PROSPECTUS
OCTOBER 1, 1995 , AS
REVISED MAY 1, 1996
PUTNAM ARIZONA TAX EXEMPT INCOME FUND (THE "ARIZONA FUND")
PUTNAM FLORIDA TAX EXEMPT INCOME FUND (THE "FLORIDA FUND")
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND (THE "MASSACHUSETTS
FUND")
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND (THE "MICHIGAN FUND")
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND (THE "MINNESOTA FUND")
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND (THE "NEW JERSEY FUND")
PUTNAM OHIO TAX EXEMPT INCOME FUND (THE "OHIO FUND")
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND (THE "PENNSYLVANIA
FUND")
CLASS A, B AND M SHARES
INVESTMENT STRATEGY: TAX-ADVANTAGED
This prospectus explains concisely what you should know before
investing in 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, 1995 statement of additional
information ("SAI"), as amended from time to time. For a free
copy of the SAI or other information, call Putnam Investor
Services at 1-800-225-1581. The SAI has been filed with the
Securities and Exchange Commission and is incorporated into this
prospectus by reference.
Each fund invests primarily in a portfolio of tax-exempt
securities (as defined on page 29) , which may include
securities of issuers other than the relevant state and its
political subdivisions.
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 AMOUNT INVESTED.
BOSTON*LONDON*TOKYO
<PAGE>
ABOUT THE FUNDS
EXPENSES SUMMARY PAGE NUMBER
This section describes the sales charges, management fees, and
annual operating expenses that apply to a fund's various classes
of shares. Use it to help you estimate the impact of transaction
costs on your investment over time.
FINANCIAL HIGHLIGHTS PAGE NUMBER
Study this table to see, among other things, how a fund performed
each year for the past 10 years or since it began investment
operations if it has been in operation for less than 10 years.
OBJECTIVES PAGE NUMBER
Read this section to make sure a fund's objectives are consistent
with your own.
HOW THE FUNDS PURSUE THEIR OBJECTIVES PAGE NUMBER
This section explains in detail how a fund seeks its investment
objectives. RISK FACTORS. All investments entail some risk.
Read this section to make sure you understand certain risks that
may be involved when investing in a fund.
HOW PERFORMANCE IS SHOWN PAGE NUMBER
This section describes and defines the measures used to assess a
fund's performance. All data are based on a fund's past
investment results and do not predict future performance.
HOW THE FUNDS ARE MANAGED PAGE NUMBER
Consult this section for information about a fund's management,
allocation of a fund's expenses, and how purchases and sales of
securities are made for a fund.
ORGANIZATION AND HISTORY PAGE NUMBER
In this section, you will learn when a fund was introduced, how
it is organized, how it may offer shares, and who its Trustees
are.
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS PAGE NUMBER
Read this section for descriptions of the classes of shares this
prospectus offers and for points you should consider when making
your choice.
HOW TO BUY SHARES PAGE NUMBER
This section describes the ways you may purchase shares and tells
you the minimum amounts required to open various types of
accounts. It explains how sales charges are determined and how
you may become eligible for reduced sales charges on each class
of shares.
DISTRIBUTION PLANS PAGE NUMBER
This section tells you what distribution fees are charged against
each class of shares.
<PAGE>
HOW TO SELL SHARES PAGE NUMBER
In this section you can learn how to sell shares of a fund,
either directly to the fund or through an investment dealer.
HOW TO EXCHANGE SHARES PAGE NUMBER
Find out in this section how you may exchange shares of a fund
for shares of other Putnam funds. The section also explains how
exchanges can be made without sales charges and the conditions
under which sales charges may be required.
HOW A FUND VALUES ITS SHARES PAGE NUMBER
This section explains how a fund determines the value of its
shares.
HOW A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; TAX
INFORMATION PAGE NUMBER
This section describes the various options you have in choosing
how to receive dividends from a fund. It also discusses the
federal tax status of the payments and counsels shareholders to
seek specific advice about their own situation.
ABOUT PUTNAM INVESTMENTS, INC. PAGE NUMBER
Read this section to learn more about the companies that provide
the marketing, investment management, and shareholder account
services to Putnam funds and their shareholders.
APPENDIX
Securities ratings PAGE NUMBER<PAGE>
ABOUT THE FUNDS
EXPENSES SUMMARY
Expenses are one of several factors to consider when investing.
The following table summarizes your maximum transaction costs
and expenses incurred in its most recent fiscal year. The
examples show the cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
CLASS A CLASS B CLASS M
SHARES SHARES SHARES
SHAREHOLDER TRANSACTION
EXPENSES
Maximum sales charge
imposed on purchases
(as a percentage of
offering price) 4.75% NONE* 3.25%*
Deferred sales charge 5.0% in the first
(as a percentage year, declining
of the lower of to 1.0% in the
original purchase sixth year, and
price or redemption eliminated
proceeds) NONE** thereafter NONE
<PAGE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Total fund
Management 12b-1 Other operating
fees fees expenses expenses
- ---------- ----- -------------------
Arizona fund
class A 0.60% 0.20% 0.13% 0.93%
class B 0.60% 0.85% 0.13% 1.58%
class M 0.60% 0.50% 0.13% 1.23%
Florida fund
class A 0.60% 0.20% 0.11% 0.91%
class B 0.60% 0.85% 0.10% 1.55%
class M 0.60% 0.50% 0.11% 1.21%
Massachusetts fund
class A 0.60% 0.20% 0.09% 0.89%
class B 0.60% 0.85% 0.08% 1.53%
class M 0.60% 0.50% 0.09% 1.19%
Michigan fund
class A 0.60% 0.20% 0.15% 0.95%
class B 0.60% 0.85% 0.14% 1.59%
class M 0.60% 0.50% 0.15% 1.25%
Minnesota fund
class A 0.60% 0.20% 0.19% 0.99%
class B 0.60% 0.85% 0.18% 1.63%
class M 0.60% 0.50% 0.19% 1.29%
New Jersey fund
class A 0.60% 0.20% 0.15% 0.95%
class B 0.60% 0.85% 0.14% 1.59%
class M 0.60% 0.50% 0.15% 1.25%
Ohio fund
class A 0.60% 0.20% 0.13% 0.93%
class B 0.60% 0.85% 0.13% 1.58%
class M 0.60% 0.50% 0.13% 1.23%
Pennsylvania fund
class A 0.60% 0.20% 0.04% 0.84%
class B 0.60% 0.85% 0.04% 1.49%
class M 0.60% 0.50% 0.04% 1.14%
The tables are provided to help you understand the expenses of
investing in each fund and your share of the operating expenses
each fund incurs. Expense information shown in the table
for the Arizona, Florida, New Jersey and Pennsylvania
funds has been annualized based on the expenses for each fund's
most recent fiscal period. For the Arizona fund, actual
management fees for class A and class B shares were 0.45%,
actual 12b-1 fees were 0.15% and 0.64%, respectively, actual
"Other expenses " were 0.10%, and actual total operating expenses
were 0.70% and 1.19%, respectively. For the Florida fund, actual
management fees for class A and class B shares were
0.55%, actual 12b-1 fees were 0.18% and 0.78% ,
respectively, actual "Other expenses" were 0.10% and 0.09%
, respectively, and actual total operating expenses were
0.83% and 1.42% , respectively. For the New Jersey
fund actual management fees for class A and class B shares were
0.55%, actual 12b-1 fees were 0.18% and 0.78%,
respectively, actual "Other expenses" were 0.14% and 0.13%,
respectively, and actual total operating expenses were 0.88% and
1.46%, respectively. For the Pennsylvania fund, actual
management fees for class A and class B shares were 0.15%,
actual 12b-1 fees were 0.05% and 0.22%, respectively, actual
"Other expenses" were 0.01% and actual total operating expenses
were 0.21% and 0.38%, respectively. The 12b-1 fees for class
A, B and M shares for each fund reflect amounts currently
payable under each distribution plan. For each fund's class M
shares, management fees and "Other expenses" are based on the
corresponding expenses for class A shares.
EXAMPLES
Your investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period:
1 year 3 years 5 years 10 years
ARIZONA FUND
CLASS A $57 $76 $97 $156
CLASS B $66 $80 $106 $170***
CLASS B (NO REDEMPTION)$16 $50 $86 $170***
CLASS M $45 $70 $98 $177
FLORIDA FUND
CLASS A $56 $75 $95 $154
CLASS B $66 $79 $104 $167***
CLASS B (NO REDEMPTION)$16 $49 $84 $167***
CLASS M $44 $70 $97 $174
MASSACHUSETTS FUND
CLASS A $56 $75 $94 $152
CLASS B $66 $78 $103 $165***
CLASS B (NO REDEMPTION)$16 $48 $83 $165***
CLASS M $44 $69 $96 $172
MICHIGAN FUND
CLASS A $57 $76 $98 $159
CLASS B $66 $80 $107 $172***
CLASS B (NO REDEMPTION)$16 $50 $87 $172***
CLASS M $45 $71 $99 $179
<PAGE>
MINNESOTA FUND
CLASS A $57 $76 $100 $163
CLASS B $67 $81 $109 $176***
CLASS B (NO REDEMPTION)$17 $51 $89 $176***
CLASS M $45 $72 $101 $183
NEW JERSEY FUND
CLASS A $57 $76 $98 $159
CLASS B $66 $80 $107 $172***
CLASS B (NO REDEMPTION)$16 $50 $87 $172***
CLASS M $45 $71 $99 $179
OHIO FUND
CLASS A $57 $76 $97 $156
CLASS B $66 $80 $106 $170***
CLASS B (NO REDEMPTION)$16 $50 $86 $170***
CLASS M $45 $70 $98 $177
PENNSYLVANIA FUND
CLASS A $56 $73 $92 $146
CLASS B $65 $77 $101 $160***
CLASS B (NO REDEMPTION)$15 $47 $81 $160***
CLASS M $44 $68 $93 $167<PAGE>
The examples do not represent past or future expense levels.
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 varies.
* The higher 12b-1 fees borne by class B and class M shares
may cause long-term shareholders to pay more than the
economic equivalent of the maximum permitted front-end sales
charge on class A shares.
** A deferred sales charge of up to 1.00% is assessed on
certain redemptions of class A shares that were purchased
without an initial sales charge . 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 "Alternative sales arrangements."
FINANCIAL HIGHLIGHTS
The following tables present per share financial information for
the funds. No class M shares were outstanding during these
periods for the Arizona and Pennsylvania funds. 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 1995 fiscal year are incorporated by
reference into this prospectus. Each fund's annual report, which
contains additional unaudited performance information, is
available without charge upon request. <PAGE>
Financial highlights*
(For a share outstanding throughout the period)
<PAGE>
OBJECTIVES
EACH FUND SEEKS AS HIGH A LEVEL OF CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAX AND, PERSONAL INCOME TAX (IF
ANY) OF ITS RESPECTIVE STATE AS PUTNAM INVESTMENT MANAGEMENT,
INC., THE FUNDS' INVESTMENT MANAGER ("PUTNAM MANAGEMENT"),
BELIEVES IS CONSISTENT WITH PRESERVATION OF CAPITAL. None of the
funds are intended to be a complete investment program, and there
is no assurance that any fund will achieve its objective.
HOW THE FUNDS PURSUE THEIR OBJECTIVES
BASIC INVESTMENT STRATEGY
EACH FUND SEEKS ITS OBJECTIVE BY FOLLOWING THE FUNDAMENTAL
INVESTMENT POLICY OF INVESTING AT LEAST 80% OF ITS NET ASSETS IN
TAX-EXEMPT SECURITIES (WHICH ARE DESCRIBED BELOW), EXCEPT WHEN
INVESTING FOR DEFENSIVE PURPOSES DURING TIMES OF ADVERSE MARKET
CONDITIONS.
Under normal market conditions, the Florida fund will invest at
least 65% of its net assets in tax-exempt securities issued by
the State of Florida, its political subdivisions and their
agencies and instrumentalities and in other tax-exempt securities
which are exempt from the Florida intangibles tax. The Florida
fund generally will seek to select investments which will enable
its shares to be exempt from this tax, except when pursuing the
alternative investment strategies described below. Such
investments at times may have lower yields than other tax-exempt
securities available for investment by the Florida fund. This
investment strategy could also result in higher portfolio
turnover and related transaction costs. See "How a fund makes
distributions to shareholders ; tax information --Florida
taxes."
Under current law, to the extent distributions by a fund are
derived from interest that is exempt from federal income
tax and personal or gross income tax in the
relevant state (other than any applicable federal or state
alternative minimum tax or any state minimum corporate income
tax). Such distributions will also be exempt from such
taxes, provided a fund satisfies certain requirements described
below . See "How a fund makes distributions to its
shareholders; tax information . " Florida does not
impose an individual income tax but imposes certain additional
requirements on the composition of the Florida fund for shares of
that fund to be exempt from the Florida intangibles tax. <PAGE>
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 money
market instruments or in cash.
Subject to Trustee approval, each fund's investments in
tax-exempt securities and taxable obligations 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) or Standard & Poor's
("S&P") (AAA, AA, A, BBB or BB), or
unrated securities that Putnam Management determines are of
comparable quality. If such Trustee approval is not obtained,
this prospectus will be revised.
No funds will purchase a security rated both Ba by Moody's and BB
by S&P at the time of purchase, or, if unrated, determined by
Putnam Management to be of comparable quality if, as a result,
more than 25% of the fund's total assets would be of that
quality. The rating services' descriptions of the five highest
grades of debt securities are included in the appendix to this
prospectus. Securities rated Ba or BB (and unrated securities
of comparable quality) are considered to have
speculative elements, with large uncertainties or major exposures
to adverse conditions. Investors should carefully consider their
ability to assume the risks of owning shares of a mutual fund
which may invest in securities in the lower rating categories.
Putnam Management expects that each fund will generally invest in
tax-exempt securities of longer maturities (10 years or more),
but each fund may invest in tax-exempt securities having a broad
range of maturities.
Under the Pennsylvania fund's investment policies, Putnam
Management will not trade the fund's securities for the purpose
of seeking profits. It is a fundamental policy of the fund that
its portfolio securities may be varied only (i) to eliminate
unsafe investments and investments not consistent with the
preservation of the fund's capital or the tax status of the
fund's investments; (ii) to honor redemption orders and meet
anticipated redemption requirements and negate gains from
discount purchases; (iii) to reinvest the earnings from
securities in like securities; or (iv) to defray normal
administrative expenses. For purposes of this fundamental
policy, the fund may vary its portfolio securities if (i) there
has been an adverse change in a security's credit rating or in
that of its issuer or in Putnam Management's credit analysis of
the security or its issuer; (ii) there has been, in the opinion
of Putnam Management, a deterioration or anticipated
deterioration in general economic or market conditions affecting
issuers of tax-exempt securities, or a change or anticipated
change in interest rates; (iii) adverse changes or anticipated
changes in market conditions or economic or other factors
temporarily affecting the issuers of one or more portfolio
securities make necessary or desirable the sale of such security
or securities in anticipation of the fund's repurchase of the
same or comparable securities at a later date; or (iv) Putnam
Management engages in the alternative investment practices
described below. In addition, for purposes of this fundamental
policy, the fund may purchase or sell financial futures contracts
and related options on securities and securities indices
for hedging purposes. As a result of these limitations, the fund
may have less flexibility than other mutual funds in responding
to market or interest rate changes and to new investment
opportunities.
ALTERNATIVE MINIMUM TAX
INTEREST INCOME FROM CERTAIN TYPES OF TAX-EXEMPT SECURITIES MAY
BE SUBJECT TO FEDERAL ALTERNATIVE MINIMUM TAX.
In determining compliance with the 80% test described above, it
is a fundamental policy of each fund to exclude from the
definition of tax-exempt securities any securities the interest
from which may be subject to the federal alternative
minimum tax for individuals. An investment in a fund may
subject corporate shareholders to the federal
alternative minimum tax , because a portion of tax-exempt
income is generally included in the alternative minimum
taxable income of corporations.
ALTERNATIVE INVESTMENT STRATEGIES
At times Putnam Management may judge that conditions in the
markets for 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
without limit 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 S &P; 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; 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 these alternative strategies.
TAX-EXEMPT SECURITIES
THE TERM "TAX -EXEMPT SECURITIES , " WHEN USED WITH
RESPECT TO A PARTICULAR FUND, INCLUDES OBLIGATIONS OF A
STATE AND ITS POLITICAL SUBDIVISIONS AND THEIR AGENCIES,
INSTRUMENTALITIES OR OTHER GOVERNMENTAL UNITS, THE INTEREST ON
WHICH, IN THE OPINION OF BOND COUNSEL, IS EXEMPT FROM FEDERAL
INCOME TAX AND (EXCEPT FOR FLORIDA, WHICH HAS NO PERSONAL INCOME
TAX) PERSONAL OR GROSS INCOME TAX OF THE RELEVANT STATE.
<PAGE>
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, or to fund short-term cash requirements. They may
also include certain types of industrial development bonds,
private activity bonds or notes issued by public authorities to
finance privately owned or operated facilities.
Short-term tax-exempt securities may be issued as interim
financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes.
Tax-exempt securities also include obligations issued by certain
other governmental entities, such as U.S. territories, if these
debt obligations generate interest income that is exempt from
federal income tax and (except for Florida , which has no
personal income tax) the personal or gross income tax of the
relevant state.
THE TWO PRINCIPAL CLASSIFICATIONS OF TAX-EXEMPT SECURITIES ARE
GENERAL OBLIGATION 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. Their payment may depend
on an appropriation by the issuer's legislative body. 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 bonds and private activity bonds
are in most cases special obligation securities, whose credit
quality is tied to the private user of the facilities.
A fund may also invest in securities representing interests in
tax-exempt securities, known as "inverse floating obligations" or
"residual interest bonds." These obligations pay interest rates
that vary inversely with 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.
These securities have the effect of providing a degree of
investment leverage. They will generally respond to changes in
market interest rates more rapidly than fixed-rate long-term
securities (typically twice as fast). 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.
RISK FACTORS
THE VALUES OF TAX-EXEMPT SECURITIES FLUCTUATE IN RESPONSE TO
CHANGES IN INTEREST RATES. A decrease in interest rates will
generally result in an increase in the value of a fund's assets.
Conversely, during periods of rising interest rates, the value of
a fund's assets will generally decline. The magnitude of these
fluctuations generally is greater for securities with longer
maturities. However, the yields on such securities are also
generally higher. In addition, the values of fixed-income
securities are affected by changes in general economic conditions
and business conditions affecting the specific industries of
their issuers.
Changes by recognized rating services in their ratings of a
fixed-income security and changes in the ability of an issuer to
make payments of interest and principal may also affect the value
of these investments. Changes in the value of portfolio
securities generally will not affect income derived from these
securities, but will affect a fund's net asset value.
A fund will not necessarily dispose of a security when its rating
is reduced below its rating at the time of purchase. However,
Putnam Management will monitor the investment to determine
whether continued investment in the security will assist in
meeting a fund's investment objective.
EACH FUND MAY INVEST IN BOTH HIGHER-RATED AND LOWER-RATED TAX-
EXEMPT SECURITIES. LOWER-RATED SECURITIES ARE SECURITIES RATED
BELOW BAA BY MOODY'S OR BBB BY S&P, AND ARE COMMONLY KNOWN AS
"JUNK BONDS." 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, may impair the ability of
the issuer to make payments of income and principal.
The tables below show the percentages of fund assets
invested during fiscal 1995 in securities assigned to various
rating categories by S&P , or , if unrated by S&P,
assigned to comparable rating categories by Moody's and in
unrated securities determined by Putnam Management to be of
comparable quality:
<PAGE>
<TABLE>
<CAPTION>
ARIZONA FUND FLORIDA FUND MASSACHUSETTS FUND MICHIGAN FUND
------------------------- -------------------------- ------------------------ ------------------------
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 PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS
OF NET PERCENTAGE OF OF NET PERCENTAGE OF OF FUND PERCENTAGE OF OF NET PERCENTAGE OF
RATINGS ASSETS NET ASSETS ASSETS NET ASSETS ASSETS FUND ASSETS ASSETS NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
"AAA" 40.83% - 62.93% - 41.37% 0.32% 48.48% -
"AA" 16.14 - 10.05 - 4.76 0.22 9.38 -
"A" 16.83 0.41% 7.54 0.58% 16.02 0.61 7.77 2.93%
"BBB" 13.62 5.34 13.75 0.52 13.84 4.42 19.67 3.59
"BB" 1.86 4.82 - 2.96 1.23 15.94 0.64 6.32
"B" - 0.15 0.05 1.62 - 1.27 1.22 -
------ ------ ------ ------ ------- ------ ------ -----
89.28% 10.72% 94.32% 5.68% 77.22% 22.78% 87.16% 12.84%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MINNESOTA FUND NEW JERSEY FUND OHIO FUND PENNSYLVANIA FUND
------------------------- -------------------------- ------------------------ ------------------------
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 PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS AS PERCENTAGE QUALITY, AS
OF FUND PERCENTAGE OF OF FUND PERCENTAGE OF OF FUND PERCENTAGE OF OF FUND PERCENTAGE OF
RATINGS ASSETS FUND ASSETS ASSETS FUND ASSETS ASSETS FUND ASSETS ASSETS FUND ASSETS
- ------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
"AAA" 34.80% - 43.83% - 57.43% 0.56% 56.46% 0.33%
"AA" 21.75 - 15.61 0.05% 7.78 0.22 7.10 -
"A" 25.18 - 13.61 1.32 7.16 - 11.03 -
"BBB" 10.86 2.50% 7.80 2.32 13.28 6.63 15.17 3.61
"BB" - 4.91 0.38 15.08 1.21 5.42 1.85 3.91
"B" - - - - - 0.31 0.30 0.24
------ ------ ------ ------ ------- ------ ------ ------
92.59% 7.41% 81.23% 18.77% 86.86% 13.14% 91.91% 8.09%
- ------------------------------------------------------------------------------------------------------------------------
/TABLE
<PAGE>
Putnam Management seeks to minimize the risks of investing in
lower-rated securities through careful investment analysis.
However, the amount of information available about the financial
condition of an issuer of tax-exempt securities may not be as
extensive as that which is made available by corporations whose
securities are publicly traded. When a fund invests in tax-
exempt securities in the lower rating categories, the achievement
of the fund's goals is more dependent on Putnam Management's
ability than would be the case if the fund were investing in tax-
exempt securities in the higher rating categories. Investors
should consider carefully their ability to assume the risks of
owning shares of a mutual fund that may invest in securities in
certain of the lower rating categories.
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 all or a major portion.
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 these securities when Putnam
Management believes it advisable to do so or may be able to sell
the securities only at prices lower than if they were more widely
held. Under these 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 of these
securities, a fund may be required to participate in various
legal proceedings or take possession of and manage assets
securing the issuer's obligations on the securities. This could
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.
The ability of a holder of a tax-exempt security to enforce the
terms of that security in a bankruptcy proceeding may be more
limited than would be the case with respect to privately-issued
securities.
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, that fund may not be able to reinvest the
proceeds in securities providing the same investment return as
the securities redeemed.
Each fund may invest in so-called "zero-coupon" bonds whose
values are subject to greater fluctuation in response to changes
in market interest rates than bonds that 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.
<PAGE>
Zero-coupon bonds allow an issuer to avoid the need to generate
cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest
currently. 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 secondary market for tax-exempt securities is generally less
liquid than that for taxable fixed-income securities,
particularly for securities in the lower rating categories. Thus
it may be more difficult from time to time to value or buy and
sell certain securities.
FOR ADDITIONAL INFORMATION CONCERNING THE RISKS ASSOCIATED WITH
INVESTING IN SECURITIES IN THE LOWER RATING CATEGORIES, SEE THE
SAI.
SINCE THE FUNDS INVEST PRIMARILY IN TAX-EXEMPT SECURITIES, THE
VALUE OF EACH FUND'S SHARES MAY BE ESPECIALLY AFFECTED BY FACTORS
PERTAINING TO THE ECONOMY OF THE RELEVANT STATE AND OTHER FACTORS
AFFECTING THE ABILITY OF ISSUERS OF 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 tax-exempt securities may be affected from time to
time by economic, political and demographic conditions within or
outside of 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 tax-exempt securities may also affect
their ability to meet their obligations.
Payments of principal and interest on special obligation
securities will depend on the economic condition of the facility
or specific revenue source from whose revenues the payments will
be made. The facility's economic status, in turn, could be
affected by economic, political and demographic conditions
affecting the particular state.
Any reduction in the actual or perceived ability of an issuer of
tax-exempt securities to meet its obligations would be likely to
have an adverse effect on the market value and marketability of
its obligations. A reduction in the rating of the issuer's
outstanding securities would be included among these factors.
Doubts surrounding such an issuer's ability to meet its
obligations could adversely affect the values of other tax-exempt
securities as well.
DIVERSIFICATION AND CONCENTRATION POLICIES
Under the Investment Company Act of 1940 and the Internal Revenue
Code of 1986, each of the Massachusetts, Michigan, Minnesota
Ohio and Pennsylvania funds may generally invest up to 25% of
its total assets in the securities of any one issuer, and each of
the Arizona, Florida and New Jersey funds, may generally invest
up to 25% of its total assets in the securities of each of any
two issuers. Otherwise, each of the funds may not invest more
than 5% of its assets in the securities of any one issuer.
Because of these limitations and the relatively small number of
issuers of tax-exempt securities available to each fund, each
fund is more likely to invest a higher percentage of its assets
in the securities of a single issuer than an investment company
that invests in a broad range of tax-exempt securities. This
practice involves an increased risk of loss to a fund if
an issuer were unable to make interest or principal
payments or if the market value of these securities were to
decline.
NO FUND WILL INVEST MORE THAN 25% OF ITS TOTAL ASSETS IN ANY ONE
INDUSTRY. Governmental issuers of tax-exempt securities are not
considered part of any "industry." However, for this purpose
(and for diversification purposes discussed above) tax-exempt
securities backed only by the assets and revenues of
nongovernmental users may be deemed to be issued by such
nongovernmental users. Thus, the 25% limitation would apply to
these obligations.
It is possible that a fund may invest more than 25% of its assets
in a broader segment of the market for tax-exempt securities,
such as revenue obligations of hospitals and other health care
facilities, housing revenue obligations, or airport 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 these obligations could be supported by the credit of
governmental issuers or by the credit of nongovernmental issuers
engaged in a number of industries, economic, business, political
and other developments generally affecting the revenues of their
issuers may have a general adverse effect on all tax-exempt
securities in a market segment. (Examples would include proposed
legislation or pending court decisions affecting the financing of
such projects and market factors affecting the demand for their
services or products.)
Each fund reserves the right to invest more than 25% of its
assets in industrial development bonds and private activity
securities.
<PAGE>
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of each fund's
portfolio investments will likely bear coupon rates that are
higher than current market rates, regardless of whether these
securities were originally purchased at a premium. These
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 values of these "premium" securities tend to approach the
principal amount as the securities 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 these periods would initially receive higher monthly
distributions (derived from the higher coupon rates payable on
that fund's investments) than might be available from alternative
investments bearing current market interest rates. But the
investor 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."
PORTFOLIO TURNOVER
The length of time a fund has held a particular security is not
generally a consideration in investment decisions. A change in
the securities held by a fund is known as "portfolio turnover."
As a result of a fund's investment policies, under certain market
conditions a fund's portfolio turnover rate may be higher than
that of other mutual funds.
Portfolio turnover generally involves some expense to a fund,
including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and reinvestment in
other securities. These transactions may result in realization
of taxable capital gains. Portfolio turnover rates for the life
of each fund are shown in the section "Financial highlights."
FINANCIAL FUTURES AND OPTIONS
EACH FUND MAY PURCHASE AND SELL FINANCIAL FUTURES CONTRACTS FOR
HEDGING PURPOSES.
Futures contracts on the 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 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 tax-exempt securities that such fund owns or
expects to purchase. Each fund may also purchase and sell put
and call options on index futures or on the indexes directly, in
addition to or as an alternative to purchasing and selling index
futures.
For hedging purposes, each fund may also purchase and sell
futures contracts and related options on U.S. Treasury
securities, including U.S. Treasury bills, notes and bonds ("U.S.
government securities") and options directly on U.S. government
securities. U.S. government securities futures and options would
be used for purposes similar to index futures and options.
In addition, to the extent consistent with its investment
restrictions, each fund may purchase put and call options on, or
warrants to purchase tax-exempt securities, either directly or
through custodial arrangements in which the funds and other
investors own an interest in one or more options on tax-exempt
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 from the possibility of imperfect
correlations between movements in the prices of financial futures
and related options and movements in the prices of the underlying
bond index or U.S. government securities or of the tax-exempt
securities that 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 the potential inability to close out
futures or options positions. There can be no assurance that a
liquid secondary market will exist for any futures contract or
option at a particular time. Certain provisions of the Internal
Revenue Code and certain regulatory requirements may limit the
use of futures and options transactions.
A MORE DETAILED EXPLANATION OF FINANCIAL FUTURES AND OPTIONS
TRANSACTIONS AND THE RISKS ASSOCIATED WITH THEM IS INCLUDED IN THE
SAI.
OTHER INVESTMENT PRACTICES
EACH FUND MAY ALSO ENGAGE IN THE FOLLOWING INVESTMENT PRACTICES,
EACH OF WHICH MAY RESULT IN TAXABLE INCOME OR CAPITAL GAINS AND
INVOLVES CERTAIN SPECIAL RISKS. THE SAI 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 involves 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.
DERIVATIVES
Certain of the instruments in which a fund will invest, such as
futures contracts , options and inverse floating
obligations, are considered to be "derivatives." Derivatives are
financial instruments whose value depends upon, or is derived
from, the value of an underlying asset, such as a security or an
index. Further information about these instruments and the risks
involved in their use is included elsewhere in this prospectus
and in the SAI.
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) (For the Massachusetts, Michigan, Minnesota, Ohio funds with
respect to 100% of the total assets, for the Pennsylvania
fund with respect to 75% of total assets and for Arizona, Florida
and New Jersey funds with respect to 50% of total assets)
5% of total assets in the securities of any one issuer (other
than obligations of the U.S. government or its agencies or
instrumentalities, and , for the Massachusetts, Michigan,
Minnesota and Ohio funds, tax-exempt securities);*
(b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessors, has been
in operation for less than three consecutive years (except
obligations of the U.S. government, or its agencies or
instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue tax-exempt
securities);
(c) 25% of total assets in any one industry (other than
tax-exempt securities backed by the governmental issuers and
obligations of the U.S. government, its agencies or
instrumentalities);* and
(d) 15% of its net assets in securities that are not
readily marketable, securities restricted as to resale (excluding
securities determined by the Trustees (or the person designated
by them to make such determinations) to be readily marketable),
and repurchase agreements maturing in more than seven days.
<PAGE>
Restrictions marked with an asterisk (*) above are summaries of
fundamental investment policies. See the SAI for the full text
of these policies and the funds' other fundamental investment
policies. Except for investment policies designated as
fundamental in this prospectus or the SAI, and the policy that
under normal market conditions at least 80% of each fund's net
assets will be invested in 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 SAI are not fundamental investment 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
EACH FUND'S INVESTMENT PERFORMANCE MAY FROM TIME TO TIME BE
INCLUDED IN ADVERTISEMENTS ABOUT THAT FUND. "Yield" for each
class of shares is calculated by dividing the annualized net
investment income per share during a recent 30-day period by the
maximum public offering price per share of the class on the last
day of that period.
For purposes of calculating yield, net investment income is
calculated in accordance with SEC regulations and may differ from
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. The current dividend rate is
based on net investment income as determined for tax purposes,
which may not reflect amortization in the same manner. See "How
the funds pursue their objectives -- Investments in premium
securities."
Yield is based on the price of the shares, including the maximum
initial sales charge in the case of class A and class M shares,
but does not reflect 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 each 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 class's tax-exempt yield.
<PAGE>
"Total return" for the one-, five- and ten-year periods (or for
the life of a class, if shorter) through the most recent calendar
quarter represents the average annual compounded rate of return
on an investment of $1,000 in a fund invested at the maximum
public offering price (in the case of class A and class M 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. Any quotation of investment
performance not reflecting the maximum initial sales charge or
contingent deferred sales charge would be reduced if the sales
charge were used.
ALL DATA ARE BASED ON PAST INVESTMENT RESULTS AND DO 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 which class of shares
the investor purchases. 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 with those of other mutual funds and
other investment vehicles.
Quotations of investment performance 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 that of various indexes. See the SAI.
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.
Each fund pays Putnam Management a quarterly fee for these
services based on that fund's average net assets. See "Expenses
summary" and the SAI.
<PAGE>
The following officers of Putnam Management , have had primary
responsibility for the day-to-day management of the indicated
funds' portfolios since the year stated below:
Business experience
Year (at least 5 years)
------- -----------------
Howard K. Manning Employed as an investment
Senior Vice President professional by Putnam
Management
Arizona fund 1995 since 1986.
Michigan fund 1993
Minnesota fund 1993
Richard P. Wyke Employed as an investment
Senior Vice President professional by Putnam
Management
Florida fund 1990 since 1987.
Massachusetts 1996
Pennsylvania fund 1990
Leslie J. Burke Employed as an investment
Vice President professional by Putnam
New Jersey fund 1995 Management since 1992. Prior
to 1992, Ms. Burke was a
Research Associate and
Municipal Bond Trader at
Fidelity Management and
Research Company.
James M. Prusko Employed as an investment
Assistant Vice President professional by Putnam
Ohio fund 1995 Management since 1992. Prior
to 1992, Mr. Prusko was a
Sales and Trading Associate at
Salomon Brothers.
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 of shares). 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.
Putnam Arizona Tax Exempt Income Fund was organized on November
9, 1990. Putnam Florida Tax Exempt Income Fund was organized on
June 27, 1990. Putnam Massachusetts Tax Exempt Income Fund, which
prior to October 1, 1995 was known as Putnam Massachusetts Tax
Exempt Income Fund II was organized on March 7, 1986. Each of
Putnam Michigan Tax Exempt Income Fund, Putnam Minnesota Tax
Exempt Income Fund and Putnam Ohio Tax Exempt Income Fund, which
prior to October 1, 1995 were known as Putnam Michigan Tax Exempt
Income Fund II, Putnam Minnesota Tax Exempt Income Fund II and
Putnam Ohio Tax Exempt Income Fund II , respectively, were
organized on September 2, 1986. Putnam New Jersey Tax-Exempt
Income Fund was organized on November 17, 1989. Putnam
Pennsylvania Tax Exempt Income Fund was organized on April 20,
1989. A copy of each fund'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 of the Massachusetts, Michigan, Minnesota, Ohio and
Pennsylvania funds is an open-end, diversified management
investment company and each of the Arizona, Florida and
New Jersey funds is an open-end, non-diversified
management investment company . Each fund has an unlimited
number of authorized shares of beneficial interest. Shares of
each fund may be divided without shareholder approval into two or
more series of shares representing separate investment
portfolios.
Any such series of shares may be divided without shareholder
approval into two or more classes of shares having such
preferences and special or relative rights and privileges as the
Trustees determine. Each fund's shares are currently divided
into three classes. Only the funds' class A, B and M shares are
offered by this prospectus. Each fund may also offer other
classes of shares with different sales charges and expenses.
Because of these different sales charges and expenses, the
investment performance of the classes will vary. For more
information, including your eligibility to purchase any other
class of shares, contact your investment dealer or Putnam Mutual
Funds (at 1-800-225-1581).
Each share has one vote, with fractional shares voting
proportionally. Shares of each class will vote together as a
single class except when otherwise 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 Agreement and 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.
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, Massachusetts Institute of Technology; JAMESON ADKINS
BAXTER, President, Baxter Associates, Inc.; HANS H. ESTIN, Vice
Chairman, North American Management Corp.; JOHN A. HILL,
Chairman and Managing Director, First Reserve Corporation;
ELIZABETH T. KENNAN, President Emeritus and Professor, 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 and Director of Acquisitions , Cabot Partners
Limited Partnership; DONALD S. PERKINS,* Director of various
corporations, including Cummins Engine Company, Inc., Lucent
Technologies, Inc., Springs Industries, Inc. and Time Warner
Inc.; GEORGE PUTNAM, III,* President, New Generation Research,
Inc.; ELI SHAPIRO, Alfred P. Sloan Professor of Management,
Emeritus, Alfred P. Sloan School of Management, Massachusetts
Institute of Technology; A.J.C. SMITH,* Chairman, Chief Executive
Officer , Marsh & McLennan Companies, Inc.; and W.
NICHOLAS THORNDIKE, Director of various corporations and
charitable organizations, including Data General Corporation,
Bradley Real Estate, Inc. and Providence Journal Co. Also,
Trustee of Massachusetts General Hospital and Eastern Utilities
Associates. The funds' Trustees are also Trustees of the other
Putnam funds. Those marked with an asterisk (*) are or may be
deemed to be "interested persons" of the funds, Putnam Management
or Putnam Mutual Funds.
<PAGE>
ABOUT YOUR INVESTMENT
ALTERNATIVE SALES ARRANGEMENTS
This prospectus offers investors three classes of shares that
bear sales charges in different forms and amounts and that 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 certatin sales at net asset value that
are subject to a contingent deferred sales charge
("CDSC") . Certain purchases of class A shares qualify for
reduced sales charges. Class A shares bear a lower 12b-1 fee
than class B and class M shares. See "How to buy shares -- Class
A shares" and "Distribution plans."
CLASS B SHARES. Class B shares are sold without an initial sales
charge, but are subject to a CDSC if redeemed within a specified
period after purchase. Class B shares also bear a higher 12b-1
fee than class A and class M shares. Class B shares
automatically convert into class A shares, based on relative net
asset value, approximately eight years after purchase. For more
information about the conversion of class B shares, see the SAI.
This discussion will include information about how shares
acquired through reinvestment of distributions are treated for
conversion purposes. The discussion will also note certain
circumstances under which a conversion may not occur. 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.
Until conversion, class B shares will have a higher expense ratio
and pay lower dividends than class A and class M shares because
of the higher 12b-1 fee. See "How to buy shares -- Class B
shares" and "Distribution plans."
CLASS M SHARES. An investor who purchases class M shares pays a
sales charge at the time of purchase that is lower than the sales
charge applicable to class A shares. Certain purchases of class
M shares qualify for reduced sales charges. Class M shares bear
a 12b-1 fee that is lower than class B shares but higher than
class A shares. Class M shares are not subject to any CDSC and
do not convert into any other class of shares. See "How to buy
shares -- Class M shares" and "Distribution plans."
<PAGE>
WHICH ARRANGEMENT IS BEST 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 or
class M 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. 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 write a check for the amount you wish to invest, payable
to the fund. Return the completed form and check 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 $25 or more per month through automatic deductions
from your bank checking or savings account. Application
forms are available from your investment dealer or through Putnam
Investor Services.
Shares are sold at the public offering price based on the net
asset value next determined after Putnam Investor Services
receives your order. In most cases, in order to receive that
day's public offering price, Putnam Investor Services must
receive your order before the close of regular trading on the New
York Stock Exchange. If you buy shares through your investment
dealer, the dealer must receive your order before the close of
regular trading on the New York Stock Exchange to receive that
day's public offering price.
<PAGE>
CLASS A SHARES
The public offering price of class A shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The relevant fund receives the net asset value.
The sales charge is allocated between your investment dealer and
Putnam Mutual Funds as shown in the following table, except when
Putnam Mutual Funds, in its discretion, allocates the entire
amount to your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF : SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 25,000 4.99% 4.75%4.50%
25,000 but under 100,000 4.71 4.50 4.25
100,000 but under 250,000 3.90 3.75 3.50
250,000 but under 500,000 3.09 3.00 2.75
500,000 but under 1,000,000 2.04 2.00 1.85
There is no initial sales charge on purchases of class A shares
of $1 million or more. However, a CDSC of 1.00% or 0.50%,
respectively, will be imposed if you redeem these 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.
Shares purchased by certain investors investing $1 million or
more who have made arrangements with Putnam Mutual Funds and
whose dealer of record waived the commission as described below
are not subject to the CDSC. In determining whether a CDSC is
payable, a fund will first redeem shares not subject to any
charge. Putnam Mutual Funds receives the entire amount of any
CDSC you pay. See the SAI for more information about the CDSC.
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 the one-year period
beginning with the date of the initial purchase at net asset
value. Each subsequent one-year measuring period for these
purposes will begin with the first net asset value purchase
following the end of the prior period. Such commissions are paid
at the rate of 1.00% of the amount under $3 million, 0.50% of the
next $47 million and 0.25% thereafter.
CLASS B SHARES
Class B shares are sold without an initial sales charge, although
a CDSC will be imposed if you redeem shares within a specified
period after purchase, as shown in the table below. The
following types of shares may be redeemed without charge at any
time: (i) shares acquired by reinvestment of distributions and
(ii) shares otherwise exempt from the CDSC, as described in "How
to buy shares --General" below. For other shares, the amount of
the charge is determined as a percentage of the lesser of the
current market value or the cost of the shares being redeemed.
YEAR 1 2 3 4 5 6 7+
- -------------------------------------------------------------
CHARGE 5% 4% 3% 3% 2% 1% 0%
In determining whether a CDSC is payable on any redemption, a
fund will first redeem shares not subject to any charge, and then
shares held longest during the CDSC period. For this purpose,
the amount of any increase in a share's value above its initial
purchase price is not regarded as a share exempt from the CDSC.
Thus, when a share that has appreciated in value is redeemed
during the CDSC period, a CDSC is assessed only on its initial
purchase price. For information on how sales charges are
calculated if you exchange your shares, see "How to exchange
shares." Putnam Mutual Funds receives the entire amount of any
CDSC you pay.
CLASS M SHARES
The public offering price of class M shares is the net asset
value plus a sales charge that varies depending on the size of
your purchase. The relevant fund receives the net asset value.
The sales charge is allocated between your investment dealer and
Putnam Mutual Funds as shown in the following table, except when
Putnam Mutual Funds, at its discretion, allocates the entire
amount to your investment dealer.
SALES CHARGE AMOUNT OF
AS A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
NET DEALERS AS A
AMOUNT OF TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE ($) INVESTED PRICE OFFERING PRICE
- -----------------------------------------------------------------
Under 50,000 3.36% 3.25% 3.00%
50,000 but under 100,000 2.30 2.25 2.00
100,000 but under 250,000 1.52 1.50 1.25
250,000 but under 500,000 1.01 1.00 1.00
500,000 and above NONE NONE NONE
GENERAL
YOU MAY BE ELIGIBLE TO BUY CLASS A SHARES AND CLASS M 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 SAI.
<PAGE>
In addition, sales charges will not apply to class M shares
purchased with redemption proceeds received within the prior 90
days from non-Putnam mutual funds on which the investor paid a
front-end or contingent deferred sales charge.
Each fund may sell class A, class B and class M shares at net
asset value without an initial sales charge or a CDSC to a 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, 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, each fund may sell shares at net asset value without
an initial sales charge or a CDSC in connection with the
acquisition by that fund of assets of an investment company or
personal holding company . The CDSC will be waived on
redemptions of shares arising out of the death or post-
purchase disability of a shareholder or settlor of
a living trust account, and on redemptions 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.
The SAI contains additional information about purchasing a
fund's shares at reduced sales charges.
Shareholders of other Putnam funds may be entitled to exchange
their shares for, or reinvest distributions from their funds in,
shares of the funds 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 will from time to time, at its
expense, provide additional promotional incentives or payments to
dealers that sell shares of the Putnam funds. These incentives
or payments may include payments for travel expenses, including
lodging, incurred in connection with trips taken by invited
registered representatives and their guests to locations within
and outside the United States for meetings or seminars of a
business nature. In some instances, these incentives or payments
may be offered only to certain dealers who have sold or may sell
significant amounts of shares. Certain dealers may not sell all
classes of shares.
DISTRIBUTION PLANS
CLASS A DISTRIBUTION PLAN. The class A plans provide for
payments by each fund to Putnam Mutual Funds at the annual rate
of up to 0.35% of average net assets attributable to class A
shares. The Trustees currently limit payments under each class A
plan to the annual rate of 0.20% of such assets.
Putnam Mutual Funds makes quarterly payments to qualifying
dealers (including, for this purpose, certain financial
institutions) to compensate them for services provided in
connection with sales of class A shares and the maintenance of
shareholder accounts. The payments are based on the average net
asset value of class A shares 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, known as "NAV shares," by
shareholders investing $1 million or more. NAV shares are not
subject to the one-year exclusion provision in cases where
certain shareholders who invested $1 million or more have made
arrangements with Putnam Mutual Funds and the dealer of record
waived the sales commission.
Putnam Mutual Funds makes quarterly payments at the annual rate
of 0.15% of such average net asset value for class A shares
outstanding as of March 5, 1993 for the Arizona fund, July 8,
1993 for the Florida and Pennsylvania funds, March 9, 1992 for
the Michigan, Minnesota and Ohio funds, May 11, 1992 for the
Massachusetts fund and December 31, 1992 for the New Jersey fund,
and 0.20% of such average net asset value for shares acquired
after such dates (including class A shares acquired through
reinvestment of distributions.)
CLASS B AND CLASS M DISTRIBUTION PLANS. The class B and class M
plans provide for payments by each fund to Putnam Mutual Funds at
the annual rate of up to 1.00% of average net assets attributable
to class B shares and class M shares, as the case may be. The
Trustees currently limit payments under the class B and class M
plans to the annual rates of 0.85% and 0.50% of such
assets, respectively.
Although class B shares are sold without an initial sales charge,
Putnam Mutual Funds pays a sales commission equal to 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 or
on sales to investors exempt from the CDSC.
<PAGE>
The amount paid to dealers at the time of the sale of class M
shares is set forth above under "How to buy shares -- Class M
shares. "In addition, to further compensate dealers (including
qualifying financial institutions) for services provided in
connection with sales of class B shares and class M shares and
the maintenance of shareholder accounts, Putnam Mutual Funds
makes quarterly payments to qualifying dealers.
The payments are based on the average net asset value of class B
shares and class M shares attributable to shareholders for whom
the dealers are designated as the dealer of record ,except for
the first year's service fees for class B shares, which are
prepaid as described above. Putnam Mutual Funds makes the
payments at an annual rate of 0.20% of such average net asset
value of class B shares and class M shares, as the case may be.
Putnam Mutual Funds also pays to dealers, as additional
compensation with respect to the sale of class M shares, 0.20% of
such average net asset value of class M shares. For class M
shares, the total annual payment to dealers equals 0.40% of such
average net asset value.
GENERAL. Payments under the plans are intended to compensate
Putnam Mutual Funds for services provided and expenses incurred
by it as principal underwriter of fund shares, including the
payments to dealers mentioned above. Putnam Mutual Funds may
suspend or modify such payments to dealers.
The payments are also subject to the continuation of the
relevant distribution plan, 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 redeem 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 SAI 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 redemptions, 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 this event, 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
shares that 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 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 you 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 all classes of
shares. If you exchange shares subject to a CDSC, 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. The CDSC will be computed 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. The
form is available from 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 that 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.
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 Putnam Management or the Trustees
believe 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 SAI to find out more about
the exchange privilege.
HOW A FUND VALUE ITS SHARES
A 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 are valued 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 generally are not readily available for purposes of
valuing its portfolio securities. As a result, it is likely that
most of the valuations provided by a pricing service will be
based upon fair value determined on the basis of the factors
listed above.
<PAGE>
Non-tax-exempt securities for which market quotations are readily
available are valued at market value. Short-term investments
that will mature in 60 days or less are valued 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 A FUND MAKES DISTRIBUTIONS TO SHAREHOLDERS; 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 and
class M shares because expenses attributable to class B and class
M shares will generally be higher.
You begin earning distributions on the business day after 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:
- - Reinvest all distributions in additional shares of your
fund without a sales charge;
- - 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
- - 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 distributions are 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.
<PAGE>
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 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.
Fund distributions designated by a fund 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 may at times purchase tax-exempt securities at a
discount from the price at which they were originally issued,
especially during periods of rising interest rates. For federal
income tax purposes, some or all of the market discount will be
included in each fund's ordinary income and will be taxable to
you as such when it is distributed to you.
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 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 Putnam Investor Services will notify you of
the amount and tax status of distributions paid to you for the
preceding year.
<PAGE>
STATE TAXES
GENERAL. Except as described below, to the extent not tax-exempt
under the state income tax regime to which you are subject, 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).
ARIZONA. It is the published position of the Arizona Department
of Revenue that distributions by a regulated investment company
are exempt from Arizona state income tax to the extent such
dividends are derived from interest on obligations the interest
on which is exempt from Arizona state income tax. As long as the
Arizona fund qualifies as a regulated investment company, to the
extent distributions by the Arizona fund are derived from
interest income with respect to U.S. Treasury securities or, as
described below, tax-exempt securities as defined above under
"How the funds pursue their objectives--Tax-exempt securities".
Such distributions will be exempt from Arizona state income tax.
In addition, it is the published position of the Arizona
Department of Revenue that distributions by a regulated
investment company derived from certain other governmental
obligations as to which federal law specifically precludes state
taxation of interest received by a direct investor in such
obligations are exempt from Arizona state income tax.
Some tax-exempt securities of Arizona issuers have a direct
income tax exemption under Arizona law, independent of federal
tax treatment. However, in most cases, interest with respect to
tax-exempt securities of Arizona issuers is exempt from Arizona
state income tax only so long as that interest is excluded from
gross income for federal income tax purposes. Therefore, if
interest with respect to tax-exempt securities of Arizona issuers
held by the Arizona fund ceases to be exempt from federal income
tax (or is retroactively determined to be taxable under federal
law), then, unless that obligation has an independent statutory
tax exemption under Arizona law, distributions by the Arizona
fund derived from interest on that obligation will cease to be
exempt from state income taxes (and, if interest on the
obligation is determined to be taxable under federal law
retroactive to any date, those distributions may be considered
not to have been exempt from state income taxes from that date).
For Arizona income tax purposes, dividends by the Arizona fund,
other than dividends exempt from Arizona state income tax, will
be taxable as ordinary income, whether paid in cash or reinvested
in additional shares. Under current Arizona income tax law,
distributions of net capital gains earned by the Arizona fund are
not exempt from taxation and are taxed at ordinary income tax
rates.
FLORIDA. Florida does not currently impose an income tax on
individuals. Thus individual shareholders of the fund will not
be subject to any Florida state income tax on distributions
received from the Florida fund. However, certain distributions
will be taxable to corporate shareholders which are subject to
Florida corporate income tax.
Florida currently imposes an "intangibles tax" at the annual rate
of 0.2% on certain securities and other intangible assets owned
by Florida residents. Certain types of tax-exempt securities of
Florida issuers, U.S. government securities and tax-exempt
securities issued by certain U.S. territories and possessions are
exempt from this intangibles tax. The Florida fund has received
a ruling from Florida authorities that, if on December 31 of any
year the Florida fund's portfolio consists solely of such exempt
assets, the Florida fund's shares will be exempt from the Florida
intangibles tax payable for the following year.
In order to take advantage of the exemption from the intangibles
tax in any year, the Florida fund must sell any non-exempt assets
held in its portfolio and reinvest the proceeds in exempt assets
prior to December 31. Transaction costs involved in
restructuring the portfolio in this fashion would likely reduce
the Florida fund's investment return and might exceed any
increased investment return the Florida fund achieved by
investing in non-exempt assets during the year.
MASSACHUSETTS. Distributions received from the Massachusetts
fund are exempt from Massachusetts personal income tax to the
extent that they are derived from interest on tax-exempt
securities and are designated as such. The Massachusetts 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 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 the Michigan fund are
exempt from Michigan personal income tax and Michigan intangibles
tax to the extent they are derived from interest on 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 SAI. For Michigan
personal income tax, intangibles tax and single business tax
purposes, fund distributions attributable to any source other
than interest on tax-exempt securities will be fully taxable.
Fund distributions may be subject to the uniform city income tax
imposed by certain Michigan cities.
MINNESOTA. In 1995 Minnesota enacted a statement
of intent that interest on obligations of Minnesota and its
political subdivisions and Indian tribes be included in net
income of individuals, estates and trusts for Minnesota income
tax purposes if it is judicially determined that
Minnesota's exemption of such interest and taxation of
interest on obligations of other states and their political
subdivisions and Indian tribes unlawfully discriminates
against interstate commerce . This provision applies to
taxable years that begin during or after the calendar year in
which any such determination becomes final . Putnam
Management is not aware of any decision in which a federal
court has held that a state's exemption of interest on its own
bonds or those of its political subdivisions or Indian
tribes and taxation of interest on the bonds of other
states or their political subdivisions or Indian tribes
unlawfully discriminates against interstate commerce or otherwise
contravenes the United States Constitution. However, there can be
no assurance that interest on the Minnesota bonds held by the
Minnesota fund would not become taxable under this Minnesota
statutory provision.
Shareholders of the Minnesota fund 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 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.
Exempt-interest dividends attributable to interest on certain
private activity bonds issued after August 7, 1986 will be
included in Minnesota "alternative taxable income" of
individuals, estates and trusts for purposes of computing
Minnesota's alternative minimum tax.
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 excludable 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.
NEW JERSEY. The New Jersey fund intends to qualify as a
"qualified investment fund" under the New Jersey Gross Income Tax
law except when investing for defensive purposes under certain
circumstances. As long as the New Jersey fund is a qualified
investment fund and to the extent its distributions are derived
from interest or net gains on tax-exempt securities, such
distributions will be exempt from New Jersey tax, but will be
reflected in the net income tax base for purposes of computing
the corporate business tax. The exemption from the New Jersey
Gross Income Tax will also extend to interest or net gains on
obligations of the United States, its territories and certain of
its agencies and instrumentalities which pay interest free from
state or local taxation under any laws of New Jersey or under the
Constitution or laws of the United States. Gains resulting from
the redemption or sale of shares of the New Jersey fund will also
be exempt from New Jersey Gross Income Tax.
In order to be a qualified investment fund, the New Jersey fund
must, as of the end of each fiscal quarter, invest at least 80%
of the aggregate principal amount of its investments (excluding
financial options, futures, forward contracts, or other similar
financial instruments related to interest-bearing obligations,
obligations issued at a discount or bond indexes related thereto
to the extent such instruments are authorized under the regulated
investment company rules under the Internal Revenue Code, and
cash and cash items, which cash items shall include receivables)
in the exempt obligations referred to above and have no
investments other than interest bearing or discounted
obligations, cash or cash items (including receivables) and
financial options, futures, forward contracts or certain other
similar instruments related to interest-bearing or discounted
obligations or bond indexes related thereto. If the New Jersey
fund fails to be a qualified investment fund, as a result of
employing alternative investment strategies or otherwise, none of
its distributions for the entire taxable year will qualify for
tax-exempt status under New Jersey law.
For New Jersey Gross Income Tax purposes, distributions by the
fund derived from income or net gains on investments other than
tax-exempt securities and obligations of the United States, its
territories and certain of its agencies and instrumentalities
will be taxable as ordinary income, whether paid in cash or
reinvested in additional shares.
OHIO. Distributions received from the Ohio fund with respect to
shares are exempt from Ohio personal income tax and school
district and municipal income taxes in Ohio to the extent
they are properly attributable to interest on obligations issued
by the State of Ohio, political subdivisions, thereof , or
agencies or instrumentalities thereof, ("Ohio
Obligations") provided that the Ohio 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 consists of 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
Ohio fund are excluded from the net income base of the Ohio
corporation franchise tax to the extent that they (a) are
properly attributable to interest on Ohio Obligations , or
(b) represent exempt-interest dividends for federal income tax
purposes. The Ohio fund's shares will be included in a
shareholder's tax base for purposes of computing the Ohio
franchise tax on the net worth basis.
Distributions of capital gain with respect to shares of the Ohio
fund will be exempt from Ohio personal income tax and school
district income taxes and municipal income taxes in Ohio 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 properly attributable to profit made on the sale, exchange or
other disposition by the Ohio fund of Ohio Obligations .
<PAGE>
Distributions with respect to shares properly attributable to
interest on obligations of the United States or of any authority,
commission, or instrumentality of the United States or
obligations of Puerto Rico, the Virgin Islands, or Guam or their
authorities or instrumentalities will be exempt from Ohio
personal income tax and school district and municipal
income taxes in Ohio, and are excluded from the net income base
of the Ohio corporation franchise tax.
PENNSYLVANIA. Distributions paid by the Pennsylvania fund
will not be subject to the Pennsylvania personal income tax or to
the Philadelphia School District investment net income tax to the
extent that the distributions are attributable to interest
received by the Pennsylvania fund from its investments in tax-
exempt securities and obligations of the United States, its
territories and certain of its agencies and instrumentalities.
Distributions by the Pennsylvania fund to a Pennsylvania resident
that are attributable to other sources may be subject to the
Pennsylvania personal income tax and (for residents of
Philadelphia) to the Philadelphia School District investment net
income tax whether paid in cash or reinvested in additional
shares. Distributions paid by the Pennsylvania fund which are
excludable as exempt income for federal tax purposes are not
subject to the Pennsylvania corporate net income tax. For a more
detailed description of Pennsylvania corporate income tax ,
see the SAI.
Individual shareholders of the Pennsylvania fund who are
subject to the personal property taxes levied by certain
Pennsylvania counties, cities and school districts will be exempt
from such tax on their shares of the Pennsylvania fund to the
extent that the Pennsylvania fund's portfolio consists of tax-
exempt securities and obligations of the United States, its
territories and certain of its agencies and instrumentalities.
Corporations are not subject to Pennsylvania personal property
taxes.
GENERAL
The foregoing is a summary of certain federal and state income
tax consequences of investing in the funds. You should consult
your tax adviser to determine the precise effect of an investment
in a fund on your particular tax situation (including possible
liability for federal alternative minimum tax and for state and
local taxes).
<PAGE>
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
SECURITY RATINGS
The ratings services' descriptions are as follows:
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 edged." 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 risk appear somewhat larger than
in the 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:
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' has less near-term vulnerability to
default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and
principal payments. The `BB' rating category is also
used for debt subordinated to senior debt that is assigned an
actual or implied `BBB-' rating.
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.
COMMERCIAL PAPER
A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with
a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated`A-1'.<PAGE>
PUTNAM ARIZONA TAX EXEMPT INCOME FUND
PUTNAM FLORIDA TAX EXEMPT INCOME FUND
PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND
PUTNAM MICHIGAN TAX EXEMPT INCOME FUND
PUTNAM MINNESOTA TAX EXEMPT INCOME FUND
PUTNAM NEW JERSEY TAX EXEMPT INCOME FUND
PUTNAM OHIO TAX EXEMPT INCOME FUND
PUTNAM PENNSYLVANIA TAX EXEMPT INCOME FUND
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
Arizona, Michigan, New Jersey and Ohio funds
Coopers & Lybrand L.L.P.
One Post Office Square
Boston, MA 02109
Florida, Massachusetts , Minnesota and Pennsylvania funds
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
PUTNAMINVESTMENTS
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
