Putnam
Ohio
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We embark upon this new era of Putnam's rich heritage with confidence
and we look forward to the opportunity of continuing to help you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
REPORT FROM THE FUND MANAGER
Susan A. McCormack
Compared with the stock market's roller-coaster ride in recent months,
the municipal market has been far less harrowing for tax-conscious
investors. Moreover, Ohio's robust manufacturing, retailing, and service
economy has continued to provide a solid backdrop for municipal
investors. Unfortunately, steady interest-rate increases throughout the
annual period have put a damper on municipal bond performance. Municipal
bond funds have also had to contend with cash outflows, as the stock
market's previously attractive returns have lured away some municipal
investors. Putnam Ohio Tax Exempt Income Fund has met these challenges
with solid income-generating strategies and prudent total return
management.
Total return for 12 months ended 5/31/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
----------------------------------------------------
-2.72% -7.37% -3.37% -7.98% -3.02% -6.15%
----------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* MUNIS RETAIN VALUE AS TREASURIES STUMBLE AND STOCKS SELL OFF
When the stock market first began to exhibit weakness in early April,
fixed-income investments enjoyed price increases as nervous investors
flocked to bonds. The rise was short lived, however, as inflation
concerns and fears of continued interest-rate increases by the Federal
Reserve Board pushed down prices throughout the fixed-income market. The
good news is that municipal bond prices held up better than most other
fixed-income securities and continue to offer solid opportunity for
investors with tax considerations.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 18.3%
Transportation 10.4%
Education 9.1%
Water and sewer 7.6%
Housing 6.8%
Footnote reads:
*Based on net assets as of 5/31/00. Holdings will vary over time.
In fact, after wavering from a year of steady interest-rate increases,
the municipal bond market may slowly be approaching the point at which
the news gets better. It may not always appear to be a positive
attribute, but a responsible Fed that proactively seeks to contain
inflation is good news for bond investors. True, Fed policy and rising
interest rates have been the main reason for the choppy municipal bond
market this year, but if you look closely, you will notice that
municipal bond yields are actually not much higher and bond prices have
not gone much lower than they were in October 1999. Rather, the
short-term Treasury rates and mortgage interest rates have seen the
greatest movement.
It is difficult to know exactly when the economy will slow significantly
and interest rates will begin to fall, but we do know that the signs are
there: 30-year mortgage interest rates are over 8%, corporate bond rates
are approaching 9%, and the Nasdaq has been quite volatile. These three
statistics have historically correlated with a weakening economy, a
slowdown in consumer spending, and lower interest rates.
* SEEKING HIGHER INCOME AMID WIDENING CREDIT SPREADS
Your fund has continued to provide a high level of tax-exempt income
throughout the fiscal year. Total return performance suffered somewhat,
however, as credit spreads between investment-grade municipal bonds and
higher-yielding issues widened over the past several months. This
widening put price pressure on interest-rate-sensitive sectors of the
market such as airlines and hospitals, which are well represented in the
fund's portfolio.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 48.9%
Aa/AA -- 8.7%
A -- 9.5%
Baa/BBB -- 23.0%
Ba/BB -- 7.8%
VMIG1 -- 2.1%
Footnote reads:
*As a percentage of market value as of 5/31/00. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Continuing to extend the portfolio's duration was one effective way to
keep income strong over the period. As weakness in the bond market
persisted, we took advantage of falling bond prices to add some bonds
with higher yields and longer maturities, simultaneously selling bonds
in the intermediate-maturity range. Putnam has an experienced team of
credit analysts who add a great deal of value by enabling us to evaluate
those credits that are unrated by the major rating agencies. Their
expertise allows us to purchase securities whose current ratings may not
accurately reflect their performance potential, as well as undervalued
securities, with a higher degree of confidence.
For investors in Ohio's highest tax bracket, the fund's 5.27% 30-day SEC
yield for class A shares on May 31, 2000, was equivalent to a yield of
9.43% on a taxable investment.
See pages 6 and 7 for complete performance information.
During the period, we took advantage of recession-like credit spreads to
increase the fund's holdings of BBB/Baa-rated bonds. Normally a
BBB-rated bond yields just under a half percentage point more than a
AAA-rated bond, but now we are seeing a three-quarter-point difference
between the two bonds, an attractive yield difference that, in our view,
compensates investors for the somewhat higher risk inherent in a
BBB-rated bond. One noteworthy purchase the fund made in December
involved Baa2-rated bonds issued by the Toledo Lucas County Port
Authority for CSX Transportation to fund a new transfer station and iron
ore storage facility. Another was a position in Baa1-rated bonds issued
by Montgomery County for Kettering Medical Center to finance the
hospital's acquisition of two other hospitals, Grandview Hospital and
Southview Hospital. In both cases, the issuers are in solid financial
shape, the bonds pay excellent income, and the yields on the bonds were
more attractive than they would have been one year earlier. Both bonds
also offer solid price appreciation potential.
Fiscal policy? Monetary policy?
Fiscal policy refers to the federal government's use of spending and
taxation to control the economy. If the government raises taxes, people
will have less money to spend, therefore reducing demand. If the government
lowers taxes, people will be more inclined to spend money. The government
can also spend money to influence demand.
Monetary policy attempts to influence the economy by controlling the
money supply. Monetary policy is normally carried out by a central bank.
The central bank of the United States is the Federal Reserve. Monetary
policy can influence the economy by altering interest rates. By reducing
the supply of money, monetary policy can raise interest rates and
discourage lending. Decreased lending results in less investment and
less production.
Right now the Fed is implementing tighter monetary policy, and bond
funds, including municipal bonds, are not performing well. This is a
result of the inverse relationship of interest rates and bond prices.
Treasury bonds take the brunt of the impact when interest rates rise,
while municipal bonds (attracting only domestic investors) are somewhat
insulated but by no means exempt. Rising interest rates also affect the
supply of municipal bonds because cities and towns do not want to float
new bonds or refund outstanding bonds when interest rates are rising.
(First two paragraphs adapted from The Importance of Independence, by
David W. Gallivan.)
* POSITIONING FUND FOR WHAT LIES AHEAD
One of our goals in the past year, as rising interest rates caused bond
prices to decline, has been to create tax swaps. We have been realizing
capital losses by selling some securities purchased in previous years
when interest rates were lower. Then we have invested the proceeds in
higher yielding issues with comparable characteristics. The losses the
fund realizes on the sale of old securities will be available to offset
any future capital gains the fund may realize, which would otherwise be
taxable to shareholders. (Only the net investment income your fund earns
is tax exempt.)
Although the fund's overweight position in higher-yielding, lower-rated
bonds hurt performance when credit spreads widened so dramatically in
December and January, we continue to believe in the value of these
issues and in the performance potential of every bond in the portfolio.
Signs that the economy may be slowing are now emerging. If the change
takes hold and interest rates begin to drop, investors seeking higher
yields will likely push up demand for the kinds of bonds that form the
backbone of this portfolio. These higher-yielding bonds would then be
poised for solid price appreciation.
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 5/31/00, 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 a high
level of current income free from federal and Ohio state income tax
consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/00
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
----------------------------------------------------------------------
1 year -2.72% -7.37% -3.37% -7.98% -3.02% -6.15%
----------------------------------------------------------------------
5 years 21.08 15.28 17.20 15.35 19.28 15.41
Annual average 3.90 2.88 3.23 2.90 3.59 2.91
----------------------------------------------------------------------
10 years 78.44 69.94 65.91 65.91 72.23 66.60
Annual average 5.96 5.45 5.19 5.19 5.59 5.24
----------------------------------------------------------------------
Life of fund 83.78 75.13 70.00 70.00 76.80 71.09
Annual average 5.91 5.43 5.13 5.13 5.52 5.20
----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/00
Lehman Bros. Municipal Consumer
Bond Index price index
----------------------------------------------------------------------
1 year -0.86% 3.07%
----------------------------------------------------------------------
5 years 28.55 12.55
Annual average 5.15 2.39
----------------------------------------------------------------------
10 years 94.58 32.59
Annual average 6.88 2.86
----------------------------------------------------------------------
Life of fund 103.39 36.39
Annual average 6.94 2.98
----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-, 10-year 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 5/31/90
Lehman Bros.
Fund's class A Municipal Bond Consumer price
Date shares at POP Index index
5/31/90 9,524 10,000 10,000
5/31/91 10,390 11,008 10,495
5/31/92 11,392 12,089 10,813
5/31/93 12,753 13,535 11,161
5/31/94 12,992 13,869 11,416
5/31/95 14,037 15,137 11,780
5/31/96 14,500 15,828 12,121
5/31/97 15,667 17,141 12,392
5/31/98 16,973 18,750 12,601
5/31/99 17,471 19,627 12,864
5/31/00 $16,994 $19,458 $13,259
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 $16,591 and no contingent deferred
sales charges would apply; a $10,000 investment in the fund's class M
shares would have been valued at $17,223 ($16,660 at public offering
price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/00
Class A Class B Class M
----------------------------------------------------------------------
Distributions (number) 12 12 12
----------------------------------------------------------------------
Income $0.4542 $0.3981 $0.4286
----------------------------------------------------------------------
Capital gains1 -- -- --
----------------------------------------------------------------------
Total $0.4542 $0.3981 $0.4286
----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
----------------------------------------------------------------------
5/31/99 $8.99 $9.44 $8.98 $8.99 $9.29
----------------------------------------------------------------------
5/31/00 8.29 8.70 8.28 8.29 8.57
----------------------------------------------------------------------
Current return (end of period)
----------------------------------------------------------------------
Current dividend rate2 5.34% 5.09% 4.68% 5.03% 4.87%
----------------------------------------------------------------------
Taxable equivalent3 9.55 9.10 8.37 9.00 8.71
----------------------------------------------------------------------
Current 30-day SEC yield4 5.27 5.02 4.61 4.97 5.18
----------------------------------------------------------------------
Taxable equivalent3 9.43 8.99 8.25 8.90 9.27
----------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also be
subject to the federal alternative minimum tax. Investment income may be
subject to state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 44.13% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
----------------------------------------------------------------------
1 year 0.53% -4.24% -0.08% -4.86% 0.25% -3.04%
----------------------------------------------------------------------
5 years 24.81 18.87 20.88 18.96 22.83 18.80
Annual average 4.53 3.52 3.86 3.53 4.20 3.50
----------------------------------------------------------------------
10 years 80.78 72.18 68.29 68.29 74.48 68.77
Annual average 6.10 5.58 5.34 5.34 5.72 5.37
----------------------------------------------------------------------
Life of fund 87.33 78.51 73.29 73.29 80.21 74.39
Annual average 6.05 5.57 5.28 5.28 5.66 5.34
----------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. 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 and may pose different risks than the fund.
Securities in the fund do not match those in the index and performance
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.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended May 31, 2000
To the Trustees and Shareholders of
Putnam Ohio Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (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, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States. 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 auditing standards
generally accepted in the United States, 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,
2000 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 11, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000
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
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Ohio (86.2%)
-------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Akron, G.O. Bonds, 6s, 12/1/12 Aaa $ 1,042,500
875,000 Akron, Econ. Dev. Rev. Bonds, MBIA, 6s, 12/1/12 Aaa 916,563
70,000 Akron-Wilbeth, Hsg. Dev. Corp. 1st Mtge.
Rev. Bonds, FHA Insd., 7.9s, 8/1/03 A 75,688
1,500,000 Brecksville-Broadview Heights, City School Dist.
G.O. Bonds, FGIC, 6 1/2s, 12/1/16 Aaa 1,584,375
5,000,000 Butler Cnty., Hosp. Impt. Rev. Bonds
(Fort Hamilton-Hughes), 7 1/2s, 1/1/10 Baa3 5,162,500
430,000 Cincinnati, Student Loan Funding Corp. Rev. Bonds,
Ser. B, 8 7/8s, 8/1/08 BBB/P 435,375
1,700,000 Cleveland, Arpt. Rev. Bonds (Continental
Airlines, Inc.), 5.7s, 12/1/19 Ba2 1,417,375
1,255,000 Cleveland, G.O. Bonds, MBIA, 5 3/4s, 8/1/15 Aaa 1,281,669
2,500,000 Cleveland, Pkg. Fac. Impt. Rev. Bonds, 8s, 9/15/12 BB/P 2,700,000
2,095,000 Cleveland, Pub. Pwr. Syst. Rev. Bonds, MBIA,
4 3/4s, 11/15/16 Aaa 1,820,031
Cleveland Urban Renewal Increment Rev. Bonds
(Rock & Roll Hall of Fame)
1,900,000 6 3/4s, 3/15/18 BBB-/P 1,900,000
2,000,000 6 5/8s, 3/15/11 BBB-/P 2,002,500
7,950,000 Cleveland, Waterworks 1st Mtge. Rev. Bonds,
Ser. G, MBIA, 5 1/2s, 1/1/13 Aaa 7,969,875
1,350,000 Cleveland-Cuyahoga Cnty., Port Auth. Rev. Bonds
(Rock & Roll Hall of Fame), 5.2s, 12/1/03 BBB-/P 1,331,438
4,500,000 Dayton, Fac. Rev Bonds (Emery Air Freight),
Ser. A, 5 5/8s, 2/1/18 BBB 3,892,500
3,500,000 Delaware Cnty., Swr. Dist. Impt. G.O. Bonds,
MBIA, 4 3/4s, 12/1/24 Aaa 2,883,125
1,000,000 Delaware Cnty., Cap. Facs. G.O. Bonds,
6 1/4s, 12/1/16 Aa2 1,041,250
1,300,000 Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 Aa3 1,366,625
Franklin Cnty., Hlth. Care Fac. Rev. Bonds
1,750,000 (Friendship Dublin), 5 5/8s, 11/1/22 BBB+/P 1,397,813
1,500,000 (OH Presbyterian Svcs.), 5 1/2s, 7/1/21 BBB-/P 1,170,000
2,000,000 Franklin Cnty., OH Dev. Rev. Bonds
(Amern Chem. Society), 5.8s, 10/1/14 A 1,965,000
Greene Cnty., Swr. Syst. Rev. Bonds
(Governmental Enterprise), AMBAC
1,380,000 5 5/8s, 12/1/13 Aaa 1,390,350
1,305,000 5 5/8s, 12/1/12 Aaa 1,321,313
2,750,000 Hamilton Cnty., Hlth. Syst. Rev. Bonds
(Providence Hosp.), 6 7/8s, 7/1/15 Baa1 2,901,250
2,000,000 Hamilton Cnty., Sales Tax Rev. Bonds (Hamilton
Cnty. Football), Ser. B, MBIA, 5s, 12/1/27 Aaa 1,695,000
2,000,000 Hamilton, City School Dist. G.O. Bonds, Ser. A,
5 1/2s, 12/1/24 AA- 1,862,500
3,000,000 Hilliard, School Dist. G.O. Bonds (School Impts.
Project), FGIC, 5 3/4s, 12/1/24 Aaa 2,921,250
1,800,000 Huran Cnty., Human Svcs. Rev. Bonds, MBIA,
6.55s, 12/1/20 Aaa 1,948,500
1,500,000 Kent, School Dist. G.O. Bonds, FGIC, 5 3/4s, 12/1/21 AAA 1,473,750
335,077 Lake Cnty. Indl. Dev. Rev. Bonds (Madison Inn
Hlth. Ctr.), FHA Insd., 12s, 5/1/14 A-/P 344,663
1,000,000 Lakota, Local School Dist. Rev. Bonds, AMBAC,
7s, 12/1/10 Aaa 1,127,500
1,910,000 Lorain Cnty., Elderly Hsg. Corp. Multi-Fam. Rev.
Bonds (Harr Plaza & Intl.), Ser. A, 6 3/8s, 7/15/19 A 1,907,613
Lorain Cnty., Fac. Rev. Bonds (Laurel Lake)
1,500,000 7.3s, 12/15/14 BB-/P 1,485,000
1,750,000 7 1/8s, 12/15/18 BB-/P 1,677,813
5,325,000 Lorain Cnty., Hosp. Rev. Bonds (EMH Regl.
Med. Ctr.), AMBAC, 7 3/4s, 11/1/13 Aaa 5,983,969
3,100,000 Lucas Cnty., Indl. Dev. Rev. Bonds (Kroger Co.),
8 1/2s, 7/1/11 Baa3 3,256,488
Marion Cnty., Hlth. Care Fac. Rev. Bonds
(United Church Homes)
3,770,000 6 3/8s, 11/15/10 BBB- 3,576,788
2,000,000 6.3s, 11/15/15 BBB- 1,812,500
1,205,000 Massillon Rev. Bonds (Lincoln Ctr. Phase II),
AMBAC, 6.95s, 12/1/10 Aaa 1,313,450
2,700,000 Miami, Cnty., Hosp. Fac. Rev. Bonds (Upper Valley
Med. Ctr.), Ser. A, 6 3/8s, 5/15/26 Baa2 2,328,750
1,500,000 Montgomery Cnty., Hosp. Rev. Bonds (Kettering
Med. Ctr.), 6 3/4s, 4/1/22 Baa1 1,389,375
Montgomery Cnty., Hlth. Syst. Rev. Bonds
280,000 Ser. B-1, 8.1s, 7/1/18 Baa1 315,000
1,720,000 Ser. B-1, 8.1s, 7/1/18, Prerefunded Aaa 1,988,750
580,000 Montgomery Cnty., Hosp. Rev. Bonds (Grandview
Hosp. & Med Ctr.), 5.6s, 12/1/11 BBB+ 586,525
3,000,000 North Olmsted, G.O. Bonds, AMBAC, 6.2s, 12/1/11 Aaa 3,202,500
835,000 Northwestern, School Dist. Rev. Bonds
(Wayne & Ashland Cntys. School Impt.),
FGIC, 7.2s, 12/1/10 Aaa 955,031
3,000,000 OH Hsg. Fin. Agcy. Mtge. IFB, Ser. 25, 6.02s,
3/1/29 (acquired 9/24/97, cost $3,351,900) (RES) AAA/P 2,850,000
OH Hsg. Fin. Agcy. Single Fam. Mtge. IFB
3,664,000 Ser. A-2, GNMA Coll., 8.614s, 3/24/31 Aaa 3,883,840
3,000,000 Ser. G-2, GNMA Coll., 9.687s, 3/2/23 Aaa 3,191,250
OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
290,000 Ser. C, GNMA Coll., 7.85s, 9/1/21 AAA 296,911
60,000 Ser. 85-A, FGIC, zero%, 1/15/15 Aaa 14,250
OH State Air Quality Dev. Auth. Rev. Bonds
(Poll. Control)
5,000,000 Ser. B, 6s, 8/1/20 Ba1 4,506,250
2,500,000 Ser. A, 5.95s, 5/15/29 Baa2 2,284,375
555,000 OH State Econ. Dev. Rev. Bonds (Superior
Forge & Steel Corp.), Ser. 3, 7 5/8s, 6/1/11 A- 573,076
1,500,000 OH State Env. Impt. Rev. Bonds (USX Corp.),
5 5/8s, 5/1/29 Baa1 1,260,000
OH State Higher Ed. Fac. Rev. Bonds
4,500,000 (Case Western Reserve U.), 6 1/4s, 10/1/18 Aa3 4,708,125
1,000,000 (Case Western Reserve U.), 6s, 10/1/14 Aa3 1,031,250
1,630,000 (Oberlin College), 5 1/4s, 10/1/14 AA 1,581,100
2,000,000 (Oberlin College), 5s, 10/1/29 AA 1,695,000
3,000,000 (Northern U.), 4 3/4s, 5/1/19 A2 2,497,500
1,800,000 OH State Indl. Dev. Auth. Rev. Bonds (Kroger Co.),
8.65s, 6/1/11 Baa3 1,889,370
3,350,000 OH State Poll. Control Rev. Bonds (Standard
Oil Co.), 6 3/4s, 12/1/15 Aa3 3,664,063
7,000,000 OH State, Tpk. Comm. Rev. Bonds, Ser. B, FGIC,
4 3/4s, 2/15/28 Aaa 5,661,250
OH State Wtr. Dev. Auth. Solid Waste
Disp. Rev. Bonds
5,700,000 (North Star Broken Hill Steel), 6.45s, 9/1/20 A3 5,742,750
2,500,000 (Bay Shore Power Co.), Ser. A, 5 7/8s, 9/1/20 BB-/P 1,937,500
Sandusky Cnty., Hosp. Fac., Rev. Bonds
(Memorial Hosp.)
830,000 5.15s, 1/1/10 BBB- 716,913
500,000 5.15s, 1/1/08 BBB- 445,625
685,000 5.05s, 1/1/07 BBB- 615,644
2,260,000 Sprigboro Cmnty., City School Dist. G.O. Bonds,
AMBAC, 6s, 12/1/11 Aaa 2,375,825
Stark Cnty., School Dist. G.O. Bonds FGIC
1,000,000 5 3/4s, 12/1/21 A3 982,500
1,100,000 5.65s, 12/1/16 A3 1,094,500
1,500,000 Toledo, G.O. Bonds (Macys), Ser. A, MBIA,
6.35s, 12/1/25 Aaa 1,520,625
2,925,000 Toledo Swr. Syst. Mtge. Rev. Bonds, AMBAC,
6.2s, 11/15/12 (SEG) Aaa 3,115,125
1,175,000 Toledo Waterworks Mtge. Rev. Bonds, AMBAC,
6.2s, 11/15/12 Aaa 1,251,375
3,500,000 Toledo-Lucas Cnty., Ohio Port Auth. Rev. Bonds
(Transn, Inc. Project), 6.45s, 12/15/21 Baa2 3,412,500
3,200,000 Toledo-Lucas Cnty., Rev. Bond (Lodging
Tax-Convention Ctr.), MBIA, 5.7s, 10/1/15 Aaa 3,208,000
1,100,000 Tuscarawas Cnty., Hosp. Fac. Rev. Bonds
(Union Hosp.), Ser. A, 6 1/2s, 10/1/21 Baa3 1,003,750
1,000,000 Twin Valley, Cmnty. Local School Dist. Rev. Bonds,
FGIC, 7.05s, 12/1/11 Aaa 1,135,000
1,850,000 Washington Cnty., Hlth. Care Fac. Rev. Bonds
(Glenwood Retirement Cmnty.), 6.35s, 10/1/27 BB-/P 1,572,500
Westerville, City School Dist. Rev. Bonds
(School Impt.)
1,610,000 6 1/4s, 12/1/09 A3 1,708,613
1,590,000 6 1/4s, 12/1/08 A3 1,681,425
3,000,000 Woodridge, School Dist. Rev. Bonds, AMBAC,
6.8s, 12/1/14 Aaa 3,382,500
Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds
220,000 FHA Insd., 7 3/8s, 10/1/21 Aaa 256,025
205,000 FHA Insd., 7 3/8s, 10/1/20 Aaa 238,313
185,000 FHA Insd., 7 3/8s, 10/1/19 Aaa 214,600
180,000 FHA Insd., 7 3/8s, 10/1/18 Aaa 209,700
160,000 FHA Insd., 7 3/8s, 10/1/17 Aaa 186,400
155,000 FHA Insd., 7 3/8s, 10/1/16 Aaa 179,994
----------------
171,897,142
Puerto Rico (12.0%)
-------------------------------------------------------------------------------------------------------------------
3,000,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN, MBIA,
3.4s, 12/1/15 VMIG1 3,000,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Z, MBIA, 6 1/4s, 7/1/15 Aaa 1,072,500
4,000,000 Ser. W, MBIA, 5 1/2s, 7/1/15 Aaa 4,010,000
1,100,000 Cmnwlth. of PR, Hwy & Trans. Auth. VRDN, Ser. A,
AMBAC, 3 1/2s, 7/1/28 VMIG1 1,100,000
4,180,000 Cmnwlth. of PR, Muni. Fin. Agcy. Rev. Bonds, Ser. A,
FSA, 6s, 7/1/11 AAA 4,409,900
Cmnwlth. of PR, Pub. Bldg. Auth. Fac. Rev. Bonds,
Ser. A, AMBAC
1,100,000 6 1/4s, 7/1/15 Aaa 1,179,750
1,440,000 6 1/4s, 7/1/12 Aaa 1,549,800
2,875,000 6 1/4s, 7/1/11 Aaa 3,094,219
1,400,000 Cmnwlth. of PR, Tel. Auth. IFB, MBIA, 6.155s,
1/16/15 Aaa 1,464,750
3,000,000 PR Muni. Fin Agcy. G.O. Bonds, Ser. A, FSA,
5 7/8s, 8/1/14 AAA 3,089,994
----------------
23,970,913
-------------------------------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes
(cost $202,831,692) (b) $ 195,868,055
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $199,483,670.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at May 31, 2000 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, 2000. 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 $202,831,692
resulting in gross unrealized appreciation and depreciation of
$2,910,660 and $9,874,297 respectively, or net unrealized depreciation
of $6,963,637.
(RES) Restricted, excluding 144A securities, as to public resale. The
total market value of restricted securities held at May 31, 2000 was
$2,850,000 or 1.4% of net assets.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at May 31,
2000.
The rates shown on IFB's, 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, 2000.
The fund had the following industry group concentrations greater
than 10% at May 31, 2000 (as a percentage of net assets):
Health care 18.3%
Transportation 10.4
The fund had the following insurance concentrations greater than
10% at May 31, 2000 (as a percentage of net assets):
MBIA 16.4%
AMBAC 15.7
------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
------------------------------------------------------------------------------
Muni Bond Index
(Short) $5,208,000 $5,148,252 Sep.-00 $(59,748)
------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $202,831,692) (Note 1) $195,868,055
-------------------------------------------------------------------------------------------
Cash 518,400
-------------------------------------------------------------------------------------------
Interest and other receivables 3,885,510
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 176,013
-------------------------------------------------------------------------------------------
Receivable for securities sold 1,413,350
-------------------------------------------------------------------------------------------
Total assets 201,861,328
Liabilities
-------------------------------------------------------------------------------------------
Payable for variation margin 47,250
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 581,968
-------------------------------------------------------------------------------------------
Payable for securities purchased 1,035,219
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 287,862
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 258,270
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 21,714
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,668
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 968
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 87,272
-------------------------------------------------------------------------------------------
Other accrued expenses 45,467
-------------------------------------------------------------------------------------------
Total liabilities 2,377,658
-------------------------------------------------------------------------------------------
Net assets $199,483,670
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $211,677,226
-------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 44,885
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (5,215,056)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (7,023,385)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $199,483,670
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($149,433,604 divided by 18,017,945 shares) $8.29
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.29)* $8.70
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($48,423,795 divided by 5,845,382 shares)+ $8.28
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,626,271 divided by 196,116 shares) $8.29
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.29)** $8.57
-------------------------------------------------------------------------------------------
* 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, 2000
<S> <C>
Tax exempt interest income: $13,497,378
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,134,929
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 257,865
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 12,073
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,926
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 335,404
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 456,149
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 9,918
-------------------------------------------------------------------------------------------
Reports to shareholders 6,144
-------------------------------------------------------------------------------------------
Auditing 39,361
-------------------------------------------------------------------------------------------
Legal 8,820
-------------------------------------------------------------------------------------------
Postage 26,239
-------------------------------------------------------------------------------------------
Other 32,197
-------------------------------------------------------------------------------------------
Fees waived by manager (Note 2) (19,970)
-------------------------------------------------------------------------------------------
Total expenses 2,305,055
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (138,414)
-------------------------------------------------------------------------------------------
Net expenses 2,166,641
-------------------------------------------------------------------------------------------
Net investment income 11,330,737
-------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1) (2,561,495)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 131,751
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (16,133,464)
-------------------------------------------------------------------------------------------
Net loss on investments (18,563,208)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(7,232,471)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended May 31
------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 11,330,737 $ 11,751,702
--------------------------------------------------------------------------------------------------
Net realized loss on investments (2,429,744) (837,341)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (16,133,464) (4,190,232)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (7,232,471) 6,724,129
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (8,922,553) (9,425,652)
--------------------------------------------------------------------------------------------------
Class B (2,499,352) (2,470,336)
--------------------------------------------------------------------------------------------------
Class M (92,072) (106,111)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (1,445,356)
--------------------------------------------------------------------------------------------------
Class B -- (436,726)
--------------------------------------------------------------------------------------------------
Class M -- (17,894)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (28,701,885) 12,078,385
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (47,448,333) 4,900,439
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 246,932,003 242,031,564
--------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $44,885 and $228,125, respectively) $199,483,670 $246,932,003
--------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.99 $9.26 $8.99 $8.76 $8.95
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .45(a) .46(a) .47 .46 .48
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.70) (.19) .27 .23 (.19)
------------------------------------------------------------------------------------------------
Total from
investment operations (.25) .27 .74 .69 .29
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.45) (.47) (.47) (.46) (.48)
------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.07) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.45) (.54) (.47) (.46) (.48)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.29 $8.99 $9.26 $8.99 $8.76
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (2.72) 2.93 8.35 8.05 3.30
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $149,434 $186,170 $186,130 $185,030 $186,633
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .87(a) .91(a) .98 .98 .96
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.24(a) 4.96(a) 5.06 5.22 5.39
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.84 7.80 31.07 33.92 33.23
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B and class M, respectively. Expenses for the period ended May 31,
1999, reflect a reduction of $0.01 per share for class A, class B and
class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.98 $9.25 $8.98 $8.75 $8.94
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .39(a) .40(a) .41 .41 .42
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.69) (.20) .27 .22 (.19)
------------------------------------------------------------------------------------------------
Total from
investment operations (.30) .20 .68 .63 .23
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.40) (.40) (.41) (.40) (.42)
------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.07) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.40) (.47) (.41) (.40) (.42)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.28 $8.98 $9.25 $8.98 $8.75
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.37) 2.27 7.65 7.35 2.63
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $48,424 $58,763 $53,689 $47,050 $41,655
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.52(a) 1.56(a) 1.63 1.63 1.61
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.59(a) 4.31(a) 4.40 4.56 4.71
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.84 7.80 31.07 33.92 33.23
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B and class M, respectively. Expenses for the period ended May 31,
1999, reflect a reduction of $0.01 per share for class A, class B and
class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.99 $9.26 $9.00 $8.76 $8.95
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .42(a) .43(a) .43 .44 .45
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.69) (.19) .27 .23 (.18)
------------------------------------------------------------------------------------------------
Total from
investment operations (.27) .24 .70 .67 .27
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.43) (.44) (.44) (.43) (.46)
------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.07) -- -- --
------------------------------------------------------------------------------------------------
Total distributions (.43) (.51) (.44) (.43) (.46)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.29 $8.99 $9.26 $9.00 $8.76
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.02) 2.62 7.90 7.85 3.00
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,626 $1,998 $2,212 $911 $495
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.17(a) 1.21(a) 1.28 1.28 1.27
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.94(a) 4.67(a) 4.76 4.87 4.85
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.84 7.80 31.07 33.92 33.23
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B and class M, respectively. Expenses for the period ended May 31,
1999, reflect a reduction of $0.01 per share for class A, class B and
class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) The ratio of expenses to average net assets includes amounts paid
through expense offset arrangements (Note 2).
</TABLE>
NOTES TO FINANCIAL STATEMENTS
May 31, 2000
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 higher than class A but lower than
class B shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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.
Restricted securities are stated at fair value following procedures
approved by the Trustees. Such valuations and procedures are reviewed
periodically by the Trustees.
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). Gains or losses on securities sold are determined
on the identified cost basis.
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, 2000, 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.
At May 31, 2000, the fund had a capital loss carryover of approximately
$1,234,000 available to offset future net capital gain, if any. The
amount of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$876,000 May 31, 2007
358,000 May 31, 2008
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid 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. 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, 2000, the fund had no such reclassification.
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 and original issue discount 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 lesser of (i) an annual rate of 0.50%
of the average net assets of the fund or (ii) 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% of the next $5
billion, 0.34% of the next $5 billion, and 0.33% thereafter. Prior to
July 1, 1999, the management fee was based on (ii) above. Through July
1, 1999, a management fee waiver of 0.10% on each tier was in effect.
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, 2000, fund expenses were reduced by $138,414
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 $553
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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 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, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $16,826 and $243 from the
sale of class A and class M shares, respectively, and $133,257 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, 2000, Putnam Retail
Management, Inc., acting as underwriter received $6,794 on class A
redemptions that were purchased without an initial sales charge as part
of an investment of $1 million or more.
Note 3
Purchases and sales of securities
During the year ended May 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $23,612,488 and $53,434,027, respectively. There were no
purchases or sales of U.S. government obligations.
Note 4
Capital shares
At year ended May 31, 2000, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 1,069,343 $ 9,135,737
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 653,769 5,569,988
---------------------------------------------------------------------------
1,723,112 14,705,725
Shares
repurchased (4,408,450) (37,331,227)
---------------------------------------------------------------------------
Net decrease (2,685,338) $(22,625,502)
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 2,266,802 $20,801,502
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 760,646 6,988,613
---------------------------------------------------------------------------
3,027,448 27,790,115
Shares
repurchased (2,429,366) (22,308,499)
---------------------------------------------------------------------------
Net increase 598,082 $ 5,481,616
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 760,260 $ 6,485,997
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 176,646 1,502,993
---------------------------------------------------------------------------
936,906 7,988,990
Shares
repurchased (1,634,608) (13,844,173)
---------------------------------------------------------------------------
Net decrease (697,702) $(5,855,183)
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 1,323,926 $12,139,233
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 192,803 1,768,836
---------------------------------------------------------------------------
1,516,729 13,908,069
Shares
repurchased (780,555) (7,157,724)
---------------------------------------------------------------------------
Net increase 736,174 $ 6,750,345
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 16,852 $ 143,702
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,680 56,835
---------------------------------------------------------------------------
23,532 200,537
Shares
repurchased (49,686) (421,737)
---------------------------------------------------------------------------
Net decrease (26,154) $(221,200)
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 70,010 $ 644,169
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,419 95,796
---------------------------------------------------------------------------
80,429 739,965
Shares
repurchased (97,161) (893,541)
---------------------------------------------------------------------------
Net decrease (16,732) $(153,576)
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
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
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Susan A. McCormack
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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' Web site: 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
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN053 62261 848/240/130 7/00
