UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: (811- 04528 )
Exact name of registrant as specified in charter: Putnam Ohio Tax Exempt Income Fund
Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109
| Name and address of agent for service: | Beth S. Mazor, Vice President | |
| One Post Office Square | ||
| Boston, Massachusetts 02109 | ||
| Copy to: | John W. Gerstmayr, Esq. | |
| Ropes & Gray LLP | ||
| One International Place | ||
| Boston, Massachusetts 02110 | ||
| Registrant’s telephone number, including area code: | (617) 292-1000 | |
Date of fiscal year end: May 31, 2007
Date of reporting period: June 1, 2006— May 31, 2007
Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:
What makes
Putnam different?
A time-honored tradition in money management
Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.
A prudent approach to investing
We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.
Funds for every investment goal
We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.
A commitment to doing what’s right for investors
We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.
Industry-leading service
We help investors, along with their financial representatives, make informed investment decisions with confidence.
In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.
THE PRUDENT MAN RULE
All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.
Putnam Ohio
Tax Exempt
Income Fund
5| 31| 07
Annual Report
| Message from the Trustees | 1 |
| About the fund | 2 |
| Performance and portfolio snapshots | 4 |
| Report from the fund managers | 5 |
| Performance in depth | 9 |
| Expenses | 12 |
| Portfolio turnover | 14 |
| Risk | 14 |
| Your fund’s management | 15 |
| Terms and definitions | 17 |
| Trustee approval of management contract | 18 |
| Other information for shareholders | 22 |
| Financial statements | 23 |
| Federal tax information | 38 |
| Shareholder meeting results | 39 |
| About the Trustees | 40 |
| Officers | 44 |
| Fund information | 45 |
Cover photograph: © Richard H. Johnson
Message from the Trustees
Dear Fellow Shareholder:
Reflecting investor uncertainty about the outlook for the U.S. economy, volatility in the financial markets has been on the rise. After a downturn in March, the Dow Jones Industrial Average recently reached new record-high levels. The upward climb in the stock market has been largely unaffected by higher-trending interest rates since mid-May, though it remains to be seen whether current stock market levels are sustainable. From our perspective, we are encouraged by recent indications of moderate inflation, a low unemployment rate, and a rebound in manufacturing. We consequently believe the U.S. economy will weather this period of uncertainty.
As we communicated in proxy materials recently mailed to all Putnam fund shareholders, on February 1, 2007, Marsh & McLennan Companies, Inc. announced that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc. Great-West Lifeco is a financial services holding company with operations in Canada, the United States, and Europe and is a member of the Power Financial Corporation group of companies. We are pleased to announce that in mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While it is still subject to regulatory approvals and other conditions, we currently expect the transaction to be completed this summer.
We would also like to take this opportunity to announce that Putnam President and Chief Executive Officer Ed Haldeman, one of your fund’s Trustees since 2004, has been named President of the Funds, assuming this role from George Putnam, III. This change will enable George Putnam to become an independent Trustee of the funds upon completion of the transaction with Great-West Lifeco. Both George and Ed will continue serving on the Board of Trustees in our collective role of overseeing the Putnam funds on your behalf.
In the following pages, members of your fund’s management team discuss the fund’s performance and strategies for the fiscal year ended May 31, 2007, and provide their outlook for the months ahead. As always, we thank you for your support of the Putnam funds.
Putnam Ohio Tax Exempt Income Fund:
pursuing tax-advantaged income for Ohio investors
Municipal bonds can help investors keep more of their investment income while also financing important public projects such as schools, roads, and hospitals. Municipal bonds are typically issued by states and local municipalities to raise funds for building and maintaining public facilities, and they offer income that is generally exempt from federal income tax.
For residents of the state where the bond is issued, income is typically exempt from state and any local income taxes as well. While the stated yields on municipal bonds are usually lower than those on taxable bonds, tax exemption is an especially powerful advantage in Ohio because the state’s top income tax rate is among the highest in the United States. And the sheer size of the Ohio municipal bond market provides a wide array of investment opportunities.
Putnam Ohio Tax Exempt Income Fund seeks to capitalize on investment opportunities in Ohio by investing in bonds across a range of market sectors. The fund also combines bonds of differing credit quality to increase income potential. In addition to investing in high-quality bonds, the fund’s management team allocates a smaller portion of the portfolio to lower-rated bonds, which may offer higher income in return for more risk.
When deciding whether to invest in a bond, the fund’s management team considers the risks involved —including credit risk, interest-rate risk, and the risk that the bond will be prepaid. The management team is backed by the resources of Putnam’s fixed-income organization, one of the largest in the investment industry, in which municipal bond analysts are grouped into sector teams and conduct ongoing, rigorous research. Once a bond has been purchased, the team continues to monitor for developments that affect the bond market, the sector, and the issuer of the bond.
The goal of the fund’s in-depth research and active management is to stay a step ahead of the industry and pinpoint opportunities to adjust the fund’s holdings for the benefit of the fund and its shareholders.
The fund concentrates its investments by region and involves more risk than a fund that invests more broadly. Capital gains, if any, are taxable for federal and, in most cases, state purposes. For some investors, investment income may be subject to the federal alternative minimum tax. Tax-free funds may not be suitable for IRAs and other non-taxable accounts. Please consult with your tax advisor for more information. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
Understanding
tax-equivalent yield
To understand the value of tax-free income, it is helpful to compare a municipal bond’s yield with the “tax-equivalent yield” — the before-tax yield that must be offered by a taxable bond in order to equal the municipal bond’s yield after taxes.
How to calculate tax-equivalent yield:
The tax-equivalent yield equals the municipal bond’s yield divided by “one minus the tax rate.” For example, if a municipal bond’s yield is 5%, then its tax-equivalent yield is 7.7%, assuming the maximum 35% federal tax rate for 2007.
Results for investors subject to lower tax rates would not be as advantageous.
Municipal bonds may finance a range of projects in your
community and thus play a key role in its development.
Performance and portfolio snapshots
Putnam Ohio Tax Exempt
Income Fund
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in bar chart do not reflect a sales charge. See page 9 for additional performance information. For a portion of the periods, this fund may have limited expenses, without which returns would have been lower. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.
“We believe that amid current market
conditions, high-quality bonds have more
attractive prospects than high-yield bonds,
which have had a strong run in recent years.”
Thalia Meehan, Portfolio Leader, Putnam Ohio Tax Exempt Income Fund
Credit qualities shown as a percentage of portfolio value as of 5/31/07. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody's but considered by Putnam Management to be of comparable quality. Ratings will vary over time.
4
Report from the fund managers
The year in review
During the fund’s fiscal year, which ended on May 31, 2007, steady economic growth made income-oriented investors more willing to accept the risks associated with lower-rated, higher-yielding municipal bonds. These bonds outperformed higher-quality, investment-grade bonds for the year, although the disparity began to ease a bit in the final months of the reporting period. While your fund’s exposure to carefully selected lower-rated bonds contributed favorably to results, strong performance from tobacco settlement bonds and from holdings in the health-care and utilities sectors played a greater positive role. This, combined with the pre-refunding of two key holdings, enabled the fund to outperform the average for its Lipper category, based on results before sales charges. Since the fund invests primarily in Ohio municipal bonds, which were relatively weak for the year, fund results lagged those for the Lehman Municipal Bond Index, its nationally diversified benchmark. We also think the portfolio’s yield curve positioning — which reflected our conservative interest-rate outlook, was a factor in this underperformance. Demand for longer-term bonds from yield-oriented investors contributed to stronger results for bonds with longer maturities, while we had emphasized intermediate-maturity bonds as part of our efforts to manage the portfolio’s interest-rate sensitivity.
Market overview
Since August 2006, the Federal Reserve (the Fed) has held the federal funds rate — the benchmark rate for overnight loans between banks — steady at 5.25%, while indicating that future rate decisions will depend on whether it considers inflation or slower growth a greater risk to the economy.
For the period as a whole, yields on shorter-term bonds rose slightly, while yields on longer-term bonds declined. The yield curve — a graphical representation of differences in yield for bonds of comparable quality and different maturities — flattened modestly to reflect this shift, showing that the yield advantage of longer-term bonds, intended to compensate investors for the greater risk of a long-term investment, had also declined. However, tax-exempt bonds with maturities greater than five years generally performed better than comparable Treasury bonds, while shorter-maturity municipals typically underperformed comparable Treasuries.
Lower-rated bonds declined in March but rallied in April, ending the period with generally stronger relative performance than higher-quality bonds. However, as the prices of lower-rated bonds rose, their yields declined.
Market sector and fund performance
This comparison shows your fund’s performance in the context of different market sectors for the 12 months ended 5/31/07. See the previous page and page 9 for additional fund performance information. Index definitions can be found on page 17.
5
Consequently, the yield advantages that had initially drawn investor attention became less pronounced.
Non-rated bonds also gained value, and airline-related industrial development bonds (IDBs) were especially strong performers. Securities issued by long-term care facilities and toll roads also delivered solid results, as did tobacco settlement bonds.
Strategy overview
Given our expectation for rising interest rates, we maintained a short (defensive) portfolio duration relative to the fund’s Lipper peer group. This strategy had a neutral impact on relative results. Municipal bonds with the longest maturities saw yields decline, while shorter-maturity municipals generally saw yields increase. Duration is a measure of a fund’s sensitivity to changes in interest rates. Having a shorter-duration portfolio may help protect principal when interest rates rise, but it can reduce the potential for appreciation when rates fall. By the end of the period, we had extended the fund’s duration somewhat, but it still remained modestly short compared to the peer group average.
We have increased our use of derivative instruments, such as interest-rate swap contracts, to execute several of the fund’s investment strategies. By enabling two parties to exchange, or swap, interest-rate payments at a future date, these contracts give us more control over the fund’s exposure to the upward and downward movement of interest rates without requiring an exchange of principal. The use of these derivatives lets us take positions that reflect our views on yield curve trends without needing to sell bonds we would like to retain, and can also reduce the fund’s transaction costs. This, in turn, increases our flexibility in managing the fund. During the period, our interest-rate swap positions detracted moderately from performance, but we nevertheless believe that the flexibility offered by such arrangements makes derivatives a valuable tool in ou r overall management strategy.
Despite a credit-rating downgrade, the fund’s position in general obligation bonds issued by Puerto Rico contributed positively to returns. In May 2006, financial turmoil led to a partial government shutdown, prompting the credit downgrade and causing the prices of uninsured Puerto Rico bonds to decline. We saw these developments as an opportunity to increase the fund’s holdings at favorable price levels, and as a result, the fund subsequently benefited from a substantial rally in Puerto Rico bonds. During the second half of the fiscal year, we reduced the fund’s exposure to these bonds — selling into the rally’s strength — as credit spreads narrowed.
Comparison of the fund’s maturity and duration
This chart compares changes in the fund’s average effective maturity (a weighted average of the holdings’ maturities) and its average effective duration (a measure of its sensitivity to interest-rate changes).
Average effective duration and average effective maturity take into account put and call features, where applicable, and reflect prepayments for mortgage-backed securities. Duration is usually shorter than maturity because it reflects interest payments on a bond prior to its maturity.
6
Relative to the fund’s peer group, we maintained an overweight position in single-family housing bonds. This strategy proved helpful to results, as declining mortgage prepayments continued to support bonds in this sector.
Your fund’s holdings
The fund’s higher overall credit quality held back performance relative to its peer group, as lower-rated municipal bonds delivered the strongest results during the reporting period. Compared to other funds in its Lipper category, your fund had an underweight position in non-investment-grade bonds — particularly in the B and non-rated categories, and a greater emphasis on municipal bonds rated A and BBB. After the strong appreciation in lower-rated bonds we have seen recently, we have become more cautious regarding this sector, since we don’t think investors are being adequately compensated for the increased risk associated with investing in these lower-quality investments. While this decision limited the fund’s ability to benefit from the appreciation of these bonds, we think it may help protect the value of the portfolio when credit spreads — i.e., the difference in yield between higher-quality and lower-qual ity bonds — begin to increase. In fact, we began to see signs of such a shift in the second half of the fund’s fiscal year.
Bonds from the utilities sector performed well for the period, and your fund’s weighting in this sector exceeded that of its peer group average, contributing to its positive relative performance. The fund’s investments in Ohio State Water Development Authority for Bay Shore Power revenue bonds, which are rated BB+ by Standard & Poor’s, proved particularly rewarding. The company’s capital investments during the last few years have significantly reduced the operating problems that the plant faced in its first couple of years of operation.
An overweight position in tobacco settlement bonds contributed positively to fund results, as these bonds continued to strengthen during the period. Limited issuance of these securities, coupled with strong demand, provided solid supply-and-demand support for the sector. While tobacco settlement bonds generally carry investment-grade ratings of BBB, they are secured by the income stream from tobacco companies’ settlement obligations to the states and generally offer higher yields than bonds of comparable quality. Furthermore, we think tobacco settlement bonds provide valuable diversification, since their performance is not as closely tied to the direction of economic growth as that of other, more economically sensitive, holdings. Since the state of Ohio doesn’t issue tobacco settlement bonds, the fund holds tobacco settlement bonds issued by the Children’s Trust Fund Tobacco Settlement of Puerto Rico as well as bonds issued by the Tobacco Settlement Financial Corporation of the Virgin Islands. Bonds issued by Puerto Rico and the Virgin Islands offer tax-exempt income to residents of all 50 states.
Two of the fund’s investment-grade holdings in the education sector — Madeira City School District general obligation bonds and Middletown City School District general obligation bonds — were pre-refunded during the year. Pre-refundings occur when a municipality issues new bonds to raise funds to pay off an older issue. This money is then invested in a secure investment — usually U.S. Treasury securities — that matures at the older bond’s first call date. The secure backing has the effect of raising the bond’s perceived credit rating while the shorter effective maturity lowers its interest-rate risk. Since both these devel opments are favorable for investors, bond prices often rise after a pre-refunding, as occurred in both these cases.
The fund’s investments in Ohio State Higher Education Facility revenue bonds for Case Western Reserve University had mixed performance, but we have positive expectations for these holdings. Case, which is best known for its graduate schools, has endeavored to strengthen the reputation of its undergraduate programs. We think this effort is proving successful, given the university’s increased application volume, which is contributing to year-over-year enrollment increases, and the stronger academic profile of the students that it accepts.
Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.
7
The outlook for your fund
The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team’s plans for responding to them.
Recent comments from Fed Chairman Ben Bernanke indicate that central bank policymakers anticipate continuing moderate economic growth over the next several months, despite an ongoing drag from the lagging housing sector. At the same time, the Fed believes that inflation likely will continue to decelerate, although the risk of rising inflation remains. Given this economic outlook, we believe the Fed is comfortable with its current interest-rate policy and, as a result, may keep the federal funds rate at 5.25% during the coming months. Against this backdrop, we plan to maintain a neutral duration strategy in the portfolio.
In our view, the rally among lower-rated, higher-yielding bonds, which has persisted over the past couple of years, may finally be winding down. We base this view, in part, on the fact that the difference in yield between Aaa-rated bonds and Baa-rated bonds — the highest and lowest investment-grade ratings, respectively — remains near an all-time low. In fact, the higher-income advantage available to those willing to assume additional credit risk by investing in lower-rated bonds has diminished to the lowest level in over seven years. It has been our experience that when investor demand is this elevated, many high-yielding securities can become overpriced. We continue to believe that this is not the most opportune time to reach too far out in terms of bond maturity (i.e., extend duration by investing in securities with later final maturity dates) or too far down in quality in pursuit of higher income. Over the near term, we will focus on certain market sectors — notably, single-family housing and power company IDBs — where we believe the fund may benefit in an environment of moderating economic growth without being exposed to undue risk.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
The fund concentrates its investments by region and involves more risk than a fund that invests more broadly. Capital gains, if any, are taxable for federal and, in most cases, state purposes. For some investors, investment income may be subject to the federal alternative minimum tax. Tax-free funds may not be suitable for IRAs and other non-taxable accounts. Please consult with your tax advisor for more information.
Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.
8
Your fund’s performance
This section shows your fund’s performance for periods ended May 31, 2007, the end of its fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com or call Putnam at 1-800-225-1581.
Fund performance Total return for periods ended 5/31/07
| Class A | Class B | Class C | Class M | |||||
| (inception dates) | (10/23/89) | (7/15/93) | (10/3/06) | (4/3/95) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | |
| Annual average | ||||||||
| (life of fund) | 5.72% | 5.49% | 4.98% | 4.98% | 4.92% | 4.92% | 5.36% | 5.17% |
| 10 years | 57.15 | 51.25 | 47.28 | 47.28 | 45.63 | 45.63 | 52.35 | 47.41 |
| Annual average | 4.62 | 4.22 | 3.95 | 3.95 | 3.83 | 3.83 | 4.30 | 3.96 |
| 5 years | 22.89 | 18.23 | 18.98 | 16.98 | 18.31 | 18.31 | 20.98 | 16.98 |
| Annual average | 4.21 | 3.41 | 3.54 | 3.19 | 3.42 | 3.42 | 3.88 | 3.19 |
| 3 years | 12.84 | 8.55 | 10.68 | 7.68 | 10.26 | 10.26 | 11.84 | 8.18 |
| Annual average | 4.11 | 2.77 | 3.44 | 2.50 | 3.31 | 3.31 | 3.80 | 2.66 |
| 1 year | 4.16 | 0.24 | 3.47 | -1.53 | 3.35 | 2.35 | 3.73 | 0.38 |
Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 3.75% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year and is eliminated thereafter. Performance for class B, C, and M shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares.
For a portion of the periods, this fund may have limited expenses, without which returns would have been lower.
A 1% short-term trading fee may be applied to shares exchanged or sold within 7 days of purchase.
Change in the value of a $10,000 investment ($9,625 after sales charge)
Cumulative total return from 5/31/97 to 5/31/07
Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $14,728 and $14,563, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $14,741 at public offering price.
9
Comparative index returns For periods ended 5/31/07
| Lipper Ohio | ||||||
| Lehman Municipal | Municipal Debt Funds | |||||
| Bond Index | category average* | |||||
| Annual average | ||||||
| (life of fund) | 6.63% | 5.92% | ||||
| 10 years | 72.51 | 56.01 | ||||
| Annual average | 5.60 | 4.54 | ||||
| 5 years | 27.24 | 21.31 | ||||
| Annual average | 4.94 | 3.93 | ||||
| 3 years | 15.33 | 12.29 | ||||
| Annual average | 4.87 | 3.93 | ||||
| 1 year | 4.84 | 3.84 | ||||
Index and Lipper results should be compared to fund performance at net asset value.
* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 5/31/07, there were 43, 42, 42, 35, and 9 funds, respectively, in this Lipper category.
Fund price and distribution information For the 12-month period ended 5/31/07
| Distributions | Class A | Class B | Class C | Class M | ||
| Number* | 13 | 13 | 9 | 13 | ||
| Income1 | $0.357601 | $0.299297 | $0.190758 | $0.331234 | ||
| Capital gains2 | — | — | — | — | ||
| Total | $0.357601 | $0.299297 | $0.190758 | $0.331234 | ||
| Share value: | NAV | POP | NAV | NAV | NAV | POP |
| 5/31/06 | $8.97 | $9.32 | $8.96 | — | $8.98 | $9.28 |
| 10/3/06† | — | — | — | $9.09 | — | — |
| 5/31/07 | 8.98 | 9.33 | 8.97 | 8.97 | 8.98 | 9.28 |
| Current yield (end of period) | ||||||
| Current dividend rate3 | 3.98% | 3.83% | 3.34% | 3.19% | 3.69% | 3.57% |
| Taxable equivalent4 | 6.58 | 6.33 | 5.52 | 5.27 | 6.10 | 5.90 |
| Current 30-day SEC yield5,6 | ||||||
| (with expense limitation) | 3.25 | 3.13 | 2.61 | 2.44 | 2.96 | 2.87 |
| Taxable equivalent4 | 5.37 | 5.17 | 4.31 | 4.03 | 4.89 | 4.74 |
| Current 30-day SEC yield6 | ||||||
| (without expense limitation) | 3.24 | 3.12 | 2.59 | 2.42 | 2.95 | 2.85 |
* Distributions are paid monthly. In December 2006, the fund made an additional distribution to adjust its distribution date to the last business day of the month.
† Inception date of class C shares.
1 For some investors, investment income may be subject to the federal alternative minimum tax.
2 Capital gains, if any, are taxable for federal and, in most cases, state purposes.
3 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.
4 Assumes maximum 39.47% federal and state combined tax rate for 2007. Results for investors subject to lower tax rates would not be as advantageous.
5 For a portion of the periods, this fund may have limited expenses, without which yields would have been lower.
6 Based only on investment income, calculated using SEC guidelines.
10
Fund performance as of most recent calendar quarter Total return for periods ended 6/30/07
| Class A | Class B | Class C | Class M | |||||
| (inception dates) | (10/23/89) | (7/15/93) | (10/3/06) | (4/3/95) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | |
| Annual average | ||||||||
| (life of fund) | 5.67% | 5.44% | 4.93% | 4.93% | 4.87% | 4.87% | 5.31% | 5.12% |
| 10 years | 54.76 | 49.01 | 45.03 | 45.03 | 43.52 | 43.52 | 50.38 | 45.49 |
| Annual average | 4.46 | 4.07 | 3.79 | 3.79 | 3.68 | 3.68 | 4.16 | 3.82 |
| 5 years | 21.01 | 16.38 | 17.09 | 15.09 | 16.35 | 16.35 | 19.22 | 15.31 |
| Annual average | 3.89 | 3.08 | 3.21 | 2.85 | 3.07 | 3.07 | 3.58 | 2.89 |
| 3 years | 12.11 | 7.85 | 9.83 | 6.84 | 9.54 | 9.54 | 11.11 | 7.47 |
| Annual average | 3.88 | 2.55 | 3.17 | 2.23 | 3.08 | 3.08 | 3.57 | 2.43 |
| 1 year | 4.04 | 0.11 | 3.37 | –1.63 | 3.23 | 2.23 | 3.84 | 0.45 |
Fund’s annual operating expenses For the fiscal year ended 5/31/06
| Class A | Class B | Class C | Class M | |
| Net expenses* | 0.90% | 1.54% | 1.69% | 1.19% |
| Total annual fund operating expenses | 0.91 | 1.55 | 1.70 | 1.20 |
* Reflects Putnam Management's decision to contractually limit expenses through 5/31/08.
Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
11
Your fund’s expenses
As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.
Review your fund’s expenses
The table below shows the expenses you would have paid on a $1,000 investment in Putnam Ohio Tax Exempt Income Fund from December 1, 2006, to May 31, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.
| Class A | Class B | Class C | Class M | |
| Expenses paid per $1,000* | $ 4.49 | $ 7.67 | $ 8.42 | $ 5.93 |
| Ending value (after expenses) | $1,001.10 | $997.80 | $997.30 | $998.50 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 5/31/07. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended May 31, 2007, use the calculation method below. To find the value of your investment on December 1, 2006, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 12/01/2006 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.
Compare expenses using the SEC’s method
The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.
| Class A | Class B | Class C | Class M | |
| Expenses paid per $1,000* | $ 4.53 | $ 7.75 | $ 8.50 | $ 5.99 |
| Ending value (after expenses) | $1,020.44 | $1,017.25 | $1,016.50 | $1,019.00 |
* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 5/31/07. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.
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Compare expenses using industry averages
You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.
| Class A | Class B | Class C | Class M | |
| Your fund’s annualized expense ratio* | 0.90% | 1.54% | 1.69% | 1.19% |
| Average annualized expense ratio for Lipper peer group† | 0.90% | 1.54% | 1.69% | 1.19% |
* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.
† Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect the 12b-1 fees carried by each class. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times and for different periods. The fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is b ased on the most recent fiscal year-end data available for the peer group funds as of 3/31/07.
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Your fund’s portfolio turnover
and Morningstar® Risk
Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.
Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund’s turnover with the average turnover for funds in its Lipper category.
Turnover comparisons
Percentage of holdings that change every year
| 2007 | 2006 | 2005 | 2004 | 2003 | |
| Putnam Ohio Tax Exempt Income Fund | 15% | 6% | 12% | 17% | 26% |
| Lipper Ohio Municipal Debt Funds category average | 16% | 17% | 17% | 19% | 37% |
Turnover data for the fund is calculated based on the fund's fiscal-year period, which ends on May 31. Turnover data for the fund's Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund's portfolio turnover rate to the Lipper average. Comparative data for 2007 is based on information available as of 5/31/07.
Your fund’s Morningstar® Risk
This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.
Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of June 30, 2007. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.
Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2007 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accur ate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.
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Your fund’s management
Your fund is managed by the members of the Putnam Tax Exempt Fixed-Income Team. Thalia Meehan is the Portfolio Leader, and Paul Drury, Brad Libby, and Susan McCormack are Portfolio Members, of your fund. The Portfolio Leader and Portfolio Members coordinate the team’s management of the fund.
For a complete listing of the members of the Putnam Tax Exempt Fixed-Income Team, including those who are not Portfolio Leaders or Portfolio Members of your fund, visit Putnam’s Individual Investor Web site at www.putnam.com.
Investment team fund ownership
The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of May 31, 2007, and May 31, 2006.
N/A indicates the individual was not a Portfolio Leader or Portfolio Member as of 5/31/06.
Trustee and Putnam employee fund ownership
As of May 31, 2007, all of the Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.
| Total assets in | |||
| Assets in the fund | all Putnam funds | ||
| Trustees | $36,000 | $ 96,000,000 | |
| Putnam employees | $12,000 | $476,000,000 | |
Fund manager compensation
The total 2006 fund manager compensation that is attributable to your fund is approximately $40,000. This amount includes a portion of 2006 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2006 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation attributable to research, trading, administration, executive oversight, systems, compliance, or fund operations functi ons; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2006, the calculation reflects annualized 2006 compensation or an estimate of 2007 compensation, as applicable.
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Other Putnam funds managed by the Portfolio Leader and Portfolio Members
Thalia Meehan is the Portfolio Leader, and Paul Drury, Brad Libby, and Susan McCormack are Portfolio Members, of Putnam’s open-end tax-exempt funds for the following states: Arizona, California, Massachusetts, Michigan, Minnesota, New Jersey, New York, and Pennsylvania. The same group also manages Putnam AMT-Free Insured Municipal Fund, Putnam Investment Grade Municipal Trust, Putnam Municipal Bond Fund, Putnam Municipal Opportunities Trust, and Putnam Tax Exempt Income Fund.
Paul Drury is the Portfolio Leader, and Brad Libby, Susan McCormack, and Thalia Meehan are Portfolio Members, of Putnam High Yield Municipal Trust, Putnam Managed Municipal Income Trust, Putnam Tax-Free Health Care Fund, and Putnam Tax-Free High Yield Fund.
Thalia Meehan, Paul Drury, Brad Libby, and Susan McCormack may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.
Changes in your fund’s Portfolio Leader and Portfolio Members
During the year ended May 31, 2007, Brad Libby became a Portfolio Member, and Thalia Meehan became a Portfolio Member and then Portfolio Leader, of your fund. These changes followed the departure of Portfolio Leaders David Hamlin and James St. John from your fund’s management team.
Putnam fund ownership by Putnam’s Executive Board
The table below shows how much the members of Putnam’s Executive Board have invested in all Putnam mutual funds (in dollar ranges). Information shown is as of May 31, 2007, and May 31, 2006.
| $1 – | $10,001 – | $50,001 – | $100,001 – | $500,001 – | $1,000,001 | ||||
| Year | $0 | $10,000 | $50,000 | $100,000 | $500,000 | $1,000,000 | and over | ||
| Philippe Bibi | 2007 | • | |||||||
| Chief Technology Officer | 2006 | • | |||||||
| Joshua Brooks | 2007 | • | |||||||
| Deputy Head of Investments | 2006 | • | |||||||
| William Connolly | 2007 | • | |||||||
| Head of Retail Management | 2006 | • | |||||||
| Kevin Cronin | 2007 | • | |||||||
| Head of Investments | 2006 | • | |||||||
| Charles Haldeman, Jr. | 2007 | • | |||||||
| President and CEO | 2006 | • | |||||||
| Amrit Kanwal | 2007 | • | |||||||
| Chief Financial Officer | 2006 | • | |||||||
| Steven Krichmar | 2007 | • | |||||||
| Chief of Operations | 2006 | • | |||||||
| Francis McNamara, III | 2007 | • | |||||||
| General Counsel | 2006 | • | |||||||
| Jeffrey Peters | 2007 | • | |||||||
| Head of International Business | N/A | ||||||||
| Richard Robie, III | 2007 | • | |||||||
| Chief Administrative Officer | 2006 | • | |||||||
| Edward Shadek | 2007 | • | |||||||
| Deputy Head of Investments | 2006 | • | |||||||
| Sandra Whiston | 2007 | • | |||||||
| Head of Institutional Management | 2006 | • | |||||||
N/A indicates the individual was not a member of Putnam’s Executive Board as of 5/31/06.
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Terms and definitions
Important terms
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.
Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.
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 3.75% maximum sales charge for class A shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund’s class B 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. The CDSC for class C shares is 1% for one year after purchase.
Share classes
Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).
Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.
Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC.
Comparative indexes
Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Lehman Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.
Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.
Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.
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Trustee approval
of management contract
General conclusions
The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2006, the Contract Committee met four times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this informat ion with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1, 2006.
This approval was based on the following conclusions:
• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and
• That such fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.
These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.
Management fee schedules and categories; total expenses
The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry — that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:
• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 62nd percentile in management fees and in the 62nd percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2005 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.
The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2007. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit
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fund expenses has served shareholders well since its inception. In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to implement an additional expense limitation for certain funds for the twelve months beginning January 1, 2007 equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper based on the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the Lipper custom peer group data for the period ended December 31, 2005. This additional expense limitation will not be applied to your fund.
• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effective management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of ec onomies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract Committee’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, including a study of potential economies that might be produced under various growth assumptions.
In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis. Because many of the costs incurred by Putnam Management in managing the funds are not readily identifiable to particular funds, the Trustees observed that the methodology for allocating costs is an important factor in evaluating Putnam Management’s costs and profitabil ity, both as to the Putnam funds in the aggregate and as to individual funds. The Trustees reviewed Putnam Management’s cost allocation methodology with the assistance of independent consultants and concluded that this methodology was reasonable and well-considered.
Investment performance
The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process —as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not gua rantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.
The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of t hese changes and to evaluate whether additional changes to address areas of underperformance are warranted.
In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset
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value was in the following percentiles of its Lipper Inc. peer group (Lipper Ohio Municipal Debt Funds) (compared using tax-adjusted performance to recognize the different federal income tax treatment for capital gains distributions and exempt-interest distributions) for the one-, three- and five-year periods ended March 31, 2006 (the first percentile being the best performing funds and the 100th percentile being the worst performing funds):
| One-year period | Three-year period | Five-year period |
| 41st | 34th | 32nd |
(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2006, there were 42, 42, and 39 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future performance.)
As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.
Brokerage and soft-dollar allocations; other benefits
The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.
The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.
Comparison of retail and institutional fee schedules
The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.
* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper Ohio Municipal Debt Funds category for the one-, five- and ten-year periods ended June 30, 2007, were 46%, 41%, and 49%, respectively. Over the one-, five- and ten-year periods ended June 30, 2007, the fund ranked 21 out of 45, 17 out of 41, and 17 out of 34 funds, respectively. Unlike the information above, these rankings reflect performance before taxes. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.
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Approval of new management contracts in connection with pending change in control
As discussed in the “Message from the Trustees” at the beginning of this shareholder report, Marsh & McLennan Companies, Inc. announced on February 1, 2007 that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc., a member of the Power Financial Corporation group of companies. In mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While the transaction is still subject to regulatory approvals and other conditions, it is currently expected to be completed this summer.
At an in-person meeting on February 8-9, 2007, the Trustees considered the approval of new management contracts for each Putnam fund proposed to become effective upon the closing of the transaction, and the filing of a preliminary proxy statement. At an in-person meeting on March 8-9, 2007, the Trustees considered the approval of the final forms of the proposed new management contracts for each Putnam fund and the proxy statement. They reviewed the terms of the proposed new management contracts and the differences between the proposed new management contracts and the current management contracts. They noted that the terms of the proposed new management contracts were substantially identical to the current management contracts, except for certain changes developed at the initiative of the Trustees and designed largely to address inconsistencies among various of the existing contracts, which had been developed and implemented at different times in the past. In considering the approval of the proposed new management contracts, the Trustees also considered, as discussed further in the proxy statement, various matters relating to the transaction. Finally, in considering the proposed new management contracts, the Trustees also took into account their deliberations and conclusions (discussed above in the preceding paragraphs of the “Trustee Approval of Management Contract” section) in connection with the most recent annual approval of the continuance of the Putnam funds’ management contracts effective July 1, 2006, and the extensive materials that they had reviewed in connection with that approval process. Based upon the foregoing considerations, on March 9, 2007, the Trustees, including all of the Independent Trustees, unanimously approved the proposed new management contracts and determined to recommend their approval to the shareholders of the Putnam funds.
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Other information for shareholders
Putnam’s policy on confidentiality
In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In t hose cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available on the Putnam Individual Investor Web site, www.putnam.com/individual, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.
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Financial statements
These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 liquidation preference of preferred shares.)
Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.
Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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.
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Report of Independent Registered Public Accounting Firm
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, 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, 2007, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2007, by correspondence with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 11, 2007
24
The fund’s portfolio 5/31/07
| Key to abbreviations | |
| AMBAC AMBAC Indemnity Corporation | GNMA Coll. Government National Mortgage Association Collateralized |
| COP Certificate of Participation | G.O. Bonds General Obligation Bonds |
| FGIC Financial Guaranty Insurance Company | MBIA MBIA Insurance Company |
| FHA Insd. Federal Housing Administration Insured | VRDN Variable Rate Demand Notes |
| FHLMC Coll. Federal Home Loan Mortgage Corporation Collateralized | XLCA XL Capital Assurance |
| FNMA Coll. Federal National Mortgage Association Collateralized | |
| FSA Financial Security Assurance |
| MUNICIPAL BONDS AND NOTES (97.1%)* | |||
| Rating** | Principal amount | Value | |
| Ohio (91.9%) | |||
| Akron, Wtr. Wks. Rev. Bonds, MBIA | |||
| 6s, 12/1/12 | Aaa | $ 875,000 | $ 944,554 |
| 5 1/4s, 12/1/17 | Aaa | 1,285,000 | 1,369,964 |
| Anthony Wayne Local School Dist. G.O. Bonds (School Fac. | |||
| Construction & Impt.), FSA, 5 1/2s, 12/1/19 | Aaa | 1,565,000 | 1,665,207 |
| Brookville, Local School Dist. G.O. Bonds, FSA, 5s, 12/1/26 | |||
| (Prerefunded) | Aaa | 1,500,000 | 1,595,550 |
| Butler Cnty., G.O. Bonds, MBIA, 5 1/4s, 12/1/20 (Prerefunded) | Aaa | 1,000,000 | 1,077,920 |
| Butler Cnty., Trans. Impt. Dist. Rev. Bonds (Hwy.), XLCA, | |||
| 4 3/4s, 12/1/25 | Aaa | 2,765,000 | 2,826,936 |
| Canal Winchester, Local School Dist. G.O. Bonds | |||
| FSA, 4 3/4s, 12/1/24 | Aaa | 1,500,000 | 1,539,615 |
| MBIA, zero %, 12/1/33 | Aaa | 1,180,000 | 344,702 |
| Cleveland, Muni. School Dist. G.O. Bonds, FSA, 5s, 12/1/27 | Aaa | 1,375,000 | 1,437,631 |
| Cleveland, Parking Fac. Rev. Bonds, FSA, 5 1/4s, 9/15/22 | Aaa | 2,400,000 | 2,673,264 |
| Cleveland, State U. Rev. Bonds, FGIC, 5s, 6/1/29 | Aaa | 3,000,000 | 3,131,130 |
| Cleveland, Urban Renewal Increment Rev. Bonds (Rock & Roll Hall | |||
| of Fame), 6 3/4s, 3/15/18 | BBB-/P | 1,150,000 | 1,159,476 |
| Cuyahoga Cnty., G.O. Bonds, 5s, 12/1/18 (Prerefunded) | Aa1 | 1,500,000 | 1,557,300 |
| Cuyahoga Cnty., Rev. Bonds, Ser. A, 6s, 1/1/32 | Aa3 | 1,500,000 | 1,645,860 |
| Cuyahoga Cnty., Hosp. VRDN (U. Hosp.), 3.74s, 1/1/16 | VMIG1 | 3,000,000 | 3,000,000 |
| Cuyahoga Falls, G.O. Bonds, MBIA, 5s, 12/1/24 | Aaa | 1,645,000 | 1,712,856 |
| Delaware Cnty., Cap. Fac. G.O. Bonds, 6 1/4s, 12/1/16 | |||
| (Prerefunded) | Aa1 | 1,000,000 | 1,088,110 |
| Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 | Aaa | 1,300,000 | 1,448,317 |
| Erie Cnty., OH Hosp. Fac. Rev. Bonds (Firelands Regl. Med. | |||
| Ctr.), 5 5/8s, 8/15/32 | A | 1,000,000 | 1,052,430 |
| Field, Local School Dist. G.O. Bonds (School Fac. Construction & | |||
| Impt.), AMBAC, 5s, 12/1/22 | Aaa | 1,170,000 | 1,228,102 |
| Franklin Cnty., G.O. Bonds, 5 3/8s, 12/1/20 | Aaa | 2,170,000 | 2,259,404 |
| Franklin Cnty., Rev. Bonds (OCLC Online Computer Library Ctr.), | |||
| 5s, 4/15/13 | A | 2,610,000 | 2,694,068 |
| Franklin Cnty., Dev. Rev. Bonds (American Chemical Society), | |||
| 5.8s, 10/1/14 | A | 2,000,000 | 2,090,380 |
| Franklin Cnty., Econ. Dev. Rev. Bonds (Capitol South Cmnty. | |||
| Urban), 5 3/4s, 6/1/11 | BBB-/P | 1,000,000 | 1,028,270 |
| Franklin Cnty., Hlth. Care Fac. Rev. Bonds (OH Presbyterian | |||
| Svcs.), 7 1/8s, 7/1/29 (Prerefunded) | BBB | 2,000,000 | 2,258,520 |
| Greater Cleveland Regl. Trans. Auth. G.O. Bonds (Cap. Impt.), | |||
| MBIA, 5s, 12/1/24 | Aaa | 1,350,000 | 1,413,477 |
| Greene Cnty., Swr. Syst. Rev. Bonds (Governmental Enterprise), | |||
| AMBAC, 5 5/8s, 12/1/13 (Prerefunded) | Aaa | 1,380,000 | 1,473,661 |
| Hamilton Cnty., Econ. Dev. Rev. Bonds (King Highland Cmnty. | |||
| Urban), Ser. A, MBIA, 5s, 6/1/22 | Aaa | 1,745,000 | 1,837,921 |
25
| MUNICIPAL BONDS AND NOTES (97.1%)* continued | |||
| Rating** | Principal amount | Value | |
| Ohio continued | |||
| Hamilton, City School Dist. G.O. Bonds, Ser. A, 5 1/2s, | |||
| 12/1/24 (Prerefunded) | AA | $ 2,000,000 | $ 2,102,120 |
| Hillard, School Dist. G.O. Bonds (School Impts.), FGIC, 5 3/4s, | |||
| 12/1/24 (Prerefunded) | Aaa | 3,000,000 | 3,215,760 |
| Huran Cnty., Human Svcs. Rev. Bonds, MBIA, 6.55s, 12/1/20 | Aaa | 1,800,000 | 2,164,194 |
| Lake Ohio, School Dist. G.O. Bonds, FGIC, 5 3/4s, 12/1/21 | |||
| (Prerefunded) | Aaa | 1,000,000 | 1,063,150 |
| Lakewood, City School Dist. G.O. Bonds, FSA, zero %, 12/1/16 | Aaa | 1,250,000 | 839,475 |
| Lakota, School Dist. Rev. Bonds, AMBAC, 7s, 12/1/10 | Aaa | 1,000,000 | 1,100,550 |
| Lorain Cnty., Elderly Hsg. Corp. Multi-Fam. Rev. Bonds (Harr | |||
| Plaza & Intl.), Ser. A, 6 3/8s, 7/15/19 | BBB | 1,300,000 | 1,319,968 |
| Lorain Cnty., Hosp. Rev. Bonds (Catholic Hlth. Care Refurbish & | |||
| Impt.), Ser. A, 5 1/4s, 10/1/33 | Aa3 | 750,000 | 777,113 |
| Madeira, City School Dist. G.O. Bonds (School Impt.), MBIA, 5s, | |||
| 12/1/26 (Prerefunded) | Aaa | 1,620,000 | 1,733,675 |
| Miami Cnty., Hosp. Fac. Rev. Bonds (Upper Valley Med. Ctr.), | |||
| 5 1/4s, 5/15/17 | A- | 1,250,000 | 1,313,675 |
| Middletown, City School Dist. G.O. Bonds (School Impt.), FGIC, | |||
| 5s, 12/1/25 (Prerefunded) | Aaa | 1,285,000 | 1,366,855 |
| Midview, School Dist. COP (School Bldg. Fac.), 5 1/4s, 11/1/17 | A | 2,535,000 | 2,666,060 |
| Montgomery Cnty., Rev. Bonds (Catholic Hlth. Initiatives), | |||
| Ser. A, 5s, 5/1/32 | Aa2 | 1,000,000 | 1,027,560 |
| Montgomery Cnty., Hlth. Syst. Rev. Bonds, Ser. B-1, 8.1s, | |||
| 7/1/18 (Prerefunded) | AAA | 35,000 | 35,458 |
| Montgomery Cnty., Hosp. Rev. Bonds | |||
| (Kettering Med. Ctr.), 6 3/4s, 4/1/22 (Prerefunded) | A2 | 1,500,000 | 1,629,900 |
| (Grandview Hosp. & Med Ctr.), 5.6s, 12/1/11 (Prerefunded) | A | 580,000 | 605,410 |
| North East Regl. Swr. Dist. Waste Wtr. Rev. Bonds, MBIA, 4 3/4s, 11/15/25 | Aaa | 1,340,000 | 1,379,597 |
| Northwestern, School Dist. Rev. Bonds (Wayne & Ashland Cntys. | |||
| School Impt.), FGIC, 7.2s, 12/1/10 | Aaa | 835,000 | 889,676 |
| OH Hsg. Fin. Agcy. Rev. Bonds | |||
| Ser. B, GNMA Coll., 5s, 3/1/34 | Aaa | 1,385,000 | 1,404,529 |
| (Res. Dev.), Ser. A, GNMA Coll., 4.6s, 9/1/28 | Aaa | 400,000 | 399,928 |
| (Res. Mtge.), Ser. E, GNMA Coll., FNMA Coll., FHLMC Coll., | |||
| 4 1/4s, 3/1/15 | Aaa | 485,000 | 485,732 |
| (Res. Mtge.), Ser. C, GNMA Coll., FNMA Coll., 4.1s, 3/1/15 | Aaa | 450,000 | 447,912 |
| OH Hsg. Fin. Agcy. Single Fam. Mtge. Ser. G, GNMA Coll., | |||
| 7.14s, 3/2/23 | Aaa | 100,000 | 100,927 |
| OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds, Ser. 85-A, | |||
| FGIC, FHA Insd., zero %, 1/15/15 | Aaa | 15,000 | 7,132 |
| OH State G.O. Bonds (Higher Ed.), Ser. A, 5s, 2/1/23 | Aa1 | 2,000,000 | 2,098,380 |
| OH State Rev. Bonds (Revitalization), Ser. A, AMBAC, 5s, 4/1/19 | Aaa | 1,750,000 | 1,862,840 |
| OH State Env. Impt. Rev. Bonds (USX Corp.), 5 5/8s, 5/1/29 | Baa1 | 750,000 | 785,318 |
| OH State Higher Edl. Fac. Mandatory Put Bonds (Kenyon College), | |||
| 5.05s, 7/1/16 | A+ | 2,000,000 | 2,119,340 |
| OH State Higher Edl. Fac. Rev. Bonds | |||
| (Case Western Reserve U.), 6 1/4s, 10/1/18 | AA- | 2,000,000 | 2,376,240 |
| (Case Western Reserve U.), 6s, 10/1/14 | AA- | 1,000,000 | 1,123,100 |
| (Oberlin College), 5 1/8s, 10/1/24 | Aa2 | 1,500,000 | 1,577,100 |
| OH State Higher Edl. Fac. Commn. Rev. Bonds | |||
| (John Carroll U.), 5 1/2s, 11/15/18 | A2 | 335,000 | 359,944 |
| (John Carroll U.), 5 1/2s, 11/15/17 | A2 | 420,000 | 452,995 |
| (Denison U.), 5 1/8s, 11/1/21 (Prerefunded) | AA | 2,270,000 | 2,406,314 |
| (Oberlin College), 5s, 10/1/33 | Aa2 | 1,000,000 | 1,034,410 |
| (Northern U.), 4 3/4s, 5/1/19 | A2 | 2,500,000 | 2,523,525 |
| (John Carroll U.), 3s, 11/15/07 | A2 | 500,000 | 497,185 |
| OH State Poll. Control Rev. Bonds (Standard Oil Co.), 6 3/4s, 12/1/15 | Aa1 | 3,350,000 | 3,983,653 |
| OH State Solid Waste Mandatory Put Bonds, 4.85s, 11/1/07 | BBB | 1,500,000 | 1,503,345 |
26
| MUNICIPAL BONDS AND NOTES (97.1%)* continued | |||
| Rating** | Principal amount | Value | |
| Ohio continued | |||
| OH State U. Rev. Bonds | |||
| Ser. B, 5 1/4s, 6/1/17 | Aa2 | $ 2,470,000 | $ 2,639,763 |
| Ser. A, 5 1/8s, 12/1/31 | Aa2 | 1,000,000 | 1,044,420 |
| OH State Wtr. Dev. Auth. Poll. Control Rev. Bonds (Wtr. | |||
| Quality), Ser. B, zero %, 12/1/14 | Aaa | 3,500,000 | 2,567,565 |
| OH State Wtr. Dev. Auth. Solid Waste Disp. Rev. Bonds (Bay Shore | |||
| Power Co.), Ser. A, 5 7/8s, 9/1/20 | BB+/P | 1,000,000 | 1,018,900 |
| OH U. Gen. Recipients Athens Rev. Bonds, MBIA, 5s, 12/1/25 | Aaa | 2,265,000 | 2,365,385 |
| Olentangy, Local School Dist. G.O. Bonds, FSA, 5s, 12/1/19 | Aaa | 1,750,000 | 1,864,713 |
| Powell, G.O. Bonds, FGIC, 5 1/2s, 12/1/25 | Aaa | 1,500,000 | 1,603,035 |
| Rickenbacker, Port Auth. Rev. Bonds (OASBO Expanded Asset | |||
| Pooled), Ser. A, 5 3/8s, 1/1/32 | A2 | 2,165,000 | 2,366,540 |
| River Valley, Local School Dist. G.O. Bonds (School Fac. | |||
| Construction & Impt.), FSA, 5 1/4s, 11/1/23 | Aaa | 300,000 | 335,169 |
| Sandusky Cnty., Hosp. Fac. Rev. Bonds (Memorial Hosp.) | |||
| 5.15s, 1/1/10 | BBB- | 830,000 | 831,195 |
| 5.15s, 1/1/08 | BBB- | 500,000 | 500,955 |
| Summit Cnty., G.O. Bonds, Ser. R, FGIC, 5 1/2s, 12/1/18 | Aaa | 500,000 | 564,115 |
| Tallmadge, City School Dist. G.O. Bonds (School Fac.), FSA, 5s, 12/1/26 | AAA | 1,410,000 | 1,479,048 |
| Toledo, G.O. Bonds (Macys), Ser. A, MBIA, 6.35s, 12/1/25 | Aaa | 1,500,000 | 1,546,605 |
| Toledo, Swr. Syst. Mtge. Rev. Bonds, AMBAC, 6.2s, 11/15/12 | Aaa | 2,925,000 | 3,252,074 |
| Toledo, Wtr. Wks. Mtge. Rev. Bonds, AMBAC, 6.2s, 11/15/12 | Aaa | 1,175,000 | 1,306,389 |
| Toledo-Lucas Cnty., Port Auth. Rev. Bonds (CSX Transn, Inc.), | |||
| 6.45s, 12/15/21 | Baa3 | 1,900,000 | 2,238,352 |
| Twin Valley, Cmnty. Local School Dist. Rev. Bonds, FGIC, 7.05s, 12/1/11 | Aaa | 1,000,000 | 1,083,860 |
| U. of Cincinnati COP (Jefferson Ave. Residence Hall), MBIA, | |||
| 5 1/8s, 6/1/28 | Aaa | 1,000,000 | 1,028,090 |
| U. of Cincinnati Rev. Bonds, Ser. D, AMBAC | |||
| 5s, 6/1/24 | Aaa | 2,000,000 | 2,088,640 |
| 5s, 6/1/23 | Aaa | 1,275,000 | 1,331,508 |
| Westerville, City School Dist. Rev. Bonds (School Impt.) | |||
| 6 1/4s, 12/1/09 | Aa3 | 1,610,000 | 1,700,868 |
| 6 1/4s, 12/1/08 | Aa3 | 1,590,000 | 1,647,494 |
| Woodridge, School Dist. Rev. Bonds, AMBAC, 6.8s, 12/1/14 | Aaa | 3,000,000 | 3,337,680 |
| Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds, FHA Insd. | |||
| 7 3/8s, 10/1/21 (Prerefunded) | AAA/P | 220,000 | 275,279 |
| 7 3/8s, 10/1/20 (Prerefunded) | AAA/P | 205,000 | 256,510 |
| 7 3/8s, 10/1/19 (Prerefunded) | AAA/P | 185,000 | 231,485 |
| 7 3/8s, 10/1/18 (Prerefunded) | AAA/P | 180,000 | 225,229 |
| 7 3/8s, 10/1/17 (Prerefunded) | AAA/P | 160,000 | 200,203 |
| 7 3/8s, 10/1/16 (Prerefunded) | AAA/P | 155,000 | 193,947 |
| 141,459,686 | |||
| Puerto Rico (4.6%) | |||
| Children’s Trust Fund Tobacco Settlement Rev. Bonds, 5 3/8s, 5/15/33 | BBB | 585,000 | 610,611 |
| Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds | |||
| Ser. G, 5s, 7/1/33 (Prerefunded) | Aaa | 195,000 | 207,252 |
| Ser. G, 5s, 7/1/33 | BBB+ | 100,000 | 102,628 |
| Ser. K, 5s, 7/1/13 | BBB+ | 500,000 | 523,960 |
| Cmnwlth. of PR, Muni. Fin. Agcy. G.O. Bonds, Ser. A, FSA, | |||
| 5 7/8s, 8/1/14 (Prerefunded) | Aaa | 3,000,000 | 3,162,180 |
| PR Hsg. Fin. Corp. Rev. Bonds, Ser. B, GNMA Coll, FNMA Coll, | |||
| FHLMC Coll., 4.45s, 6/1/27 | Aaa | 815,000 | 817,608 |
| PR Indl. Tourist Edl. Med. & Env. Control Fac. Rev. Bonds | |||
| (Cogen. Fac.-AES), 6 5/8s, 6/1/26 | Baa3 | 1,000,000 | 1,078,910 |
| PR Muni. Fin. Agcy. G.O. Bonds, Ser. C, 5s, 8/1/10 | Baa3 | 560,000 | 575,249 |
| 7,078,398 | |||
27
| MUNICIPAL BONDS AND NOTES (97.1%)* continued | |||
| Rating** | Principal amount | Value | |
| Virgin Islands (0.6%) | |||
| Tobacco Settlement Fin. Corp. Rev. Bonds, 5s, 5/15/21 | Baa3 | $ 865,000 | $ 875,083 |
| TOTAL INVESTMENTS | |||
| Total investments (cost $142,694,701) | $ 149,413,167 | ||
* Percentages indicated are based on net assets of $153,868,252.
** The Moody’s or Standard & Poor’s ratings indicated are believed to be the most recent ratings available at May 31, 2007 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, 2007. Securities rated by Putnam are indicated by “/P.” Securities rated by Fitch are indicated by “/F.” Ratings are not covered by the Report of Independent Registered Public Accounting Firm. Security ratings are defined in the Statement of Additional Information.
The rates shown on Variable Rate Demand Notes (VRDN) and Mandatory Put Bonds are the current interest rates at May 31, 2007.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
The dates shown on debt obligations other than Mandatory Put Bonds are the original maturity dates.
The fund had the following sector concentrations greater than 10% at May 31, 2007 (as a percentage of net assets):
| Local government | 36.5% |
| Education | 20.0 |
The fund had the following insurance concentrations greater than 10% at May 31, 2007 (as a percentage of net assets):
| MBIA | 12.3% |
| AMBAC | 11.0 |
| FSA | 10.8 |
The accompanying notes are an integral part of these financial statements.
28
Statement of assets and liabilities 5/31/07
| ASSETS | |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $142,694,701) | $149,413,167 |
| Cash | 2,057,087 |
| Interest and other receivables | 2,699,485 |
| Receivable for shares of the fund sold | 91,457 |
| Receivable for securities sold | 185,000 |
| Total assets | 154,446,196 |
| LIABILITIES | |
| Distributions payable to shareholders | 178,633 |
| Payable for shares of the fund repurchased | 66,082 |
| Payable for compensation of Manager (Note 2) | 184,601 |
| Payable for investor servicing and custodian fees (Note 2) | 3,199 |
| Payable for Trustee compensation and expenses (Note 2) | 63,749 |
| Payable for administrative services (Note 2) | 1,152 |
| Payable for distribution fees (Note 2) | 58,608 |
| Other accrued expenses | 21,920 |
| Total liabilities | 577,944 |
| Net assets | $153,868,252 |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $148,985,260 |
| Undistributed net investment income (Note 1) | 96,365 |
| Accumulated net realized loss on investments (Note 1) | (1,931,839) |
| Net unrealized appreciation of investments | 6,718,466 |
| Total — Representing net assets applicable to capital shares outstanding | $153,868,252 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share ($139,448,365 divided by 15,535,822 shares) | $8.98 |
| Offering price per class A share (100/96.25 of $8.98)* | $9.33 |
| Net asset value and offering price per class B share ($12,931,229 divided by 1,442,128 shares)** | $8.97 |
| Net asset value and offering price per class C share ($331,510 divided by 36,971 shares)** | $8.97 |
| Net asset value and redemption price per class M share ($1,157,148 divided by 128,809 shares) | $8.98 |
| Offering price per class M share (100/96.75 of $8.98)*** | $9.28 |
* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
29
Statement of operations Year ended 5/31/07
| INTEREST INCOME | $7,787,244 |
| EXPENSES | |
| Compensation of Manager (Note 2) | 816,691 |
| Investor servicing fees (Note 2) | 97,585 |
| Custodian fees (Note 2) | 39,848 |
| Trustee compensation and expenses (Note 2) | 36,787 |
| Administrative services (Note 2) | 18,579 |
| Distribution fees — Class A (Note 2) | 299,537 |
| Distribution fees — Class B (Note 2) | 140,739 |
| Distribution fees — Class C (Note 2) | 530 |
| Distribution fees — Class M (Note 2) | 6,700 |
| Other | 125,889 |
| Non-recurring costs (Notes 2 and 5) | 123 |
| Costs assumed by Manager (Notes 2 and 5) | (123) |
| Fees reimbursed by Manager (Note 2) | (19,710) |
| Total expenses | 1,563,175 |
| Expense reduction (Note 2) | (64,137) |
| Net expenses | 1,499,038 |
| Net investment income | 6,288,206 |
| Net realized gain on investments (Notes 1 and 3) | 449,971 |
| Net realized loss on futures contracts (Note 1) | (25,530) |
| Net realized loss on swap contracts (Note 1) | (69,178) |
| Net unrealized depreciation of investments, futures contracts and swap contracts during the year | (34,556) |
| Net gain on investments | 320,707 |
| Net increase in net assets resulting from operations | $6,608,913 |
The accompanying notes are an integral part of these financial statements.
30
Statement of changes in net assets
| DECREASE IN NET ASSETS | ||
| Year ended | Year ended | |
| 5/31/07 | 5/31/06 | |
| Operations: | ||
| Net investment income | $ 6,288,206 | $ 6,568,923 |
| Net realized gain on investments | 355,263 | 210,446 |
| Net unrealized depreciation of investments | (34,556) | (5,004,359) |
| Net increase in net assets resulting from operations | 6,608,913 | 1,775,010 |
| Distributions to shareholders: (Note 1) | ||
| From ordinary income | ||
| Taxable net investment income | ||
| Class A | (7,817) | (27,963) |
| Class B | (898) | (4,246) |
| Class C | (1) | — |
| Class M | (74) | (272) |
| From tax-exempt net investment income | ||
| Class A | (5,735,525) | (5,721,391) |
| Class B | (547,219) | (730,162) |
| Class C | (1,550) | — |
| Class M | (48,969) | (48,438) |
| Redemption fees (Note 1) | 1 | — |
| Decrease from capital share transactions (Note 4) | (15,524,435) | (5,895,321) |
| Total decrease in net assets | (15,257,574) | (10,652,783) |
| NET ASSETS | ||
| Beginning of year | 169,125,826 | 179,778,609 |
| End of year (including undistributed net investment income of $96,365 and $149,253, respectively) | $153,868,252 | $169,125,826 |
The accompanying notes are an integral part of these financial statements.
31
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||||
| Net | Total | Ratio of net | |||||||||||
| Net asset | realized and | Total | From | Net asset | return | Net | Ratio of | investment | |||||
| value, | Net | unrealized | from | net | value, | at net | assets, | expenses to | income (loss) | Portfolio | |||
| beginning | investment | gain (loss) on | investment | investment | Total | Redemption | end | asset | end of period | average net | to average | turnover | |
| Period ended | of period | income (loss) | investments | operations | income | distributions | fees | of period | value (%)(a) | (in thousands) | assets (%)(b) | net assets (%) | (%) |
| CLASS A | |||||||||||||
| May 31, 2007 | $8.97 | .36(c) | .01 | .37 | (.36) | (.36) | —(d) | $8.98 | 4.16 | $139,448 | .89(c) | 3.91(c) | 15.46 |
| May 31, 2006 | 9.22 | .35(c) | (.25) | .10 | (.35) | (.35) | — | 8.97 | 1.13 | 148,135 | .89(c) | 3.87(c) | 5.77 |
| May 31, 2005 | 8.94 | .35(c) | .28 | .63 | (.35) | (.35) | —(d) | 9.22 | 7.15 | 153,016 | .89(c) | 3.88(c) | 12.34 |
| May 31, 2004 | 9.33 | .34(c) | (.38) | (.04) | (.35) | (.35) | — | 8.94 | (.49) | 153,317 | .89(c) | 3.75(c) | 17.43 |
| May 31, 2003 | 8.87 | .36 | .46 | .82 | (.36) | (.36) | — | 9.33 | 9.48 | 183,383 | .88 | 3.94 | 25.66 |
| CLASS B | |||||||||||||
| May 31, 2007 | $8.96 | .30(c) | .01 | .31 | (.30) | (.30) | —(d) | $8.97 | 3.47 | $12,931 | 1.53(c) | 3.27(c) | 15.46 |
| May 31, 2006 | 9.21 | .29(c) | (.25) | .04 | (.29) | (.29) | — | 8.96 | .47 | 19,643 | 1.54(c) | 3.22(c) | 5.77 |
| May 31, 2005 | 8.93 | .29(c) | .28 | .57 | (.29) | (.29) | —(d) | 9.21 | 6.47 | 25,898 | 1.54(c) | 3.23(c) | 12.34 |
| May 31, 2004 | 9.32 | .28(c) | (.38) | (.10) | (.29) | (.29) | — | 8.93 | (1.15) | 33,382 | 1.54(c) | 3.10(c) | 17.43 |
| May 31, 2003 | 8.86 | .30 | .47 | .77 | (.31) | (.31) | — | 9.32 | 8.78 | 43,983 | 1.53 | 3.30 | 25.66 |
| CLASS C | |||||||||||||
| May 31, 2007† | $9.09 | .19(c) | (.12) | .07 | (.19) | (.19) | — | $8.97 | .80* | $332 | 1.11*(c) | 2.04*(c) | 15.46 |
| CLASS M | |||||||||||||
| May 31, 2007 | $8.98 | .33(c) | —(d) | .33 | (.33) | (.33) | —(d) | $8.98 | 3.73 | $1,157 | 1.18(c) | 3.63(c) | 15.46 |
| May 31, 2006 | 9.23 | .33(c) | (.26) | .07 | (.32) | (.32) | — | 8.98 | .83 | 1,347 | 1.19(c) | 3.58(c) | 5.77 |
| May 31, 2005 | 8.94 | .33(c) | .28 | .61 | (.32) | (.32) | —(d) | 9.23 | 6.94 | 865 | 1.19(c) | 3.58(c) | 12.34 |
| May 31, 2004 | 9.33 | .32(c) | (.39) | (.07) | (.32) | (.32) | — | 8.94 | (.80) | 907 | 1.19(c) | 3.41(c) | 17.43 |
| May 31, 2003 | 8.88 | .33 | .46 | .79 | (.34) | (.34) | — | 9.33 | 9.03 | 3,457 | 1.18 | 3.64 | 25.66 |
* Not annualized.
† For the period October 3, 2006 (commencement of operations) to May 31, 2007.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class reflect a reduction of the following amounts (Note 2):
| Percentage | ||
| of average | ||
| net assets | ||
| May 31, 2007 | 0.01% | |
| May 31, 2006 | 0.01 | |
| May 31, 2005 | 0.01 | |
| May 31, 2004 | 0.01 | |
(d) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
| 32 | 33 |
Notes to financial statements 5/31/07
Note 1: Significant accounting policies
Putnam Ohio Tax Exempt Income Fund (the “fund”), a Massachusetts business trust, 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, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is consistent with preservation of capital by investing primarily in a portfolio of investment-grade Ohio tax-exempt securities with intermediate- to long-term maturities. The fund may be affected by economic and political developments in the state of Ohio.
The fund offers class A, class B, class C and class M shares. The fund began offering class C shares on October 3, 2006. Class A and class M shares are sold with a maximum front-end sales charge of 3.75% and 3.25%, respectively, and generally do not pay contingent deferred sales charges. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. The expenses for class A, class B, class C and class M shares may differ based on the distribution fee of each class, which is identified in Note 2.
Effective October 2, 2006, a 1.00% redemption fee may apply on any shares purchased on or after such date that are redeemed (either by selling or exchanging into another fund) within 7 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital. Prior to October 2, 2006 a 2.00% redemption fee applied to any shares that were redeemed (either by selling or exchanging into another fund) within 5 days of purchase.
Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.
In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.
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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 generally valued on the basis of valuations provided by an independent pricing service approved by the Trustees. Such services use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Certain investments are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.
B) Security transactions and related investment income Security transactions are recorded 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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. The premium in excess of the call price, if any, is amortized to the call date; thereafter, any remaining premium is amortized to maturity.
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, or for other investment purposes. The fund may also write options on swaps or 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. Risks may exceed amounts recognized on the Statement of assets and liabilities. 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. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is re corded as a reduction to the cost of investments.
Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” 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. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.
D) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the fund’s exposure to interest rates. Interest rate swap contracts are marked
34
to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.
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 of 1986 (the “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 Code, 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, 2007, the fund had a capital loss carryover of $1,035,567 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:
| Loss Carryover | Expiration | |
| $675,322 | May 31, 2009 | |
| 360,245 | May 31, 2010 | |
F) Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, 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 temporary and/or permanent differences of dividends payable and straddle loss deferrals. 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, 2007, the fund reclassified $959 to increase undistributed net investment income and with an increase to accumulated net realized losses of $959.
The tax basis components of distributable earnings and the federal tax cost as of May 31, 2007 were as follows:
| Unrealized appreciation | $ 7,031,962 |
| Unrealized depreciation | (313,496) |
| ——————————————— | |
| Net unrealized appreciation | 6,718,466 |
| Undistributed tax-exempt income | 263,143 |
| Undistributed ordinary income | 6,042 |
| Capital loss carryforward | (1,035,567) |
| Cost for federal income tax purposes | $ 142,694,701 |
Note 2: Management fee, administrative services
and other transactions
Putnam Management is paid for management and investment advisory services 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 expressed as a percentage of the fund’s average net assets: 0.60% of the first $500 million, 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.
Putnam Management has agreed to waive fees and reimburse expenses of the fund through May 31, 2008 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the year ended May 31, 2007, Putnam Management waived $19,710 of its management fee from the fund.
For the year ended May 31, 2007, Putnam Management has assumed $123 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 5).
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 were provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC, and by State Street Bank and Trust Company. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees for investor servicing based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended May 31, 2007, the fund incurred $133,128 for custody and investor servicing agent functions provided by PFTC.
The fund has entered into arrangements with PFTC and State Street Bank and Trust Company whereby PFTC’s and State Street Bank and Trust Company’s fees are reduced by credits allowed on cash balances. For the year ended May 31, 2007, the fund’s expenses were reduced by $64,137 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $281, as a quarterly retainer, 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, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who was not an independent Trustee during the period, also receives the foregoing fees for his services as Trustee.
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.
35
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 and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C 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, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at the annual rate of 0.85%, 1.00% and 0.50% of the average net assets for class B, class C and class M shares, respectively. For class A shares, the annual payment rate will equal the weighted average of (i) 0.20% on the net assets of the fund attribu table to class A shares purchased and paid for prior to April 1, 2005 and (ii) 0.25% on all other net assets of the fund attributable to class A shares.
For the year ended May 31, 2007, Putnam Retail Management, acting as underwriter, received net commissions of $7,646 and $40 from the sale of class A and class M shares, respectively, and received $9,527 and no monies in contingent deferred sales charges from redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares that were purchased without an initial sales charge as part of an investment of $1 million or more. For the year ended May 31, 2007, Putnam Retail Management, acting as underwriter, received $2,900 on class A redemptions.
Note 3: Purchases and sales of securities
During the year ended May 31, 2007, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $24,163,432 and $38,157,047, respectively. There were no purchases or sales of U.S. government securities.
Note 4: Capital shares
At May 31, 2007, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| CLASS A | Shares | Amount | ||
| Year ended 5/31/07: | ||||
| Shares sold | 991,085 | $ | 8,964,107 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 475,089 | 4,297,478 | ||
| 1,466,174 | 13,261,585 | |||
| Shares repurchased | (2,445,054) | (22,144,112) | ||
| Net decrease | (978,880) | $ | (8,882,527) | |
| Year ended 5/31/06: | ||||
| Shares sold | 1,572,462 | $ | 14,263,576 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 450,813 | 4,093,495 | ||
| 2,023,275 | 18,357,071 | |||
| Shares repurchased | (2,106,259) | (19,150,738) | ||
| Net decrease | (82,984) | $ | (793,667) | |
| CLASS B | Shares | Amount | ||
| Year ended 5/31/07: | ||||
| Shares sold | 32,487 | $ | 292,218 | |
| Shares issued in connection with | ||||
| of distributions | 43,657 | 394,431 | ||
| 76,144 | 689,649 | |||
| Shares repurchased | (825,952) | (7,470,599) | ||
| Net decrease | (749,808) | $ | (6,783,950) | |
| Year ended 5/31/06: | ||||
| Shares sold | 111,657 | $ | 1,016,565 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 52,383 | 475,470 | ||
| 164,040 | 1,492,035 | |||
| Shares repurchased | (783,905) | (7,116,153) | ||
| Net decrease | (619,865) | $ | (5,624,118) | |
| CLASS C | Shares | Amount | ||
| For the period 10/3/06 (commencement of operations) to 5/31/07: | ||||
| Shares sold | 36,860 | $ | 333,482 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 111 | 1,004 | ||
| 36,971 | 334,486 | |||
| Shares repurchased | — | — | ||
| Net increase | 36,971 | $ | 334,486 | |
36
| CLASS M | Shares | Amount | ||
| Year ended 5/31/07: | ||||
| Shares sold | 3,311 | $ | 30,055 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 4,360 | 39,481 | ||
| 7,671 | 69,536 | |||
| Shares repurchased | (28,940) | (261,980) | ||
| Net decrease | (21,269) | $ | (192,444) | |
| Year ended 5/31/06: | ||||
| Shares sold | 73,485 | $ | 677,648 | |
| Shares issued in connection with | ||||
| reinvestment of distributions | 4,189 | 38,047 | ||
| 77,674 | 715,695 | |||
| Shares repurchased | (21,300) | (193,231) | ||
| Net increase | 56,374 | $ | 522,464 | |
At May 31, 2007, Putnam, LLC owned 1,123 class C shares of the fund (3% of class C shares outstanding), valued at $10,073.
Note 5: Regulatory matters and litigation
In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission (the “SEC”) and the Massachusetts Securities Division (“MSD”) in connection with excessive short-term trading by certain former Putnam employees and, in the case of charges brought by the MSD, excessive short-term trading by participants in some Putnam-administered 401(k) plans. Putnam Management agreed to pay $193.5 million in penalties and restitution, of which $153.5 million will be distributed to certain open-end Putnam funds and their shareholders after the SEC and MSD approve a distribution plan being developed by an independent consultant. The allegations of the SEC and MSD and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits filed against Putnam Management and, in a limited number of cases, against some Putnam funds. Putnam Management believe s that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.
Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.
Note 6: New accounting pronouncements
In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. The interpretation is not expected to have a material effect on the fund's financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management is currently evaluating what impact the adoption of the Standard will have on the fund’s financial statements.
37
Federal tax information
(Unaudited)
Federal tax information
The fund has designated 99.86% 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 2008 will show the tax status of all distributions paid to your account in calendar 2007.
38
Shareholder meeting
results (Unaudited)
May 15, 2007 meeting
A proposal to approve a new management contract between the fund and Putnam Investment Management, LLC was approved as follows:
| Votes for | Votes against | Abstentions |
| 9,832,459 | 466,409 | 642,319 |
All tabulations are rounded to the nearest whole number.
39
About the Trustees
| Jameson A. Baxter | (Born 1943), Trustee since 1994, | ||
| Vice Chairman since 2005 |
Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Ryerson, Inc. (a metals service corporation), the Mutual Fund Directors Forum, and Advocate Health Care. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company). Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards), and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President and Principal of the Regency Group, and Vice President of and Consultant to First Boston Corporation. She is a graduate of Mount Holyoke College.
Charles B. Curtis (Born 1940), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and serves as a Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a Member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.
Myra R. Drucker (Born 1948), Trustee since 2004
Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in asset management for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a director of New York Stock Exchange LLC, a wholly-owned subsidiary of the publicly-traded NYSE Group, Inc., a director of Interactive Data Corporation (a provider of financial market data, analytics, and related services to financial institutions and individual investors), and an advisor to RCM Capital Management (an investment management firm).
Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also served as a member of the NYSE Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker held various executive positions in the investment management industry. Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a technology and service company in the document industry), where she was responsible for the investment of the company’s pension assets. Ms. Drucker was also Staff Vice President and Director of Trust Investments for International Paper (a paper products, paper distribution, packaging and forest products company) and previously served as Manager of Trust Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics and portfolio theory at Temple University.
| John A. Hill | (Born 1942), Trustee since 1985 | ||
| and Chairman since 2000 |
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity buyout firm that specializes in energy investments in the diversified worldwide energy industry.
40
Mr. Hill is a Director of Devon Energy Corporation and various private companies controlled by First Reserve Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a closed-end investment company advised by an affiliate of Putnam Management). He is also a Trustee of Sarah Lawrence College. Until 2005, he was a Director of Continuum Health Partners of New York.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held executive positions in investment banking and investment management with several firms and with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Director of the Federal Energy Administration. He is active in various business associations, including the Economic Club of New York, and lectures on energy issues in the United States and Europe. Mr. Hill holds a B.A. degree in Economics from Southern Methodist University and pursued graduate studies there as a Woodrow Wilson Fellow.
Paul L. Joskow (Born 1947), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and Management, and Director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure), a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services), and a Member of the Board of Overseers of the Boston Symphony Orchestra. Prior to July 2006, he served as President of the Yale University Council and continues to serve as a Member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding company).
Dr. Joskow has published six books and numerous articles on topics in industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell University.
Elizabeth T. Kennan (Born 1938), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated, as a Trustee of Notre Dame University and is active in various educational and civic associations.
As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history and published numerous articles. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University and an A.B. from Mount Holyoke College. She holds several honorary doctorates.
Kenneth R. Leibler (Born 1949), Trustee since 2006
Mr. Leibler is a founding partner of and advisor to the Boston Options Exchange, the nation’s newest electronic marketplace for the trading of derivative securities.
Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also lead director of Ruder Finn Group, a global communications and advertising firm; and a director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a director of the Optimum Funds group. Prior to October 2006, he served as a director of ISO New England, the organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a director of the Investment Company Institute in Washington, D.C.
Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, he served as President and Chief Operating Officer of the American Stock Exchange, and is the youngest person in Exchange history to hold
41
the title of President. Prior to serving as Amex President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in economics from Syracuse University, where he was elected Phi Beta Kappa.
Robert E. Patterson (Born 1945), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).
Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, he was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).
Mr. Patterson practiced law and held various positions in state government and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.
W. Thomas Stephens (Born 1942), Trustee since 1997
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and timberland assets company).
Until 2005, Mr. Stephens was a director of TransCanadaPipelines, Ltd. Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public utility company), Qwest Communications, and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified printing company). He served as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville Corporation. He holds B.S. and M.S. degrees from the University of Arkansas.
Richard B. Worley (Born 1945), Trustee since 2004
Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.
Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization) and the Philadelphia Orchestra Association. Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief Strategic Officer of Morgan Stanley Investment Management. He previously served as President, Chief Executive Officer and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued graduate studies in economics at the University of Texas.
| Charles E. Haldeman, Jr.* | (Born 1948), Trustee since 2004 | ||
| and President of the Funds since 2007 |
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”) and President of the Putnam Funds. He is a member of Putnam Investments’ Executive Board of Directors and Advisory Council. Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a partner and director of Cooke & Bieler, Inc. (an investment management firm).
Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business and Dartmouth College Board of Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
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George Putnam, III* (Born 1951), Trustee since 1984
Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment advisor to private funds). Mr. Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School. Until 2006, he was a Trustee of Shore Country Day School, and until 2002 was a Trustee of the Sea Education Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School and Harvard Law School.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of May 31, 2007, there were 105 Putnam Funds. All Trustees serve as Trustees of all Putnam funds.
Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be “interested persons” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and Putnam, III are deemed “interested persons” by virtue of their positions as officers of the fund, Putnam Management or Putnam Retail Management and/or as shareholders of Marsh & McLennan Companies, Inc. Mr. Haldeman is the President of your fund and each of the other Putnam funds, and is President and Chief Executive Officer of Putnam Investments.
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Officers
In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:
| Charles E. Porter (Born 1938) | Richard S. Robie, III (Born 1960) |
| Executive Vice President, Principal Executive Officer, Associate | Vice President |
| Treasurer, and Compliance Liaison | Since 2004 |
| Since 1989 | |
| Senior Managing Director, Putnam Investments, Putnam Management | |
| Jonathan S. Horwitz (Born 1955) | and Putnam Retail Management. Prior to 2003, Senior Vice President, |
| Senior Vice President and Treasurer | United Asset Management Corporation |
| Since 2004 | |
| Francis J. McNamara, III (Born 1955) | |
| Prior to 2004, Managing Director, | Vice President and Chief Legal Officer |
| Putnam Investments | Since 2004 |
| Steven D. Krichmar (Born 1958) | Senior Managing Director, Putnam Investments, Putnam Management |
| Vice President and Principal Financial Officer | and Putnam Retail Management. Prior to 2004, General Counsel, |
| Since 2002 | State Street Research & Management Company |
| Senior Managing Director, Putnam Investments | Robert R. Leveille (Born 1969) |
| Vice President and Chief Compliance Officer | |
| Janet C. Smith (Born 1965) | Since 2007 |
| Vice President, Principal Accounting Officer and Assistant Treasurer | |
| Since 2007 | Managing Director, Putnam Investments, Putnam Management, |
| and Putnam Retail Management. Prior to 2005, member of Bell | |
| Managing Director, Putnam Investments and Putnam Management | Boyd & Lloyd LLC. Prior to 2003, Vice President and Senior Counsel, |
| Liberty Funds Group LLC | |
| Susan G. Malloy (Born 1957) | |
| Vice President and Assistant Treasurer | Mark C. Trenchard (Born 1962) |
| Since 2007 | Vice President and BSA Compliance Officer |
| Since 2002 | |
| Managing Director, Putnam Investments | |
| Managing Director, Putnam Investments | |
| Beth S. Mazor (Born 1958) | |
| Vice President | Judith Cohen (Born 1945) |
| Since 2002 | Vice President, Clerk and Assistant Treasurer |
| Since 1993 | |
| Managing Director, Putnam Investments | |
| Wanda M. McManus (Born 1947) | |
| James P. Pappas (Born 1953) | Vice President, Senior Associate Treasurer and Assistant Clerk |
| Vice President | Since 2005 |
| Since 2004 | |
| Nancy E. Florek (Born 1957) | |
| Managing Director, Putnam Investments and Putnam Management. | Vice President, Assistant Clerk, Assistant Treasurer |
| During 2002, Chief Operating Officer, Atalanta/Sosnoff | and Proxy Manager |
| Management Corporation | Since 2005 |
The address of each Officer is One Post Office Square, Boston, MA 02109.
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Fund information
Founded nearly 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.
| Investment Manager | Officers | Mark C. Trenchard |
| Putnam Investment | Charles E. Haldeman, Jr. | Vice President and BSA Compliance Officer |
| Management, LLC | President | |
| One Post Office Square | Judith Cohen | |
| Boston, MA 02109 | Charles E. Porter | Vice President, Clerk and Assistant Treasurer |
| Executive Vice President, Principal Executive | ||
| Marketing Services | Officer, Associate Treasurer, and | Wanda M. McManus |
| Putnam Retail Management | Compliance Liaison | Vice President, Senior Associate Treasurer |
| One Post Office Square | and Assistant Clerk | |
| Boston, MA 02109 | Jonathan S. Horwitz | |
| Senior Vice President and Treasurer | Nancy E. Florek | |
| Custodian | Vice President, Assistant Clerk, | |
| State Street Bank and Trust Company | Steven D. Krichmar | Assistant Treasurer and Proxy Manager |
| Vice President and Principal Financial Officer | ||
| Legal Counsel | ||
| Ropes & Gray LLP | Janet C. Smith | |
| Vice President, Principal Accounting Officer | ||
| Independent Registered Public | and Assistant Treasurer | |
| Accounting Firm | ||
| PricewaterhouseCoopers LLP | Susan G. Malloy | |
| Vice President and Assistant Treasurer | ||
| Trustees | ||
| John A. Hill, Chairman | Beth S. Mazor | |
| Jameson Adkins Baxter, Vice Chairman | Vice President | |
| Charles B. Curtis | ||
| Myra R. Drucker | James P. Pappas | |
| Charles E. Haldeman, Jr. | Vice President | |
| Paul L. Joskow | ||
| Elizabeth T. Kennan | Richard S. Robie, III | |
| Kenneth R. Leibler | Vice President | |
| Robert E. Patterson | ||
| George Putnam, III | Francis J. McNamara, III | |
| W. Thomas Stephens | Vice President and Chief Legal Officer | |
| Richard B. Worley | ||
| Robert R. Leveille | ||
| Vice President and Chief Compliance Officer |
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, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.
Item 2. Code of Ethics:
(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Stephens, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certai n other Trustees, although not on the Audit and Compliance Committee, would also qualify as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:
| Fiscal | Audit- | |||
| year | Audit | Related | Tax | All Other |
| ended | Fees | Fees | Fees | Fees |
| May 31, 2007 | $51,468 | $49 | $7,137 | $82* |
| May 31, 2006 | $43,856* | $-- | $6,790 | $ - |
* Includes fees of $68 and $99 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal years ended May 31, 2007 and May 31, 2006, respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).
For the fiscal years ended May 31, 2007and May 31, 2006, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $157,484 and $238,565 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.
Audit Fees represent fees billed for the fund’s last two fiscal years.
Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.
All Other Fees represent fees billed for services relating to an analysis of recordkeeping fees.
Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.
The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.
The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
| Fiscal | Audit- | All | Total | |
| year | Related | Tax | Other | Non-Audit |
| ended | Fees | Fees | Fees | Fees |
| May 31, | ||||
| 2007 | $ - | $ 61,129 | $ - | $ - |
| May 31, | ||||
| 2006 | $ - | $ 98,160 | $ - | $ - |
Item 5. Audit Committee of Listed Registrants Not applicable
Item 6. Schedule of Investments:
The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:
Not applicable
Item 8. Portfolio Managers of Closed-End Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:
Not applicable
Item 10. Submission of Matters to a Vote of Security Holders:
Not applicable
Item 11. Controls and Procedures:
(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
(b) Changes in internal control over financial reporting: Not applicable
Item 12. Exhibits:
(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.
(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.
(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Putnam Ohio Tax Exempt Income Fund
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer
Date: July 26, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title):
/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer
Date: July 26, 2007
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: July 26, 2007