on long-term Treasuries, tax-free
securities offer some of the best values in today's fixed-income markets.
Furthermore, they are attracting an increasing number of investors who are
concerned by the current volatility in the world's stock markets. This
heightened interest is driving tax-exempt prices up in spite of record levels
of new issuance.
Putnam Ohio Tax Exempt Income Fund made the most of this environment, ending
its fiscal year on May 31, 1998, with a total return of 8.35% at net asset
value for class A shares (3.18% at public offering price). Performance for
other shares and over longer periods is detailed beginning on page 9.
* HISTORIC VALUE IN MUNICIPAL MARKET
Interest rates generally trended down during the period with the bellwether
30-year Treasury bond falling to below 6% in December. The fixed-income market
sold off sharply late in April, when the Federal Reserve Board suggested the
possibility of raising short-term interest rates in the coming months. While
the situation in Asia is widely expected to have a slowing effect on the pace
of the U.S. economy, the jobless rate has reached a 28-year low, the reason
behind the Fed's contemplation of an interest-rate increase to defuse the
potential for higher wages and prices.
By the close of the fund's fiscal year, however, the Fed had refrained from
taking any action. Interest rates remain lower than they would normally be
expected to be at this point in the economic cycle. A flight to quality by
foreign investors, who are buying U.S. Treasuries to avoid the turmoil in the
Pacific Rim, is helping to keep interest rates (and thus bond yields) lower --
doing much of the Fed's work for it.
Despite the relative calm that has fallen over the $1.3 trillion municipal
bond market, prices on tax-exempt securities have become especially attractive
relative to Treasury securities, a condition that hasn't existed since the
flat-tax scare of 1996. Municipal bonds (as represented by 30-year insured
municipals) are offering almost 90% of the yields of long-term Treasury bonds.
A more normal level is 84%.
In this quieter field, well-valued opportunities are increasingly difficult to
find, but your fund continues to deliver the result it set out to achieve: a
reliable stream of income exempt from federal and state income taxes along
with relatively low share price volatility.
So far, 1998 has been most notable for the huge supply of municipal bonds
coming to market, including the sale of the largest municipal bond issuance in
history -- $3.4 billion by the Long Island Power Authority. At its peak in
March, overall issuance was running approximately 90% above the supply brought
to market by this time last year. Bargain prices have maintained investors'
interest and enabled demand to keep pace with supply.
* ACTIVE RESEARCH UNCOVERS WINNING CREDITS
Careful security selection and in-depth credit analysis are fundamental to the
fund's investment strategy, particularly as we attempt to discover better
value in bonds that carry ratings below investment grade. These are the bonds
that can add tremendously to the fund's income level. But they also mean
greater credit risk and require the most meticulous research efforts. The
fund's health-care holdings, at 22.3% of net assets, remain a significant
weighting.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 22.3%
Housing 12.1%
Education 12.1%
Transportation 9.9%
Water and sewer 6.9%
Footnote reads:
* Based on net assets as of 5/31/98. Holdings will vary over time.
In today's low interest-rate environment, we are drawn to the above-market
yields offered by hospital bonds rated Baa or higher within the
investment-grade universe. Overall our outlook on the health-care sector
remains favorable. Balance sheets are solid, resulting in what we believe will
be far more credit rating upgrades than downgrades. Despite a reduction in
Medicare payments mandated by the federal Balanced Budget Act of 1997, states
are managing to cover the shortfall with income from higher tax receipts
rather than by terminating programs. Community Hospital of Bedford and
Hamilton County Health Systems exemplify our strategy here. While these
holdings, along with others discussed in this report, were viewed favorably at
the end of the fiscal period, all are subject to review and adjustment in
accordance with the fund's investment strategy and may vary in the future.
* PREREFUNDINGS CONTINUE TO ENHANCE FUND PERFORMANCE
Over the fiscal year, prerefundings continued to make a healthy contribution
to your fund's performance and portfolio quality. A prerefunding occurs when
inflation and interest rates are low enough to encourage a municipality to
refinance its higher-interest bonds. This is accomplished by issuing enough
new bonds to pay off the original issues at the first call date or maturity.
Proceeds from the new issue in an amount sufficient to pay off the entire
original issue are invested in an escrow fund made up of U.S. government
obligations. Because of the safety of principal represented by the government
securities, the older bonds generally are considered to have the quality of
Aaa-rated bonds once the escrow fund is established. Upgrades by the rating
agencies will typically follow.
[GRAPHIC OMITTED: pie chart of CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
VMIGI -- 2.6%
Baa/BBB -- 19.1%
Ba/BB -- 9.2%
Aaa -- 56.7%
Aa -- 6.4%
A -- 6.0%
Footnote reads:
* As a percentage of market value as of 5/31/98. 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 way of providing shareholders with the best value is to improve the
call risk within the fund. With interest rates hovering around a 20-year low,
budget-minded issuers continue to call in their higher-yielding bonds, many of
which were issued during the late 1980s and early 1990s, and issue new bonds
at today's lower rates. Thus, investing in noncallable bonds and bonds with
distant call dates improves the fund's prospects of maintaining a competitive,
sustainable level of income.
Investing in Ohio's housing market remains attractive. The solid economy and
strong real estate markets are reducing delinquency rates and foreclosure
losses of single family housing. Given the relatively low interest rates on
mortgages for new issue single family bonds, the likelihood of prepayment is
considerably less than with older, higher interest bearing issues.
Supply-and-demand dynamics remain favorable, despite an increase in single
family issuance -- the result of higher demand for mortgages with today's
lower interest rates.
* CHALLENGING MARKET WARRANTS VIGILANCE AND CAUTIOUS OPPORTUNISM
Concern over continuing financial turmoil in Asia and other emerging markets
should keep U.S. interest rates low for the foreseeable future. Eventually the
good times may give way to slightly higher inflation, and so we currently plan
to continue to manage the portfolio with a conservative mindset. In our
opinion, this is not a good time to expose the portfolio to bonds with longer
maturities and higher interest-rate risk. We continue to believe that a
cautious strategy will produce the best returns in the months ahead.
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 5/31/98, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance,
which should always be considered in light of its investment
strategy. Putnam Ohio Tax Exempt Income Fund is designed for
investors seeking high current income free from federal and state
taxes consistent with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 5/31/98
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 8.35% 3.18% 7.65% 2.65% 7.90% 4.42%
- ------------------------------------------------------------------------
5 years 32.76 26.47 28.27 26.27 30.83 26.62
Annual average 5.83 4.81 5.11 4.78 5.52 4.83
- ------------------------------------------------------------------------
Life of fund 83.07 74.45 71.64 71.64 77.20 71.49
Annual average 7.28 6.68 6.48 6.48 6.88 6.47
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/98
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
1 year 9.39% 1.69%
- ------------------------------------------------------------------------
5 years 38.53 12.90
Annual average 6.74 2.46
- ------------------------------------------------------------------------
Life of fund 96.00 29.62
Annual average 8.16 3.07
- ------------------------------------------------------------------------
Past performance is not indicative of future results. Returns for
class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share
returns for the 1-, 5-, and 10-year (where available) and
life-of-fund periods reflect the applicable contingent deferred
sales charge (CDSC), which is 5% in the first year, declines 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 expenses applicable to such shares.
All returns assume reinvestment of distributions at NAV. 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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of
a $10,000 investment since
10/23/89
Plot Points
Lehman Bros. Fund's class A
Municipal Bond Consumer Price shares at
Date Index Index POP
10/23/89 10,000 10,000 9,529
5/31/90 10,453 10,287 9,814
5/31/91 11,506 10,796 10,706
5/31/92 12,636 11,122 11,739
5/31/93 14,149 11,480 13,141
5/31/94 14,241 11,727 13,387
5/31/95 15,542 12,101 14,464
5/31/96 16,253 12,451 14,941
5/31/97 17,600 12,728 16,144
5/31/98 19,600 12,962 17,445
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 $17,164 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$17,720 ($17,149 at public offering price). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/98
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.465697 $0.405188 $0.438006
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Capital gains1 -- -- --
- ------------------------------------------------------------------------
Total $0.465697 $0.405188 $0.438006
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/97 $8.99 $9.44 $8.98 $9.00 $9.30
- ------------------------------------------------------------------------
5/31/98 9.26 9.72 9.25 9.26 9.57
- ------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------
Current dividend rate2 5.10% 4.86% 4.45% 4.80% 4.64%
- ------------------------------------------------------------------------
Taxable equivalent3 9.10 8.67 7.94 8.56 8.28
- ------------------------------------------------------------------------
Current 30-day
SEC yield4 5.06 4.82 4.41 4.78 4.63
- ------------------------------------------------------------------------
Taxable equivalent3 9.03 8.60 7.87 8.53 8.26
- ------------------------------------------------------------------------
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 43.95% combined federal and state 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 6/30/98
(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 7.37% 2.28% 6.68% 1.68% 7.05% 3.62%
- ------------------------------------------------------------------------
5 years 31.11 24.85 26.75 24.78 29.20 24.93
Annual average 5.57 4.54 4.86 4.53 5.26 4.55
- ------------------------------------------------------------------------
Life of fund 83.40 74.77 71.87 71.87 77.48 71.76
Annual average 7.24 6.64 6.44 6.44 6.83 6.43
- ------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for rates
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. See first
page of performance section for performance calculation method.
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 4.75% maximum 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, 1998
To the Trustees and Shareholders of
Putnam Ohio Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam Ohio Tax Exempt Income Fund (the "fund") at May 31, 1998,
and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31, 1998
by correspondence with the custodian and the application of alternative
auditing procedures where investments purchased were not yet received by the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 15, 1998
Portfolio of investments owned
May 31, 1998
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
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
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (101.8%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
Ohio (90.2%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
$ 1,000,000 Akron, G.O. Bonds, 6s, 12/1/12 AA- $ 1,120,000
875,000 Akron, Econ. Dev. Rev. Bonds, MBIA, 6s, 12/1/13 Aaa 988,750
100,000 Akron-Wilbeth, Hsg. Dev. Corp. 1st Mtge.
Rev. Bonds, FHA Insd., 7.9s, 8/1/03 A 116,125
1,805,000 Bedford, Hosp. Impt. Rev. Bonds
(Bedford Cmnty. Hosp. Inc.), 8 1/2s, 5/15/09 AAA/P 1,956,169
1,500,000 Brecksville-Broadview Heights, City School Dist.
G.O. Bonds, FGIC, 6 1/2s, 12/1/16 Aaa 1,702,500
5,000,000 Butler Cnty., Hosp. Impt. Rev. Bonds
(Fort Hamilton-Hughes), 7 1/2s, 1/1/10 Baa3 5,481,250
1,250,000 Cincinnati, Student Loan Funding Corp. Rev.
Bonds, Ser. B, 8 7/8s, 8/1/08 BBB/P 1,325,000
5,000,000 Cleveland, Arpt. Rev. Bonds
(Continental Airlines, Inc.), 5 3/8s, 9/15/27 Ba2 4,843,750
Cleveland, City School Dist. G.O. Bonds
900,000 9s, 12/1/08 Aaa 940,959
2,500,000 8 1/4s, 12/1/08 Aaa 2,887,500
1,000,000 AMBAC, 7.35s, 12/1/08 Aaa 1,037,750
1,350,000 Cleveland-Cuyahoga Cnty., Port Auth. Rev. Bonds
(Rock & Roll Hall of Fame), 5.2s, 12/1/03 BBB-/P 1,387,125
Cleveland, G.O. Bonds
1,255,000 MBIA, 5 3/4s, 8/1/15 Aaa 1,378,931
1,000,000 MBIA, 5 3/4s, 8/1/14 Aaa 1,097,500
2,000,000 MBIA, 5 3/4s, 8/1/11 Aaa 2,207,500
2,500,000 Cleveland, Pkg. Fac. Impt. Rev. Bonds, 8s, 9/15/12 BB/P 2,915,625
Cleveland Urban Renewal Increment Rev. Bonds
(Rock & Roll Hall of Fame)
1,900,000 6 3/4s, 3/15/18 BBB-/P 2,035,375
2,000,000 6 5/8s, 3/15/11 BBB-/P 2,140,000
Cleveland, Waterworks 1st Mtge. Rev. Bonds
2,000,000 Ser. F-92A, AMBAC, 6 1/2s, 1/1/21 Aaa 2,192,500
7,950,000 Ser. G, MBIA, 5 1/2s, 1/1/13 Aaa 8,605,875
1,000,000 Clyde, Elec. Syst. Mtge. Rev. Bonds,
Ser. B, 8 3/8s, 11/15/14 BB+/P 1,028,320
5,050,000 Cuyahoga Cnty., Hosp. Rev. Bonds
(Cleveland-Fairview Gen. Hosp. &
Lutheran Med. Ctr.), MBIA, 6 1/4s, 8/15/10 Aaa 5,498,188
4,500,000 Dayton, Fac. Rev Bonds (Emery Air Freight),
Ser. A, 5 5/8s, 2/1/18 BBB 4,618,125
1,300,000 Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 Aa 1,519,375
2,000,000 Evendale, Indl. Dev. VRDN (Real Estate Inc.),
3.7s, 9/1/15 P-1 2,000,000
1,300,000 Franklin Cnty., Convention Fac. Auth. Tax &
Lease RAN,, MBIA, 7s, 12/1/19 Aaa 1,417,000
Franklin Cnty., Hlth. Care Fac. Rev. Bonds
2,480,000 (Holy Cross Hlth. Syst.), 5 7/8s, 6/1/21 Aa3 2,641,200
1,750,000 (Friendship Dublin), 5 5/8s, 11/1/22 BBB+/P 1,758,750
1,500,000 (OH Presbyterian Svcs.), 5 1/2s, 7/1/21 BBB-/P 1,475,625
700,000 Hamilton Cnty., Elec. Syst. Mtge. Rev. Bonds,
Ser. B, FGIC, 8s, 10/15/22 Aaa 724,808
2,750,000 Hamilton Cnty., Hlth. Syst. Rev. Bonds
(Providence Hosp.), 6 7/8s, 7/1/15 Baa1 2,956,250
5,000,000 Hamilton Cnty., Sales Tax Rev. Bonds
(Hamilton Cnty. Football), Ser. B, MBIA,
5s, 12/1/27 Aaa 4,887,500
1,800,000 Huran Cnty., Human Svcs. Rev. Bonds, MBIA,
6.55s, 12/1/20 Aaa 2,180,250
1,320,000 Kirtland G.O. Bonds, AMBAC, 7 1/2s, 12/1/16 Aaa 1,478,400
352,524 Lake Cnty. Indl. Dev. Rev. Bonds
(Madison Inn Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 372,576
1,000,000 Lakota, Local School Dist. Rev. Bonds,
AMBAC, 7s, 12/1/10 Aaa 1,225,000
808,881 Logan Cnty., Indl. Dev. Rev. Bonds
(Indian Lake Hlth.), FHA Insd., 12s, 3/15/14 AAA/P 882,911
1,910,000 Lorain Cnty., Elderly Hsg. Corp. Multi-Fam.
Rev. Bonds (Harr Plaza & Intl.), Ser. A, 6 3/8s,
7/15/19 A 1,995,950
Lorain Cnty., Fac. Rev. Bonds (Laurel Lake)
1,500,000 7.3s, 12/15/14 BB-/P 1,633,125
1,750,000 7 1/8s, 12/15/18 BB-/P 1,892,188
5,325,000 Lorain Cnty., Hosp. Rev. Bonds (EMH Regl.
Med. Ctr.), AMBAC, 7 3/4s, 11/1/13 Aaa 6,416,625
3,100,000 Lucas Cnty., Indl. Dev. Rev. Bonds (Kroger Co.),
8 1/2s, 7/1/11 Baa3 3,522,375
1,000,000 Lucas Cnty., Hlth. Fac. VRDN (Lutheran
Homes Society), 3.9s, 11/1/19 A-1+ 1,000,000
Marion Cnty., Hlth. Care Fac. Rev. Bonds
(United Church Homes)
460,000 8 7/8s, 12/1/12 AAA/P 506,000
4,000,000 6 3/8s, 11/15/10 BBB- 4,265,000
2,000,000 6.3s, 11/15/15 BBB- 2,105,000
1,205,000 Massillon Rev. Bonds (Lincoln Ctr. Phase II),
AMBAC, 6.95s, 12/1/10 Aaa 1,470,100
2,700,000 Miami, Cnty., Hosp. Fac. Rev. Bonds
(Upper Valley Med. Ctr.),
Ser. A, 6 3/8s, 5/15/26 Baa2 2,902,500
Montgomery Cnty., Hlth. Syst. Rev. Bonds
280,000 Ser. B-1, 8.1s, 7/1/18 A2 338,800
1,720,000 Prerefunded, Ser. B-1, 8.1s, 7/1/18 Aaa 2,186,550
580,000 Montgomery Cnty., Hosp. Rev. Bonds
(Grandview Hosp. & Med Ctr.), 5.6s, 12/1/11 BBB 595,950
2,605,000 Mount Vernon, Hosp. Rev. Bonds
(Knox Cmnty. Hosp.), 7 7/8s, 6/1/12 BBB+/P 2,674,736
3,000,000 North Olmsted, G.O. Bonds, AMBAC, 6.2s,
12/1/11 Aaa 3,450,000
835,000 Northwestern, School Dist. Rev. Bonds
(Wayne & Ashland Cntys. School Impt.),
FGIC, 7.2s, 12/1/10 Aaa 1,038,531
OH State Air Qlty. Dev. Auth. Rev. Bonds
(Poll. Control)
5,000,000 Ser. B, 6s, 8/1/20 Ba1 5,181,250
2,500,000 Ser. A, 5.95s, 5/15/29 Baa2 2,587,500
OH State Econ. Dev. Rev. Bonds
1,435,000 (Sponge, Inc.), Ser. 5-A, 8 3/8s, 6/1/14 A- 1,516,953
620,000 (Superior Forge & Steel Corp.),
Ser. 3, 7 5/8s, 6/1/11 A- 682,000
5,750,000 OH State Ed. Rev. Bonds, Ser. A-1, AMBAC,
5.85s, 12/1/19 Aaa 6,044,688
OH Hsg. Fin. Agcy. Mtge. Rev. Bonds
6,160,000 Ser. 25, 8.05s, 3/1/29
(acquired 9/24/97, cost $6,881,610) (RES) AAA 6,937,700
3,000,000 Ser. A, GNMA Coll., 6.05s, 9/1/17 AAA 3,195,000
2,635,000 OH Hsg. Fin. Agcy. Rev. Bonds, Ser. B, GNMA,
5 5/8s, 9/1/17 AAA 2,697,581
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
500,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 AAA 531,875
285,000 Ser. 85-A, FGIC, zero %, 1/15/15 Aaa 55,931
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
5,250,000 Ser. G-2, GNMA Coll., 10.092s, 3/2/23 Aaa 6,490,313
5,164,000 Ser. A-2, GNMA Coll., 9.679s, 3/24/31 Aaa 5,861,140
OH State Higher Ed. Fac. Rev. Bonds
(Case Western Reserve U.)
4,500,000 6 1/4s, 10/1/18 Aa 5,293,125
1,000,000 6s, 10/1/14 Aa 1,122,500
1,800,000 OH State Indl. Dev. Auth. Rev. Bonds (Kroger Co.),
8.65s, 6/1/11 Baa3 2,047,500
3,350,000 OH State Poll. Control Rev. Bonds
(Standard Oil Co.), 6 3/4s, 12/1/15 Aa2 4,116,313
1,250,000 OH State Wtr. Dev. Auth. Poll. Control Fac. Rev.
Bonds (Cleveland Elec. Illuminating), 8s, 10/1/23 Ba1 1,293,750
OH State Wtr. Dev. Auth. Solid Waste Disp.
Rev. Bonds
5,700,000 (North Star Broken Hill Steel), 6.45s, 9/1/20 A2 6,205,875
2,500,000 (Bay Shore Power Co.), Ser. A, 5 7/8s, 9/1/20 BB-/P 2,537,500
2,275,000 Orrville, Elec. Syst. Mtge. Rev. Bonds, Ser. A,
AMBAC, 7 1/2s, 12/1/10 Aaa 2,360,131
1,000,000 Oxford, Wtr. Supply Syst. Mtge. Rev. Bonds,
AMBAC, 7 5/8s, 12/1/14 Aaa 1,039,090
Sandusky Cnty., Hosp. Fac., Rev. Bonds
(Memorial Hosp.)
830,000 5.15s, 1/1/10 BBB- 811,325
500,000 5.15s, 1/1/08 BBB- 498,750
685,000 5.05s, 1/1/07 BBB- 680,719
2,600,000 Southwest, Local School Dist. G.O. Bonds
(Hamilton Cnty.), AMBAC, 7.65s, 12/1/10 Aaa 2,814,500
2,260,000 Sprigboro Cmnty., City School Dist. G.O. Bonds,
AMBAC, 6s, 12/1/11 Aaa 2,553,800
2,925,000 Toledo Swr. Syst. Mtge. Rev. Bonds, AMBAC,
6.2s, 11/15/12 (SEG) Aaa 3,393,000
1,175,000 Toledo Waterworks Mtge. Rev. Bonds, AMBAC,
6.2s, 11/15/12 Aaa 1,363,000
1,500,000 Toledo, G.O. Bonds (Macys), Ser. A, MBIA, 6.35s,
12/1/25 Aaa 1,670,625
3,200,000 Toledo-Lucas Cnty., Rev. Bond
(Lodging Tax-Convention Ctr.) MBIA, 5.7s,
10/1/15 (SEG) Aaa 3,376,000
1,100,000 Tuscarawas Cnty., Hosp. Fac. Rev. Bonds
(Union Hosp.), Ser. A, 6 1/2s, 10/1/21 Baa3 1,181,125
1,000,000 Twin Valley, Cmnty. Local School Dist. Rev. Bonds,
FGIC, 7.05s, 12/1/11 Aaa 1,236,250
1,200,000 Washington Cnty., Hlth. Care Fac. Rev. Bonds
(Glenwood Retirement Cmnty.), 6.35s, 10/1/27 BB-/P 1,219,500
Westerville, City School Dist. Rev. Bonds
(School Impt.)
1,610,000 6 1/4s, 12/1/09 A+ 1,855,525
1,590,000 6 1/4s, 12/1/08 A+ 1,822,538
3,000,000 Woodridge, School Dist. Rev. Bonds, AMBAC,
6.8s, 12/1/14 Aaa 3,652,500
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
FHA Insd.
220,000 7 3/8s, 10/1/21 Aaa 282,150
205,000 7 3/8s, 10/1/20 Aaa 265,731
185,000 7 3/8s, 10/1/19 Aaa 237,031
180,000 7 3/8s, 10/1/18 Aaa 229,500
160,000 7 3/8s, 10/1/17 Aaa 204,400
155,000 7 3/8s, 10/1/16 Aaa 196,656
--------------
218,360,232
Puerto Rico (11.6%)
- -------------------------------------------------------------------------------------------------------------
2,500,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN,
3.8s, 12/1/15 VMIG1 2,500,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Z, MBIA, 6 1/4s, 7/1/15 Aaa 1,167,500
4,000,000 Ser. W, MBIA, 5 1/2s, 7/1/15 Aaa 4,325,000
1,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN,
Ser. X, 3.75s, 7/1/99 VMIG1 1,000,000
1,350,000 Cmnwlth. of PR, Hwy. Auth. Rev. Bonds,
Ser. Q, 7 3/4s, 7/1/16 AAA 1,479,935
3,600,000 Cmnwlth. of PR, Impt. G.O. Bonds, 7.7s, 7/1/20 AAA 3,942,000
4,180,000 Cmnwlth of PR, Muni. Fin. Agcy. Rev. Bonds,
Ser. A, FSA, 6s, 7/1/11 Aaa 4,733,850
Cmnwlth. of PR, Pub. Bldg. Auth. Fac. Rev.
Bonds, Ser. A
1,100,000 AMBAC, 6 1/4s, 7/1/15 Aaa 1,284,250
1,440,000 AMBAC, 6 1/4s, 7/1/12 Aaa 1,672,200
3,875,000 6 1/4s, 7/1/11 Aaa 4,480,469
1,400,000 Cmnwlth. of PR, Tel. Auth. IFB, MBIA,
6.915s, 1/16/15 Aaa 1,498,000
--------------
28,083,204
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $233,075,250) (b) $ 246,443,436
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $242,031,564.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1998 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, 1998. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings
are not covered by the Report of independent accountants.
(b) The aggregate identified cost on a tax basis is $233,075,399, resulting in gross unrealized appreciation
and depreciation of $13,896,566 and $528,529, respectively, or net unrealized appreciation of $13,368,037.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted
securities held at May 31, 1998 was $6,937,700 or 2.9% of net assets.
(SEG) A portion of these securities were pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1998.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the
market interest rates, and VRDN's are the current interest rates at May 31, 1998.
The fund had the following industry group concentrations greater than 10% at May 31, 1998
(as a percentage of net assets):
Health care 22.3%
Housing 12.1
Education 12.1
The fund had the following insurance concentrations greater than 10% at May 31, 1998
(as a percentage of net assets):
AMBAC 18.0%
MBIA 16.7
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1998
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Muni Index (long) $ 6,451,250 $ 6,272,063 Jun-98 $ 179,187
U.S. Treasury Bond (short) 23,856,875 23,609,813 Jun-98 (247,062)
- --------------------------------------------------------------------------------------------
$ (67,875)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1998
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $233,075,250) (Note 1) $246,443,436
- ---------------------------------------------------------------------------------------------------
Cash 1,515,830
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 4,531,930
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 264,205
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 150,000
- ---------------------------------------------------------------------------------------------------
Total assets 252,905,401
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 39,250
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 610,222
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 9,365,056
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 323,004
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 362,370
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 42,520
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,110
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,031
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 101,951
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 20,323
- ---------------------------------------------------------------------------------------------------
Total liabilities 10,873,837
- ---------------------------------------------------------------------------------------------------
Net assets $242,031,564
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $228,300,726
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 330,039
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments (Note 1) 100,488
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 13,300,311
- ---------------------------------------------------------------------------------------------------
Total-- Representing net assets applicable to
capital shares outstanding $242,031,564
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($186,130,472 divided by 20,105,201 shares) $9.26
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.26)* $9.72
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($53,688,760 divided by 5,806,910 shares)+ $9.25
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,212,332 divided by 239,002 shares) $9.26
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.26)** $9.57
- ---------------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Tax exempt interest income: $14,306,123
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,426,828
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 316,177
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 9,581
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,288
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 370,515
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 433,719
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 7,642
- --------------------------------------------------------------------------------------------------
Reports to shareholders 16,401
- --------------------------------------------------------------------------------------------------
Registration fees 655
- --------------------------------------------------------------------------------------------------
Auditing 28,979
- --------------------------------------------------------------------------------------------------
Legal 21,781
- --------------------------------------------------------------------------------------------------
Postage 15,541
- --------------------------------------------------------------------------------------------------
Other 10,807
- --------------------------------------------------------------------------------------------------
Total expenses 2,664,914
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (56,513)
- --------------------------------------------------------------------------------------------------
Net expenses 2,608,401
- --------------------------------------------------------------------------------------------------
Net investment income 11,697,722
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,416,481
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1)) (1,535,328)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 4,904,395
- --------------------------------------------------------------------------------------------------
Net gain on investments 6,785,548
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $18,483,270
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
--------------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 11,697,722 $ 11,849,465
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 1,881,153 1,845,011
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,904,395 4,190,338
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 18,483,270 17,884,814
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,347,168) (9,691,029)
- ----------------------------------------------------------------------------------------------------------------------
Class B (2,242,174) (2,018,939)
- ----------------------------------------------------------------------------------------------------------------------
Class M (72,254) (32,971)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 2,219,379 (1,934,629)
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 9,041,053 4,207,246
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 232,990,511 228,783,265
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $330,039 and $210,370, respectively) $242,031,564 $232,990,511
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.99 $8.76 $8.95 $8.80 $9.26
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .46 .48 .52 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .23 (.19) .15 (.35)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .74 .69 .29 .67 .18
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.46) (.48) (.51) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.01) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.46) (.48) (.52) (.64)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.26 $8.99 $8.76 $8.95 $8.80
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.35 8.05 3.30 8.04 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $186,130 $185,030 $186,633 $193,176 $194,130
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .98 .98 .96 .93 .99
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.06 5.22 5.39 5.97 5.68
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.07 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 B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 15, 1993+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.98 $8.75 $8.94 $8.79 $9.37
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .41 .42 .46 .40
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .22 (.19) .16 (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .68 .63 .23 .62 (.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.40) (.42) (.46) (.40)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.01) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.40) (.42) (.47) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.25 $8.98 $8.75 $8.94 $8.79
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.65 7.35 2.63 7.39 (1.49)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $53,689 $47,050 $41,655 $32,847 $17,959
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.63 1.63 1.61 1.58 1.42*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.40 4.56 4.71 5.24 4.35*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.07 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.00 $8.76 $8.95 $8.76
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .43 .44 .45 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .23 (.18) .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .70 .67 .27 .27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.44) (.43) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.43) (.46) (.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.26 $9.00 $8.76 $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.90 7.85 3.00 3.05*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,212 $911 $495 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.28 1.28 1.27 .20*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.76 4.87 4.85 .89*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.07 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 31,1998
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 within approximately six to 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 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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended May 31, 1998, the fund had
no borrowings against the line of credit.
E) Federal taxes It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is also
the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, 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.
F) 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,
dividends payable and realized and unrealized gains and losses on certain
future 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, 1998, the fund reclassified $83,543 to increase
undistributed net investment income and $11,740 to decrease paid-in-capital,
with a decrease to accumulated net realized gain on investments of $71,803.
The calculation of net investment income per share in the financial highlights
table excludes these adjustments.
G) 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, stepped-coupon bonds and payment in kind bonds are
accreted according to the yield to maturity basis.
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, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
the next $5 billion, 0.340% of the next $5 billion and 0.33% thereafter.
The fund reimburses Putnam Management an allocated amount 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 Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended May 31, 1998, fund expenses were reduced by $56,513 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.
Each Trustee of the fund receives an annual Trustee fee, of which $370 has
been allocated to the fund, 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 "Deferral 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
Deferral 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 currently limit payment by the fund to 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, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $26,000 and $82 from the sale of class
A and class M shares, respectively and $105,570 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 31,1998, 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, 1998, purchases and sales of investment
securities other than short-term investments aggregated $75,262,365 and
$73,518,026 , 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, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,819,091 $ 16,761,794
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distribution 634,747 5,836,587
- ------------------------------------------------------------
2,453,838 22,598,381
Shares
repurchased (2,920,272) (26,871,144)
- ------------------------------------------------------------
Net decrease (466,434) $ (4,272,763)
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,198,774 $ 10,700,758
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distribution 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, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,246,389 11,440,556
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 140,190 1,287,791
- ------------------------------------------------------------
1,386,579 12,728,347
Shares
repurchased (817,447) (7,507,988)
- ------------------------------------------------------------
Net increase 569,132 $ 5,220,359
- ------------------------------------------------------------
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, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 141,914 $1,309,414
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,675 52,317
- ------------------------------------------------------------
147,589 1,361,731
Shares
repurchased (9,784) (89,948)
- ------------------------------------------------------------
Net increase 137,805 $1,271,783
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 99.5% of dividends paid from net investment income
during the fiscal year as tax exempt for Federal income tax purposes.
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $1,893,930 all of which is 20% capital gain, for its taxable
year ended May 31, 1998.
The Form 1099 you receive in January 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research 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
Global Growth and Income Fund
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
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM 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
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**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.
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President and Fund Manager
Blake E. Anderson
Vice President
William N. Shiebler
Vice President
John R. Verani
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN053-43817 848/240/130 7/98
