| 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, 2010 | |
| Date of reporting period: June 1, 2009 — November 30, 2009 | |
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:
A BALANCED APPROACH
Since 1937, when George Putnam created a diverse mix of stocks and bonds in a single, professionally managed portfolio, Putnam has championed the balanced approach.
A WORLD OF INVESTING
Today, we offer investors a world of equity, fixed-income, multi-asset, and absolute-return portfolios to suit a range of financial goals.
A COMMITMENT TO EXCELLENCE
Our portfolio managers seek superior results over time, backed by original, fundamental research on a global scale. We believe in the value of experienced financial advice, in providing exemplary service, and in putting clients first in all we do.
Putnam Ohio
Tax Exempt
Income Fund
Semiannual report
11 | 30 | 09
| Message from the Trustees | 2 |
| About the fund | 4 |
| Performance snapshot | 6 |
| Interview with your fund’s portfolio manager | 7 |
| Your fund’s performance | 11 |
| Your fund’s expenses | 13 |
| Terms and definitions | 15 |
| Trustee approval of management contract | 16 |
| Other information for shareholders | 27 |
| Financial statements | 28 |
| Shareholder meeting results | 46 |
Message from the Trustees
Dear Fellow Shareholder:
As we enter 2010, investors have many reasons to feel a sense of renewal. The stock market’s meteoric rise in the past several months has helped repair some of the damage that investors’ portfolios incurred during the downturn.
Looking forward to the new year, we believe optimism is still warranted. Tangible evidence of recovery has emerged across the real economy and in corporate profits. As economic activity and investor confidence continue to improve, financial markets should remain on their recent path of stabilization. Many of the deep issues that plagued markets in 2008 remain, however, and future prospects for the economy and markets are far from certain. Time-tested investment principles such as diversification, asset allocation, and a long-term perspective apply now more than ever.
We are pleased to report that many Putnam mutual funds have delivered very strong and competitive results over the past several months. This performance reflects the intense efforts of an investment team infused with a determination to excel and strengthened by the arrival of several senior portfolio managers, research analysts, and traders.
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We would like to thank all shareholders who took the time to vote by proxy on a number of issues, including shareholder-friendly management fee changes, at this past fall’s Putnam Funds’ shareholder meetings. We also would like to take this opportunity to welcome new shareholders to the fund and to thank all our investors for your continued confidence in Putnam.
About the fund
Seeking a high level of tax-free 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 local income taxes. 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 managers allocate 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 managers consider the risks involved — including credit risk, interest-rate risk, and the risk that the bond will be prepaid. The managers are backed by the resources of Putnam’s fixed-income organization, in which municipal bond analysts are grouped into sector teams and conduct ongoing, rigorous research. Once a bond has been purchased, the managers monitor for developments that may 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 for investors.
Consider these risks before investing:
The fund invests in fewer issuers or concentrates its investments by region or sector, 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. 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 2009.
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
snapshot
Average annual total return (%) comparison as of 11/30/09
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 the bar chart do not reflect a sales charge of 4.00%; had they, returns would have been lower. See pages 7 and 11–13 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 putnam.com.
* Returns for the six-month period are not annualized, but cumulative.
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Interview with your
fund’s portfolio manager
Thalia Meehan
Thalia, the municipal bond market has experienced volatility recently. How did the market and the fund perform over the past six months?
For the six months ended November 30, 2009, Putnam Ohio Tax Exempt Income Fund returned 4.43%, slightly underperforming both its Lipper peer group, Ohio Municipal Debt Funds, which returned 4.66%, and its broader benchmark, the Barclays Capital Municipal Bond Index, which rose 4.75%.
The period can be divided into two parts —the first three months saw a steady recovery, followed by a more volatile second half. September was an exceptional month for municipal bonds, as investors sought better returns than the near-zero yields offered by money market mutual funds and other short-term investments. In October, the municipal bond market sold off steeply as demand pushed down yields [when bond prices rise, their yields fall] and investors sought to lock in profits. By the end of the period, however, stability had returned.
Build America Bonds received a fair amount of attention during the period. What effect have these bonds had on the municipal bond market?
Build America Bonds, or BABs, are taxable securities issued by state and local governments. Typically, the issuer receives a subsidy directly from the U.S. Treasury to cover 35% of the interest payments. This financing alternative has been quite attractive to
Broad market index and fund performance
This comparison shows your fund’s performance in the context of broad market indexes for the six months ended 11/30/09. See page 6 and pages 11–13 for additional fund performance information. Index descriptions can be found on page 15.
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municipal issuers, allowing them to access a broader base of buyers for their bonds. The net effect for the tax-exempt bond market has been positive as the supply of longer-maturity, high-grade tax-exempt bonds has decreased. It has been quite a successful program for states, and by the end of November, roughly $60 billion worth of BABs was on the market.
What changes did you make to the fund’s positioning during the period?
At the beginning of 2009, municipal bonds across the board looked extremely undervalued by historical standards. When investors reentered the market and prices recovered, it led to less opportunity in certain undervalued segments of the market, particularly in lower-rated municipal bonds. During the semiannual period, we sought to take advantage of those opportunities by adding Baa-rated bonds, which on the whole were offering yields significantly higher than average. This proved beneficial, as the Baa-rated segment went on to deliver the biggest gains by far over the past six months, with holdings in that segment driving the bulk of the fund’s returns.
Were there any notable contributors and detractors?
Our position in Buckeye Tobacco Settlement Financing Authority revenue bonds posted strong returns. To give some background, state tobacco bonds are funded with revenue stemming from a legal agreement that exempted tobacco companies from health-related lawsuits in exchange for annual payments, in perpetuity, to the states to cover tobacco-related health-care costs. Often, these bonds have higher yields than other issues of comparable quality and, in general, tobacco bonds are some of the largest and most liquid BBB-rated municipal bonds on the market. [From a risk
Credit quality overview
Credit qualities are shown as a percentage of portfolio value as of 11/30/09. 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.
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“The period can be divided into two
parts the first three months saw a
steady recovery, followed by a more
volatile second half.”
Thalia Meehan
perspective, a “BBB” rating is considered a bond of medium quality.] When investors sought high-quality securities earlier in 2009, tobacco bonds were some of the easiest positions to exit, and sold off dramatically. As the market recovered, the fund’s position in Buckeye Tobacco bonds rallied sharply, and the position was among the top contributors to returns.
Insured issues were some of the fund’s biggest detractors, as monoline insurers —which guarantee the timely repayment of bond principal and interest when an issuer defaults — were downgraded. Historically, monoline insurance has provided municipal issuers with higher credit ratings and lower interest rates. However, concerns about monoline insurers’ exposure to mortgage bonds resulted in the insurers suffering downgrades to their credit quality, and monoline insurance now has much less value than in the past. In fact, there is no longer any bond insurer rated AAA by all three major ratings agencies — Moody’s Investors Service, Fitch Ratings, and Standard & Poor’s. The fund’s holding in Woodridge School District revenue bonds, backed by monoline insurer Ambac Financial Group Inc., is one su ch example. This holding declined in value after Ambac’s credit had been downgraded.
What is your outlook for the municipal bond market?
Markets are likely to remain challenging in the near term, particularly with the lingering concerns over state budgets, the future
Comparison of top sector weightings
This chart shows how the fund’s top weightings have changed over the past six months. Weightings are shown as a percentage of net assets. Holdings will vary over time. Sector concentrations listed after the portfolio schedule in the Financial Statements section of this shareholder report are exclusive of insured status and interest accruals, and may differ from the summary information above.
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of bond insurers, and the potential for regulatory changes.
IN THE NEWS
It is an interest rate that looks as if it may be with us for some time. The Fed (Federal Reserve Board), responsible for implementing U.S. monetary policy, sets short-term interest rates through changes to the federal funds rate, the interest rate at which banks loan funds to other banks, usually on an overnight basis. Since December 2008, the federal funds rate has been near a record low of 0% as the government works to restore liquidity to the credit market. The federal funds rate began at 1.13% in 1954 and hit a high of 22.36% in 1981. In December, Fed Chairman Ben Bernanke hinted that the central bank’s policy of keeping rates “exceptionally low” for an “extended period” would remain. Despite recent signs of improved economic activity, Chairman Bernanke noted that, “we still have some way to go before we can be assured that the recov ery will be self-sustaining.”
Despite these challenges, as mentioned in the past, municipal bond funds offer two key benefits. First, given the likelihood that the Bush administration tax cuts will be allowed to expire on January 1, 2011, municipal bonds’ tax-free income should become even more attractive compared with taxable fixed income. Second, the overall credit quality of the municipal bond asset class remains high and default rates relative to corporate bonds remain extremely low.
That said, the fourth quarter has been slightly more volatile. Given the massive inflows earlier in the year, it is not surprising that flows into municipal bond funds have slowed recently. Demand in the market is still strong, however, and supply of higher-grade bonds remains light, in part due to the issuance of BABs in the taxable market. Ultimately, we believe we will see a greater discrepancy among the performance of individual securities going forward, in which case security selection will be the main driver of fund performance.
Thank you, Thalia, for your time and insights today.
The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.
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. Current and future portfolio holdings are subject to risk.
Portfolio Manager Thalia Meehan is Team Leader of the Tax Exempt Group at Putnam. She holds a B.A. from Williams College. A CFA charterholder, Thalia joined Putnam in 1989 and has been in the investment industry since 1983.
In addition to Thalia, your fund’s portfolio managers are Paul Drury and Susan McCormack.
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Your fund’s performance
This section shows your fund’s performance, price, and distribution information for periods ended November 30, 2009, the end of the first half of its current 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. Performance information does not reflect any deduction for taxes a shareholder may owe on fund distributions or on the redemption of fund shares. For the most recent month-end performance, please visit the Individual Investors section at put nam.com or call Putnam at 1-800-225-1581. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs. See the Terms and Definitions section in this report for definitions of the share classes offered by your fund.
Fund performance Total return for periods ended 11/30/09
| Class A | Class B | Class C | Class M | Class Y | |||||
| (inception dates) | (10/23/89) | (7/15/93) | (10/3/06) | (4/3/95) | (1/2/08) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | |
| Annual average | |||||||||
| (life of fund) | 5.55% | 5.34% | 4.82% | 4.82% | 4.75% | 4.75% | 5.21% | 5.04% | 5.58% |
| 10 years | 61.39 | 55.09 | 51.32 | 51.32 | 49.62 | 49.62 | 56.94 | 51.69 | 62.25 |
| Annual average | 4.90 | 4.49 | 4.23 | 4.23 | 4.11 | 4.11 | 4.61 | 4.25 | 4.96 |
| 5 years | 21.00 | 16.13 | 17.17 | 15.20 | 16.46 | 16.46 | 19.24 | 15.33 | 21.61 |
| Annual average | 3.89 | 3.04 | 3.22 | 2.87 | 3.09 | 3.09 | 3.58 | 2.89 | 3.99 |
| 3 years | 11.36 | 6.95 | 9.26 | 6.32 | 8.86 | 8.86 | 10.42 | 6.85 | 11.96 |
| Annual average | 3.65 | 2.26 | 3.00 | 2.06 | 2.87 | 2.87 | 3.36 | 2.23 | 3.84 |
| 1 year | 13.86 | 9.37 | 13.14 | 8.14 | 13.14 | 12.14 | 13.71 | 9.94 | 14.21 |
| 6 months | 4.43 | 0.22 | 4.09 | –0.91 | 4.02 | 3.02 | 4.28 | 0.84 | 4.66 |
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 4.00% 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 that is eliminated thereafter. Class Y shares have no initial sales charge or CDSC. Performance for class B, C, M, and Y shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and, except for class Y shares, 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.
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Comparative index returns For periods ended 11/30/09
| Barclays Capital Municipal | Lipper Ohio Municipal Debt Funds | |
| Bond Index | category average* | |
| Annual average (life of fund) | 6.41% | 5.74% |
| 10 years | 73.02 | 57.32 |
| Annual average | 5.64 | 4.62 |
| 5 years | 24.61 | 18.81 |
| Annual average | 4.50 | 3.50 |
| 3 years | 13.04 | 7.24 |
| Annual average | 4.17 | 2.30 |
| 1 year | 14.17 | 13.60 |
| 6 months | 4.75 | 4.66 |
Index and Lipper results should be compared to fund performance at net asset value.
* Over the 6-month, 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 11/30/09, there were 40, 40, 37, 32, 28, and 6 funds, respectively, in this Lipper category.
Fund price and distribution information For the six-month period ended 11/30/09
| Distributions | Class A | Class B | Class C | Class M | Class Y | ||
| Number | 6 | 6 | 6 | 6 | 6 | ||
| Income 1 | $0.184992 | $0.156593 | $0.150269 | $0.173638 | $0.194863 | ||
| Capital gains 2 | — | — | — | — | — | ||
| Total | $0.184992 | $0.156593 | $0.150269 | $0.173638 | $0.194863 | ||
| Share value | NAV | POP | NAV | NAV | NAV | POP | NAV |
| 5/31/09 | $8.79 | $9.16 | $8.78 | $8.79 | $8.80 | $9.10 | $8.79 |
| 11/30/09 | 8.99 | 9.36 | 8.98 | 8.99 | 9.00 | 9.30 | 9.00 |
| Current yield (end of period) | NAV | POP | NAV | NAV | NAV | POP | NAV |
| Current dividend rate 3 | 4.15% | 3.98% | 3.52% | 3.37% | 3.89% | 3.77% | 4.37% |
| Taxable equivalent 4 | 6.79 | 6.51 | 5.76 | 5.51 | 6.36 | 6.17 | 7.15 |
| Current 30-day SEC yield 5,6 | |||||||
| (with expense limitation) | N/A | 3.44 | 2.96 | 2.81 | N/A | 3.20 | 3.80 |
| Taxable equivalent 4 | N/A | 5.63 | 4.84 | 4.60 | N/A | 5.23 | 6.21 |
| Current 30-day SEC yield 6 | |||||||
| (without expense limitation) | N/A | 3.39 | 2.91 | 2.76 | N/A | 3.15 | 3.76 |
The classification of distributions, if any, is an estimate. Final distribution information will appear on your year-end tax forms.
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 38.85% federal and state combined tax rate for 2009. Results for investors subject to lower tax rates would not be as advantageous.
5 For a portion of the period, this fund limited expenses, without which yields would have been lower.
6 Based only on investment income and calculated using the maximum offering price for each share class, in accordance with SEC guidelines.
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Fund performance as of most recent calendar quarter
Total return for periods ended 12/31/09
| Class A | Class B | Class C | Class M | Class Y | |||||
| (inception dates) | (10/23/89) | (7/15/93) | (10/3/06) | (4/3/95) | (1/2/08) | ||||
| NAV | POP | NAV | CDSC | NAV | CDSC | NAV | POP | NAV | |
| Annual average | |||||||||
| (life of fund) | 5.53% | 5.32% | 4.81% | 4.81% | 4.74% | 4.74% | 5.19% | 5.02% | 5.56% |
| 10 years | 63.52 | 56.96 | 53.30 | 53.30 | 51.56 | 51.56 | 58.93 | 53.79 | 64.42 |
| Annual average | 5.04 | 4.61 | 4.36 | 4.36 | 4.25 | 4.25 | 4.74 | 4.40 | 5.10 |
| 5 years | 19.70 | 14.95 | 15.92 | 13.96 | 15.24 | 15.24 | 18.00 | 14.17 | 20.34 |
| Annual average | 3.66 | 2.83 | 3.00 | 2.65 | 2.88 | 2.88 | 3.37 | 2.69 | 3.77 |
| 3 years | 11.88 | 7.42 | 9.76 | 6.80 | 9.38 | 9.38 | 11.06 | 7.43 | 12.48 |
| Annual average | 3.81 | 2.41 | 3.15 | 2.22 | 3.03 | 3.03 | 3.56 | 2.42 | 4.00 |
| 1 year | 13.12 | 8.69 | 12.41 | 7.41 | 12.27 | 11.27 | 12.97 | 9.26 | 13.50 |
| 6 months | 5.89 | 1.66 | 5.56 | 0.55 | 5.48 | 4.48 | 5.76 | 2.32 | 6.00 |
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 following information, 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 representative.
Expense ratios
| Class A | Class B | Class C | Class M | Class Y | |
| Net expenses for the fiscal year ended 5/31/09* | 0.82% | 1.45% | 1.60% | 1.10% | 0.60% |
| Total annual operating expenses for the fiscal year | |||||
| ended 5/31/09 | 0.87% | 1.50% | 1.65% | 1.15% | 0.65% |
| Annualized expense ratio for the six-month period | |||||
| ended 11/30/09 | 0.82% | 1.45% | 1.60% | 1.10% | 0.60% |
Fiscal-year expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown for the annualized expense ratio and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.
* Reflects Putnam Management’s decision to contractually limit expenses through 7/31/10.
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Expenses per $1,000
The following table shows the expenses you would have paid on a $1,000 investment in Putnam Ohio Tax Exempt Income Fund from June 1, 2009, to November 30, 2009. 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 | Class Y | ||||||
| Expenses paid per $1,000 *† | $4.20 | $7.42 | $8.18 | $5.63 | $3.08 | |||||
| Ending value (after expenses) | $1,044.30 | $1,040.90 | $1,040.20 | $1,042.80 | $1,046.60 | |||||
* 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 11/30/09. The expense ratio may differ for each share class.
† 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 November 30, 2009, use the following calculation method. To find the value of your investment on June 1, 2009, 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 following table 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 | Class Y | ||||||
| Expenses paid per $1,000 *† | $4.15 | $7.33 | $8.09 | $5.57 | $3.04 | |||||
| Ending value (after expenses) | $1,020.96 | $1,017.80 | $1,017.05 | $1,019.55 | $1,022.06 | |||||
* 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 11/30/09. The expense ratio may differ for each share class.
† 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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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 4.00% 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 and 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.
Current yield is the annual rate of return earned from dividends or interest of an investment. Current yield is expressed as a percentage of the price of a security, fund share, or principal investment.
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.
Class Y shares are not subject to an initial sales charge or CDSC, and carry no 12b-1 fee. They are generally only available to corporate and institutional clients and clients in other approved programs.
Comparative indexes
Barclays Capital Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.
Barclays Capital Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.
BofA Merrill Lynch U.S. 3-Month 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 Investment Management (“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 2009, the Contract Committee met several 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 information with all of the Independent Trustees. At the Trustees’ June 12, 2009 meeting, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1 , 2009. In addition, at the Trustees’ September 11, 2009 meeting, the Contract Committee recommended, and the Independent Trustees approved, a sub-management contract with respect to your fund between Putnam Management and its affiliate, Putnam Investments Limited (“PIL”), to be effective September 30, 2010. (Because PIL is an affiliate of Putnam Management and Putnam Management remains fully responsible for all services provided by PIL, the Trustees have not evaluated PIL as a separate entity, and all subsequent references to Putnam Management below should be deemed to include reference to PIL as necessary or appropriate in the context.)
The Independent Trustees’ 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, were subject to the continued application of certain expense reductions and waivers pending other considerations noted below, 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 the 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 sam e arrangements in prior years.
Consideration of strategic
pricing proposal
The Trustees considered that the Contract Committee had been engaged in a detailed review of Putnam Management’s strategic pricing proposal that was first presented to
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the Committee at its May 2009 meeting. The proposal included proposed changes to the basic structure of the management fees in place for all open-end funds (except the Putnam RetirementReady® Funds and Putnam Money Market Liquidity Fund), including implementation of a breakpoint structure based on the aggregate net assets of all such funds in lieu of the individual breakpoint structures in place for each fund, as well as implementation of performance fees for certain funds. In addition, the proposal recommended substituting separate expense limitations on investor servicing fees and on other expenses as a group in lieu of the total expense limitations in place for many funds.
While the Contract Committee noted the likelihood that the Trustees and Putnam Management would reach agreement on the strategic pricing matters in later months, the terms of the management contracts required that the Trustees approve the continuance of the contracts in order to prevent their expiration at June 30, 2009. The Contract Committee’s recommendations in June reflect its conclusion that the terms of the contractual arrangements for your fund continued to be appropriate for the upcoming term, absent any possible agreement with respect to the matters addressed in Putnam Management’s proposal.
The Trustees were mindful of the significant changes that had occurred at Putnam Management in the past two years, including a change of ownership, the installation of a new senior management team at Putnam Management, the substantial decline in assets under management resulting from extraordinary market forces as well as continued net redemptions in many funds, the introduction of new fund products representing novel investment strategies and the introduction of performance fees for certain new funds. The Trustees were also mindful that many other leading firms in the industry had also been experiencing significant challenges due to the changing financial and competitive environment. For these reasons, even though the Trustees believed that the current contractual arrangements in place between the funds and Putnam Management and its affiliates have served shareholders well and continued to be appropriate for the nea r term, the Trustees believed that it was an appropriate time to reconsider the current structure of the funds’ contractual arrangements with Putnam Management with a view to possible changes that might better serve the interests of shareholders in this new environment. The Trustees concluded their review of Putnam Management’s strategic pricing proposal in July 2009, and their considerations regarding the proposal are discussed below under the heading “Subsequent approval of strategic pricing proposal.” With the exception of the discussion under this heading, the following discussion generally addresses only the Trustees’ reasons for recommending the continuance of the current contractual arrangements (and the new sub-management contract between Putnam Management and PIL, which the Trustees evaluated in large part based on their review of contractual arrangements in June 2009) as, at the time the Trustees determined to make this recommendation, the Trustees had not yet reached any c onclusions with respect to the strategic pricing proposal.
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. The general fee structure has been carefully developed over the years and re-examined on many occasions and adjusted where appropriate. In this regard, the Trustees noted that shareholders of all funds voted by overwhelming majorities in 2007 to approve new management contracts containing identical fee schedules.
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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 at that time but, as indicated above, based on their detailed review of the current fee structure, were prepared to consider possible changes to this arrangement that might better serve the interests of shareholders in the future. 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 58th percentile in management fees and in the 50th percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2008 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds).
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 (as applicable) and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints. The Trustees expressed their intention to monitor the funds’ percentile rankings in management fees and in total expenses to ensure that fees and expenses of the funds continue to meet evolving competitive standards.
The Trustees noted that the expense ratio increases described above were being controlled by expense limitations initially implemented in January 2004. 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 fund expenses has served shareholders well since its inception and, while the Contract Committee was reviewing proposed alternative expense limitation arrangements as noted above, the Trustees received a commitment from Putnam Management and its parent company to continue this program through at least June 30, 2010, or such earlier time as the Trustees and Putnam Management reach agreement on alternative arrangements .
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 extend for the twelve months beginning July 1, 2009, or until such earlier time as the Trustees and Putnam Management reach agreement on alternative expense limitation arrangements, an additional expense limitation for certain funds at an amount equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper to correspond to the size of the fund. This additional expense limitation is applicable to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the custom peer group data for the period ended December 31, 2007. This additional expense limitation was not applied to your fund because it had a below-average expense ratio relative to its custom peer group.
• 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
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effective management fee rate of the fund (as a percentage of fund assets) declines as the fund grows in size and crosses specified asset thresholds. Conversely, as the 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 schedule in effect for your fund represented an appropriate sharing of economies of scale at that time but, as noted above, were in the process of reviewing a proposal to eliminate individual fund breakpoints for all of the open-end funds (except for the Putnam RetirementReady® Funds and Putnam Money Market Liquidity Fund) in favor of a breakpoint structure based on the aggregate net assets of all such funds.
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 provided and profits realized by Putnam Management and its affiliates from their contractual relationships 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.
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 Oversight Coordinating Committee of the Trustees and the Investment Oversight Committees of the Trustees, which had met 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 — b ut also recognized that this does not guarantee 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 disappointing investment performance of many of the funds for periods ended March 31, 2009. They discussed with senior management of Putnam Management the factors contributing to such underperformance and the actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has taken steps to strengthen its investment personnel and processes to address areas of underperformance, including Putnam Management’s continuing efforts to strengthen the equity research function, recent changes in portfolio managers including increased accountability of individual managers rather than teams, recent changes in Putnam Management’s approach to incentive compensation, including emphasis on top quartile performance over a rolling three-year period, and the recent arrival of a new chief investment officer. The Trustees also recognized the substantial improvement in performance of many funds si nce the implementation of those changes. The Trustees indicated their intention to continue
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to monitor performance trends to assess the effectiveness of these efforts 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 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-year, three-year and five-year periods ended March 31, 2009 (the first percentile being the best-performing funds and the 100th percentile being the worst-performing funds:
| One-year period | 41st | ||
| Three-year period | 38th | ||
| Five-year period | 42nd | ||
Over the one-year, three-year and five-year periods ended March 31, 2009, there were 40, 35 and 34 funds, respectively, in your fund’s Lipper peer group. Past performance is no guarantee of future results.
As a general matter, the Trustees believe 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 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 considered a change made, at Putnam Management’s request, to the Putnam funds’ brokerage allocation policy commencing in 2009, which increased the permitted soft dollar allocation to third-party services over what had been authorized in previous years. The Trustees noted that a portion of available soft dollars continue to be allocated to the payment of fund expenses, although the amount allocated for this purpose has declined in recent years. The Trustees indicated their continued int ent to monitor regulatory developments in this area with the assistance of their Brokerage Committee and also indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage and trends in industry practice 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 the investor servicing agreement with Putnam Investor Services, Inc. (“PSERV”), which agreement provides benefits to an affiliate of Putnam Management. The Trustees considered that effective January 1, 2009, the Trustees, PSERV and Putnam Management entered into a new fee schedule that includes for the open-end funds (other than funds of
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Putnam Variable Trust and Putnam Money Market Liquidity Fund) an expense limitation but, as noted above, also considered that this expense limitation is subject to review as part of the Trustees’ pending review of Putnam’s strategic pricing proposal.
In the case of your fund, the Trustees’ annual review of the fund’s management contract also included the review of the fund’s distributor’s contract and distribution plans with Putnam Retail Management Limited Partnership, which contract and plans also provide benefits to an affiliate 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 comparisons 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 mutual 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 different asset classes are typically higher on average fo r mutual 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.
Subsequent approval of strategic
pricing proposal
As mentioned above, at a series of meetings beginning in May 2009 and ending on July 10, 2009, the Contract Committee and the Trustees engaged in a detailed review of Putnam Management’s strategic pricing proposal. Following this review, the Trustees of each fund, including all of the Independent Trustees, voted unanimously on July 10, 2009 to approve proposed management contracts reflecting the proposal, as modified based on discussions between the Independent Trustees and Putnam Management, for each fund. In considering the proposed contracts, the Independent Trustees focused largely on the specific proposed changes described below relating to management fees. They also took into account the factors that they considered in connection with their most recent annual approval on June 12, 2009 of the continuance of the funds’ current management contracts and the extensive materials that they had reviewed in connection with that approval process, as described above.
At a meeting held on November 19, 2009, shareholders approved the proposed management contract for your fund. The new management contract was implemented on January 1, 2010.
• Considerations relating to Fund Family fee rate calculations. The Independent Trustees considered that the proposed management contracts would change the manner in which fund shareholders share in potential economies of scale associated with the management of the funds. Under the current management contracts, shareholders of a fund (other than Putnam Money Market Liquidity Fund and the Putnam RetirementReady® Funds) benefit from increased fund size through reductions in the effective management fee paid to Putnam Management once the fund’s net assets exceed the first breakpoint in the fund’s fee schedule ($500 million for most funds). Conversely, in the case of funds with
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net assets above the level of the first breakpoint, the effective management fee increases as the fund’s average net assets decline below a breakpoint. These breakpoints are measured solely by the net assets of each individual fund and are not affected by possible growth (or decline) of net assets of other funds in the Fund Family. (“Fund Family” for purposes of this discussion refers to all open-end mutual funds sponsored by Putnam Management, except for the Putnam RetirementReady® Funds and Putnam Money Market Liquidity Fund.) Under the proposed management contracts, potential economies of scale would be shared ratably among shareholders of all funds, regardless of their size. The management fees paid by a fund (and indirectly by shareholders) would no longer be affected by the growth (or decline) of assets of the particular fund, but rather would be affected solely by the growth (or decline) of the aggregate net assets of all funds in the Fund Family, regardless of whether the net assets of the particular fund are growing or declining.
The table below shows the proposed effective management fee rate for your fund, based on June 30, 2009 net assets of the Fund Family ($52.3 billion). This table also shows the effective management fee rate payable by your fund under its current management contract, based on the net assets of the fund as of June 30, 2009. Finally, this table shows the difference in the effective management fees, based on net assets as of June 30, 2009, between the proposed management contract and the current contract.
| Proposed Effective | Current Effective | |||||
| Name of Fund | Contractual Rate | Contractual Rate | Difference | |||
| Putnam Ohio Tax Exempt Income Fund | 0.452% | 0.500% | (0.048)% | |||
As shown in the foregoing table, based on June 30, 2009 net asset levels, the proposed management contract would provide for payment of a management fee rate that is lower for your fund than the management fee rate payable under the current management contract. For a small number of funds (although not your fund), the management fee rate would be slightly higher under the proposed contract at these asset levels, but by only immaterial amounts. In the aggregate, the financial impact on Putnam Management of implementing this proposed change for all funds at June 30, 2009 net asset levels is a reduction in annual management fee revenue of approximately $24.0 million. (Putnam Management has already incurred a significant portion of this revenue reduction through the waiver of a portion of its current management fees for certain funds pending shareholder consideration of the proposed management contracts. Putnam is not obliged to continue such waivers beyon d July 31, 2010 in the event that the proposed contracts are not approved by shareholders.) The Independent Trustees carefully considered the implications of this proposed change under a variety of economic circumstances. They considered the fact that at current asset levels the management fees paid by the funds under the proposed contract would be lower for almost all funds, and would not be materially higher for any fund. They considered the possibility that under some circumstances, the current management contract could result in a lower fee for a particular fund than the proposed management contract. Such circumstances might occur, for example, if the aggregate net assets of the Fund Family remain largely unchanged and the net assets of an individual fund grew substantially, or if the net assets of an individual fund remain largely unchanged and the aggregate net assets of the Fund Family declined substantially.
The Independent Trustees noted that future changes in the net assets of individual funds
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are inherently unpredictable and that experience has shown that funds often grow in size and decline in size over time depending on market conditions and the changing popularity of particular investment styles and asset classes. They noted that, while the aggregate net assets of the Fund Family have changed substantially over time, basing a management fee on the aggregate level of assets of the Fund Family would likely reduce fluctuations in costs paid by individual funds and lead to greater stability and predictability of fund operating costs over time.
The Independent Trustees considered that the proposed management contract would likely be advantageous for newly organized funds that have yet to attract significant assets and for funds in specialty asset classes that are unlikely to grow to a significant size. In each case, such funds would participate in the benefits of scale made possible by the aggregate size of the Fund Family to an extent that would not be possible based solely on their individual size.
The Independent Trustees also considered that for funds that have achieved or are likely to achieve considerable scale on their own, the proposed management contract could result in sharing of economies which might lead to slightly higher costs under some circumstances, but they noted that any such increases are immaterial at current asset levels and that over time such funds are likely to realize offsetting benefits from their opportunity to participate, both through the exchange privilege and through the Fund Family breakpoint fee structure, in the improved growth prospects of a diversified Fund Family able to offer competitively priced products.
The Independent Trustees noted that the implementation of the proposed management contracts would result in a reduction in aggregate fee revenues for Putnam Management at current asset levels. They also noted that applying various projections of growth equally to the aggregate net assets of the Fund Family and to the net assets of individual funds also showed revenue reductions for Putnam Management. They recognized, however, the possibility that under some scenarios Putnam Management might realize greater future revenues, with respect to certain funds, under the proposed contracts than under the current contracts, but considered such circumstances to be both less likely and inherently unpredictable.
The Independent Trustees considered the extent to which Putnam Management may realize economies of scale in connection with the management of the funds. In this regard, they considered the possibility that such economies of scale as may exist in the management of mutual funds may be associated more closely with the size of the aggregate assets of the mutual fund complex than with the size of any individual fund. In this regard the Independent Trustees considered the financial information provided to them by Putnam Management over a period of many years regarding the allocation of costs involved in calculating the profitability of its mutual fund business as a whole and the profitability of individual funds. The Independent Trustees noted that the methodologies for such cost allocations had been reviewed on a number of occasions in the past by independent financial consultants engaged by the Independent Trustees. The Independent Trustees noted that thes e methodologies support Putnam Management’s assertion that many of its operating costs and any associated economies of scale are related more to the aggregate net assets under management in various sectors of its business than to the size of individual funds. They noted that on a number of occasions in the past the Independent Trustees had separately considered the possibility of calculating management fees in whole or in part based on aggregate net assets of the Putnam funds.
The Independent Trustees considered the fact that the proposed contracts would result in a
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sharing among the affected funds of economies of scale that for the most part are now enjoyed by the larger funds, without materially increasing the current costs of any of the larger funds. They concluded that this sharing of economies among funds was appropriate in light of the diverse investment opportunities available to shareholders of all funds through the existence of the exchange privilege. They also considered that the proposed change in management fee structure would allow Putnam Management to introduce new investment products at more attractive pricing levels than may be currently be the case.
After considering all of the foregoing, the Independent Trustees concluded that the proposed calculation of management fees based on the aggregate net assets of the Fund Family represented a fair and reasonable means of sharing possible economies of scale among the shareholders of all funds.
• Considerations relating to addition of fee rate adjustments based on investment performance for certain funds. The Independent Trustees considered that Putnam’s proposal to add fee rate adjustments based on investment performance to the management contracts of certain funds reflected a desire by Putnam Management to align its fee revenues more closely with investment performance in the case of certain funds. They noted that Putnam Management already has a significant financial interest in achieving good performance results for the funds it manages. Putnam Management’s fees are based on the assets under its management (whether calculated on an individual fund or complex-wide basis). Good performance results in higher asset levels and therefore higher revenues to Putnam Management. Moreover, good performance also tends to at tract additional investors to particular funds or the complex generally, also resulting in higher revenues. Nevertheless, the Independent Trustees concluded that adjusting management fees based on performance for certain selected funds could provide additional benefits to shareholders.
The Independent Trustees noted that Putnam Management proposed the addition of performance adjustments only for certain of the funds (performance adjustments were not proposed for your fund) and considered whether similar adjustments might be appropriate for other funds. In this regard, they considered Putnam Management’s belief that the addition of performance adjustments would be most appropriate for shareholders of U.S. growth funds, international equity funds and Putnam Global Equity Fund. They also considered Putnam Management’s view that it would continue to monitor whether performance fees would be appropriate for other funds. Accordingly, the Independent Trustees concluded that it would be desirable to gain further experience with the operation of performance adjustments for certain funds and the market’s receptivity to such fee structures before giving further consideration to whether similar performance adjustments would be app ropriate for other funds as well.
• Considerations relating to standardization of payment terms. The proposed management contracts for all funds provide that management fees will be computed and paid monthly within 15 days after the end of each month. The current contracts of the funds contain quarterly computation and payment terms in some cases. These differences largely reflect practices in place at earlier times when many of the funds were first organized. Under the proposed contract, certain funds would make payments to Putnam Management earlier than they do under their current contract. This would reduce a fund’s opportunity to earn income on accrued but unpaid management fees by a small amount, but would not have a material effect on a fund’s operating costs.
The Independent Trustees considered the fact that standardizing the payment terms
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for all funds would involve an acceleration in the timing of payments to Putnam Management for some funds and a corresponding loss of a potential opportunity for such funds to earn income on accrued but unpaid management fees. The Independent Trustees did not view this change as having a material impact on shareholders of any fund. In this regard, the Independent Trustees noted that the proposed contracts conform to the payment terms included in management contracts for all Putnam funds organized in recent years and that standardizing payment terms across all funds would reduce administrative burdens for both the funds and Putnam Management.
• Considerations relating to comparisons with management fees and total expenses of competitive funds. As part of their evaluation of the proposed management contracts, the Independent Trustees also reviewed the general approach taken by Putnam Management and the Independent Trustees in recent years in imposing appropriate limits on total fund expenses. As part of the annual contract review process in recent years, Putnam Management agreed to waive fees as needed to limit total fund expenses to a maximum level equal to the average total expenses of comparable competitive funds in the mutual fund industry. In connection with its proposal to implement new management contracts, Putnam Management also proposed, and the Independent Trustees approved, certain changes in this approach that shift the focus from controlling total expenses to imposing separate limits on certain c ategories of expenses, as required. As a general matter, Putnam Management and the Independent Trustees concluded that management fees for the Putnam funds are competitive with the fees charged by comparable funds in the industry. Nevertheless, the Independent Trustees considered specific management fee waivers proposed to be implemented as of August 1, 2009 by Putnam Management with respect to the current management fees of certain funds, as well as projected reductions in management fees for almost all funds that would result under the proposed contracts. Putnam Management and the Independent Trustees also agreed to impose separate expense limitations of 37.5 basis points on the general category of shareholder servicing expenses and 20 basis points on the general category of other ordinary operating expenses. These new expense limitations, as well as the fee waivers, were implemented for all funds effective as of August 1, 2009, replac ing the expense limitation referred to above.
These changes resulted in lower total expenses for many funds, but in the case of some funds total expenses increased after application of the new waivers and expense limitations (as compared with the results obtained using the expense limitation method previously in place). In this regard, the Independent Trustees considered the likelihood that total expenses for most of these funds would have increased in any event in the normal course under the previous expense limitation arrangement, as the reported total expense levels of many competitive funds increased in response to the major decline in asset values that began in September 2008. These new waivers and expense limitations will continue in effect until at least July 31, 2010 and will be re-evaluated by the Independent Trustees as part of the annual contract review process prior to their scheduled expiration. However, the management fee waivers referred to above would largely become permanent reduc tions in fees as a result of the implementation of the proposed management contracts.
Under these new expense limitation arrangements effective August 1, 2009, the fixed income funds, including your fund, and asset allocation funds are subject to management fee waivers that reduce these funds’ management fees pending implementation of the proposed
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management contracts. In addition, your fund is subject to expense limitations of 37.5 basis points on the category of shareholder servicing fees and 20 basis points on the general category of other ordinary operating expenses.
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Other information for shareholders
Important notice regarding delivery
of shareholder documents
In accordance with SEC regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address, unless a shareholder requests otherwise. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.
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, 2009, are available in the Individual Investors section of putnam.com, 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.
Trustee and employee
fund ownership
Putnam employees and members of the Board of Trustees place their faith, confidence, and, most importantly, investment dollars in Putnam mutual funds. As of November 30, 2009, Putnam employees had approximately $310,000,000 and the Trustees had approximately $42,000,000 invested in Putnam mutual funds. These amounts include investments by the Trustees’ and employees’ immediate family members as well as investments through retirement and deferred compensation plans.
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Financial statements
A guide to financial statements
These sections of the report, as well as the accompanying Notes, constitute the fund’s financial statements.
The fund’s portfolio lists all the fund’s investments and their values as of the last day of the reporting period. Holdings are organized by asset type and industry sector, country, or state to show areas of concentration and diversification.
Statement of assets and liabilities shows how the fund’s net assets and share price are determined. All investment and noninvestment assets are added together. Any unpaid expenses and other liabilities are subtracted from this total. The result is divided by the number of shares to determine the net asset value per share, which is calculated separately for each class of shares. (For funds with preferred shares, the amount subtracted from total assets includes the 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 period.
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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.
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 highlights table also includes the current reporting period.
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The fund’s portfolio 11/30/09 (Unaudited)
| Key to holding’s abbreviations | |
| AGO Assured Guaranty, Ltd. | FRB Floating Rate Bonds |
| AMBAC AMBAC Indemnity Corporation | FSA Financial Security Assurance |
| Cmnwlth. of PR Gtd. Commonwealth of Puerto Rico | G.O. Bonds General Obligation Bonds |
| Guaranteed | GNMA Coll. Government National Mortgage |
| COP Certificates of Participation | Association Collateralized |
| FGIC Financial Guaranty Insurance Company | NATL National Public Finance Guarantee Corp. |
| FHA Insd. Federal Housing Administration Insured | SGI Syncora Guarantee, Inc. |
| FHLMC Coll. Federal Home Loan Mortgage | U.S. Govt. Coll. U.S. Government Collateralized |
| Corporation Collateralized | VRDN Variable Rate Demand Notes |
| FNMA Coll. Federal National Mortgage Association | |
| Collateralized |
| MUNICIPAL BONDS AND NOTES (97.3%)* | Rating** | Principal amount | Value |
| Guam (0.3%) | |||
| Territory of Guam Rev. Bonds (Section 30), | |||
| Ser. A, 5 3/4s, 12/1/34 | BBB– | $500,000 | $508,740 |
| 508,740 | |||
| Ohio (89.5%) | |||
| Akron, G.O. Bonds, FSA, 5s, 12/1/25 | AAA | 1,005,000 | 1,088,918 |
| Akron, Wtr. Wks. Rev. Bonds, NATL | |||
| 6s, 12/1/12 | A | 875,000 | 953,558 |
| 5 1/4s, 12/1/17 | Baa1 | 1,285,000 | 1,316,058 |
| American Muni. Pwr. — Ohio, Inc. Rev. Bonds | |||
| (Prairie State Energy Campus), Ser. A | |||
| AGO, 5 3/4s, 2/15/39 | AAA | 1,500,000 | 1,592,250 |
| 5s, 2/15/38 | A1 | 1,500,000 | 1,486,440 |
| Anthony Wayne Local School Dist. G.O. Bonds | |||
| (School Fac. Construction & Impt.), FSA, 5 1/2s, | |||
| 12/1/19 | AAA | 1,565,000 | 1,642,061 |
| Barberton, City School Dist. G.O. Bonds (School | |||
| Impt.), 5 1/4s, 12/1/28 | AA | 1,390,000 | 1,508,873 |
| Brookfield, Local School Dist. G.O. Bonds (School | |||
| Fac. Impt.), FSA, 5s, 1/15/26 | AAA | 1,000,000 | 1,092,590 |
| Buckeye, Tobacco Settlement Fin. Auth. Rev. Bonds | |||
| Ser. A-2, 6s, 6/1/42 | BBB | 250,000 | 188,968 |
| Ser. A-2, 5 3/4s, 6/1/34 | BBB | 6,000,000 | 4,830,600 |
| Ser. A-2, 5 3/8s, 6/1/24 | BBB | 695,000 | 601,724 |
| Ser. A-3, stepped coupon zero % (6.25s, | |||
| 12/1/12), 2037 †† | BBB | 1,200,000 | 800,532 |
| Canal Winchester, Local School Dist. G.O. Bonds, | |||
| NATL, zero %, 12/1/33 | A3 | 1,180,000 | 319,485 |
| Cincinnati, City School Dist. COP (School Impt.), | |||
| FSA, 5s, 12/15/28 | AAA | 2,500,000 | 2,623,775 |
| Cleveland, G.O. Bonds, Ser. A | |||
| AGO, 5s, 12/1/29 | AAA | 2,000,000 | 2,072,020 |
| FGIC, NATL, 4 3/4s, 11/15/26 | AA | 1,790,000 | 1,847,763 |
29
| MUNICIPAL BONDS AND NOTES (97.3%)* cont. | Rating** | Principal amount | Value |
| Ohio cont. | |||
| Cleveland, Arpt. Syst. FRB, Ser. C, FSA, | |||
| 5s, 1/1/23 | AAA | $1,500,000 | $1,545,900 |
| Cleveland, Income Tax Rev. Bonds (Bridges & | |||
| Roadways), Ser. B, AGO, 5s, 10/1/29 | AAA | 1,000,000 | 1,064,350 |
| Cleveland, Muni. School Dist. G.O. Bonds, FSA, | |||
| 5s, 12/1/27 | AAA | 1,375,000 | 1,433,919 |
| Cleveland, Parking Fac. Rev. Bonds, FSA, 5 1/4s, | |||
| 9/15/22 | AAA | 2,400,000 | 2,695,248 |
| Cleveland, Pub. Pwr. Syst. Rev. Bonds, Ser. B-1, | |||
| NATL, zero %, 11/15/25 | A | 3,000,000 | 1,418,850 |
| Cleveland, Urban Renewal Increment Rev. Bonds | |||
| (Rock & Roll Hall of Fame), 6 3/4s, 3/15/18 | B+/P | 1,150,000 | 1,151,668 |
| Columbus, City School Dist. G.O. Bonds, FSA, | |||
| zero %, 12/1/27 | AAA | 1,895,000 | 859,856 |
| Cuyahoga Cmnty., College Dist. Rev. Bonds, | |||
| Ser. C, 5s, 8/1/25 | Aa3 | 1,500,000 | 1,607,325 |
| Cuyahoga Cnty., Hosp. VRDN (U. Hosp.), 0.21s, | |||
| 1/1/16 | VMIG1 | 1,545,000 | 1,545,000 |
| Dublin, G.O. Bonds, Ser. B, 6.4s, 12/1/14 | Aaa | 1,300,000 | 1,474,616 |
| Elyria, OH City School Dist. G.O. Bonds | |||
| (Classroom Fac. & School Impt.), SGI, 5s, | |||
| 12/1/35 | A3 | 500,000 | 490,725 |
| Erie Cnty., OH Hosp. Fac. Rev. Bonds (Firelands | |||
| Regl. Med. Ctr.), 5 5/8s, 8/15/32 | A | 1,500,000 | 1,381,830 |
| Field, Local School Dist. G.O. Bonds (School Fac. | |||
| Construction & Impt.), AMBAC, 5s, 12/1/22 | A–/P | 1,170,000 | 1,165,577 |
| Franklin Cnty., Rev. Bonds (OCLC Online Computer | |||
| Library Ctr.), 5s, 4/15/13 | A | 2,610,000 | 2,862,752 |
| Franklin Cnty., Dev. Rev. Bonds (American | |||
| Chemical Society), 5.8s, 10/1/14 | A+ | 2,000,000 | 2,023,580 |
| Franklin Cnty., Econ. Dev. Rev. Bonds (Capitol | |||
| South Cmnty. Urban), 5 3/4s, 6/1/11 | |||
| (Prerefunded) | A/P | 1,000,000 | 997,030 |
| Franklin Cnty., Hlth. Care Fac. Rev. Bonds (OH | |||
| Presbyterian Svcs.), U.S. Govt. Coll., 7 1/8s, | |||
| 7/1/29 (Prerefunded) | BBB | 2,000,000 | 2,211,280 |
| Greene Cnty., Hosp. Facs. Rev. Bonds (Kettering | |||
| Hlth. Network), 5 1/2s, 4/1/39 | A2 | 1,000,000 | 976,440 |
| Hamilton Cnty., Rev. Bonds, Ser. B, AMBAC, | |||
| zero %, 12/1/22 | A2 | 500,000 | 267,225 |
| Hamilton Cnty., Econ. Dev. Rev. Bonds (King | |||
| Highland Cmnty. Urban), Ser. A, NATL, 5s, 6/1/22 | A | 1,745,000 | 1,860,379 |
| Hamilton Cnty., Sales Tax Rev. Bonds, Ser. B, | |||
| AMBAC, zero %, 12/1/24 | A2 | 3,000,000 | 1,422,270 |
| Hamilton Cnty., Swr. Syst. Rev. Rev. Bonds | |||
| (Metro. Swr. Dist.), Ser. A, NATL, 5s, 12/1/28 | AA+ | 1,500,000 | 1,578,570 |
| Hamilton, City School Dist. G.O. Bonds (School | |||
| Impt.), FSA, 5s, 12/1/26 | AAA | 3,000,000 | 3,218,700 |
| Huran Cnty., Human Svcs. Rev. Bonds, NATL, 6.55s, | |||
| 12/1/20 | A2 | 1,800,000 | 2,170,062 |
30
| MUNICIPAL BONDS AND NOTES (97.3%)* cont. | Rating** | Principal amount | Value |
| Ohio cont. | |||
| Kings, Local School Dist. G.O. Bonds (School | |||
| Impt.), NATL, 5s, 12/1/27 | AA | $750,000 | $795,615 |
| Lake Cnty., Hosp. Fac. Rev. Bonds (Lake Hosp. | |||
| Syst.), Ser. C, 6s, 8/15/43 | Baa1 | 1,115,000 | 1,083,646 |
| Lakewood, City School Dist. G.O. Bonds | |||
| FGIC, NATL, zero %, 12/1/17 | Aa3 | 1,190,000 | 905,995 |
| FSA, zero %, 12/1/16 | AAA | 1,250,000 | 1,017,788 |
| Lakota, School Dist. Rev. Bonds, AMBAC, 7s, | |||
| 12/1/10 | Aa1 | 1,000,000 | 1,060,050 |
| Lorain Cnty., Elderly Hsg. Corp. Multi-Fam. Rev. | |||
| Bonds (Harr Plaza & Intl.), Ser. A, 6 3/8s, | |||
| 7/15/19 | BBB | 1,095,000 | 1,094,234 |
| Lorain Cnty., Hosp. Rev. Bonds (Catholic), | |||
| Ser. H, AGO, 5s, 2/1/29 | AAA | 2,000,000 | 2,004,040 |
| Miami Cnty., Hosp. Fac. Rev. Bonds (Upper Valley | |||
| Med. Ctr.), 5 1/4s, 5/15/17 | A3 | 1,250,000 | 1,289,950 |
| Midview, School Dist. COP (School Bldg. Fac.), | |||
| 5 1/4s, 11/1/17 | A | 2,535,000 | 2,645,703 |
| Montgomery Cnty., Rev. Bonds (Catholic Hlth. | |||
| Initiatives), Ser. D, 6 1/4s, 10/1/33 | Aa2 | 1,000,000 | 1,074,950 |
| Montgomery Cnty., VRDN (Miami Valley Hosp.), | |||
| Ser. B, 0.3s, 11/15/24 | VMIG1 | 1,900,000 | 1,900,000 |
| Mount Healthy, City School Dist. G.O. Bonds | |||
| (School Impt.), FSA, 5 1/4s, 12/1/22 | Aa3 | 1,105,000 | 1,237,412 |
| OH Hsg. Fin. Agcy. Rev. Bonds | |||
| Ser. B, GNMA Coll., 5s, 3/1/34 | Aaa | 665,000 | 674,975 |
| (Res. Mtge.), Ser. C, GNMA Coll., FNMA Coll., | |||
| 4.1s, 3/1/15 | Aaa | 420,000 | 416,069 |
| OH Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds, | |||
| Ser. 85-A, FGIC, FHA Insd., zero %, 1/15/15 | AAA/P | 15,000 | 8,994 |
| OH State Rev. Bonds | |||
| Ser. A, 5s, 10/1/22 | AA– | 3,090,000 | 3,306,856 |
| (Revitalization), Ser. A, AMBAC, 5s, 4/1/19 | AA– | 1,750,000 | 1,894,655 |
| OH State Air Quality Dev. Auth. FRB (Columbus | |||
| Southern Pwr. Co.), Ser. B, 5.8s, 12/1/38 | A3 | 500,000 | 525,820 |
| OH State Air Quality Dev. Auth. Mandatory Put | |||
| Bonds (OH Pwr.), 7 1/8s, 6/1/10 | Baa1 | 500,000 | 513,025 |
| OH State Air Quality Dev. Auth. Rev. Bonds | |||
| (Valley Elec. Corp.), Ser. E, 5 5/8s, 10/1/19 | Baa3 | 500,000 | 498,500 |
| OH State Env. Impt. Rev. Bonds (USX Corp.), | |||
| 5 5/8s, 5/1/29 | Baa1 | 750,000 | 750,810 |
| OH State Higher Edl. Fac. Mandatory Put Bonds | |||
| (Kenyon College), 5.05s, 7/1/16 | A1 | 2,000,000 | 2,120,340 |
| OH State Higher Edl. Fac. Rev. Bonds | |||
| (Case Western Reserve U.), 6 1/4s, 10/1/18 | AA– | 1,000,000 | 1,175,660 |
| (Case Western Reserve U.), 6s, 10/1/14 | AA– | 1,000,000 | 1,150,830 |
| (U. of Dayton), 5 1/2s, 12/1/36 | A2 | 1,000,000 | 1,030,750 |
| (Oberlin College), 5 1/8s, 10/1/24 | Aa2 | 1,500,000 | 1,581,045 |
| OH State Higher Edl. Fac. VRDN (Case Western | |||
| Reserve), Ser. B-2, 0.21s, 12/1/44 | VMIG1 | 100,000 | 100,000 |
31
| MUNICIPAL BONDS AND NOTES (97.3%)* cont. | Rating** | Principal amount | Value |
| Ohio cont. | |||
| OH State Higher Edl. Fac. Commn. Rev. Bonds | |||
| (U. Hosp. Hlth. Syst.), Ser. 09-A, 6 3/4s, 1/15/39 | A2 | $2,000,000 | $2,119,160 |
| (John Carroll U.), 5 1/2s, 11/15/18 | A2 | 335,000 | 358,363 |
| (John Carroll U.), 5 1/2s, 11/15/17 | A2 | 420,000 | 452,819 |
| (Oberlin College), 5s, 10/1/33 | Aa2 | 1,000,000 | 1,023,700 |
| (Northern U.), 4 3/4s, 5/1/19 | A3 | 2,500,000 | 2,507,825 |
| OH State Hsg. Fin. Agcy. Rev. Bonds (Res. Mtge.) | |||
| Ser. F, GNMA Coll., FNMA Coll., FHLMC Coll., | |||
| 5.45s, 9/1/33 | Aaa | 1,990,000 | 2,040,267 |
| Ser. L, GNMA Coll., FNMA Coll., 4 3/4s, 3/1/37 | Aaa | 1,585,000 | 1,412,346 |
| OH State Poll. Control Rev. Bonds (Standard | |||
| Oil Co.), 6 3/4s, 12/1/15 | Aa1 | 3,350,000 | 4,159,092 |
| OH State U. Rev. Bonds, Ser. A | |||
| 5 1/8s, 12/1/31 | Aa2 | 1,000,000 | 1,025,210 |
| 5s, 12/1/27 | Aa2 | 1,000,000 | 1,079,620 |
| OH State Wtr. Dev. Auth. Poll. Control Rev. Bonds | |||
| (Wtr. Quality), Ser. B, zero %, 12/1/14 | Aaa | 1,000,000 | 886,360 |
| OH State Wtr. Dev. Auth. Poll. Control Fac. | |||
| Mandatory Put Bonds (First Energy Generation), | |||
| Ser. C, 7 1/4s, 11/1/12 | Baa2 | 500,000 | 551,885 |
| 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 | 928,720 |
| OH U. Gen. Recipients Athens Rev. Bonds, NATL, | |||
| 5s, 12/1/25 | A1 | 2,265,000 | 2,321,716 |
| Powell, G.O. Bonds, FGIC, NATL, 5 1/2s, 12/1/25 | AA+ | 1,500,000 | 1,556,475 |
| Rickenbacker, Port Auth. Rev. Bonds (OASBO | |||
| Expanded Asset Pooled), Ser. A, 5 3/8s, 1/1/32 | A2 | 2,165,000 | 2,183,078 |
| River Valley, Local School Dist. G.O. Bonds | |||
| (School Fac. Construction & Impt.), FSA, | |||
| 5 1/4s, 11/1/23 | Aa3 | 300,000 | 358,521 |
| Sandusky Cnty., Hosp. Fac. Rev. Bonds (Memorial | |||
| Hosp.), 5.15s, 1/1/10 | BBB– | 830,000 | 830,415 |
| Scioto Cnty., Hosp. Rev. Bonds (Southern Med. | |||
| Ctr.), 5 1/2s, 2/15/28 | A2 | 2,250,000 | 2,254,208 |
| South Western City, School Dist. G.O. Bonds | |||
| (Franklin & Pickway Cnty.), FSA, 4 3/4s, 12/1/23 | AAA | 2,000,000 | 2,125,840 |
| Summit Cnty., G.O. Bonds, Ser. R, FGIC, NATL, | |||
| 5 1/2s, 12/1/18 | Aa2 | 500,000 | 589,695 |
| Sylvania, City School Dist. G.O. Bonds (School | |||
| Impt.), AGO, 5s, 12/1/27 | AAA | 1,500,000 | 1,580,415 |
| Tallmadge, City School Dist. G.O. Bonds (School | |||
| Fac.), FSA, 5s, 12/1/26 | AAA | 1,410,000 | 1,496,066 |
| Toledo, G.O. Bonds (Macys), Ser. A, NATL, | |||
| 6.35s, 12/1/25 | A | 1,500,000 | 1,500,435 |
| Toledo, Swr. Syst. Mtge. Rev. Bonds, AMBAC, | |||
| 6.2s, 11/15/12 | A/P | 1,855,000 | 2,110,267 |
| Toledo, Wtr. Wks. Mtge. Rev. Bonds, AMBAC, | |||
| 6.2s, 11/15/12 | A/P | 750,000 | 796,860 |
32
| MUNICIPAL BONDS AND NOTES (97.3%)* cont. | Rating** | Principal amount | Value |
| Ohio cont. | |||
| Toledo-Lucas Cnty., Port Auth. Rev. Bonds (CSX | |||
| Transn, Inc.), 6.45s, 12/15/21 | Baa3 | $1,900,000 | $2,117,645 |
| Twin Valley, Cmnty. Local School Dist. Rev. | |||
| Bonds, FGIC, NATL, 7.05s, 12/1/11 | A | 545,000 | 561,917 |
| U. of Cincinnati COP (Jefferson Ave. Residence | |||
| Hall), NATL, 5 1/8s, 6/1/28 | A | 1,000,000 | 1,003,890 |
| Westerville, G.O. Bonds, AMBAC, 5s, 12/1/26 | Aa1 | 1,320,000 | 1,420,782 |
| Woodridge, School Dist. Rev. Bonds, AMBAC, | |||
| 6.8s, 12/1/14 | A/P | 2,270,000 | 2,513,821 |
| Youngstown State U. Rev. Bonds, AGO, | |||
| 5 1/4s, 12/15/29 | AAA | 500,000 | 530,795 |
| Zanesville, Hsg. Dev. Corp. Mtge. Rev. Bonds, | |||
| U.S. Govt. Coll. | |||
| 7 3/8s, 10/1/21 (Prerefunded) | AAA/P | 220,000 | 291,025 |
| 7 3/8s, 10/1/20 (Prerefunded) | AAA/P | 205,000 | 271,182 |
| 7 3/8s, 10/1/19 (Prerefunded) | AAA/P | 185,000 | 244,725 |
| 7 3/8s, 10/1/18 (Prerefunded) | AAA/P | 180,000 | 238,111 |
| 7 3/8s, 10/1/17 (Prerefunded) | AAA/P | 160,000 | 211,654 |
| 7 3/8s, 10/1/16 (Prerefunded) | AAA/P | 155,000 | 205,040 |
| 141,106,424 | |||
| Puerto Rico (6.9%) | |||
| Children’s Trust Fund Tobacco Settlement Rev. | |||
| Bonds, 5 3/8s, 5/15/33 | BBB | 520,000 | 507,463 |
| Cmnwlth. of PR, G.O. Bonds, Ser. A, 5 1/4s, 7/1/22 | Baa3 | 1,000,000 | 989,080 |
| Cmnwlth. of PR, Aqueduct & Swr. Auth. Rev. Bonds, | |||
| Ser. A | |||
| 6s, 7/1/44 | Baa3 | 1,000,000 | 1,024,160 |
| 6s, 7/1/38 | Baa3 | 3,350,000 | 3,430,936 |
| Cmnwlth. of PR, Hsg. Fin. Corp. Rev. Bonds, | |||
| Ser. B, GNMA Coll., FNMA Coll., FHLMC Coll., | |||
| 4.45s, 6/1/27 | Aaa | 45,000 | 45,153 |
| Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds | |||
| Ser. W, 5 1/2s, 7/1/15 | BBB+ | 1,000,000 | 1,058,910 |
| Ser. G, 5s, 7/1/33 | BBB | 100,000 | 90,984 |
| Ser. G, 5s, 7/1/33 (Prerefunded) | Aaa | 195,000 | 222,864 |
| Ser. K, 5s, 7/1/13 | BBB | 500,000 | 525,000 |
| Cmnwlth. of PR, Indl. Tourist Edl. Med. & Env. | |||
| Control Fac. Rev. Bonds (Cogen. Fac.-AES), | |||
| 6 5/8s, 6/1/26 | Baa3 | 1,000,000 | 1,010,880 |
| Cmnwlth. of PR, Infrastructure Fin. Auth. Special | |||
| Tax Bonds, Ser. C, FGIC, 5 1/2s, 7/1/19 | BBB+ | 1,000,000 | 1,032,260 |
| Cmnwlth. of PR, Pub. Bldg. Auth. Rev. Bonds | |||
| (Govt. Fac.), Ser. M-3, NATL, Cmnwlth. of PR | |||
| Gtd., 6s, 7/1/28 | A | 500,000 | 513,450 |
| Cmnwlth. of PR, Sales Tax Fin. Corp. Rev. Bonds, | |||
| Ser. A, NATL, zero %, 8/1/43 | Aa3 | 3,000,000 | 373,050 |
| 10,824,190 | |||
33
| MUNICIPAL BONDS AND NOTES (97.3%)* cont. | Rating** | Principal amount | Value |
| Virgin Islands (0.6%) | |||
| Tobacco Settlement Fin. Corp. Rev. Bonds, | |||
| 5s, 5/15/21 | Baa3 | $675,000 | $634,021 |
| VI Pub. Fin. Auth. Rev. Bonds, Ser. A-1, | |||
| 5s, 10/1/39 | Baa2 | 375,000 | 338,052 |
| 972,073 | |||
| TOTAL INVESTMENTS | |||
| Total investments (cost $147,234,755) | �� | $153,411,427 | |
* Percentages indicated are based on net assets of $157,657,655.
** The Moody’s, Standard & Poor’s or Fitch ratings indicated are believed to be the most recent ratings available at November 30, 2009 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 November 30, 2009. Securities rated by Putnam are indicated by “/P.” Securities rated by Fitch are indicated by “/F.” The rating of an insured security represents what is believed to be the most recent rating of the insurer’s claims-paying ability available at November 30, 2009 and does not reflect any subsequent changes. Security ratings are defined in the Statement of Additional Information.
†† The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin accruing interest at this rate.
The rates shown on FRB, Mandatory Put Bonds and VRDN are the current interest rates at November 30, 2009. 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 November 30, 2009 (as a percentage of net assets):
| Local government | 28.4% | ||
| Education | 13.8 | ||
| Utilities | 12.5 |
The fund had the following insurance concentrations greater than 10% at November 30, 2009 (as a percentage of net assets):
| FSA | 14.2% | ||
| NATL | 13.7 |
In September 2006, Accounting Standards Codification ASC 820 Fair Value Measurements and Disclosures (“ASC 820”) was issued. ASC 820 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. While the adoption of ASC 820 does not have a material effect on the fund’s net asset value, it does require additional disclosures about fair value measurements. ASC 820 establishes a three-level hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of the fund’s investments. The three levels are defined as follows:
Level 1 — Valuations based on quoted prices for identical securities in active markets.
Level 2 — Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the fair value measurement.
The following is a summary of the inputs used to value the fund’s net assets as of November 30, 2009:
| Valuation inputs | |||
| Investments in securities: | Level 1 | Level 2 | Level 3 |
| Municipal bonds and notes | $— | $153,411,427 | $— |
| Totals by level | $— | $153,411,427 | $— |
The accompanying notes are an integral part of these financial statements.
34
Statement of assets and liabilities 11/30/09 (Unaudited)
| ASSETS | |
| Investment in securities, at value (Note 1): | |
| Unaffiliated issuers (identified cost $147,234,755) | $153,411,427 |
| Cash | 1,236,009 |
| Interest and other receivables | 2,749,890 |
| Receivable for shares of the fund sold | 169,536 |
| Receivable for investments sold | 730,000 |
| Total assets | 158,296,862 |
| LIABILITIES | |
| Distributions payable to shareholders | 181,578 |
| Payable for shares of the fund repurchased | 86,818 |
| Payable for compensation of Manager (Note 2) | 177,518 |
| Payable for investor servicing fees (Note 2) | 14,309 |
| Payable for custodian fees (Note 2) | 2,237 |
| Payable for Trustee compensation and expenses (Note 2) | 63,693 |
| Payable for administrative services (Note 2) | 1,029 |
| Payable for distribution fees (Note 2) | 62,425 |
| Other accrued expenses | 49,600 |
| Total liabilities | 639,207 |
| Net assets | $157,657,655 |
| REPRESENTED BY | |
| Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) | $152,691,297 |
| Distributions in excess of net investment income (Note 1) | (111,277) |
| Accumulated net realized loss on investments (Note 1) | (1,099,037) |
| Net unrealized appreciation of investments | 6,176,672 |
| Total — Representing net assets applicable to capital shares outstanding | $157,657,655 |
| COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE | |
| Net asset value and redemption price per class A share ($143,511,157 divided by 15,962,293 shares) | $8.99 |
| Offering price per class A share (100/96.00 of $8.99)* | $9.36 |
| Net asset value and offering price per class B share ($4,908,324 divided by 546,452 shares)** | $8.98 |
| Net asset value and offering price per class C share ($6,583,293 divided by 732,242 shares)** | $8.99 |
| Net asset value and redemption price per class M share ($974,537 divided by 108,289 shares) | $9.00 |
| Offering price per class M share (100/96.75 of $9.00)*** | $9.30 |
| Net asset value, offering price and redemption price per class Y share | |
| ($1,680,344 divided by 186,777 shares) | $9.00 |
* 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.
35
Statement of operations Six months ended 11/30/09 (Unaudited)
| INTEREST INCOME | $3,866,462 |
| EXPENSES | |
| Compensation of Manager (Note 2) | 386,796 |
| Investor servicing fees (Note 2) | 43,268 |
| Custodian fees (Note 2) | 3,714 |
| Trustee compensation and expenses (Note 2) | 8,257 |
| Administrative services (Note 2) | 3,830 |
| Distribution fees — Class A (Note 2) | 154,261 |
| Distribution fees — Class B (Note 2) | 23,480 |
| Distribution fees — Class C (Note 2) | 29,686 |
| Distribution fees — Class M (Note 2) | 2,591 |
| Other | 66,101 |
| Fees waived and reimbursed by Manager (Note 2) | (44,817) |
| Total expenses | 677,167 |
| Expense reduction (Note 2) | (591) |
| Net expenses | 676,576 |
| Net investment income | 3,189,886 |
| Net realized gain on investments (Notes 1 and 3) | 82,720 |
| Net unrealized appreciation of investments during the period | 3,323,076 |
| Net gain on investments | 3,405,796 |
| Net increase in net assets resulting from operations | $6,595,682 |
The accompanying notes are an integral part of these financial statements.
36
Statement of changes in net assets
| Six months ended | Year ended | |
| INCREASE (DECREASE) IN NET ASSETS | 11/30/09* | 5/31/09 |
| Operations: | ||
| Net investment income | $3,189,886 | $6,464,765 |
| Net realized gain (loss) on investments | 82,720 | (486,452) |
| Net unrealized appreciation (depreciation) of investments | 3,323,076 | (2,415,827) |
| Net increase in net assets resulting from operations | 6,595,682 | 3,562,486 |
| Distributions to shareholders (Note 1): | ||
| From ordinary income | ||
| Taxable net investment income | ||
| Class A | — | (57,343) |
| Class B | — | (2,881) |
| Class C | — | (1,834) |
| Class M | — | (435) |
| Class Y | — | (70) |
| From tax-exempt net investment income | ||
| Class A | (2,929,655) | (5,991,783) |
| Class B | (97,708) | (270,200) |
| Class C | (99,301) | (146,697) |
| Class M | (20,085) | (39,705) |
| Class Y | (28,068) | (4,661) |
| Redemption fees (Note 1) | — | 765 |
| Increase (decrease) from capital share transactions (Note 4) | (741,698) | 2,133,932 |
| Total increase (decrease) in net assets | 2,679,167 | (818,426) |
| NET ASSETS | ||
| Beginning of period | 154,978,488 | 155,796,914 |
| End of period (including distributions in excess of net investment | ||
| income of $111,277 and $126,346, respectively) | $157,657,655 | $154,978,488 |
* Unaudited
The accompanying notes are an integral part of these financial statements.
37
Financial highlights (For a common share outstanding throughout the period)
| INVESTMENT OPERATIONS: | LESS DISTRIBUTIONS: | RATIOS AND SUPPLEMENTAL DATA: | |||||||||||
| Ratio | Ratio of net | ||||||||||||
| Net realized | of expenses | investment | |||||||||||
| Net asset value, | and unrealized | Total from | From net | Net asset | Total return | Net assets, | to average | income (loss) | |||||
| beginning | Net investment | gain (loss) on | investment | investment | Total | Redemption | value, end of | at net asset | end of period | net assets | to average | Portfolio | |
| Period ended | of period | income (loss) | investments | operations | income | distributions | fees | period | value (%) a | (in thousands) | (%) b,c | net assets (%) b | turnover (%) |
| Class A | |||||||||||||
| November 30, 2009 ** | $8.79 | .19 | .19 | .38 | (.18) | (.18) | — | $8.99 | 4.43 * | $143,511 | .41 * | 2.09 * | 3.39 * |
| May 31, 2009 | 8.93 | .36 | (.13) | .23 | (.37) | (.37) | — d | 8.79 | 2.84 | 142,288 | .84 | 4.32 | 19.58 |
| May 31, 2008 | 8.98 | .36 | (.04) | .32 | (.37) | (.37) | — d | 8.93 | 3.62 | 142,524 | .88 | 4.06 | 36.24 |
| May 31, 2007 | 8.97 | .36 | .01 | .37 | (.36) | (.36) | — d | 8.98 | 4.16 | 139,448 | .89 | 3.91 | 15.46 |
| May 31, 2006 | 9.22 | .35 | (.25) | .10 | (.35) | (.35) | — | 8.97 | 1.13 | 148,135 | .89 | 3.87 | 5.77 |
| May 31, 2005 | 8.94 | .35 | .28 | .63 | (.35) | (.35) | — d | 9.22 | 7.15 | 153,016 | .89 | 3.88 | 12.34 |
| Class B | |||||||||||||
| November 30, 2009 ** | $8.78 | .16 | .20 | .36 | (.16) | (.16) | — | $8.98 | 4.09 * | $4,908 | .73 * | 1.78 * | 3.39 * |
| May 31, 2009 | 8.93 | .31 | (.14) | .17 | (.32) | (.32) | — d | 8.78 | 2.06 | 6,387 | 1.48 | 3.67 | 19.58 |
| May 31, 2008 | 8.97 | .31 | (.04) | .27 | (.31) | (.31) | — d | 8.93 | 3.07 | 9,189 | 1.52 | 3.41 | 36.24 |
| May 31, 2007 | 8.96 | .30 | .01 | .31 | (.30) | (.30) | — d | 8.97 | 3.47 | 12,931 | 1.53 | 3.27 | 15.46 |
| May 31, 2006 | 9.21 | .29 | (.25) | .04 | (.29) | (.29) | — | 8.96 | .47 | 19,643 | 1.54 | 3.22 | 5.77 |
| May 31, 2005 | 8.93 | .29 | .28 | .57 | (.29) | (.29) | — d | 9.21 | 6.47 | 25,898 | 1.54 | 3.23 | 12.34 |
| Class C | |||||||||||||
| November 30, 2009 ** | $8.79 | .15 | .20 | .35 | (.15) | (.15) | — | $8.99 | 4.02 * | $6,583 | .80 * | 1.70 * | 3.39 * |
| May 31, 2009 | 8.93 | .30 | (.13) | .17 | (.31) | (.31) | — d | 8.79 | 2.01 | 4,985 | 1.63 | 3.55 | 19.58 |
| May 31, 2008 | 8.97 | .29 | (.04) | .25 | (.29) | (.29) | — d | 8.93 | 2.89 | 3,088 | 1.67 | 3.27 | 36.24 |
| May 31, 2007 † | 9.09 | .19 | (.12) | .07 | (.19) | (.19) | — | 8.97 | .80 * | 332 | 1.11 * | 2.04 * | 15.46 |
| Class M | |||||||||||||
| November 30, 2009 ** | $8.80 | .17 | .20 | .37 | (.17) | (.17) | — | $9.00 | 4.28 * | $975 | .55 * | 1.95 * | 3.39 * |
| May 31, 2009 | 8.94 | .34 | (.13) | .21 | (.35) | (.35) | — d | 8.80 | 2.56 | 1,085 | 1.13 | 4.03 | 19.58 |
| May 31, 2008 | 8.98 | .34 | (.04) | .30 | (.34) | (.34) | — d | 8.94 | 3.45 | 986 | 1.17 | 3.77 | 36.24 |
| May 31, 2007 | 8.98 | .33 | — d | .33 | (.33) | (.33) | — d | 8.98 | 3.73 | 1,157 | 1.18 | 3.63 | 15.46 |
| May 31, 2006 | 9.23 | .33 | (.26) | .07 | (.32) | (.32) | — | 8.98 | .83 | 1,347 | 1.19 | 3.58 | 5.77 |
| May 31, 2005 | 8.94 | .33 | .28 | .61 | (.32) | (.32) | — d | 9.23 | 6.94 | 865 | 1.19 | 3.58 | 12.34 |
| Class Y | |||||||||||||
| November 30, 2009 ** | $8.79 | .20 | .20 | .40 | (.19) | (.19) | — | $9.00 | 4.66 * | $1,680 | .30 * | 2.22 * | 3.39 * |
| May 31, 2009 | 8.93 | .38 | (.13) | .25 | (.39) | (.39) | — d | 8.79 | 3.04 | 234 | .63 | 4.63 | 19.58 |
| May 31, 2008 †† | 9.00 | .16 | (.07) | .09 | (.16) | (.16) | — | 8.93 | 1.03 * | 10 | .28 * | 1.78 * | 36.24 |
See notes to financial highlights at the end of this section.
The accompanying notes are an integral part of these financial statements.
| 38 | 39 |
Financial highlights (Continued)
* Not annualized.
** Unaudited.
† For the period October 3, 2006 (commencement of operations) to May 31, 2007.
†† For the period January 2, 2008 (commencement of operations) to May 31, 2008.
a Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
b 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 | |
| November 30, 2009 | 0.03% |
| May 31, 2009 | 0.06 |
| May 31, 2008 | 0.01 |
| May 31, 2007 | 0.01 |
| May 31, 2006 | 0.01 |
| May 31, 2005 | 0.01 |
c Includes amounts paid through expense offset arrangements (Note 2).
d Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial statements.
40
Notes to financial statements 11/30/09 (Unaudited)
Note 1: Significant accounting policies
Putnam Ohio Tax Exempt Income Fund (the “fund”), is a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified open-end management investment company. The investment objective of the fund is to seek 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 Investments, LLC, believes is consistent with preservation of capital by investing in a portfolio primarily consisting of investment- grade tax-exempt securities issued in the state of Ohio 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, class M and class Y shares. Class A and class M shares are sold with a maximum front-end sales charge of 4.00% and 3.25%, respectively, and generally do not pay a contingent deferred sales charge. 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. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C, and class M shares, but do not bear a distribution fee. Class Y shares are generally only available to corporate and institutional clients and clients in other approved programs.
A 1.00% redemption fee may apply on any shares 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.
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’s management team 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. Subsequent events after the Statement of assets and liabilities date through the date that the financial statements were issued, January 12, 2010, have been evaluated in the preparation of the financial statements.
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, including certain restricted and illiquid securities and derivatives 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 in a current sale 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.
41
C) 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, as amended (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. The fund is subject to the provisions of ASC 740 Income Taxes (“ASC 740”). ASC 740 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The fund did not have any unrecognized tax benefits in the accompanying financial statements. No provision has been made for federal taxes on income, capital gains or unrealized appreciation on sec urities held nor for excise tax on income and capital gains. Each of the fund’s federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service and state departments of revenue.
At May 31, 2009, the fund had a capital loss carryover of $773,467 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 | ||
| $360,245 | May 31, 2010 | ||
| 413,222 | May 31, 2017 | ||
Pursuant to federal income tax regulations applicable to regulated investment companies, the fund has elected to defer to its fiscal year ending May 31, 2010 $276,250 of losses recognized during the period November 1, 2008 to May 31, 2009.
The aggregate identified cost on a tax basis is $147,234,755, resulting in gross unrealized appreciation and depreciation of $7,921,411 and $1,744,739, respectively, or net unrealized appreciation of $6,176,672.
D) 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. 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.
Note 2: Management fee, administrative
services and other transactions
The fund pays Putnam Management 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.
Effective January 1, 2010, the fund will pay Putnam Management for investment management and advisory services monthly, based on the average net assets of the fund, at an annual rate based on the average of the aggregate net assets of all open-end funds sponsored by Putnam Management (but excluding the net assets of certain open-end funds to avoid “double-counting” of such net assets) (“fund family assets”). Such annual rate will be based on the following: 0.59% of the first $5 billion of average net assets, 0.54% of the next $5 billion, 0.49% of the next $10 billion, 0.44% of the next $10 billion, 0.39% of the next $50 billion, 0.37% of the next $50 billion, 0.36% of the next $100 billion and 0.355% thereafter.
Putnam Management had agreed to waive fees and reimburse expenses of the fund through July 31, 2009 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. During the period ended November 30, 2009, the fund’s expenses were reduced by $19,801 as a result of this limit.
Effective August 1, 2009 through July 31, 2010, Putnam Management has also contractually agreed to reimburse the fund’s expenses to the extent necessary to limit the cumulative expenses of the fund, exclusive of brokerage, interest, taxes, investment-related expenses, extraordinary expenses and payments under the fund’s investor servicing contract, investment management contract and distribution plans, on a fiscal year-to-date basis (or from August 1, 2009 through the fund’s next fiscal year end, as applicable), to an annual rate of 0.20% of the fund’s average net assets over such fiscal year-to-date period (or since August 1, 2009, as applicable). During the period
42
ended November 30, 2009, the fund’s expenses were not reduced as a result of this limit.
Putnam Management has contractually agreed, from August 1, 2009 through July 31, 2010, to limit the management fee for the fund to an annual rate of 0.452% of the fund’s average net assets. During the period ended November 30, 2009, the fund’s expenses were reduced by $25,016 as a result of this limit.
The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund’s assets are provided by State Street Bank and Trust Company (“State Street”). Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes.
Putnam Investor Services, Inc., an affiliate of Putnam Management, provided investor servicing agent functions to the fund. Putnam Investor Services, Inc. received fees for investor servicing, subject to certain limitations, based on the fund’s retail asset level, the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. The amounts incurred for investor servicing agent functions provided by affiliates of Putnam Management during the six months ended November 30, 2009 are included in Investor servicing fees in the Statement of operations.
The fund has entered into expense offset arrangements with Putnam Investor Services, Inc. and State Street whereby Putnam Investor Services, Inc.’s and State Street’s fees are reduced by credits allowed on cash balances. For the six months ended November 30, 2009, the fund’s expenses were reduced by $591 under the expense offset arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of which $119, 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 and industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees.
The fund has adopted a Trustee Fee Deferral Plan (the “Deferral Plan”) which allows the Trustees to defer the receipt of all or a portion of Trustees fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years 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 Limited Partnership, a wholly-owned subsidiary of Putnam Investments, 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 Limited Partnership 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 attributable 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 six months ended November 30, 2009, Putnam Retail Management Limited Partnership, acting as underwriter, received net commissions of $7,576 and $122 from the sale of class A and class M shares, respectively, and received $631 and $737 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 six months ended November 30, 2009 Putnam Retail Management Limited Partnership, acting as underwriter, received no monies on class A redemptions.
43
Note 3: Purchases and sales of securities
During the six months ended November 30, 2009, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $5,003,211 and $5,849,125, respectively. There were no purchases or sales of U.S. government securities.
Note 4: Capital shares
At November 30, 2009, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
| Six months ended 11/30/09 | Year ended 5/31/09 | |||
| Class A | Shares | Amount | Shares | Amount |
| Shares sold | 892,960 | $7,974,102 | 3,118,855 | $26,658,352 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 237,220 | 2,108,529 | 496,002 | 4,234,566 |
| 1,130,180 | 10,082,631 | 3,614,857 | 30,892,918 | |
| Shares repurchased | (1,359,030) | (11,946,940) | (3,375,148) | (28,460,691) |
| Net increase (decrease) | (228,850) | $(1,864,309) | 239,709 | $2,432,227 |
| Six months ended 11/30/09 | Year ended 5/31/09 | |||
| Class B | Shares | Amount | Shares | Amount |
| Shares sold | 6,336 | $56,887 | 46,617 | $400,610 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 8,031 | 71,235 | 22,557 | 192,540 |
| 14,367 | 128,122 | 69,174 | 593,150 | |
| Shares repurchased | (195,385) | (1,735,053) | (371,169) | (3,150,709) |
| Net decrease | (181,018) | $(1,606,931) | (301,995) | $(2,557,559) |
| Six months ended 11/30/09 | Year ended 5/31/09 | |||
| Class C | Shares | Amount | Shares | Amount |
| Shares sold | 234,013 | $2,071,430 | 351,214 | $3,042,664 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 6,422 | 57,143 | 9,601 | 81,880 |
| 240,435 | 2,128,573 | 360,815 | 3,124,544 | |
| Shares repurchased | (75,486) | (668,641) | (139,313) | (1,187,804) |
| Net increase | 164,949 | $1,459,932 | 221,502 | $1,936,740 |
| Six months ended 11/30/09 | Year ended 5/31/09 | |||
| Class M | Shares | Amount | Shares | Amount |
| Shares sold | 5,715 | $50,002 | 20,201 | $168,538 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 2,043 | 18,179 | 3,840 | 32,823 |
| 7,758 | 68,181 | 24,041 | 201,361 | |
| Shares repurchased | (22,810) | (204,135) | (10,949) | (93,784) |
| Net increase (decrease) | (15,052) | $(135,954) | 13,092 | $107,577 |
44
| Six months ended 11/30/09 | Year ended 5/31/09 | |||
| Class Y | Shares | Amount | Shares | Amount |
| Shares sold | 183,834 | $1,611,251 | 28,476 | $240,630 |
| Shares issued in connection with | ||||
| reinvestment of distributions | 770 | 6,802 | 490 | 4,172 |
| 184,604 | 1,618,053 | 28,966 | 244,802 | |
| Shares repurchased | (24,419) | (212,489) | (3,505) | (29,855) |
| Net increase | 160,185 | $1,405,564 | 25,461 | $214,947 |
At November 30, 2009, Putnam Investments, LLC owned 1,210 class Y shares of the fund (0.6% of class Y shares outstanding), valued at $10,890.
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 in connection with excessive short-term trading in Putnam funds. Distribution of payments from Putnam Management to certain open-end Putnam funds and their shareholders is expected to be completed in the next several months. These allegations and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits against Putnam Management and, in a limited number of cases, some Putnam funds. Putnam Management believes 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.
Note 6: Market and credit risk
In the normal course of business, the fund trades financial instruments and enters into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the contracting party to the transaction to perform (credit risk). The fund may be exposed to additional credit risk that an institution or other entity with which the funds have unsettled or open transactions will default.
45
Shareholder meeting results (unaudited)
November 19, 2009 meeting
At the meeting, each of the nominees for Trustees was elected, as follows:
| Votes for | Votes withheld | |
| Ravi Akhoury | 14,496,449 | 458,007 |
| Jameson A. Baxter | 14,501,242 | 453,214 |
| Charles B. Curtis | 14,498,678 | 455,778 |
| Robert J. Darretta | 14,497,272 | 457,184 |
| Myra R. Drucker | 14,501,685 | 452,771 |
| John A. Hill | 14,496,109 | 458,347 |
| Paul L. Joskow | 14,498,991 | 455,465 |
| Elizabeth T. Kennan | 14,481,607 | 472,849 |
| Kenneth R. Leibler | 14,495,352 | 459,104 |
| Robert E. Patterson | 14,502,357 | 452,099 |
| George Putnam, III | 14,507,778 | 446,678 |
| Robert L. Reynolds | 14,499,371 | 455,085 |
| W. Thomas Stephens | 14,499,859 | 454,597 |
| Richard B. Worley | 14,495,181 | 459,275 |
A proposal to approve a new management contract between the fund and Putnam Management was approved as follows:
| Votes for | Votes against | Abstentions | Broker non-votes | |||
| 9,433,076 | 253,300 | 381,307 | 4,886,773 | |||
All tabulations are rounded to the nearest whole number.
46
The Putnam family of funds
The following is a list of Putnam’s open-end mutual funds offered to the public. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial advisor at 1-800-225-1581 and ask for a prospectus. Please read the prospectus carefully before investing.
Growth
Growth Opportunities Fund
International New Opportunities Fund*
New Opportunities Fund
Small Cap Growth Fund*
Vista Fund
Voyager Fund
Blend
Asia Pacific Equity Fund*
Capital Opportunities Fund*
Capital Spectrum Fund‡
Emerging Markets Equity Fund*
Equity Spectrum Fund‡
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Value
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
International Growth and Income Fund*
Mid Cap Value Fund
Small Cap Value Fund*
Income
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*
High Yield Trust*
Income Fund
Money Market Fund†
U.S. Government Income Trust
* A 1% redemption fee on total assets redeemed or exchanged within 90 days of purchase may be imposed for all share classes of these funds.
† An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
‡ Prior to November 30, 2008, the fund was known as Putnam AMT-Free Insured Municipal Fund.
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Tax-free income
AMT-Free Municipal Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund†
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania
Absolute Return
Absolute Return 100 Fund
Absolute Return 300 Fund
Absolute Return 500 Fund
Absolute Return 700 Fund
Global Sector*
Global Consumer Fund
Global Energy Fund
Global Financials Fund
Global Health Care Fund**
Global Industrials Fund
Global Natural Resources Fund
Global Technology Fund
Global Telecommunications Fund
Global Utilities Fund††
Asset allocation
Income Strategies Fund
Putnam Asset Allocation Funds — three investment portfolios that spread your money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
Putnam RetirementReady®
Putnam RetirementReady Funds — 10 investment portfolios that offer diversification among stocks, bonds, and money market instruments and adjust to become more conservative over time based on a target date for withdrawing assets.
The 10 funds:
Putnam RetirementReady 2050 Fund
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
** Prior to January 2, 2009, the fund was known as Putnam Health Sciences Trust.
†† Prior to January 2, 2009, the fund was known as Putnam Utilities Growth and Income Fund.
‡ A 1% redemption fee on total assets redeemed or exchanged within 30 days of purchase may be imposed for all share classes of these funds.
With the exception of money market funds, a 1% redemption fee may be applied to shares exchanged or sold within 7 days of purchase (90 days, for certain funds).
Check your account balances and the most recent month-end performance in the Individual Investors section at putnam.com.
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Fund information
Founded over 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 funds across income, value, blend, growth, asset allocation, absolute return, and global sector categories.
| Investment Manager | Officers | Francis J. McNamara, III |
| Putnam Investment | Robert L. Reynolds | Vice President and |
| Management, LLC | President | Chief Legal Officer |
| One Post Office Square | ||
| Boston, MA 02109 | Jonathan S. Horwitz | Robert R. Leveille |
| Executive Vice President, | Vice President and | |
| Marketing Services | Principal Executive | Chief Compliance Officer |
| Putnam Retail Management | Officer, Treasurer and | |
| One Post Office Square | Compliance Liaison | Mark C. Trenchard |
| Boston, MA 02109 | Vice President and | |
| Charles E. Porter | BSA Compliance Officer | |
| Custodian | Senior Advisor | |
| State Street Bank and | Judith Cohen | |
| Trust Company | Steven D. Krichmar | Vice President, Clerk and |
| Vice President and | Assistant Treasurer | |
| Legal Counsel | Principal Financial Officer | |
| Ropes & Gray LLP | Wanda M. McManus | |
| Janet C. Smith | Vice President, Senior Associate | |
| Trustees | Vice President, Principal | Treasurer and Assistant Clerk |
| John A. Hill, Chairman | Accounting Officer and | |
| Jameson A. Baxter, | Assistant Treasurer | Nancy E. Florek |
| Vice Chairman | Vice President, Assistant Clerk, | |
| Ravi Akhoury | Susan G. Malloy | Assistant Treasurer and |
| Charles B. Curtis | Vice President and | Proxy Manager |
| Robert J. Darretta | Assistant Treasurer | |
| Myra R. Drucker | ||
| Paul L. Joskow | Beth S. Mazor | |
| Elizabeth T. Kennan | Vice President | |
| Kenneth R. Leibler | ||
| Robert E. Patterson | James P. Pappas | |
| George Putnam, III | Vice President | |
| Robert L. Reynolds | ||
| W. Thomas Stephens | ||
| Richard B. Worley |
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 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:
Not applicable
Item 3. Audit Committee Financial Expert:
Not applicable
Item 4. Principal Accountant Fees and Services:
Not applicable
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) Not applicable
(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.
Putnam Ohio Tax Exempt Income Fund
By (Signature and Title):
/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer
Date: January 28, 2010
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/Jonathan S. Horwitz
Jonathan S. Horwitz
Principal Executive Officer
Date: January 28, 2010
By (Signature and Title):
/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer
Date: January 28, 2010