Prospectus
October 1, 1993, as
revised April 1, 1994
Putnam Massachusetts Tax Exempt Income Fund II
Putnam Michigan Tax Exempt Income Fund II
Putnam Minnesota Tax Exempt Income Fund II
Putnam Ohio Tax Exempt Income Fund II
INVESTMENT STRATEGY: TAX-ADVANTAGED
This Prospectus explains concisely what you should know before
investing in any of the Funds. Please read it carefully and keep
it for future reference. You can find more detailed information
about each Fund in the October 1, 1993 Statement of Additional
Information, as amended from time to time. For a free copy of
the Statement, call Putnam Investor Services at 1-800-225-1581.
The Statement has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
BOSTON*LONDON*TOKYO
<PAGE>
Each Fund seeks as high a level of current income exempt from
federal income tax and personal income tax of its respective
state as Putnam Investment Management, Inc., the Funds'
investment adviser ("Putnam Management"), believes is consistent
with preservation of capital. Each Fund invests primarily in a
portfolio of State Tax Exempt Securities, which may include
securities of issuers other than the relevant state and its
political subdivisions.
Each Fund offers two classes of shares: Class A and Class B. Each
class is sold pursuant to different sales arrangements and bears
different expenses. For more information about the different
sales arrangements, see "Alternative sales arrangements." For
information about various expenses borne by each class, see
"Expenses summary."
ABOUT THE FUNDS
Expenses summary
^............................................................4
Financial highlights
^............................................................6
Objectives
^............................................................11
How objectives are pursued
^............................................................11
How performance is shown
^............................................................22
How the Funds are managed
^............................................................23
Organization and history 24
ABOUT YOUR INVESTMENT
Alternative sales arrangements
.^............................................................26
How to buy shares
^............................................................26
Distribution Plans
^............................................................31
How to sell shares
^............................................................32
How to exchange shares
^............................................................34
How the Funds value their shares
^............................................................35
How distributions are made; tax information 35
ABOUT PUTNAM INVESTMENTS, INC. 39
Appendix
Tax-exempt security ratings.^...............................40<PAGE>
About the Funds
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing in
each Fund. The following table summarizes your maximum
transaction costs from investing in each Fund and expenses which
a Fund incurred in its most recent fiscal year. The Examples
show the cumulative expenses attributable to a hypothetical
$1,000 investment in a Fund over specified periods.
Class A Shares Class B
Shares
Shareholder Transaction Expenses
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price) 4.75%
NONE*
Deferred Sales Charge (as a 5.0% in
the
percentage of the lower first
year,
of the original purchase NONE** declining
to,
price or redemption 1.0% in the
proceeds) sixth year and
eliminated
thereafter
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A Shares
Putnam Putnam Putnam Putnam
Massachusetts Michigan Minnesota Ohio
Tax Exempt Tax Exempt Tax Exempt Tax Exempt
Income Income Income Income
Fund II Fund II Fund II Fund II
------- ------- ------- ----------
<C> <C> <C> <C> <C>
Management Fees 0.60% 0.60% 0.60% 0.60%
12b-1 Fees 0.20% 0.20% 0.20% 0.20%
Other Expenses 0.20% 0.25% 0.29% 0.24%
Total Fund Operating Expenses 1.00% 1.05% 1.09% 1.04%
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Class B Shares
<C>
Putnam Putnam Putnam Putnam
Massachusetts Michigan Minnesota Ohio
Tax Exempt Tax Exempt Tax Exempt Tax Exempt
Income Income Income Income
Fund II Fund II Fund II Fund II
------- ------- ------- ----------
<C> <C> <C> <C> <C>
Management Fees 0.60% 0.60% 0.60% 0.60%
12b-1 Fees 0.85% 0.85% 0.85% 0.85%
Other Expenses 0.20% 0.25% 0.29% 0.24%
Total Fund Operating Expenses 1.65% 1.70% 1.74% 1.69%
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Examples
Your investment of $1,000 would incur the following expenses, assuming
5% annual return and redemption at the end of each period:
<C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Putnam Massachusetts Tax Exempt Income Fund II
Class A $57 $78 $100 $164
Class B $67 $82 $110 $178***
Putnam Michigan Tax Exempt Income Fund II
Class A $58 $79 $103 $170
Class B $67 $84 $112 $184***
Putnam Minnesota Tax Exempt Income Fund II
Class A $58 $81 $105
$174
Class B $68 $85 $114 $188***
Putnam Ohio Tax Exempt Income Fund II
Class A $58 $79 $102 $169
Class B $67 $83 $112 $183***
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Your investment of $1,000 would incur the following expenses, assuming 5% annual return
but no redemption:
<C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Putnam Massachusetts Tax Exempt Income Fund II
Class A $57 $78 $100 $164
Class B $17 $52 $90 $178
Putnam Michigan Tax Exempt Income Fund II
Class A $58 $79 $103 $170
Class B $17 $54 $92 $184
Putnam Minnesota Tax Exempt Income Fund II
Class A $58 $81 $105
$174
Class B $18 $55 $94 $188
Putnam Ohio Tax Exempt Income Fund II
Class A $58 $79 $102 $169
Class B $17 $53 $92 $183
/TABLE
<PAGE>
The tables are provided to help you understand the expenses of
investing in each Fund and your share of the operating expenses
which that Fund incurs. The tables and Examples are based on the
operating expenses for each Fund's last fiscal year, except that
the 12b-1 fees for each class reflect the amounts to which the
Funds' Trustees currently limit payments under its Distribution
Plan. For Class B shares, management fees and "Other expenses"
are based on the operating expenses for each Fund's Class A
shares. The tables and Examples do not represent past or future
expense levels, and actual expenses may be greater or less than
those shown. Federal regulations require the Examples to assume a
5% annual return, but actual annual return has varied.
* Class B shares are sold without a front-end sales charge, but
their 12b-1 fees may cause long-term shareholders to pay more
than the economic equivalent of the maximum permitted front-end
sales charge.
** 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. See "How to buy shares--Class A shares."
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase. See "How to buy shares - Class B shares -
Conversion of Class B shares."
FINANCIAL HIGHLIGHTS
The tables on the following pages present per share financial
information for the life of each Fund. This information has been
audited and reported on by each Fund's independent accountants.
The Report of Independent Accountants and financial statements
included in each Fund's Annual Report to shareholders for the
1993 fiscal year are incorporated by reference into this
Prospectus. Each Fund's Annual Report which contains additional
unaudited performance information, will be made available
without charge upon request. No Class B shares for any Fund were
outstanding during these periods. On March 9, 1992, Putnam
Michigan Tax Exempt Income Fund II, Putnam Minnesota Tax Exempt
Income Fund II and Putnam Ohio Tax Exempt Income Fund II acquired
the net assets of Putnam Michigan Tax Exempt Income Fund, Putnam
Minnesota Tax Exempt Income Fund and Putnam Ohio Tax Exempt
Income Fund, respectively. On May 11, 1992, Putnam Massachusetts
Tax Exempt Income Fund II acquired the net assets of Putnam
Massachusetts Tax Exempt Income Fund. The value of portfolio
securities acquired as a result of the above acquisitions has
been excluded from security purchases in determining the
portfolio turnover of each Fund for the fiscal year ended May 31,
1992.
<PAGE>
Selected per share data and ratios*
(For a share outstanding throughout the period)
<PAGE>
^
(The table is incorporated by reference from Post-Effective
Amendment No.13 to the Fund's Registration Statement, File
No.33-5416.)
<PAGE>
(The table is incorporated by reference from Post-Effective
Amendment No. 13 to the Fund's Registration Statement, File No.
33-8923.)
<PAGE>
(The table is incorporated by reference from Post-Effective
Amendment No. 13 to the Fund's Registration Statement, File
No.33-8916.)
<PAGE>
(The table is incorporated by reference from Post-Effective
Amendment No. 13 to the Fund's Registration Statement, File No.
33-8924.)
<PAGE>
OBJECTIVES
Each Fund seeks as high a level of current income exempt from
federal income tax and personal income tax of its respective
state as Putnam Management believes is consistent with
preservation of capital. None of the Funds is intended to be a
complete investment program, and there is no assurance that any
Fund will achieve its objective.
HOW OBJECTIVES ARE PURSUED
Basic investment strategy
Each Fund seeks its objective by investing at least 80% of its
net assets in State Tax Exempt Securities (which are described
below), except when investing for defensive purposes during times
of adverse market conditions. Under current law, to the extent
distributions by a Fund are derived from interest on State Tax
Exempt Securities and are designated as such (and, in the case of
the Minnesota Fund, provided at least 95% of that Fund's total
exempt-interest dividends are derived from interest obligations
of the State of Minnesota and its agencies, instrumentalities and
political subdivisions), they shall be exempt from federal income
tax and personal income tax in the relevant state. Each Fund may
also invest from time to time in securities exempt only from
federal income tax and in taxable obligations described below
under "Alternative investment strategies" to the extent permitted
by its investment policies, or hold its assets in cash or money
market instruments. Each Fund's investments will be limited to
securities rated at the time of purchase not lower than the five
highest grades assigned by Moody's Investors Service, Inc.
("Moody's") (Aaa, Aa, A, Baa or Ba) and Standard & Poor's
Corporation ("Standard & Poor's") (AAA, AA, A, BBB or BB), or
unrated securities which Putnam Management determines are of
comparable quality. Securities rated Ba or BB are considered to
have speculative elements, with large uncertainties or major risk
exposures to adverse conditions. Putnam Management expects that
each Fund will generally invest in State Tax Exempt Securities of
longer maturities (10 years or more), but each Fund may invest in
State Tax Exempt Securities having a broad range of maturities.
During fiscal 1993, 100% of each Fund's distributions were exempt
from federal income tax and personal income tax of its respective
state.
Interest income from certain types of State Tax Exempt Securities
may be subject to federal alternative minimum tax. It is a
fundamental policy of each Fund to exclude these securities from
the term "State Tax Exempt Securities" for purposes of
determining compliance with the 80% test described above.
Corporate shareholders should also note that receipt of exempt-
interest dividends from a Fund could cause them to be subject to,
or increase their liability for federal alternative minimum tax.
Each Fund may trade its portfolio investments seeking short-term
profits. In pursuing its objective, a Fund may, to a limited
extent, buy and sell financial futures contracts and related
options and may enter into forward commitments and repurchase
agreements. These incidental investment practices, which may
produce taxable capital gains and may involve special risks, are
described below.
Alternative investment strategies. At times Putnam Management
may judge that conditions in the markets for State Tax Exempt
Securities make pursuing a Fund's basic investment strategy
inconsistent with the best interests of its shareholders. At
such times Putnam Management may temporarily use alternative
strategies, primarily designed to reduce fluctuations in the
value of a Fund's assets. In implementing these "defensive"
strategies, a Fund may invest in taxable obligations, including:
obligations of the U.S. government, its agencies or
instrumentalities; obligations issued by governmental issuers in
other states, the interest on which would be exempt from federal
income tax; other debt securities rated within the four highest
grades by either Moody's or Standard & Poor's; commercial paper
rated in the highest grade by either rating service (Prime-1 or
A-1+, respectively); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the
foregoing investments; or any other securities that Putnam
Management considers consistent with such defensive strategies.
It is impossible to predict when, or for how long, a Fund will
use such alternative strategies.
State Tax Exempt Securities
"State Tax Exempt Securities" are debt obligations issued by a
state and its political subdivisions or their agencies or
instrumentalities or other governmental units, the interest with
respect to which, in the opinion of bond counsel, is exempt from
federal income tax and personal income tax of the state specified
in the Fund's name. These securities are issued to obtain funds
for various public purposes, such as the construction of public
facilities, the payment of general operating expenses or the
refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of
funds to public or private institutions for the construction of
housing, educational or medical facilities and may also include
certain types of private bonds or notes and industrial
development bonds issued by public authorities to finance
privately owned or operated facilities or to fund short-term cash
requirements. Short-term State Tax Exempt Securities may be
issued as interim financing in anticipation of tax collections,
revenue receipts or bond sales to finance various public
purposes. State Tax Exempt Securities also include debt
obligations issued by certain other governmental entities
(including issuers other than a Fund's respective state and its
political subdivisions) if such debt obligations generate
interest income which is exempt from federal income tax and the
personal income tax of the appropriate state.
<PAGE>
The two principal classifications of State Tax Exempt Securities
are general and special obligation (or special revenue
obligation) securities. General obligation securities involve a
pledge of the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues.^ The
characteristics and methods of enforcement of general obligation
securities vary according to the law applicable to the particular
issuer. Special obligation (or special revenue obligation)
securities are payable only from the revenues derived from a
particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted
revenues of the issuer. Industrial development and private
activity bonds are in most cases limited obligation securities,
the credit quality of which is directly related to the private
user of the facilities.
A Fund may also invest in securities representing interests in
State Tax Exempt Securities, known as "inverse floating
obligations" or "residual interest bonds," paying interest rates
that vary inversely to changes in the interest rates of specified
short-term tax exempt securities or an index of short-term tax
exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as
short-term market interest rates increase and increase as short-
term market rates decline. Such securitieshave the effect of
providing a degree of investment leverage, since they will
generally increase or decrease in value in response to changes in
market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt
securities increase or decrease in response to such changes. As
a result, the market values of inverse floating obligations and
residual interest bonds will generally be more volatile than the
market values of fixed-rate tax exempt securities.
Diversification and concentration policies. Each Fund is a
separate "diversified" investment company under the Investment
Company Act of 1940. This means that with respect to 75% of its
total assets (1) a Fund may not invest more than 5% of its total
assets in the securities of any one issuer (except U.S.
government obligations) and (2) a Fund may not own more than 10%
of the outstanding voting securities of any one issuer. Since
State Tax Exempt Securities are not voting securities, there is
no limit on the percentage of a single issuer's bonds which a
Fund may own so long as it does not invest more than 5% of its
total assets in the securities of the issuer. Consequently, a
Fund may invest in a greater percentage of the outstanding
securities of a single issuer than would an investment company
which invests in voting securities. As for the other 25% of a
Fund's total assets not subject to the limitations described
above, there are no similar limitations, so that all of such
assets may be invested in the securities of any one issuer.
Because of the relatively small number of issuers of State Tax
Exempt Securities, a Fund is more likely to invest a higher
percentage of its assets in the securities of a single issuer
than an investment company which invests in a broad range of tax-
exempt securities. This practice involves an increased risk of
loss to a Fund if the issuer is unable to make interest or
principal payments or if the market value of such securities
declines.
No Fund will invest more than 25% of its total assets in any one
industry. Governmental issuers of State Tax Exempt Securities
are not considered part of any "industry." However, State Tax
Exempt Securities backed only by the assets and revenues of
nongovernmental users may for this purpose be deemed to be issued
by such nongovernmental users, and the 25% limitation would apply
to such obligations. Thus, no more than 25% of a Fund's assets
will be invested in obligations deemed to be issued by
nongovernmental users in any one industry and in taxable
obligations of issuers in the same industry.
It is nonetheless possible that a Fund may invest more than 25%
of its assets in a broader segment of the market for State Tax
Exempt Securities, such as revenue obligations of hospitals and
other health care facilities or housing agency revenue
obligations. This would be the case only if Putnam Management
determined that the yields available from obligations in a
particular segment of the market justified the additional risks
associated with such concentration. Although such obligations
could be supported by the credit of governmental users or by the
credit of nongovernmental users engaged in a number of
industries, it is possible that economic, business, political and
other developments generally affecting the revenues of issuers
(for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors
affecting the demand for their services or products) could have a
general adverse effect on all State Tax Exempt Securities in such
a market segment.
Housing revenue bonds typically are issued by a state, county or
local housing authority and are secured only by the revenues of
mortgages originated by the authority using the proceeds of the
bond issue. Because of the impossibility of precisely predicting
demand for mortgages from the proceeds of such an issue, there is
a risk that the proceeds of the issue will be in excess of
demand, which would result in early retirement of the bonds by
the issuer. Moreover, such housing revenue bonds depend for
their repayment in part upon the cash flow from the underlying
mortgages, which cannot be precisely predicted when the bonds are
issued. The financing of multi-family housing projects is
affected by a variety of factors, including satisfactory
completion of construction, a sufficient level of occupancy,
sound management, adequate rent to cover operating expenses,
changes in applicable laws and governmental regulations, and
social and economic trends.
Health care facilities include life care facilities, nursing
homes and hospitals. Bonds to finance these facilities are
issued by various authorities. The bonds are typically secured
by the revenues of each facility and not by state or local
government tax payments. The projects must maintain adequate
occupancy levels to be able to provide revenues adequate to
maintain debt service payments. Moreover, in the case of life
care facilities, since a portion of housing, medical care and
other services may be financed by an initial deposit, there may
be risk if the facility does not maintain adequate financial
reserves to secure future liabilities. Life care facilities and
nursing homes may be affected by regulatory cost restrictions
applied to health care delivery in general, restrictions imposed
by medical insurance companies and competition from alternative
health care or conventional housing facilities. Hospital bond
ratings are often based on feasibility studies which contain
projections of expenses, revenues and occupancy levels. A
hospital's income available to service its debt may be influenced
by demand for hospital services, management capabilities, the
service area economy, efforts by insurers and government agencies
to limit rates and expenses, competition, availability and
expense of malpractice insurance, and Medicaid and Medicare
funding. In recent years, nationally recognized rating
organizations have reduced their ratings of a substantial
number of obligations of issuers in the health care sector of the
State Tax Exempt Securities market. Reform of the health care
system is a topic of increasing discussion in the United States,
with proposals ranging from reform of the existing employer-based
system of insurance to a single-payer, public program. Depending
upon their terms, certain reform proposals could have an adverse
impact on certain health care sector issuers of State Tax Exempt
Securities. Because the outcome of current discussions concerning
health care, including the deliberations of President Clinton's
task force on health care reform, is highly uncertain, Putnam
Management cannot predict the likely impact of reform
initiatives.
Each Fund reserves the right to invest more than 25% of its
assets in industrial development securities.
Investments in premium securities
During a period of declining interest rates, many of each Fund's
portfolio investments will likely bear coupon rates which are
higher than current market rates, regardless of whether such
securities were originally purchased at a premium. Such
securities would generally carry market values greater than the
principal amounts payable on maturity, which would be reflected
in the net asset value of a Fund's shares. The value of such
"premium" securities tend to approach the principal amount as
they approach maturity (or call price in the case of securities
approaching their first call date). As a result, an investor who
purchases shares of a Fund during such periods would initially
receive higher monthly distributions (derived from the higher
coupon rates payable on that Fund's investment) than might be
available from alternative investments bearing current market
interest rates, but may face an increased risk of capital loss as
these higher coupon securities approach maturity (or first call
date). In evaluating the potential performance of an investment
in a Fund, investors may find it useful to compare that Fund's
current dividend rate with that Fund's "yield," which is computed
on a yield-to-maturity basis in accordance with SEC regulations
and which reflects amortization of market premiums. See "How
performance is shown."
<PAGE>
Risk factors
Each Fund may invest in both higher-rated and lower-rated State
Tax Exempt Securities. Putnam Management seeks to minimize the
risks of investing in lower-rated securities through
diversification and careful investment analysis and attention to
current developments in interest rates and economic conditions.
The values of lower-rated securities generally fluctuate more
than those of higher-rated securities. In addition, the lower
rating reflects a greater possibility that the financial
condition of the issuer, or adverse changes in general economic
conditions, or both, or an unanticipated rise in interest rates,
may impair the ability of the issuer to make payments of interest
and repayments of principal. In addition, under such
circumstances the values of such securities may be more volatile,
and the markets for such securities may be less liquid, than
those for higher-rated securities, and a Fund may as a result
find it more difficult to determine the fair value of such
securities. A Fund will not purchase State Tax Exempt Securities
rated both Ba by Moody's and BB by Standard & Poor's at the time
of purchase, or, if unrated, determined to be of comparable
quality if, as a result, more than 25% of the Fund's total assets
would be invested in securities of that quality. The rating
services' descriptions of the five highest grades of debt
securities and other rating information are included in this
Prospectus. A Fund will not necessarily dispose of a security
when its rating is reduced below its rating at the time of
purchase, although Putnam Management will monitor the investment
to determine whether continued investment in the security will
assist in meeting that Fund's investment objective.
When a Fund invests in State Tax Exempt Securities in the lower
rating categories, the achievement of that Fund's goals is more
dependent on Putnam Management's ability than would be the case
if the Fund was investing in State Tax Exempt Securities in the
higher rating categories.
<PAGE>
<TABLE>
<CAPTION>
The tables below show the percentages of each Fund's assets invested during fiscal 1993 in securities assigned to the
various rating categories by Moody's and Standard & Poor's and in unrated securities determined by Putnam Management to
be of comparable quality:
Putnam Putnam Putnam Putnam
Massachusetts Michigan ^ Minnesota ^ Ohio
Tax Exempt Tax Exempt Tax Exempt Tax Exempt
Income Fund II Income Fund II Income Fund II Income Fund
II
------------------------- -------------------------- ------------------------ ------------------------
Unrated Unrated Unrated Unrated
Rated securities Rated securities Rated securities Rated securities
securities of comparable securities of comparable securities of comparable securities of comparable
as percentages quality, as as percentages quality, as as percentages quality, as as percentages quality, as
of Fund's percentage of of Fund's percentage of of Fund's percentage of of Fund's percentage of
Ratings assets Fund's assets assets Fund's assets assets Fund's assets assets Fund's assets
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
^
"AAA"/"Aaa" 28.96% - 40.76% - 17.11% - 52.02% -
"AA"/"Aa" 3.51% - 12.91% - 27.12% - 3.95% -
"A"/"A" 26.95% - 14.60% 1.71% 38.31% - 12.36% 1.43%
"BBB"/"Baa" 22.67% 5.50% 17.15% 4.90% 8.13% 5.80% 15.43% 10.67%
"BB"/'Ba" - 12.41% 1.56% 6.41% -% 3.53% - 4.14%
------ ------ ------ ------ ------- ------ ------ ------
82.09% 17.91% 86.98% 13.02% 90.67% 9.33% 83.76% 16.24%
- ------------------------------------------------------------------------------------------------------------------------
For additional information concerning the risks associated with investments by the Funds in securities in the lower
rating categories, see the Statement of Additional Information.
/TABLE
<PAGE>
The market value of a Fund's investments will change in response
to changes in interest rates and other factors. During periods
of falling interest rates, the values of long-term fixed-income
securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline.
Changes by recognized rating services in their ratings of tax-
exempt securities and in the ability of an issuer to make
payments of interest and repayments of principal will also affect
the value of these investments. Changes in the value of
portfolio securities will not affect cash income derived from
those securities but will affect a Fund's net asset value.
Putnam Management may take full advantage of the entire range of
State Tax Exempt Securities and may adjust the average maturity
of a Fund's portfolio from time to time depending on its
assessment of relative yields on securities of different
maturities and its expectations of future changes in interest
rates.
At times, a substantial portion of each Fund's assets may be
invested in securities as to which that Fund, by itself or
together with other funds and accounts managed by Putnam
Management and its affiliates, holds a major portion or all of an
issue of such State Tax Exempt Securities. Under adverse market
or economic conditions or in the event of adverse changes in the
financial condition of the issuer, a Fund could find it more
difficult to sell such securities when Putnam Management believes
it advisable to do so or may be able to sell such securities only
at prices lower than if such securities were more widely held.
Under such circumstances, it may also be more difficult to
determine the fair value of such securities for purposes of
computing a Fund's net asset value. In order to enforce its
rights in the event of a default under such securities, a Fund
may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase a
Fund's operating expenses and adversely affect a Fund's net asset
value. Any income derived from a Fund's ownership or operation
of such assets would not be tax-exempt.
Certain securities held by a Fund may permit the issuer at its
option to "call," or redeem, its securities. If an issuer were
to redeem securities held by a Fund during a time of declining
interest rates, the Fund may not be able to reinvest the proceeds
in securities providing the same investment return as the
securities redeemed.
Some of the securities in which a Fund invests may include so-
called "zero-coupon" bonds whose values are subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Zero-coupon bonds are issued
at a significant discount from face value and pay interest only
at maturity rather than at intervals during the life of the
security. Zero-coupons bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. A Fund is
required to accrue and distribute income from zero-coupon bonds
on a current basis, even though it does not receive that income
currently in cash. Thus a Fund may have to sell other investments
to obtain cash needed to make income distributions. The amount of
information about the financial condition of an issuer of State
Tax Exempt Securities may not be as extensive as that which is
made available by corporations whose securities are publicly
traded.
Since the Funds invest primarily in State Tax Exempt Securities,
the value of each Fund's shares may be especially affected by
factors pertaining to the economy of its relevant state and other
factors specifically affecting the ability of issuers of State
Tax Exempt Securities to meet their obligations. As a result,
the value of each Fund's shares may fluctuate more widely than
the value of shares of a portfolio investing in securities
relating to a number of different states. The ability of state,
county, or local governments to meet their obligations will
depend primarily on the availability of tax and other revenues to
those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental
issuers of State Tax Exempt Securities may be affected from time
to time by economic, political, and demographic conditions within
the particular state. In addition, constitutional or statutory
restrictions may limit a government's power to raise revenues or
increase taxes. The availability of federal, state, and local
aid to issuers of State Tax Exempt Securities may also affect
their ability to meet their obligations. Payments of principal
and interest on limited obligation securities will depend on the
economic condition of the facility or specific revenue source
from whose revenues the payments will be made, which in turn
could be affected by economic, political, and demographic
conditions in the particular state. Any reduction in the actual
or perceived ability of an issuer of State Tax Exempt Securities
to meet its obligations (including a reduction in the rating of
its outstanding securities) would likely affect adversely the
market value and marketability of its obligations and could
affect adversely the values of other State Tax Exempt Securities
as well.
Short-term trading
Putnam Management buys and sells securities for each Fund
whenever it believes it is appropriate to do so. A Fund's
investment policies may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest rates.
From time to time, consistent with its investment objective, a
Fund may also trade securities for the purpose of seeking short-
term profits. Securities may be sold in anticipation of a market
decline or bought in anticipation of a market rise. They may
also be traded in response to anticipated movements in the
general level of interest rates, or to take advantage of
perceived short-term disparities in market values or yields among
securities of comparable quality and maturity.
A change in the securities held by a Fund is known as "portfolio
turnover." Portfolio turnover generally involves some expense to
a Fund, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and
reinvestment in other securities. Such transactions may result
in realization of taxable capital gains. See "Distributions and
taxes." To the extent short-term trading strategies are used, a
Fund's portfolio turnover rate may be higher than that of other
mutual funds. Each Fund's portfolio turnover rates for the life
of that Fund are shown in the section "Financial highlights."
In general the secondary market for State Tax Exempt Securities
is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of a Fund to buy and sell securities
may, at any particular time and with respect to any particular
securities, be limited.
Financial futures and options
Each Fund may purchase and sell financial futures contracts for
hedging purposes. Futures contracts on a Municipal Bond Index are
traded on the Chicago Board of Trade. This Index is intended to
represent a numerical measure of market performance for long-
term tax exempt bonds. An "index future" is a contract to buy or
sell units of a particular securities index at an agreed price on
a specified future date. Depending on the change in value of the
index between the time when a Fund enters into and terminates an
index futures contract, that Fund realizes a gain or loss. A Fund
may purchase and sell futures contracts on the Index (or any
other tax exempt bond index approved for trading by the Commodity
Futures Trading Commission) to hedge against general changes in
market values of State Tax Exempt Securities which such Fund
owns or expects to purchase. Each Fund may also purchase and
sell put and call options on index futures or on the indices
directly, in addition to or as an alternative to purchasing and
selling index futures.
Each Fund may also, for hedging purposes, purchase and sell
futures contracts and related options with respect to U.S.
Treasury securities, including U.S. Treasury bills, notes and
bonds ("U.S. Government Securities") and options directly on U.S.
Government Securities.
The use of futures and options involves certain special risks and
may result in realization of taxable income or capital gains.
Futures and options transactions involve costs and may result in
losses. Certain risks arise because of the possibility of
imperfect correlations between movements in the prices of
financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or of the Tax
Exempt Securities which are the subject of the hedge. The
successful use of futures and options further depends on Putnam
Management's ability to forecast interest rate movements
correctly. Other risks arise from a Fund's potential inability
to close out its futures or related options positions, and there
can be no assurance that a liquid secondary market will exist for
any index future or option at a particular time. Certain
provisions of the Internal Revenue Code and certain regulatory
requirements may limit a Fund's ability to engage in futures and
options transactions.
A more detailed explanation of financial futures and options
transactions and the risks associated with them is included in
the Statement of Additional Information.
Other investment practices
Each Fund may also engage to a limited extent in the following
investment practices, some of which may result in realization of
taxable income or capital gains and each of which involves
certain special risks. The Statement of Additional Information
contains more detailed information about these practices,
including limitations designed to reduce these risks.
Repurchase agreements and forward commitments. Each Fund may
enter into repurchase agreements on up to 25% of its assets.
These transactions must be fully collateralized at all times^.
Each Fund may also purchase securities for future delivery, which
may increase its overall investment exposure and involve a risk
of loss if the value of the securities declines prior to the
settlement date.^ These transactions involve some risk to a Fund
if the other party should default on its obligation and that Fund
is delayed or prevented from recovering the collateral or
completing the transaction^.
Limiting investment risk
Specific investment restrictions help each Fund limit investment
risks for its shareholders. These restrictions prohibit a Fund
from investing more than: (a) 5% of its total assets in the
securities of any one issuer (other than obligations of the U.S.
government or its agencies or instrumentalities, and State Tax
Exempt Securities);* (b) 5% of its net assets in securities of
any issuers if the parties responsible for payment, together with
any predecessors, have been in operation for less than three
consecutive years (except obligations of the U.S. government, its
agencies and instrumentalities and obligations backed by the
faith, credit and taxing power of any person authorized to issue
State Tax Exempt Securities); (c) 15% of its net assets in
securities restricted as to resale, excluding restricted
securities that have been determined by the Trustees of the Fund
(or the person designated by them to make such determinations) to
be readily marketable;* (d) 25% of its total assets in any one
industry (other than State Tax Exempt Securities backed by
governmental issuers and obligations of the U.S. government, its
agencies or instrumentalities);* or (e) 15% of its net assets in
securities that are not readily marketable, securities restricted
as to resale (excluding securities determined by the Trustees of
the Fund (or the person designated by the Fund's Trustees to make
such determinations) to be readily marketable), and repurchase
agreements maturing in more than seven days.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional
Information for the full text of these policies and the Funds'
other fundamental policies. Except for investment policies
designated as fundamental in this Prospectus or the Statement and
the policy that under normal market conditions at least 80% of
each Fund's net assets will be invested in State Tax Exempt
Securities (other than securities which may be subject to federal
alternative minimum tax), the investment policies described in
this Prospectus and in the Statement are not fundamental
policies. The Trustees may change any non-fundamental investment
policies without shareholder approval. As a matter of policy,
the Trustees would not materially change a Fund's investment
objective without shareholder approval.
HOW PERFORMANCE IS SHOWN
Yield, tax-equivalent yield and total return data may from time
to time be included in advertisements about a Fund. "Yield" for
each class of shares is calculated by dividing a Fund's
annualized net investment income per share of such class during a
recent 30-day period by the maximum public offering price per
share of such class on the last day of that period. For this
purpose, net investment income is calculated in accordance with
SEC regulations and may differ from that Fund's net investment
income as determined for financial reporting purposes. SEC
regulations require that net investment income be calculated on a
"yield-to-maturity" basis, which has the effect of amortizing any
premiums or discounts in the current market value of fixed-income
securities. Each Fund's current dividend rate is based on that
Fund's net investment income as determined for financial
statement purposes, which may not reflect amortization in the
same manner. See "How objectives are pursued -- Investments in
premium securities." A Fund's yield reflects the deduction of
the maximum initial sales charge in the case of Class A shares,
but does not reflect the deduction of any contingent deferred
sales charge in the case of Class B shares. "Tax-equivalent"
yield for each class of shares shows the effect on performance of
the tax-exempt status of distributions received from a Fund. It
reflects the approximate yield that a taxable investment must
earn for shareholders at stated income levels to produce an
after-tax yield equivalent to a Fund's tax-exempt yield. "Total
return" for the one-year period and the life of each Fund (or, in
the case of Class B shares, since commencement of the public
offering for such shares) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in a Fund at the maximum public
offering price (in the case of Class A shares) or reflecting the
deduction of any applicable contingent deferred sales charge (in
the case of Class B shares). Total return may also be presented
for other periods or based on investment at reduced sales charge
levels or net asset value. Any quotation of yield, tax-
equivalent yield or total return not reflecting the maximum
initial ^ sales charge or contingent deferred sales charge would
be reduced if such sales charges were used. Quotations of yield,
tax-equivalent yield or total return for any period when an
expense limitation was in effect will be greater than if the
limitation had not been in effect. Each Fund's performance may be
compared to various indices. See the Statement of Additional
Information.
<PAGE>
All data is based on a Fund's past investment results and does
not predict future performance. Investment performance, which
will vary, is based on many factors, including market conditions,
the composition of a Fund's portfolio, a Fund's operating
expenses and whether you purchase Class A shares or Class B
shares. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies.
These factors should be considered when comparing a Fund's
investment results to those of other mutual funds and other
investment vehicles.
HOW THE FUNDS ARE MANAGED
The Trustees of each Fund are responsible for generally
overseeing the conduct of that Fund's business. Subject to such
policies as the Trustees of each Fund may determine, Putnam
Management furnishes a continuing investment program for each
Fund and makes investment decisions on its behalf. Subject to
the control of the Trustees, Putnam Management also manages each
Fund's other affairs and business. Triet Nguyen, Senior Vice
President of Putnam Management and Vice President of Putnam
Massachusetts Tax Exempt Income Fund II, and Howard K. Manning,
Senior Vice President of Putnam Management and Vice President of
Putnam Michigan Tax Exempt Income Fund II and Putnam Minnesota
Tax Exempt Income Fund II and Thomas C. Goggins, Vice President
of Putnam Management and Vice President of Putnam Ohio Tax Exempt
Income Fund II, are primarily responsible for the day-to-day
management of the indicated Fund's portfolio. Mr. Nguyen has had
these responsibilities since 1989, Mr. Manning since June, 1993
and Mr. Goggins since August, 1993. Messrs. Nguyen and Manning
have both been employed by Putnam Management for the past five
years. Mr Goggins has been employed by Putnam Management since
June 1993. From 1989 to 1993, Mr. Goggins was a Portfolio Manager
and from 1987 to 1989, an Analyst at Transamerica Investment
Services, Inc.
Each Fund pays all expenses not assumed by Putnam Management,
including Trustees' fees, auditing, legal, custodial, investor
servicing, and shareholder reporting expenses and payments under
its Distribution Plans (which are in turn allocated to the
relevant class). Each Fund also reimburses Putnam Management for
the compensation and related expenses of certain officers of that
Fund and their staff who provide administrative services to that
Fund. The total reimbursement is determined annually by the
Trustees.
Putnam Management places all orders for purchases and sales of a
Fund's securities. In selecting broker-dealers, Putnam
Management may consider research and brokerage services furnished
to it and its affiliates. Subject to seeking the most favorable
price and execution available, Putnam Management may consider
sales of shares of a Fund (and, if permitted by law, of the other
Putnam funds) as a factor in the selection of broker-dealers.
<PAGE>
ORGANIZATION AND HISTORY
Each Fund is a separate Massachusetts business trust (a "Trust").
Putnam Massachusetts Tax Exempt Income Fund II was organized on
March 7, 1986. Putnam Michigan Tax Exempt Income Fund II was
organized on September 2, 1986. Putnam Minnesota Tax Exempt
Income Fund II was organized on September 2, 1986. Putnam Ohio
Tax Exempt Income Fund II was organized on September 2, 1986. A
copy of each Trust's Agreement and Declaration of Trust, which is
governed by Massachusetts law, is on file with the Secretary of
State of The Commonwealth of Massachusetts.
Each Fund is an open-end, diversified management investment
company with an unlimited number of authorized shares of
beneficial interest. Shares of each Fund may, without shareholder
approval, be divided into two or more series of such shares
representing separate investment portfolios. Any such series of
shares may be further divided, without shareholder approval, into
two or more classes of shares having such preferences and special
or relative rights and privileges as the Trustees may determine.
Each Fund's shares are presently divided into two classes. Each
share has one vote, with fractional shares voting proportionally.
Shares of each class will vote together as a single class except
when required by law or as determined by the Trustees. Shares are
freely transferable, are entitled to dividends as declared by the
Trustees, and, if a Fund were liquidated, would receive the net
assets of that Fund. A Fund may suspend the sale of shares at
any time and may refuse any order to purchase shares. Although
none of the Funds is required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the
outstanding shares entitled to vote have the right to call a
meeting to elect or remove Trustees or to take other actions as
provided in each Fund's Declaration of Trust.
Although each Fund is offering only its own shares in this
Prospectus, it is possible that a Fund might become liable for
any misstatement in the Prospectus about another Fund. The
Trustees of each Fund have considered this factor in approving
the use of a single prospectus.
If you own fewer shares than a minimum amount set by the Trustees
(presently 20 shares), a Fund may choose to redeem your shares
and pay you for them. You will receive at least 30 days' written
notice before a Fund redeems your shares, and you may purchase
additional shares at any time to avoid a redemption. A Fund may
also redeem shares if you own shares above a maximum amount set
by the Trustees. There is presently no maximum, but the Trustees
may establish one at any time, which could apply to both present
and future shareholders.
The Funds' Trustees: George Putnam,* Chairman. President of the
Putnam funds. Chairman and Director of Putnam Management and
Putnam Mutual Funds Corp. ("Putnam Mutual Funds"). Director,
Marsh & McLennan Companies, Inc.; William F. Pounds, Vice
Chairman. Professor of Management, Alfred P. Sloan School of
Management, M.I.T.;Jameson Adkins Baxter, President, Baxter
Associates, Inc.; Hans H. Estin, Vice Chairman, North American
Management ; John A. Hill, Principal and Managing Director,
First Reserve Corporation; Elizabeth T. Kennan, President,
Mount Holyoke College; Lawrence J. Lasser,* Vice President of the
Putnam funds. President, Chief Executive Officer and Director of
Putnam Investments, Inc. and Putnam Management. Director, Marsh
& McLennan Companies, Inc.; Robert E. Patterson, Executive Vice
President, Cabot Partners Limited Partnership; Donald S.
Perkins, Director of various corporations, including AT&T, K mart
Corporation and Time Warner Inc.; George Putnam, III,*
President, New Generation Research, Inc.; A.J.C. Smith,*
Chairman, Chief Executive Officer and Director, Marsh & McLennan
Companies, Inc.; and W. Nicholas Thorndike, Director of various
corporations and charitable organizations, including Providence
Journal Co. Also, Trustee and President, Massachusetts General
Hospital, and Trustee of Eastern Utilities Associates. The
Funds' Trustees are also Trustees of the other Putnam funds.
Those marked with an asterisk (*) are "interested persons" of the
Fund, Putnam Management or Putnam Mutual Funds.
About Your Investment
ALTERNATIVE SALES ARRANGEMENTS
Each Fund offers investors two classes of shares which bear sales
charges in different forms and amounts and which bear different
levels of expenses:
Class A Shares. An investor who purchases Class A shares pays a
sales charge at the time of purchase. As a result, Class A shares
are not subject to any charges when they are redeemed (except for
sales at net asset value in excess of $1 million which are
subject to a contingent deferred sales charge). Certain
purchases of Class A shares qualify for reduced sales charges.
Class A shares currently bear a 12b-1 fee at the annual rate of
0.20% of each Fund's average net assets attributable to Class A
shares. See "How to buy shares - Class A shares."
Class B Shares. Class B shares are sold without an initial sales
charge, but are subject to a contingent deferred sales charge of
up to 5% if redeemed within six years. Class B shares also bear
a higher 12b-1 fee than Class A shares, currently at the annual
rate of 0.85% of each Fund's average net assets attributable to
Class B shares. Class B shares will automatically convert into
Class A shares, based on relative net asset values, approximately
eight years after purchase. Class B shares provide an investor
the benefit of putting all of the investor's dollars to work from
the time the investment is made, but (until conversion) will have
a higher expense ratio and pay lower dividends than Class A
shares due to the higher 12b-1 fee. See "How to buy shares -
Class B shares."
Which arrangement is better for you? The decision as to which
class of shares provides a more suitable investment for an
investor depends on a number of factors, including the amount and
intended length of the investment. Investors making investments
that qualify for reduced sales charges might consider Class A
shares. Investors who prefer not to pay an initial sales charge
might consider Class B shares. Orders for Class B shares for
$250,000 or more will be treated as orders for Class A shares or
declined. For more information about these sales arrangements,
consult your investment dealer or Putnam Investor Services.
Sales personnel may receive different compensation depending on
which class of shares they sell. Shares may only be exchanged for
shares of the same class of another Putnam fund. See "How to
exchange shares".
HOW TO BUY SHARES
You can open a Fund account with as little as $500 and make
additional investments at any time with as little as $50. You can
buy Fund shares three ways - through most investment dealers,
through Putnam Mutual Funds (at 1-800-225-1581), or through a
systematic investment plan. If you do not have a dealer, Putnam
Mutual Funds can refer you to one.
Buying shares through Putnam Mutual Funds. Complete an order
form and return it with a check payable to the Fund in which you
are investing to Putnam Mutual Funds, which will act as your
agent in purchasing shares through your designated investment
dealer.
Buying shares through systematic investing. You can make regular
investments of $25 or more per month through automatic deductions
from your bank checking account. Application forms are available
from your investment dealer or through Putnam Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's offering price, Putnam Investor Services must receive your
order before the close of regular trading on the New York Stock
Exchange. If you buy shares through your investment dealer, the
dealer must receive your order before the close of regular
trading on the New York Stock Exchange ^ to receive that day's
public offering price.
<PAGE>
^ Class A shares.
^ The public offering price of Class A shares is the net asset
value plus a sales charge. The Funds receive the net
asset value. The sales charge varies depending on the size of
your purchase and is allocated between your investment
dealer and Putnam Mutual Funds. The current sales charges for
each Fund are:
Sales
charge
as a
percentage of Amount of sales
- ------------------ charge reallowed
Net
to dealers
Amount of transaction amount
Offering as a percentage of
at offering price invested
price offering price*
- -----------------------------------------------------------------
- ----------------------------------------
Less than $ 25,000 4.99%
4.75% 4.50%
$ 25,000 but less than 100,000 4.71
4.50 4.25
100,000 but less than 250,000 3.90
3.75 3.50
250,000 but less than 500,000 3.09
3.00 2.75
500,000 but less than 1,000,000 2.04
2.00 1.85
- -----------------------------------------------------------------
- ------------------------------------
<PAGE>
^*At the discretion of Putnam Mutual Funds, however, the entire
sales charge may at times be reallowed to dealers. The Staff of
the Securities and Exchange Commission has indicated that dealers
who receive more than 90% of the sales charge may be considered
underwriters.
There is no initial sales charge on purchases of Class A shares
of ^ $1 million or more. However, ^ a contingent deferred sales
charge ("CDSC") ^ of 1.00% or 0.50%, respectively, is imposed on
redemptions of such shares within the first or second year ^
after purchase, based ^ on the lower of the shares' cost ^ and
current net asset value ^. Any shares acquired by reinvestment
of distributions will be redeemed without a CDSC. In addition,
shares purchased by certain investors investing $1 million or
more that have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission described in the
next paragraph are not subject to the CDSC. In determining
whether a CDSC is payable, the Fund will first redeem shares not
subject to any charge. Putnam Mutual Funds receives the entire
amount of any CDSC you pay. ^ See the Statement of Additional
Information for more information about the CDSC.
Except as stated below, Putnam Mutual Funds pays investment
dealers of record commissions on sales of Class A shares of $1
million or more based on an investor's cumulative purchases
during consecutive one-year periods beginning with the date of
the initial purchase at net asset value. Such commissions are
paid at the rate of 1.00% of the amount under $3 million, 0.50%
of the next $47 million and 0.25% thereafter. On sales at net
asset value to a participant-directed qualified retirement plan
initially investing less than $20 million in Putnam funds and
other investments managed by Putnam Management or its affiliates
(including a plan sponsored by an employer with more than 750
employees), Putnam Mutual Funds pays commissions on cumulative
purchases during the life of the account at the rate of 1.00% of
the amount under $3 million and 0.50% thereafter. On sales at
net asset value to all other participant-directed qualified
retirement plans, Putnam Mutual Funds pays commissions on the
initial investment and on subsequent net quarterly sales at the
rate of 0.15%.
You may be eligible to buy Class A shares at reduced sales
charges. Consult your investment dealer or Putnam Mutual Funds
for details about Putnam's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Group Sales
Plan, Employee Benefit Plans and other plans. Descriptions are
also included in the order form and in the Statement of
Additional Information. Shares may also be sold at net asset
value to certain categories of investors, and the CDSC may be
waived under certain circumstances. See "How to buy shares --
General" below.
Class B shares
^ Class B shares are sold without an initial sales charge,
although a CDSC will be imposed if you redeem shares within six
years of purchase. No sales charge is imposed on increases in net
asset value above the initial purchase price. The following types
of shares may be redeemed without charge at any time: (i) shares
acquired by reinvestment of distributions and (ii) shares
otherwise exempt from the CDSC, as described below. Subject to
the foregoing exclusions, the amount of the charge is determined
as a percentage of the lesser of the current market value or the
cost of the shares being redeemed. Therefore when a share is
redeemed, any increase in its value above the initial purchase
price is not subject to any CDSC. The amount of the CDSC will
depend on the number of years since you invested and the dollar
amount being redeemed, according to the following table:
Contingent Deferred
Sales Charge as a
Percentage of
Year Since Purchase
Dollar Amount
Payment Made
Subject to Charge
- -----------------------------------------------------------------
0-1
5.0%
1-2
4.0%
2-3
3.0%
3-4
3.0%
4-5
2.0%
5-6
1.0%
6 and thereafter
None
<PAGE>
In determining whether a CDSC is payable on any redemption, a
Fund will first redeem shares not subject to any charge, and then
shares held longest during the six-year period.^ For information
on how sales charges are calculated if you exchange your shares,
see "How to exchange shares." Putnam Mutual Funds receives the
entire amount of any CDSC you pay.
Conversion of Class B shares. Class B shares will automatically
convert into Class A shares at the end of the month eight years
after the purchase date, except as noted below. Class B shares
acquired by exchange from Class B shares of another Putnam Fund
will convert into Class A shares based on the time of the initial
purchase. Class B shares acquired through reinvestment of
distributions will convert into Class A shares based on the date
of the initial purchase to which such shares relate. For this
purpose, Class B shares acquired through reinvestment of
distributions will be attributed to particular purchases of Class
B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Class B shares to
Class A shares is subject to the continuing availability of a
ruling from the Internal Revenue Service or an opinion of counsel
that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling
or opinion will be available, and the conversion of Class B
shares to Class A shares will not occur if such ruling or opinion
is not available. In such event, Class B shares would continue to
be subject to higher expenses than Class A shares for an
indefinite period.
General
Each Fund may sell Class A shares and Class B shares at net asset
value without an initial sales charge or CDSC to that Fund's
current and retired Trustees (and their families), current and
retired employees (and their families) of Putnam Management and
affiliates, registered representatives and other employees (and
their families) of broker-dealers having sales agreements with
Putnam Mutual Funds, employees (and their families) of financial
institutions having sales agreements with Putnam Mutual Funds (or
otherwise having an arrangement with a broker-dealer or financial
institution with respect to sales of Fund shares), financial
institution trust departments investing an aggregate of $1
million or more in Putnam funds, clients of certain
administrators of tax-qualified plans, employee benefit plans of
companies with more than 750 employees, tax-qualified plans when
proceeds from repayments of loans to participants are invested
(or reinvested) in Putnam funds, "wrap accounts" for the benefit
of clients of broker-dealers, financial institutions or financial
planners adhering to certain standards established by Putnam
Mutual Funds, and investors meeting certain requirements who sold
shares of certain Putnam closed-end funds pursuant to a tender
offer by the closed-end fund. In addition, a Fund may sell
shares at net asset value without an initial sales charge or a
CDSC in connection with the acquisition by a Fund of assets of an
investment company or personal holding company, and the CDSC will
be waived on redemptions of ^ shares arising out of death or
disability or in connection with certain withdrawals from IRA or
other retirement plans. Up to 12% of the value of Class B shares
subject to a Systematic Withdrawal Plan may also be redeemed each
year without a CDSC. See the Statement of Additional
Information.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of a Fund at net asset value.
If you are considering redeeming or exchanging shares or
transferring shares to another person shortly after purchase, you
should pay for those shares with a certified check to avoid any
delay in redemption, exchange or transfer. Otherwise a Fund may
delay payment until the purchase price of those shares has been
collected or, if you redeem by telephone, until 15 calendar days
after the purchase date.
To eliminate the need for safekeeping, a Fund will not issue
certificates for your shares unless you request them. ^ Putnam
Mutual Funds may, at its expense, provide additional promotional
incentives or payments to dealers that sell shares of the Putnam
funds. In some instances, these incentives or payments may be
offered only to certain dealers who have sold or may sell
significant amounts of shares or paid by dealers to their
employees based on pre-established sales levels. Certain dealers
may not sell all classes of shares.
DISTRIBUTION PLANS
Class A Distribution Plans. The purpose of the Class A Plans is
to permit each Fund to compensate Putnam Mutual Funds for
services provided and expenses incurred by it in promoting the
sale of Class A shares of such Fund, reducing redemptions, or
maintaining or improving services provided to shareholders by
Putnam Mutual Funds or dealers. The Class A Plans provide for
payments by each Fund to Putnam Mutual Funds at the annual rate
of up to 0.35% of that Fund's average net assets, attributable to
Class A shares, subject to the authority of that Fund's Trustees
to reduce the amount of payments or to suspend that Fund's Class
A Plan for such periods as they may determine. Subject to these
limitations, the amount of such payments and the specific
purposes for which they are made shall be determined by the
Trustees of that Fund. At present, each Fund's Trustees have
approved payments under each Class A Plan at the annual rate of
0.20% of each Fund's average net assets attributable to Class A
shares for the purpose of compensating Putnam Mutual Funds for
services provided and expenses incurred by it as principal
underwriter of that Fund's Class A shares, including payments
made by it to dealers under the Service Agreements referred to
below. Should a Fund's Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised.
In order to compensate investment dealers (including, for this
purpose, certain financial institutions) for services provided in
connection with sales of Class A shares of each Fund and the
maintenance of shareholder accounts, ^ Putnam Mutual Funds makes
quarterly payments to qualifying dealers based on the average net
asset value of Clas A shares of each Fund^ which are attributable
to shareholders for whom the dealers are designated as the dealer
of record. This calculation excludes until one year after
purchase shares purchased at net asset value after March 31, 1994
by shareholders investing $1 million or more and by participant-
directed qualified retirement plans sponsored by employers with
more than 750 employees ("NAV Shares"), except for shares owned
by certain investors investing $1 million or more that have made
arrangements with Putnam Mutual Funds and whose dealer of record
waived the sales commission. Except as stated below, Putnam
Mutual Funds makes such payments at the annual rate of 0.15% of
the average net asset value of Class A shares outstanding as of
March 9, 1992 (for the Michigan, Minnesota and Ohio Funds) and as
of May 11, 1992 (for the Massachusetts Fund) and 0.20% of the
average net asset value of Class A shares acquired after such
dates (including Class A shares acquired through reinvestment of
distributions.) For participant-directed qualified retirement
plans initially investing less than $20 million in Putnam funds
and other investments managed by Putnam Management or its
affiliates, Putnam Mutual Funds' payments to qualifying dealers
on NAV Shares are 100% of the rate stated above if average plan
assets in Putnam funds (excluding money market funds) during the
quarter are less than $20 million, 60% of the stated rate if
average plan assets are at least $20 million but less than $30
million, and 40% of the stated rate if average plan assets are
$30 million or more. For all other participant-directed
qualified retirement plans purchasing NAV Shares, Putnam Mutual
Funds ^ makes quarterly payments ^ to qualifying dealers at the
annual rate of 0.10% of the average net asset value of such
shares.
Class B Distribution Plan. The Class B Plans provide for
payments by each Fund to Putnam Mutual Funds at the annual rate
of up to 1.00% of each Fund's average net assets attributable to
Class B shares, subject to the authority of the Trustees to
reduce the amount of payments or to suspend a Class B Plan for
such periods as they may determine. The Trustees currently limit
payments under the Class B Plan to the annual rate of 0.85% of
such assets. Should the Trustees decide in the future to approve
payments in excess of this amount, shareholders will be notified
and this Prospectus will be revised. Putnam Mutual Funds also
receives the proceeds of any CDSC imposed on redemptions of
shares.
Although Class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a total of 4.00% of the amount invested
(including a prepaid service fee of 0.20% of the amount invested)
to dealers who sell Class B shares. These commissions are not
paid on exchanges from other Putnam funds and sales to investors
exempt from the CDSC. In addition, in order to further compensate
dealers (including, for this purpose, certain financial
institutions) for services provided in connection with sales of
Class B shares and the maintenance of shareholder accounts,
Putnam Mutual Funds makes quarterly payments to qualifying
dealers based on the average net asset value of Class B shares
which are attributable to shareholders for whom the dealers are
designated as the dealer of record, except for the first year's
service fees, which are prepaid as described above. Putnam
Mutual Funds makes such quarterly payments at an annual rate of
0.20% of the average net asset value of such shares.
General. Putnam Mutual Funds may suspend or modify these payments
at any time, and payments are subject to the continuation of each
Fund's relevant Plan described above and the terms of Service
Agreements between dealers and Putnam Mutual Funds, and any
applicable limits imposed by the National Association of
Securities Dealers, Inc.
HOW TO SELL SHARES
You can sell your shares to your Fund any day the New York Stock
Exchange is open, either directly to the Fund or through your
investment dealer. A Fund will only repurchase shares for which
it has received payment.
Selling shares directly to your Fund. Send a signed letter of
instruction or stock power form to Putnam Investor Services,
along with any certificates that represent shares you want to
sell. The price you will receive is the next net asset value
calculated after your Fund receives your request in proper form,
less any applicable CDSC. In order to receive that day's net
asset value, Putnam Investor Services must receive your request
before the close of regular trading on the New York Stock
Exchange. If you sell shares of a Fund having a net asset value
of $100,000 or more, the signatures of the registered owners or
their legal representatives must be guaranteed by a bank,
broker-dealer or certain other financial institutions. See the
Statement of Additional Information for more information about
where to obtain a signature guarantee. Stock power forms are
available from your investment dealer, Putnam Investor Services
and many commercial banks. If you want your redemption proceeds
sent to an address other than your address as it appears on
Putnam's records, a signature guarantee is required. Putnam
Investor Services usually requires additional documentation for
the sale of shares by a corporation, partnership, agent or
fiduciary, or a surviving joint owner. Contact Putnam Investor
Services for details.
A Fund generally sends you payment for your shares the business
day after your request is received. Under unusual circumstances,
a Fund may suspend repurchases, or postpone payment for more than
seven days, as permitted by federal securities law.
You may use Putnam's Telephone Redemption Privilege to redeem
shares valued up to $100,000 from your account unless you have
notified Putnam Investor Services of an address change within the
preceding 15 days. Unless an investor indicates otherwise on the
Account Application, Putnam Investor Services will be authorized
to act upon redemption and transfer instructions received by
telephone from a shareholder, or any person claiming to act as
his or her representative, who can provide Putnam Investor
Services with his or her account registration and address as it
appears on Putnam Investor Services' records. Putnam Investor
Services will employ these and other reasonable procedures to
confirm that instructions communicated by telephone are genuine;
if it fails to employ reasonable procedures, Putnam Investor
Services may be liable for any losses due to unauthorized or
fraudulent instructions. For information, consult Putnam Investor
Services. During periods of unusual market changes and
shareholder activity, you may experience delays in contacting
Putnam Investor Services by telephone, in which case you may wish
to submit a written redemption request as described above, or
contact your investment dealer, as described below. The
Telephone Redemption Privilege is not available if you were
issued certificates for your shares which remain outstanding. The
Telephone Redemption Privilege may be modified or terminated
without notice.
Selling shares through your investment dealer. Your dealer must
receive your request before the close of regular trading on the
New York Stock Exchange and transmit it to Putnam Mutual Funds
before 5 p.m. Boston time to receive that day's net asset value.
Your dealer will be responsible for furnishing all necessary
documentation to Putnam Investor Services, and may charge for its
services.
HOW TO EXCHANGE SHARES
You can exchange your shares for shares of the same class of
certain other Putnam funds at net asset value beginning 15 days
after purchase^. Not all Putnam funds offer more than one class
of shares. If the other Putnam fund offers only one class of
shares, only Class A shares may be exchanged for such class. If
you exchange ^ , the transaction will not be subject to the CDSC.
However, when you redeem the shares acquired through the
exchange, the redemption may be subject to the CDSC, depending
upon when you originally purchased the shares ^ and using the
schedule of any fund into or from which you have exchanged your
shares that would result in your paying the highest CDSC
applicable to your class of shares. For purposes of computing
the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be
affected by any exchange.
To exchange your shares, simply complete an Exchange
Authorization Form and send it to Putnam Investor Services.
Exchange Authorization Forms are available by calling or writing
Putnam Investor Services. For federal income tax purposes, an
exchange is treated as a sale of shares and generally results in
a capital gain or loss. A Telephone Exchange Privilege is
currently available for amounts up to $500,000. Putnam Investor
Services' procedures for telephonic transactions are described
above under "How to sell shares." The Telephone Exchange
Privilege is not available if you were issued certificates for
shares which remain outstanding. Ask your investment dealer or
Putnam Investor Services for prospectuses of other Putnam funds.
Shares of certain Putnam funds are not available to residents of
all states.
<PAGE>
The exchange privilege is not intended as a vehicle for short-
term trading. Excessive exchange activity may interfere with
portfolio management and have an adverse effect on all
shareholders. In order to limit excessive exchange activity and
in other circumstances where the Trustees or Putnam Management
believes doing so would be in the best interests of a Fund, the
Fund reserves the right to revise or terminate the exchange
privilege, limit the amount or number of exchanges or reject any
exchange. Shareholders would be notified of any such ^ action to
the extent required by law. Consult Putnam Investor Services
before requesting an exchange. See the Statement of Additional
Information to find out more about the exchange privilege.
HOW THE FUNDS VALUE THEIR SHARES
Each Fund calculates the net asset value of a share of each class
by dividing the total value of its assets, less liabilities, by
the number of shares outstanding. Shares are valued as of the
close of regular trading on the New York Stock Exchange each day
the Exchange is open. Tax-exempt securities (including State
Tax Exempt Securities) are stated on the basis of valuations
provided by a pricing service approved by the Trustees, which
uses information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in
determining value. Each Fund believes that reliable market
quotations are generally not readily available for purposes of
valuing its portfolio securities. As a result, it is likely that
most of the valuations provided by such pricing service will be
based upon fair value determined on the basis of the factors
listed above. Non-tax-exempt securities for which market
quotations are readily available are stated at market value.
Short-term investments that will mature in 60 days or less are
stated at amortized cost, which approximates market value. All
other securities and assets are valued at their fair value
following procedures approved by the Trustees.
HOW DISTRIBUTIONS ARE MADE; TAX INFORMATION
Each Fund declares all of its net interest income as a
distribution on each day it is open for business. Net interest
income consists of interest accrued on portfolio investments of a
Fund, less accrued expenses, computed in each case since the most
recent determination of net asset value. Normally, a Fund pays
distributions of net interest income monthly. A Fund will
distribute at least annually all net realized capital gains, if
any, after applying any available capital loss carryovers. A
capital loss carryover is currently available for each Fund.
Distributions paid by a Fund with respect to Class A shares will
generally be greater than those paid with respect to Class B
shares because expenses attributable to Class B shares will
generally be higher.
You begin earning distributions on the business day that Putnam
Mutual Funds receives payment for your shares. It is your
responsibility to see that your dealer forwards payment promptly.
You can choose from three distribution options: (1) reinvest all
distributions in additional shares of your Fund without a sales
charge; (2) receive distributions from net interest income in
cash while reinvesting net capital gains distributions, if any,
in additional shares of your Fund without a sales charge; or (3)
receive all distributions in cash. You can change your
distribution option by notifying Putnam Investor Services in
writing. If you do not select an option when you open your
account, all distributions will be reinvested. All distributions
not paid in cash will be reinvested in shares of the class on
which the distribution is paid. You will receive a statement
confirming reinvestment of distributions in additional Fund
shares (or in shares of other Putnam funds for Dividends Plus
accounts) promptly following the quarter in which the
reinvestment occurs.
If a check representing a Fund distribution is not cashed within
a specified period, Putnam Investor Services will notify you that
you have the option of requesting another check or reinvesting
the distribution in your Fund or in another Putnam fund. If
Putnam Investor Services does not receive your election, the
distribution will be reinvested in that Fund. Similarly, if
correspondence sent by a Fund or Putnam Investor Services is
returned as "undeliverable,"^ Fund distributions will
automatically be reinvested in the Fund or in another Putnam
fund.
Federal taxes
Each Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other
requirements that are necessary for that Fund to be relieved of
federal taxes on income and gains it distributes to shareholders.
Each Fund will distribute substantially all of its ordinary
income and capital gain net income on a current basis.
Distributions designated by the Funds as "exempt-interest
dividends" are not generally subject to federal income tax.
However, if you receive Social Security or railroad retirement
benefits, you should consult your tax adviser to determine what
effect, if any, an investment in a Fund may have on the taxation
of your benefits. In addition, an investment in a Fund may
result in liability for federal alternative minimum tax and state
and local taxes, both for individual and corporate shareholders.
Each Fund's distributions other than exempt-interest dividends
will be taxable to you as ordinary income, except that any
distributions of net long-term capital gains will be taxable to
you as such, regardless of how long you have held your shares.
Distributions will be taxable as described above whether received
in cash or in shares through the reinvestment of distributions.
Early in each year the Funds will notify you of the amount and
tax status of distributions paid to you by that Fund for the
preceding year.
State taxes
General. Except as described below, for each state's income tax
purposes (and Michigan intangibles and single business tax
purposes), your proportionate share of distributions from a
Fund's net investment income and short-term capital gains, if
any, will be taxable as ordinary income, whether you take them in
cash or reinvest them in additional shares of that Fund (except
that distributions reinvested in shares of the Michigan Fund are
exempt from Michigan intangibles tax).
Massachusetts. Distributions received from Putnam Massachusetts
Tax Exempt Income Fund II are exempt from Massachusetts personal
income tax to the extent that they are derived from interest on
Massachusetts State Tax Exempt Securities and are designated as
such. The Fund has obtained a tax ruling which recognizes for
Massachusetts personal income tax purposes the tax exempt
character of gains realized by the Fund on the sale of certain
Massachusetts State Tax Exempt Securities when those gains are
distributed to shareholders and designated as such.
Distributions from investment income and capital gains, including
exempt-interest dividends, may be subject to Massachusetts
corporate excise tax.
Michigan. Distributions received from Putnam Michigan Tax Exempt
Income Fund II are exempt from Michigan personal income tax and
Michigan intangibles tax to the extent they are derived from
interest on Michigan State Tax Exempt Securities, under the
current position of the Michigan Department of Treasury. Such
distributions, if received in connection with a shareholder's
business activity, may, however, be subject to Michigan single
business tax. See the Statement of Additional Information. For
Michigan personal income tax, intangibles tax and single business
tax purposes, Fund distributions attributable to any source other
than interest on Michigan State Tax Exempt Securities will be
fully taxable. Fund distributions may be subject to the uniform
city income tax imposed by certain Michigan cities.
Minnesota. Shareholders of Putnam Minnesota Tax Exempt Income
Fund II who are individuals, estates or trusts will not be
subject to Minnesota personal income tax on Fund distributions to
the extent that such distributions qualify as exempt-interest
dividends and represent interest income attributable to interest
on Minnesota State Tax Exempt Securities, provided that at least
95% of the Fund's total exempt-interest dividends are derived
from interest on obligations of the State of Minnesota and its
agencies, instrumentalities and political subdivisions.
Losses of individuals, estates and trusts that are disallowed or
treated as long-term losses under current federal law by reason
of the shareholder's receipt of exempt-interest dividends or
capital gain dividends, respectively, are treated similarly under
Minnesota law, notwithstanding, in the case of exempt-interest
dividends, that such dividends may not be fully excludible from
Minnesota gross income.
Fund distributions are not excluded in determining the Minnesota
franchise tax on corporations measured by net income or the
Minnesota alternative minimum tax on corporations.
Ohio. Distributions received from Putnam Ohio Tax Exempt Income
Fund II are exempt from Ohio personal income tax, Ohio school
district income taxes and Ohio municipal income taxes to the
extent they are derived from interest on obligations issued by
the State of Ohio or its political subdivisions or authorities
("Ohio State Securities"), provided that the Fund continues to
qualify as a regulated investment company for federal income tax
purposes and that at all times at least 50% of the value of the
total assets of the Fund consist of Ohio State Securities or
similar obligations of other states or their subdivisions. It is
assumed for purposes of this discussion of Ohio taxation that
these requirements are satisfied. All distributions received from
the Fund are excluded from the net income base of the Ohio
corporation franchise tax to the extent that they are either
exempt from federal income tax or derived from interest on Ohio
State Securities, but the Fund's shares will be included in the
computation of net worth for purposes of such tax.
Distributions of capital gain with respect to shares of the Fund
will be exempt from Ohio personal income tax, Ohio school
district income taxes, and Ohio municipal income taxes, and will
be excluded from the net income base of the Ohio corporation
franchise tax, in each case to the extent that such distributions
are attributable to profit made on the sale, exchange or other
disposition by the Fund of Ohio State Securities. Distributions
that are attributable to interest on obligations of the United
States or of any authority, commission, or instrumentality of the
United States ("Federal Securities") or obligations of Puerto
Rico, the Virgin Islands, or Guam or their authorities or
instrumentalities ("Territorial Securities") will be exempt from
Ohio personal income tax, Ohio school district income taxes, and
Ohio municipal income taxes, and are excluded from the net income
base of the Ohio corporation franchise tax, in each case to the
same extent that such interest would be so exempt or excluded if
the obligations were held directly by the shareholders.
General
The foregoing is a summary of certain federal income tax
consequences of investing in a Fund. You should consult your tax
adviser to determine the precise effect of an investment in that
Fund on your particular tax situation (including possible
liability for alternative minimum tax and for state and local
taxes).
About Putnam Investments, Inc.
Putnam Management has been managing mutual funds since 1937.
Putnam Mutual Funds is the principal underwriter of each Fund and
of other Putnam funds. Putnam Fiduciary Trust Company is each
Fund's custodian. Putnam Investor Services, a division of Putnam
Fiduciary Trust Company, is each Fund's investor servicing and
transfer agent.
Putnam Management, Putnam Mutual Funds and Putnam Fiduciary Trust
Company are subsidiaries of Putnam Investments, Inc., which is
wholly-owned by Marsh & McLennan Companies, Inc., a publicly
owned holding company whose principal businesses are
international insurance and reinsurance brokerage, employee
benefit consulting and investment management.
<PAGE>
APPENDIX
Tax-exempt security ratings
The ratings services' descriptions of the tax-exempt securities
in which the Funds will invest are:
Moody's Investors Service, Inc.:
Bonds
Aaa -- Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Moody's ratings for state and municipal notes and other short-
term loans are designated Moody's Investment Grade (MIG). This
distinction is in recognition of the differences between short-
term credit risk and long-term risk. Factors affecting the
liquidity of the borrower are uppermost in importance in short-
term borrowing, while various factors of the first importance in
bond risk are of lesser importance in the short run. Loans
bearing the MIG 1 designation are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG 2
designation are of high quality, with margins of protection ample
although not so large as in the preceding group.
Standard & Poor's Corporation:
Bonds
AAA -- Debt rated AAA has the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB -- Debt rated BB is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the
obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Ratings of Corporate Obligations
The Moody's corporate obligations ratings of Aaa, Aa, A and Baa
and the Standard & Poor's corporate obligations ratings of AAA,
AA, A and BBB do not differ materially from those set forth above
for tax-exempt securities.
Ratings of Commercial Paper
The commercial paper ratings of A-1+ by Standard & Poor's and
Prime-1 by Moody's are the highest commercial paper ratings of
the respective agencies. The issuer's earnings, quality of long-
term debt, management and industry position are among the factors
considered in assigning such ratings.
<PAGE>
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND II
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
PUTNAM OHIO TAX EXEMPT INCOME FUND II
One Post Office Square
Boston, MA 02109
FUND INFORMATION
INVESTMENT MANAGER:
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
INVESTOR SERVICING AGENT
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
CUSTODIAN
Putnam Fiduciary
Trust Company
One Post Office Square
Boston, MA 02109
LEGAL COUNSEL
Ropes & Gray
One International Place
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Michigan and Ohio Funds
Coopers & Lybrand
One Post Office Square
Boston, MA 02109
Massachusetts and Minnesota Funds
Price Waterhouse
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581 <PAGE>
