Putnam
Ohio
Tax Exempt
Income Fund
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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-04
[GRAPHIC OMITTED: SILVER PITCHER]
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Over the past several months, Putnam has introduced a number of
voluntary reforms. We would like to call your attention to two of them
that are now being included in these reports to provide shareholders
with more useful information about their investments. Following the
performance tables in the Performance Summary, you will find new expense
and risk comparison information for your fund. The expense comparison
information enables you to estimate the amount you have actually paid
for ongoing expenses such as management fees and distribution (or 12b-1)
fees and to compare these expenses with the average expenses of funds in
your fund's Lipper peer group. The risk comparison shows your fund's
risk relative to similar funds as tracked by Morningstar, an independent
fund-rating company. We believe the expense and risk comparisons are
valuable tools for you and your financial advisor to use when making
decisions about your financial program. These enhancements to our
reports are just part of the additional disclosure we are committed to
providing to shareholders.
Putnam Ohio Tax Exempt Income Fund's fiscal year, which ended May 31,
2004, was a volatile period. Thanks to several key holdings and
defensive management strategies, your fund was able to outperform its
Lipper peer group at net asset value. However, the fund underperformed
its nationally diversified benchmark, essentially because of differences
in portfolio composition. Details are included in the discussion that
begins on the facing page.
As always, we appreciate your support of Putnam Investments.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 21, 2004
Report from Fund Management
Fund highlights
* Putnam Ohio Tax Exempt Income Fund's total return for the fiscal year
ended May 31, 2004, was -0.49% for class A shares at net asset value
(NAV) and -5.26% at public offering price (POP).
* The fund lagged the Lehman Municipal Bond Index, which returned -0.03%
for the same period. In part, the difference reflects the portfolio
composition of this single-state fund versus the nationally diversified
index.
* Strong performance from several lower-rated holdings helped the fund
at NAV to outperform the average for its Lipper category, Ohio Municipal
Debt Funds, which was -1.09% for the 12-month period.
* See the Performance Summary on page 7 for complete information on the
fund's results, performance comparisons, and Lipper data.
Performance commentary
Although interest rates rose and fell at different times during the past
12 months, rates ended the period higher than they were at the outset,
resulting in lower bond prices. The fund's underperformance relative to
the Lehman benchmark primarily reflects the fact that the index is
nationally diversified, while your fund concentrates on bonds issued in
a single state. This concentration is an advantage for tax-sensitive
Ohio residents, but it limits the fund's investment opportunities.
The fund's lower-rated holdings -- particularly its position in an
airline-related industrial development bond (IDB) issued for Continental
Airlines -- proved beneficial, as improving economic numbers and
persistently low interest rates prompted more investors to reach for
higher yields, boosting demand and consequently prices for these bonds.
This exposure to higher-yielding bonds, and the fund's relatively
defensive duration strategy during the period, helped the fund
outperform the average for its Lipper peer group, based on results at
NAV.
FUND PROFILE
Putnam Ohio Tax Exempt Income Fund seeks to provide high current income
free from federal and state of Ohio personal income taxes, as we believe
to be consistent with the preservation of capital. It may be suitable
for Ohio investors seeking tax-free income through a diversified
portfolio of municipal bonds primarily issued in Ohio.
Market overview
Municipal bond yields -- which move in the opposite direction of their
prices -- were volatile during the fiscal year ended May 31, 2004.
Concern about deflation led to falling yields through mid June of 2003.
This was followed by a period of rising yields through August. Then,
yields trended downward until they corrected sharply in late March and
April in response to much stronger economic data. At the end of the
period, yields on 10-year AAA-rated municipal bonds were slightly higher
than they had been at the beginning of the period. The ratio of
municipal bond yields to Treasury yields fell to about 80% in December,
which means the difference between the yields of 10-year municipal bonds
and 10-year Treasuries increased. The ratio edged up to about 85% by the
end of the fiscal period. Overall, the yield curve, which shows the
difference in yields over a range of bond maturities, flattened
somewhat, and credit spreads, which show the difference in yield between
higher- and lower-rated bonds, generally narrowed. The economy improved
on nearly all fronts, including job growth. The Federal Reserve Board
held the federal funds rate steady at 1%, but hinted at a potential rate
hike in the near future. Municipal bond issuance remained strong. In
May, California issued the first portion of its recently approved $15
billion bond issue to help alleviate the state's budget crisis. Although
ongoing tobacco litigation continued to make headlines, the municipal
bond market largely discounted the news. Airline-related IDBs turned in
mixed results as a period of strength was followed by weakening toward
period-end. In our opinion, the combination of higher fuel costs and
competition from low-cost carriers makes the outlook for major airlines
less favorable.
- -------------------------------------------------------------------------------
MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 5/31/04
- -------------------------------------------------------------------------------
Bonds
- -------------------------------------------------------------------------------
Lehman Municipal Bond Index (tax-exempt bonds) -0.03%
- -------------------------------------------------------------------------------
Lehman Aggregate Bond Index (broad bond market) -0.44%
- -------------------------------------------------------------------------------
Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) -0.89%
- -------------------------------------------------------------------------------
JP Morgan Global High Yield Index (global high-yield
corporate bonds) 13.24%
- -------------------------------------------------------------------------------
Equities
- -------------------------------------------------------------------------------
S&P 500 Index (broad stock market) 18.33%
- -------------------------------------------------------------------------------
Russell 2000 Index (stocks of small and midsize companies) 30.29%
- -------------------------------------------------------------------------------
MSCI EAFE Index (international stocks) 32.66%
- -------------------------------------------------------------------------------
These indexes provide an overview of performance in different market
sectors for the 12 months ended 5/31/04.
- -------------------------------------------------------------------------------
Strategy overview
In an increasingly strong economy, it appears likely that interest rates
will rise further. Consequently, we shortened the fund's duration (a
measure of a fund's sensitivity to changes in interest rates) relative
to that of its peer group during the period.
We took the opportunity afforded by strong demand for higher-yielding
municipal bonds to sell into strength where appropriate. We also
continued to diversify the portfolio by adding selectively to the fund's
lower-quality holdings. These below-investment-grade, higher-yielding
bonds are not a component of the fund's benchmark but we believe that
careful selection among them can continue to provide the fund with
attractive opportunities for income.
We carefully monitored developments in the tobacco industry,
particularly with regard to ongoing litigation and other factors
affecting demand for tobacco settlement bonds, which are secured by the
income stream from tobacco companies' settlement obligations to the
states. The municipal bond market has largely ignored recent unfavorable
headlines and the downgrading of some tobacco settlement bonds by
Moody's rating service. In our view, the backdrop for the tobacco
industry remains fundamentally positive, and the fund remains
overweighted in these bonds relative to the benchmark.
As certain airline-related IDBs continued to rebound during the period,
we took the opportunity to sell the fund's holdings into this strength.
As noted previously, our outlook for the major airlines is not favorable
at this time.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 11/30/03 as of 5/31/04
Education 11.9% 15.9%
Health care 18.2% 15.6%
Water and sewer 5.8% 5.7%
Housing 3.8% 4.0%
Pollution control 0.5% 2.7%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
When economic growth improves, the chances of a company or a
municipality defaulting generally decreases. This helps explain why
credit spreads -- the difference between higher- and lower-rated bonds
- -- generally narrowed over the course of the year, reflecting investors'
rising confidence in the economy and fiscal health of lower-rated
issuers. While your fund's portfolio is composed primarily of bonds
rated investment-grade or higher, its exposure to a variety of
high-yield municipal bonds boosted performance during the fiscal year.
We have been diversifying the fund's holdings in this sector to help
manage risk.
The fund's best results came from its holding in an airline-related
industrial development bond (IDB) backed by Continental Airlines,
although the issue gave up some of its strong gains in the final months
of the period. IDBs are municipal bonds issued to encourage local
expansion by various businesses. They are backed only by the credit of
the company benefiting from the financing, not by the issuing
municipality. As a result, investor perceptions about the backing
company's health, or that of its industry group as a whole, affect the
prices of these bonds. Early in the fiscal year, the airline industry
continued to feel the effects of declining air traffic, high fixed
costs, and high-profile bankruptcies. However, as geopolitical tensions
eased following what appeared to be the end of full-scale conflict in
Iraq, and as the global economy began to show signs of increased growth,
investors became more optimistic about the prospects for increased
travel and improving airline-industry fundamentals. This led to a sharp
rise in the price of airline-backed IDBs as many of these bonds
recovered from previously distressed levels. We took advantage of price
appreciation in this sector to selectively trim the fund's exposure to
the Continental Airlines bonds. Since they had been in the portfolio for
some time, the sale did not result in a profit based on the acquisition
cost, but the fund was able to sell on strength rather than in distress.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA (49.0%)
Aa/AA (18.0%)
A (14.1%)
Baa/BBB (14.9%)
Ba/BB (0.9%)
B (0.3%)
VMIG1 (2.8%)
Footnote reads:
As a percentage of market value as of 5/31/04. A bond rated Baa/BBB or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Bonds that performed particularly well for the fund during the fiscal
year included two hospital issues -- Tuscarawas County Hospital
Facilities bonds for Union Hospital and Franklin County Health Care
Facilities for Friendship Village of Dublin -- and one industrial
development bond, Ohio State Water Development Authority for BHP Steel.
Tobacco settlement bonds also generated strong results during the latter
half of the period as they recovered from investor concerns about
pending litigation -- some involving multibillion-dollar judgments --
against tobacco companies. Investors worried that these potential
liabilities would affect tobacco companies' ability to meet their
settlement payment obligations to the states. This would have a negative
impact on tobacco settlement bonds, which are secured by this promised
income stream.
During the period, however, the litigation environment shifted in favor
of tobacco companies as, in several cases, higher courts reversed lower
court judgments and outlined higher hurdles and stricter rules for
litigants against tobacco companies. This change prompted our reversion
to a more positive outlook on this sector. Although we reduced the
positions somewhat, the fund maintained its emphasis on tobacco
settlement bonds throughout the fiscal year, including bonds issued for
Children's Trust Fund of Puerto Rico and the Tobacco Settlement
Financing Corp. of the Virgin Islands.
There were no individual bonds that detracted from the fund's
performance during the period. Rather, the portfolio's higher-quality,
longer-term bonds were its weakest performers, as a stronger economy and
concern that interest rates may be about to rise attracted investors to
higher-yielding, lower-quality bonds and shorter-term issues.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are David Hamlin (Portfolio Leader), Paul Drury
(Portfolio Member), Susan McCormack (Portfolio Member), James St. John
(Portfolio Member), and Kevin Cronin.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Early in 2004, lingering unemployment had been an anomaly in an
otherwise robust economic recovery. However, in April, employment data
at last showed marked improvement in job creation. We believe the
underlying strength in the economy will foster higher interest rates in
the future. In keeping with our views, the fund's duration is now
relatively short in order to keep the portfolio defensively positioned.
We expect that the credit quality of general obligation municipal bonds
will improve gradually as the economy improves and tax revenues
increase. Although yield spreads between high- and low-quality municipal
bonds have narrowed somewhat, we believe they remain attractive and
could narrow further. As a result, we believe credit risk is worth
taking in moderate amounts, while we continue to seek diversification by
sector and issuer. We will closely monitor market conditions as we
pursue a high level of tax-free income and seek to manage the fund's
risk exposure.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. This fund
concentrates its investments in one state 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.
Income from federally exempt funds may be subject to state and local
taxes. Tax-free funds may not be suitable for IRAs and other non-taxable
accounts.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended May 31, 2004. In accordance with regulatory requirements, we also
include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. For the most
recent month-end performance, please visit www.putnaminvestments.com
- -----------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 5/31/04
- -----------------------------------------------------------------------------------------
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
- -----------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------------------
1 year -0.49% -5.26% -1.15% -5.94% -0.80% -3.98%
- -----------------------------------------------------------------------------------------
5 years 24.92 18.95 20.93 18.94 23.05 19.08
Annual average 4.55 3.53 3.87 3.53 4.24 3.55
- -----------------------------------------------------------------------------------------
10 years 67.99 59.99 57.48 57.48 63.05 57.68
Annual average 5.32 4.81 4.65 4.65 5.01 4.66
- -----------------------------------------------------------------------------------------
Annual average
(life of fund) 6.06 5.71 5.30 5.30 5.69 5.45
- -----------------------------------------------------------------------------------------
Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 4.75% and 3.25%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). 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. Performance for class B and M shares
before their inception is derived from the historical performance of
class A shares, adjusted for the applicable sales charge (or CDSC) and
higher operating expenses for such shares. For a portion of the period,
this fund limited expenses, without which returns would have been lower.
A 2% short-term trading fee will be applied to shares exchanged or sold
within 5 days of purchase.
- ----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/04
- ----------------------------------------------------------------------
Lehman Lipper Ohio
Municipal Municipal Debt Funds
Bond Index category average*
- ----------------------------------------------------------------------
1 year -0.03% -1.09%
- ----------------------------------------------------------------------
5 years 30.64 23.12
Annual average 5.49 4.24
- ----------------------------------------------------------------------
10 years 84.79 68.21
Annual average 6.33 5.33
- ----------------------------------------------------------------------
Annual average
(life of fund) 6.99 6.27
- ----------------------------------------------------------------------
Index and Lipper results should be compared to fund performance at
asset value.
* Over the 1-, 5-, and 10-year periods ended 5/31/04, there were 42, 37,
and 26 funds, respectively, in this Lipper category.
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 5/31/94 to 5/31/04
Fund's class A Lehman Municipal
Date shares at POP Bond Index
5/31/94 9,525 10,000
5/31/95 10,290 10,911
5/31/96 10,532 11,410
5/31/97 11,587 12,354
5/31/98 12,443 13,514
5/31/99 12,807 14,145
5/31/00 12,623 14,023
5/31/01 13,934 15,726
5/31/02 14,767 16,749
5/31/03 16,196 18,485
5/31/04 $15,999 $18,479
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B shares
would have been valued at $15,748, and no contingent deferred sales
charges would apply. A $10,000 investment in the fund's class M shares
would have been valued at $16,305 ($15,768 at public offering price).
See first page of performance section for performance calculation
method.
- ---------------------------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/04
- ---------------------------------------------------------------------------------------------
Class A Class B Class M
- ---------------------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ---------------------------------------------------------------------------------------------
Income 1 $0.345126 $0.285062 $0.317623
- ---------------------------------------------------------------------------------------------
Capital gains 1 -- -- --
- ---------------------------------------------------------------------------------------------
Total $0.345126 $0.285062 $0.317623
- ---------------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ---------------------------------------------------------------------------------------------
5/31/03 $9.33 $9.80 $9.32 $9.33 $9.64
- ---------------------------------------------------------------------------------------------
5/31/04 8.94 9.36* 8.93 8.94 9.24
- ---------------------------------------------------------------------------------------------
Current return (end of period)
- ---------------------------------------------------------------------------------------------
Current dividend rate 2 3.84% 3.67% 3.18% 3.54% 3.43%
- ---------------------------------------------------------------------------------------------
Taxable equivalent 3 6.39 6.10 5.29 5.89 5.71
- ---------------------------------------------------------------------------------------------
Current 30-day SEC yield
(with expense limitation) 4 3.37 3.22 2.73 3.08 2.98
- ---------------------------------------------------------------------------------------------
Taxable equivalent 3, 4 5.61 5.36 4.54 5.12 4.96
- ---------------------------------------------------------------------------------------------
Current 30-day SEC yield
(without expense limitation) 3.28 3.13 2.63 2.98 2.88
- ---------------------------------------------------------------------------------------------
* Reflects a reduction in sales charges that took effect on January 28,
2004.
1 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. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 39.88% federal and state combined tax rate for 2004.
Results for investors subject to lower tax rates would not be
advantageous.
4 For a portion of the period, this fund limited expenses, without which
yields would have been lower. Based only on investment income,
calculated using SEC guidelines.
- ---------------------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/04 (MOST RECENT CALENDAR QUARTER)
- ---------------------------------------------------------------------------------------------
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
- ---------------------------------------------------------------------------------------------
NAV POP NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
1 year 0.15% -4.59% -0.39% -5.22% -0.15% -3.38%
- ---------------------------------------------------------------------------------------------
5 years 26.90 20.89 23.00 21.00 25.19 21.06
Annual average 4.88 3.87 4.23 3.89 4.60 3.90
- ---------------------------------------------------------------------------------------------
10 years 69.25 61.26 58.84 58.84 64.40 59.11
Annual average 5.40 4.89 4.74 4.74 5.10 4.75
- ---------------------------------------------------------------------------------------------
Annual average
(life of fund) 6.04 5.69 5.29 5.29 5.68 5.44
- ---------------------------------------------------------------------------------------------
Understanding 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 may have been higher. Using the information below, you
can estimate how these expenses affect your investment and compare them
with the expenses of other funds. You may also pay one-time transaction
expenses, including sales charges (loads) and redemption fees, which are
not shown in this section and would have resulted in higher
total expenses. For more information, see your fund's prospectus or talk
to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Ohio Tax Exempt Income Fund from December 1, 2003,
to May 31, 2004. It also shows how much a $1,000 investment would be
worth at the close of the period, assuming actual returns and expenses.
- -------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 5/31/04
- -------------------------------------------------------------------------
Class A Class B Class M
- -------------------------------------------------------------------------
Expenses paid per $1,000* $4 $8 $6
- -------------------------------------------------------------------------
Ending value (after expenses) $995 $991 $992
- -------------------------------------------------------------------------
* 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 net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended May
31, 2004 use the calculation method below. To find the value of your
investment on December 1, 2003, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 12/01/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
- -----------------------------------------------------------------------------
HOW TO CALCULATE THE EXPENSES YOU PAID
- -----------------------------------------------------------------------------
Total
Value of your Expenses paid expenses
investment on 12/1/03 [DIV] $1,000 X per $1,000 = paid
- -----------------------------------------------------------------------------
Example Based on a $10,000 investment in class A shares of your fund.
- -----------------------------------------------------------------------------
$10,000 [DIV] $1,000 X $4 (see table above) = $40
- -----------------------------------------------------------------------------
Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 5/31/04
- ----------------------------------------------------------------------------
Class A Class B Class M
- ----------------------------------------------------------------------------
Expenses paid per $1,000* $4 $8 $6
- ----------------------------------------------------------------------------
Ending value (after expenses) $1,021 $1,017 $1,019
- ----------------------------------------------------------------------------
* 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 net assets for the six months ended 5/31/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). 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.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
- ----------------------------------------------------------------------------
Class A Class B Class M
- ----------------------------------------------------------------------------
Your fund's annualized
expense ratio+ 0.89% 1.54% 1.19%
- ----------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer
group++ 0.88% 1.53% 1.18%
- ----------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from
expense ratios based on one-year data in the financial highlights.
++ For class A shares, expenses shown represent the average of the
expenses of front-end load funds viewed by Lipper as having the same
investment classification or objective as the fund, calculated in
accordance with Lipper's standard reporting methodology for comparing
expenses within a given universe. All Lipper data is for the most recent
fiscal periods available as of 3/31/04. For class B and M shares,
Putnam has adjusted the Lipper total expense average to reflect higher
12b-1 fees incurred by these classes of shares. The peer group may
include funds that are significantly larger or smaller than the fund,
which may limit the comparability of the fund's expenses to the Lipper
average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.19
Municipal bond
fund average 0.22
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 6/30/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
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. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares (since reduced to 4.50%) and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Comparative indexes
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
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 funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor Web site,
www.putnaminvestments.com, by calling Putnam's Shareholder Services at
1-800-225-1581, or on the SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
Putnam Ohio Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (except for bond ratings), and the
related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the
financial position of Putnam Ohio Tax Exempt Income Fund (the "fund") at
May 31, 2004, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility
of the fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at May 31, 2004, by correspondence
with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 7, 2004
The fund's portfolio
May 31, 2004
Key to Abbreviations
- -------------------------------------------------------------------------------
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FHA Insd. Federal Housing Administration Insured
FRB Floating Rate Bonds
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
VRDN Variable Rate Demand Notes
Municipal bonds and notes (97.4%) (a)
Principal amount Rating (RAT) Value
Ohio (92.7%)
- -------------------------------------------------------------------------------
Akron, Wtr. Wks. Rev. Bonds, MBIA
$875,000 6s, 12/1/12 Aaa $1,007,344
1,285,000 5 1/4s, 12/1/17 Aaa 1,373,344
1,375,000 Allen Cnty., G.O. Bonds, AMBAC, 5s,
12/1/06 Aaa 1,464,375
1,565,000 Anthony Wayne Local School Dist.
G.O. Bonds (School Fac. Construction
& Impt.), FSA, 5 1/2s, 12/1/19 Aaa 1,682,375
1,500,000 Brecksville-Broadview Heights, City
School Dist. G.O. Bonds, FGIC,
6 1/2s, 12/1/16 Aaa 1,663,125
1,000,000 Butler Cnty., G.O. Bonds, MBIA,
5 1/4s, 12/1/20 Aaa 1,053,750
3,000,000 Cincinnati, City School Dist. G.O.
Bonds (Classroom Fac. Construction &
Impt.), FSA, 5s, 12/1/06 AAA 3,195,000
430,000 Cincinnati, Student Loan Funding
Corp. Rev. Bonds, Ser. B, 8 7/8s,
8/1/08 BBB/P 432,150
1,020,000 Cincinnati, Technical Cmnty. College
Rev. Bonds, AMBAC, 5s, 10/1/12 Aaa 1,104,150
500,000 Cleveland, G.O. Bonds, FGIC, 5 1/4s,
8/1/23 AAA 518,125
850,000 Cleveland, Arpt. Rev. Bonds
(Continental Airlines, Inc.), 5.7s,
12/1/19 B- 635,375
1,150,000 Cleveland, Urban Renewal Increment
Rev. Bonds (Rock & Roll Hall of
Fame), 6 3/4s, 3/15/18 BBB-/P 1,159,695
1,120,000 Cleveland, Wtr. Wks. Rev. Bonds,
Ser. J, FSA, 5 3/8s, 1/1/12 Aaa 1,236,200
500,000 Cleveland-Cuyahoga Cnty., Port.
Auth. Rev. Bonds (Rock & Roll Hall
of Fame), FSA, 3.6s, 12/1/14 Aaa 497,500
1,500,000 Cuyahoga Cnty., G.O. Bonds, 5s,
12/1/18 Aa1 1,545,000
5,060,000 Cuyahoga Cnty., Hosp. VRDN (U.
Hosp.), 1.02s, 1/1/16 VMIG1 5,060,000
1,500,000 Cuyahoga Cnty., Rev. Bonds, Ser. A,
6s, 1/1/32 A1 1,573,125
1,645,000 Cuyahoga Falls, G.O. Bonds, MBIA,
5s, 12/1/24 Aaa 1,647,056
1,160,000 Delaware City, School Dist. G.O.
Bonds, MBIA, 5s, 12/1/20 AAA 1,194,800
1,000,000 Delaware Cnty., Cap. Fac. G.O.
Bonds, 6 1/4s, 12/1/16 AA+ 1,153,750
1,300,000 Dublin, G.O. Bonds, Ser. B, 6.4s,
12/1/14 AAA 1,527,500
1,500,000 Erie Cnty., Ohio Hosp. Fac.
Rev. Bonds (Firelands Regl. Med.
Ctr.), 5 5/8s, 8/15/32 A2 1,492,500
Franklin Cnty., G.O. Bonds
2,170,000 5 3/8s, 12/1/20 Aaa 2,338,175
2,955,000 5s, 6/1/07 Aaa 3,161,850
2,610,000 Franklin Cnty., Rev. Bonds (OCLC
Online Computer Library Ctr.), 5s,
4/15/13 A 2,727,450
2,000,000 Franklin Cnty., Dev. Rev. Bonds
(American Chemical Society), 5.8s,
10/1/14 A 2,170,000
1,000,000 Franklin Cnty., Econ. Dev.
Rev. Bonds (Capitol South Cmnty.
Urban), 5 3/4s, 6/1/11 BBB-/P 1,048,750
Franklin Cnty., Hlth. Care Fac.
Rev. Bonds
2,000,000 (OH Presbyterian Svcs.), 7 1/8s,
7/1/29 BBB 2,085,000
1,750,000 (Friendship Dublin), 5 5/8s, 11/1/22 BBB+/P 1,764,438
1,380,000 Greene Cnty., Swr. Syst.
Rev. Bonds (Governmental
Enterprise), AMBAC, 5 5/8s, 12/1/13 Aaa 1,523,175
2,000,000 Hamilton, City School Dist. G.O.
Bonds, Ser. A, 5 1/2s, 12/1/24 AA- 2,100,000
3,000,000 Hillard, School Dist. G.O. Bonds
(School Impts.), FGIC, 5 3/4s,
12/1/24 Aaa 3,210,000
1,800,000 Huran Cnty., Human Svcs. Rev. Bonds,
MBIA, 6.55s, 12/1/20 Aaa 2,193,750
1,500,000 Kent, School Dist. G.O. Bonds, FGIC,
5 3/4s, 12/1/21 Aaa 1,633,125
1,820,000 Kettering, School Dist. G.O. Bonds
(School Impt.), FGIC, 5s, 12/1/13 Aaa 1,972,425
288,710 Lake Cnty., Indl. Dev. Rev. Bonds
(Madison Inn Hlth. Ctr.), FHA Insd.,
12s, 5/1/14 A-/P 290,159
1,000,000 Lake Ohio, School Dist. G.O. Bonds,
FGIC, 5 3/4s, 12/1/21 Aaa 1,096,250
1,000,000 Lakota, School Dist. Rev. Bonds,
AMBAC, 7s, 12/1/10 Aaa 1,192,500
1,910,000 Lorain Cnty., Elderly Hsg. Corp.
Multi-Fam. Rev. Bonds (Harr Plaza &
Intl.), Ser. A, 6 3/8s, 7/15/19 A 1,931,488
Lorain Cnty., Hosp. Rev. Bonds
5,325,000 (EMH Regl. Med. Ctr.), AMBAC,
7 3/4s, 11/1/13 Aaa 5,824,215
750,000 (Catholic Hlth. Care Refurbish &
Impt.), Ser. A, 5 1/4s, 10/1/33 AA- 727,500
Marion Cnty., Hlth. Care Fac.
Rev. Bonds (United Church Homes)
785,000 6 3/8s, 11/15/10 BBB- 796,775
1,250,000 6.3s, 11/15/15 BBB- 1,260,938
1,000,000 Marysville, Exempt Village School
Dist. G.O. Bonds, MBIA, 5 1/8s,
12/1/23 Aaa 1,046,250
2,500,000 Mason, City School Dist. G.O. Bonds,
5.3s, 12/1/17 Aa2 2,675,000
1,205,000 Massillon, Rev. Bonds (Lincoln Ctr.
Phase II), AMBAC, 6.95s, 12/1/10 Aaa 1,320,981
2,700,000 Miami Cnty., Hosp. Fac. Rev. Bonds
(Upper Valley Med. Ctr.), Ser. A,
6 3/8s, 5/15/26 Baa1 2,737,125
Middletown, City School Dist. G.O.
Bonds (School Impt.), FGIC
1,545,000 5s, 12/1/23 Aaa 1,554,656
1,000,000 4 3/4s, 12/1/22 Aaa 988,750
1,500,000 4 3/4s, 12/1/21 Aaa 1,498,125
1,265,000 Midview, School Dist. COP (School
Bldg. Fac.), 5 1/4s, 11/1/17 A 1,309,275
Montgomery Cnty., Hlth. Syst.
Rev. Bonds, Ser. B-1
220,000 8.1s, 7/1/18 AAA 240,625
1,720,000 8.1s, 7/1/18 (Prerefunded) Aaa 1,958,650
Montgomery Cnty., Hosp. Rev. Bonds
1,500,000 (Kettering Med. Ctr.), 6 3/4s,
4/1/22 A3 1,601,250
580,000 (Grandview Hosp. & Med Ctr.), 5.6s,
12/1/11 BBB+ 642,350
835,000 Northwestern, School Dist.
Rev. Bonds (Wayne & Ashland Cntys.
School Impt.), FGIC, 7.2s, 12/1/10 Aaa 1,005,131
OH Hsg. Fin. Agcy. Rev. Bonds
2,000,000 Ser. B, GNMA Coll., 5s, 3/1/34 Aaa 2,125,000
1,160,000 (Residential Dev.), Ser. A, GNMA
Coll., 4.6s, 9/1/28 Aaa 1,181,750
800,000 OH Hsg. Fin. Agcy. Single Fam. Mtge.
IFB, Ser. G, GNMA Coll., 7.14s,
3/2/23 Aaa 842,000
15,000 OH Hsg. Fin. Agcy. Single Fam. Mtge.
Rev. Bonds, Ser. 85-A, FGIC, zero %,
1/15/15 Aaa 5,250
OH State G.O. Bonds
3,000,000 (Hwy. Cap. Impt.), Ser. E, 5 1/2s,
5/1/08 AAA 3,288,750
2,500,000 (Higher Ed.), Ser. B, 5 1/4s,
11/1/12 Aa1 2,756,250
500,000 OH State Air Quality Dev. Auth. FRB
(Env. Meadwest), 2s, 5/1/23 Baa2 499,725
1,500,000 OH State Air Quality Dev. Auth.
Rev. Bonds (Poll. Control), Ser. A,
5.95s, 5/15/29 Baa1 1,483,125
1,500,000 OH State Bldg. Auth. Rev. Bonds
(Administration Bldg.), Ser. A, 5s,
10/1/18 Aa2 1,545,000
455,000 OH State Econ. Dev. Rev. Bonds
(Superior Forge & Steel Corp.), Ser.
3, 7 5/8s, 6/1/11 AA- 456,474
1,000,000 OH State Env. Impt. Rev. Bonds (USX
Corp.), 5 5/8s, 5/1/29 Baa1 1,001,250
OH State Higher Ed. Fac. Comm.
Rev. Bonds (John Carroll U.)
335,000 5 1/2s, 11/15/18 A2 359,288
420,000 5 1/2s, 11/15/17 A2 453,600
300,000 3 1/2s, 11/15/08 A2 304,500
500,000 3s, 11/15/07 A2 501,250
3,000,000 OH State Higher Edl. Fac. Mandatory
Put Bonds (Kenyon College Project),
5.05s, 7/1/16 A2 3,037,500
OH State Higher Edl. Fac. Rev. Bonds
4,500,000 (Case Western Reserve U.), 6 1/4s,
10/1/18 AA- 5,304,375
1,000,000 (Case Western Reserve U.), 6s,
10/1/14 AA- 1,157,500
2,270,000 (Denison U.), 5 1/8s, 11/1/21 AA 2,340,938
1,500,000 (Oberlin College), 5.12s, 10/1/24 AA 1,526,250
1,000,000 (Oberlin College), 5s, 10/1/33 AA 980,000
3,000,000 (Northern U.), 4 3/4s, 5/1/19 A2 3,011,250
OH State Poll. Control Rev. Bonds
3,350,000 (Standard Oil Co.), 6 3/4s, 12/1/15 AA+ 4,049,313
1,000,000 (General Motors Corp.), 5 5/8s,
3/1/15 Baa1 1,035,000
1,500,000 OH State Solid Waste Mandatory Put
Bonds, 4.85s, 11/1/07 BBB 1,556,250
600,000 OH State Solid Waste Rev. Bonds
(General Motors Corp.), 6.3s,
12/1/32 Baa1 621,750
1,000,000 OH State U. Rev. Bonds, Ser. A,
5 1/8s, 12/1/31 Aa2 1,003,750
1,565,000 OH State Wtr. Dev. Auth. Rev. Bonds
(Fresh Wtr.), Ser. B, FSA, 5 1/2s,
6/1/18 Aaa 1,739,106
1,000,000 OH State Wtr. Dev. Auth. Poll.
Control Fac. Mandatory Put Bonds (OH
Edison Co.), Ser. A, 2 1/4s, 6/1/05 Baa1 993,090
OH State Wtr. Dev. Auth. Solid Waste
Disp. Rev. Bonds
2,700,000 (North Star Broken Hill Steel),
6.45s, 9/1/20 A+ 2,808,000
1,700,000 (Bay Shore Power Co.), Ser. A,
5 7/8s, 9/1/20 BB+/P 1,561,875
2,265,000 OH U. Gen. Recipients Athens
Rev. Bonds, MBIA, 5s, 12/1/25 Aaa 2,267,831
1,500,000 Powell, G.O. Bonds, FGIC, 5 1/2s,
12/1/25 Aaa 1,569,375
2,165,000 Rickenbacker, Port Auth. Rev. Bonds
(OASBO Expanded Asset Pooled),
Ser. A, 5 3/8s, 1/1/32 A2 2,213,713
300,000 River Valley, Local School Dist.
G.O. Bonds (School Fac. Construction
& Impt.), FSA, 5 1/4s, 11/1/23 Aaa 318,375
Sandusky Cnty., Hosp. Fac.
Rev. Bonds (Memorial Hosp.)
830,000 5.15s, 1/1/10 BBB- 805,100
500,000 5.15s, 1/1/08 BBB- 493,125
685,000 5.05s, 1/1/07 BBB- 678,150
1,500,000 Toledo, G.O. Bonds (Macys), Ser. A,
MBIA, 6.35s, 12/1/25 Aaa 1,644,375
2,925,000 Toledo, Swr. Syst. Mtge. Rev. Bonds,
AMBAC, 6.2s, 11/15/12 Aaa 3,407,625
1,175,000 Toledo, Wtr. Wks. Mtge. Rev. Bonds,
AMBAC, 6.2s, 11/15/12 Aaa 1,368,875
2,200,000 Toledo-Lucas Cnty., Port Auth.
Rev. Bonds (CSX Transn, Inc.),
6.45s, 12/15/21 Baa2 2,400,750
1,100,000 Tuscarawas Cnty., Hosp. Fac.
Rev. Bonds (Union Hosp.), Ser. A,
6 1/2s, 10/1/21 Baa1 1,127,170
1,000,000 Twin Valley, Cmnty. Local School
Dist. Rev. Bonds, FGIC, 7.05s,
12/1/11 Aaa 1,211,250
1,000,000 U. of Cincinnati COP (Jefferson Ave.
Residence Hall), MBIA, 5 1/8s,
6/1/28 Aaa 1,003,750
U. of Cincinnati Rev. Bonds, Ser. D,
AMBAC
2,000,000 5s, 6/1/24 Aaa 2,010,000
1,275,000 5s, 6/1/23 Aaa 1,289,344
Westerville, City School Dist.
Rev. Bonds (School Impt.)
1,610,000 6 1/4s, 12/1/09 Aa3 1,847,475
1,590,000 6 1/4s, 12/1/08 Aa3 1,802,663
3,000,000 Woodridge, School Dist. Rev. Bonds,
AMBAC, 6.8s, 12/1/14 Aaa 3,555,000
Zanesville, Hsg. Dev. Corp. Mtge.
Rev. Bonds, FHA Insd.
220,000 7 3/8s, 10/1/21 AAA/P 283,800
205,000 7 3/8s, 10/1/20 AAA/P 264,450
185,000 7 3/8s, 10/1/19 AAA/P 238,650
180,000 7 3/8s, 10/1/18 AAA/P 232,200
160,000 7 3/8s, 10/1/17 AAA/P 206,400
155,000 7 3/8s, 10/1/16 AAA/P 199,950
--------------
173,810,925
Puerto Rico (4.2%)
- -------------------------------------------------------------------------------
785,000 Children's Trust Fund Tobacco
Settlement Rev. Bonds, 5 3/8s,
5/15/33 BBB 666,269
3,000,000 Cmnwlth. of PR, Muni. Fin. Agcy.
G.O. Bonds, Ser. A, FSA, 5 7/8s,
8/1/14 Aaa 3,363,750
2,500,000 Cmnwlth. of PR, Muni. Fin. Agcy.
Rev. Bonds, Ser. A, FSA, 6s, 7/1/11 Aaa 2,881,250
1,000,000 PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES), 6 5/8s, 6/1/26 Baa3 1,033,750
--------------
7,945,019
Virgin Islands (0.5%)
- -------------------------------------------------------------------------------
1,020,000 Tobacco Settlement Fin. Corp.
Rev. Bonds, 5s,5/15/21 Baa3 895,050
- -------------------------------------------------------------------------------
Total Investments
(cost $175,548,228) $182,650,994
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $187,606,195.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at May 31, 2004 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at May 31, 2004. Securities rated by Putnam are indicated by
"/P" . Ratings are not covered by the Report of Independent Registered
Public Accounting Firm.
The rates shown on VRDN, Mandatory Put Bonds and Floating Rate Bonds
(FRB) are the current interest rates shown at May 31, 2004.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at May 31, 2004.
The fund had the following industry sector concentrations greater than
10% at May 31, 2004 (as a percentage of net assets):
Education 15.9%
Health care 15.6
The fund had the following insurance concentration greater than 10% at
May 31, 2004 (as a percentage of net assets):
AMBAC 12.8%.
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
May 31, 2004
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$175,548,228) (Note 1) $182,650,994
- -------------------------------------------------------------------------------
Cash 1,759,217
- -------------------------------------------------------------------------------
Interest and other receivables 3,052,150
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,458
- -------------------------------------------------------------------------------
Receivable for securities sold 1,016,263
- -------------------------------------------------------------------------------
Total assets 188,481,082
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 384,740
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 89,535
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 224,723
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 45,126
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 27,913
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 728
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 76,638
- -------------------------------------------------------------------------------
Other accrued expenses 25,484
- -------------------------------------------------------------------------------
Total liabilities 874,887
- -------------------------------------------------------------------------------
Net assets $187,606,195
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $183,993,314
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (34,302)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,455,583)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,102,766
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $187,606,195
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($153,316,787 divided by 17,155,237 shares) $8.94
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $8.94)* $9.36
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($33,382,292 divided by 3,738,664 shares)** $8.93
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($907,116 divided by 101,444 shares) $8.94
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.94)*** $9.24
- -------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or
more and on group sales, the offering price is reduced.
** 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
and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
Statement of operations
Year ended May 31, 2004
Interest income: $9,788,409
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,058,215
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 305,455
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 13,961
- -------------------------------------------------------------------------------
Administrative services (Note 2) 6,926
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 340,202
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 328,784
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 15,394
- -------------------------------------------------------------------------------
Other 97,734
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 3,591
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 5) (3,591)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (29,927)
- -------------------------------------------------------------------------------
Total expenses 2,136,744
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (30,046)
- -------------------------------------------------------------------------------
Net expenses 2,106,698
- -------------------------------------------------------------------------------
Net investment income 7,681,711
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,199,654
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,341,005
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and future
contracts during the year (11,467,716)
- -------------------------------------------------------------------------------
Net loss on investments (8,927,057)
- -------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,245,346)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets
Year ended May 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $7,681,711 $8,504,634
- -------------------------------------------------------------------------------
Net realized gain on investments 2,540,659 1,164,976
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (11,467,716) 10,180,043
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
- -------------------------------------------------------------------------------
resulting from operations (1,245,346) 19,849,653
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From ordinary income
Class A (116,925) --
- -------------------------------------------------------------------------------
Class B (26,392) --
- -------------------------------------------------------------------------------
Class M (2,249) --
- -------------------------------------------------------------------------------
From tax-exempt income
Class A (6,297,383) (7,117,024)
- -------------------------------------------------------------------------------
Class B (1,181,406) (1,458,729)
- -------------------------------------------------------------------------------
Class M (104,943) (117,782)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (34,241,979) 5,759,619
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (43,216,623) 16,915,737
Net assets
- -------------------------------------------------------------------------------
Beginning of year 230,822,818 213,907,081
- -------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income and
undistributed net investment income of
$34,302 and $40,763, respectively) $187,606,195 $230,822,818
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended May 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.33 $8.87 $8.77 $8.29 $8.99
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .34 (c) .36 .42 .44 .45 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.38) .46 .10 .47 (.70)
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.04) .82 .52 .91 (.25)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.35) (.36) (.42) (.43) (.45)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.35) (.36) (.42) (.43) (.45)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.94 $9.33 $8.87 $8.77 $8.29
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.49) 9.48 5.98 11.22 (2.72)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $153,317 $183,383 $167,223 $153,806 $149,434
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89 (c) .88 .91 .88 .87 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.75 (c) 3.94 4.70 5.03 5.24 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 17.43 25.66 17.26 11.88 10.84
- -------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the years ended May
31, 2004 and May 31, 2000 reflect a reduction of 0.01% and 0.01%,
respectively, based on average net assets for class A shares.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended May 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.32 $8.86 $8.76 $8.28 $8.98
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .28 (c) .30 .36 .38 .39 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.38) .47 .10 .48 (.69)
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.10) .77 .46 .86 (.30)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.29) (.31) (.36) (.38) (.40)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.29) (.31) (.36) (.38) (.40)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.93 $9.32 $8.86 $8.76 $8.28
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.15) 8.78 5.30 10.51 (3.37)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $33,382 $43,983 $43,696 $51,687 $48,424
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.54 (c) 1.53 1.56 1.53 1.52 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.10 (c) 3.30 4.05 4.38 4.59 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 17.43 25.66 17.26 11.88 10.84
- -------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the years ended May
31, 2004 and May 31, 2000 reflect a reduction of 0.01% and 0.01%,
respectively, based on average net assets for class B shares.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended May 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.33 $8.88 $8.77 $8.29 $8.99
- -------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income .32 (c) .33 .39 .41 .42 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.39) .46 .11 .48 (.69)
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.07) .79 .50 .89 (.27)
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.32) (.34) (.39) (.41) (.43)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.32) (.34) (.39) (.41) (.43)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.94 $9.33 $8.88 $8.77 $8.29
- -------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.80) 9.03 5.78 10.88 (3.02)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $907 $3,457 $2,988 $1,932 $1,626
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.19 (c) 1.18 1.21 1.18 1.17 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.41 (c) 3.64 4.39 4.73 4.94 (c)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 17.43 25.66 17.26 11.88 10.84
- -------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
(c) Reflects an expense limitation in effect during the period. As a
result of such limitation, expenses of the fund for the years ended May
31, 2004 and May 31, 2000 reflect a reduction of 0.01% and 0.01%,
respectively, based on average net assets for class M shares.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
May 31, 2004
Note 1
Significant accounting policies
Putnam Ohio Tax Exempt Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax and Ohio personal income tax as
Putnam Investment Management, LLC ("Putnam Management"), the fund's
manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is
consistent with preservation of capital by investing primarily in a
portfolio of investment-grade Ohio tax-exempt securities with
intermediate- to long-term maturities. The fund may be affected by
economic and political developments in the state of Ohio.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.50%. Prior to January
28, 2004, the maximum front-end sales charge for class A shares was
4.75%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge, but pay
a higher ongoing distribution fee than class A shares, and are subject
to a contingent deferred sales charge, if those shares are redeemed
within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25 % and pay an ongoing distribution fee
that is higher than class A but lower than class B shares.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are valued at fair
value 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. Other investments, including restricted
securities, are valued at fair value following procedures approved by
the Trustees. Such valuations and procedures are reviewed periodically
by the Trustees.
B) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. All premiums/discounts
are amortized /accreted on a yield-to-maturity basis. The premium in
excess of the call price, if any, is amortized to the call date;
thereafter, any remaining premium is amortized to maturity.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. When the contract is closed, the fund records
a realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
D) Line of credit During the period, the fund was entered into a
committed line of credit with certain banks. The line of credit
agreement included restrictions that the fund would maintain an asset
coverage ratio of at least 300% and that borrowings would not exceed
prospectus limitations. For the period ended August 6, 2003 the fund had
no borrowings against the line of credit. Effective August 6, 2003, the
fund no longer participated in a committed line of credit.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986 (the "Code"), as amended.
Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At May 31, 2004, the fund had a capital loss carryover of $2,427,028
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
- ------------------------------
$2,066,783 May 31, 2009
360,245 May 31, 2010
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Distributions from capital gains, if any,
are recorded on the ex-dividend date and paid at least annually. The
amount and character of income and gains to be distributed are
determined in accordance with income tax regulations, which may differ
from generally accepted accounting principles. These differences include
temporary and permanent differences of dividends payable, realized gains
and losses on certain futures contracts, market discount, and straddle
loss deferrals. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the
year ended May 31, 2004, the fund reclassified $27,478 to increase
distributions in excess of net investment income and $27,478 to decrease
accumulated net realized losses.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $8,784,828
Unrealized depreciation (1,682,062)
------------
Net unrealized appreciation 7,102,766
Undistributed tax
exempt income 324,687
Undistributed ordinary income 8,590
Capital loss carryforward (2,427,028)
Cost for federal income
tax purposes $175,548,228
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the lesser of (i) an annual rate of 0.50% of the average net
assets of the fund or (ii) the following annual rates expressed as a
percentage of the fund's average net assets: 0.60% of the first $500
million, 0.50% of the next $500 million, 0.45% of the next $500 million,
0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355% of
the next $5 billion, 0.34% of the next $5 billion and 0.33% thereafter.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended May 31, 2004, the fund paid
PFTC $250,558 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the year ended May 31, 2004, the
fund's expenses were reduced by $30,046 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $651, 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.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in 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 fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Retail Management at annual
rates of up to 0.35%, 1.00%, 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees have approved payment by the fund at the annual rates of 0.20%,
0.85% and 0.50% of the average net assets attributable to class A, class
B and class M shares, respectively.
For the year ended May 31, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $13,011 and $116 from the sale
of class A and class M shares, respectively and $65,961 in contingent
deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1.00% is assessed on certain
redemptions of class A shares that were purchased without an initial
sales charge as part of an investment of $1 million or more. For the
year ended May 31, 2004, Putnam Retail Management, acting as
underwriter, received $5,670 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended May 31, 2004, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $33,863,339 and $63,698,077, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Capital shares
At May 31, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended May 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 1,645,450 $15,042,154
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 486,137 4,446,177
- ----------------------------------------------------------------
2,131,587 19,488,331
Shares repurchased (4,635,746) (42,357,174)
- ----------------------------------------------------------------
Net decrease (2,504,159) $(22,868,843)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 2,353,812 $21,327,032
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 530,372 4,797,082
- ----------------------------------------------------------------
2,884,184 26,124,114
Shares repurchased (2,069,802) (18,794,311)
- ----------------------------------------------------------------
Net increase 814,382 $7,329,803
- ----------------------------------------------------------------
Year ended May 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 245,406 $2,243,629
- ----------------------------------------------------------------
Shares issued
in connection with
reinvestment
of distributions 82,562 754,448
- ----------------------------------------------------------------
327,968 2,998,077
Shares repurchased (1,308,759) (11,926,802)
- ----------------------------------------------------------------
Net decrease (980,791) $(8,928,725)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 609,690 $5,519,505
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 98,787 897,003
- ----------------------------------------------------------------
708,477 6,416,508
Shares repurchased (918,825) (8,294,954)
- ----------------------------------------------------------------
Net decrease (210,348) $(1,878,446)
- ----------------------------------------------------------------
Year ended May 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 86,521 $800,486
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 11,010 101,012
- ----------------------------------------------------------------
97,531 901,498
Shares repurchased (366,495) (3,345,909)
- ----------------------------------------------------------------
Net decrease (268,964) $(2,444,411)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 33,274 $303,543
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 11,704 106,347
- ----------------------------------------------------------------
44,978 409,890
Shares repurchased (11,173) (101,628)
- ----------------------------------------------------------------
Net increase 33,805 $308,262
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended May 31, 2004, Putnam Management has assumed $3,591
of legal, shareholder servicing and communication, audit, and Trustee
fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Federal tax information
(Unaudited)
The fund has designated 98.1% of dividends paid from net investment
income during the fiscal year as tax exempt for federal income tax
purposes.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care, and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. He served
as Chairman of the Federal Energy Regulatory Commission from 1977 to
1981 and has held positions on the staff of the U.S. House of
Representatives, the U.S. Treasury Department, and the Securities and
Exchange Commission.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman and Managing Director of First Reserve
Corporation, a private equity buyout firm that specializes in energy
investments in the diversified worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York, and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee Putnam Investment Trust (a closed-end investment company). He
is also a Trustee of Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget, and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President, and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of the University of Michigan Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution, and telecommunications infrastructure) as well as a
Director of TransCanada Corporation (a gas transmission and power
company). He also serves on the board of the Whitehead Institute for
Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company) and prior to March 2000 he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition, and privatization policies --
serving as an advisor to governments and corporations worldwide. Dr.
Joskow holds a Ph.D. and M. Phil from Yale University and B.A. from
Cornell University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner in Cambus-Kenneth Farm, LLC (cattle and
thoroughbred horses). She is President Emeritus of Mount Holyoke
College.
Dr. Kennan serves as Lead Director (formerly Chairman) of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life
Insurance. She is a Trustee of Centre College and of Midway College in
Midway, Kentucky. She is also a member of The Trustees of Reservations
and a Trustee of the National Trust for Historic Preservation. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University, and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history, and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University, and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light), and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of Washington & Lee
University, where he served as Chairman of the Investment Committee.
Prior to May 2001, he was a Director of Graphic Packaging International
Corp. Prior to February 2004, he was a Director of Alex Brown Realty,
Inc.
Mr. Mullin also served as a Director of Dillon, Read & Co., Inc. until
October 1997 and The Ryland Group, Inc. until January 1998. Mr. Mullin
is a graduate of Washington & Lee University and The Wharton Graduate
School, University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, Inc., a private
equity firm specializing in real estate investments, and Chairman of
Cabot Properties, Inc.
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company, LLC. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, Mr. Patterson was
Executive Vice President and Director of Acquisitions of Cabot Partners
Limited Partnership (a registered investment advisor involved in
institutional real estate investments). Prior to 1990, he served as
Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc.
(the predecessor company of Cabot Partners) and as a Senior Vice
President of the Beal Companies (a real estate management, investment,
and development firm).
Mr. Patterson practiced law and held various positions in state
government, and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens serves as a Director of Xcel Energy Incorporated (a public
utility company), TransCanada Pipelines Limited, Norske Canada, Inc. (a
paper manufacturer), and Qwest Communications. Until 2003, Mr. Stephens
was a Director of Mail-Well, Inc. (a diversified printing company). He
served as Chairman of Mail-Well until 2001 and as CEO of
MacMillan-Bloedel, Ltd. (a forest products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
W. Nicholas Thorndike (3/28/33), Trustee since 1992
Mr. Thorndike serves on the boards of various corporations and
charitable organizations.
Mr. Thorndike is a Director of Courier Corporation (a book publisher and
manufacturer). He is also a Trustee of Northeastern University and an
honorary Trustee of Massachusetts General Hospital, where he previously
served as Chairman and President. Prior to December 2003, he was a
Director of The Providence Journal Co. (a newspaper publisher). Prior to
September 2000, he was a Director of Bradley Real Estate, Inc.; prior to
April 2000, he was a Trustee of Eastern Utilities Associates; and prior
to December 2001, he was a Trustee of Cabot Industrial Trust.
Mr. Thorndike has also served as Chairman of the Board and Managing
Partner of Wellington Management Company/Thorndike, Doran, Paine & Lewis
(a registered investment advisor that manages mutual funds and
institutional assets), as a Trustee of the Wellington Group of Funds
(currently The Vanguard Group), and as Chairman and a Director of Ivest
Fund, Inc. Mr. Thorndike is a graduate of Harvard College.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment advisor). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
Price & Rhoads in Philadelphia. He is a graduate of Harvard College,
Harvard Business School, and Harvard Law School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is Chairman of Putnam Investments and a Director of and
Consultant to Marsh & McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to May 2000 and November 1999, Mr. Smith was Chairman
and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of May 31, 2004, there were 102 Putnam Funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Putnam, III, and Smith are deemed "interested persons" by virtue
of their positions as officers or shareholders of the fund or Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc. George Putnam, III is the President of your fund and each of the
other Putnam funds. Mr. Smith serves as a Director of Marsh & McLennan
Companies, Inc. and as Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Patricia C. Flaherty (12/1/46)
Senior Vice President
Since 1993
Senior Vice President, Putnam Investments and Putnam
Management
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004, Associate
at Ropes & Gray LLP; prior to 2000, Law Clerk for the
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel of
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
From 2001 to 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square, Boston, MA 02109.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has
been reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share
class, the maximum amount that can be invested in class B shares has
been reduced to $100,000. (Larger trades or accumulated amounts will be
directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund remains 3.25%.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 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 presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Ohio Tax
Exempt Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, the most recent copy
of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN053-215027 848/240/130 7/04
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson and Mr. Stephens qualify as "audit committee
financial experts" (as such term has been defined by the Regulations)
based on their review of their pertinent experience and education.
Certain other Trustees, although not on the Audit and Pricing Committee,
would also qualify as "audit committee financial experts." The SEC has
stated that the designation or identification of a person as an audit
committee financial expert pursuant to this Item 3 of Form N-CSR does
not impose on such person any duties, obligations or liability that are
greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
May 31, 2004 $36,315 * $-- $5,933 $39
May 31, 2003 $31,562 $-- $4,946 $--
*Includes fees of $78 billed by the fund's independent auditor to
the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended May 31, 2004 and May 31, 2003, the
fund's independent auditors billed aggregate non-audit fees in the
amounts of $ 136,462 and $59,464 , respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
May 31, 2004 $-- $-- $-- $--
May 31, 2003 $-- $-- $-- $--
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. 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 on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: July 27, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: July 27, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: July 27, 2004