(logo)
Putnam
Michigan
Tax Exempt
Income Fund II
Semiannual
Report
November 30, 1993
(artwork)
For investors seeking high current income free from federal and
Michigan income taxes, consistent with capital preservation
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Portfolio of investments owned
11 Financial statements
18 Fund performance supplement
19 Your Trustees
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended November 30, 1993
Total return* Lehman Bros.
Fund Municipal
Class A Class B Bond
NAV POP NAV CDSC Index
6 months 3.69% -1.19% -- -- 4.38%
1 year 10.53 5.26 -- -- 11.09
3 years 34.22 27.84 -- -- 34.77
annualized 10.31 8.53 -- -- 10.46
Life-of-class**
(class A shares) 43.32 36.57 -- -- 47.67
annualized 9.15 7.88 -- -- 9.95
(class B shares) -- -- 1.25% -3.73% 2.65
Share data Class A Class B
NAV POP CDSC
May 31, 1993 $9.30 $9.76 --
July 15, 1993
(Inception of class B shares) -- -- $9.43
November 30, 1993 $9.38 $9.85 $9.38
Distributions paid+
6 months ended Investment
November 30, 1993 Number income Total
Class A 6 $0.262665 $0.262665
Class B 4 $0.168143 $0.168143
Current returns Taxable
at the end of Class A equivalent++ Class B Taxable
the period NAV POP NAV POP NAV equivalent++
Current dividend
rate 5.50% 5.24% 9.55% 9.09% 4.79% 8.31%
Current 30-day
yield 4.99 4.75 8.66 8.24 4.32 7.50
<PAGE>
*Performance data represent past results. Investment return and
net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
**The fund began operations October 23, 1989 offering shares
known as class A shares. Effective July 15, 1993, the fund began
offering class B shares. Performance for each share class will
differ.
+Capital gains, if any, are taxable for federal tax purposes. For
some investors, investment income may be subject to the
alternative minimum tax.
++Taxable equivalent rates cited assume the maximum combined
state and federal tax rate of 42.38%. Results for investors
subject to lower tax rates would not be as advantageous, although
many such investors would still have the opportunity to receive
attractive tax benefits from a fund investment. Consult your tax
advisor for more guidance.
Terms you need to know
Total return is the change in value of an investment from the
beginning to the end of a period, assuming the reinvestment of
all distributions. It may be shown at net asset value or at
public offering price.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not reflecting any sales charge.
Public offering price (POP) is the price of a mutual fund share
plus the 4.75% maximum sales charge levied at the time of
purchase.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of shares rather than the time of
purchase. It generally declines and eventually disappears over a
stated period.
Class A shares are the shares of your fund offered subject to an
initial sales charge. Your fund's POP includes the maximum 4.75%
sales charge.
Class B shares are the shares of your fund offered with no
initial sales charge. Within the first six years of purchase,
they are subject to a CDSC declining from 5% to 1%. After the
sixth year, the CDSC no longer applies.
<PAGE>
Current dividend rate is calculated by annualizing the net
investment income paid to shareholders in the fund's most recent
distribution, then dividing by the NAV or POP on the last day of
the period.
Current 30-day yield, based only on the fund's net investment
income earnings, is calculated in accordance with Securities and
Exchange Commission guidelines.
Taxable equivalent return is the rate at which a taxable
investment would have to generate income to equal the fund's
current dividend rate or yield.
Please see the fund performance supplement on page 18 for total
return at the end of the most recent calendar quarter and
additional information about performance comparisons.
<PAGE>
From the
Chairman
(photograph of George Putnam)
(C) Karsh, Ottawa
George Putnam
Chairman
of the Trustees
Dear Shareholder:
It gives me great pleasure to welcome Howard Manning as Fund
Manager of Putnam Michigan Tax Exempt Income Fund II. Howard
assumed management of the fund in June of this year but is no
newcomer to Putnam, having started as a municipal bond credit
analyst in 1986.
The outlook for municipal bonds in general, and Michigan bonds in
particular, remains bright. As Howard explains in the following
report from Putnam Management, a combination of diminished
supply; low, relatively stable interest rates; and heightened
investor demand should provide competitive returns to municipal
bond investors in the coming months.
Across the country, state and local governments are continuing to
take advantage of record-low interest rates by refinancing
existing high-coupon debt. A huge volume of issues is scheduled
to be called in 1994, the result of which will cut the existing
supply of municipal bonds by about one third and potentially
boost the value of the remaining bonds in the market. These
changes will affect mutual fund portfolios as bonds are redeemed
and the proceeds reinvested. However, your fund manager has
implemented various investment strategies designed to minimize
disruptions in the fund's portfolio. Skillful management, coupled
with Michigan's relatively limited supply of municipal issues,
should enable fund investors to benefit from trends shaping up
for 1994.
Respectfully yours,
(George Putnam's Signature)
George Putnam
January 19, 1994
<PAGE>
Report from
Putnam Management
The returns of Putnam Michigan Tax Exempt Income Fund II for the
six months ended November 30, 1993, may appear lackluster at
first glance. But appearances can be deceiving. The fund's
results of 3.69% at net asset value and -1.19% at public offering
price for class A shares are not adjusted to reflect their tax
advantages. Since the majority of your fund's total return is
derived from tax-exempt income, these advantages can be
significant. For example, an investor in the new top tax bracket
would have had to earn 9.09% on a taxable investment to match the
fund's 5.24% yield, based on the public offering price at the end
of the period.
Sector shifts During the semiannual period, we shifted assets to
emphasize the market sectors we felt were most attractive, given
the current and anticipated economic and political environment.
In Michigan this is no easy task, since the supply of available
issues is relatively small. In particular, we have sought to
increase our holdings in the health care and housing sectors, as
well as in public education projects funded by local governments.
With the recent abolition of Michigan's property tax, we have
restricted our holdings of public school bonds to those backed by
the unlimited taxing authority of the state's general
obligations.
Health care At 20.6% of total net assets, health care is one of
the largest investment sectors in your fund's portfolio. With
health care legislation looming, this industry will undoubtedly
undergo significant change in the direction of managed care. But
many health providers have already undertaken the steps to cut
costs and increase coverage. It is our belief that these firms
will soon be in a position to make the most of the newly emerging
health-care landscape. In particular, we have singled out
hospitals like St. Joseph's in Tawas Bay and certain stand-alone
providers like the Butterworth Hospital in Kent.
Detroit bonds -- cautious yet hopeful With a declining stream of
tax revenue and the flight of many manufacturing jobs from the
area, Detroit's general obligation bonds ("GOs") are now among
the weakest credits in the country. But, while your fund does not
currently own any Detroit GOs, we have not abandoned the city
altogether and are hopeful that its newly elected mayor will
provide the much-needed boost to the city's finances. Our Detroit
holdings include AAA-rated bonds issued by the Detroit Water
Authority and A-rated issues for the Detroit Medical Center and
the Ford Motor Company.
Waste not, want not While not yet a substantial portion of your
fund's holdings, we believe resource recovery is an investment
sector with significant appreciation potential. In a nutshell,
resource recovery is the process by which energy is extracted
from the incineration of solid waste. With our nation's landfills
at or near capacity and environmentalism increasingly a political
force, solid waste disposal has become of paramount concern to
state and local governments. While recycling has become the most
popular alternative to landfills, it is handicapped by the lack
of a substantial market for recycled products and the limit on
what and how much can be recycled.
Initially unpopular with voters, incineration has become more and
more prevalent as a means of disposing of solid waste, partly due
to advances in incineration technology allowing for cleaner, more
efficiently run plants. For state and local governments, the
advantage of incineration is the recovery of energy created
during the burning process -- energy that can be used to light
street lamps or sold to the local electric company. To date, we
have found only a handful of resource recovery issues that live
up to our investment criteria, but we remain firmly committed to
this area and believe it will play a much bigger role in your
fund's performance in the future.
An ideal scenario for munis In the coming months, the municipal
bond market is poised to benefit from a dramatic reduction in the
supply of municipal issues. State and local governments will be
retiring billions of dollars worth of high-coupon bonds issued
before the passage of the 1986 Tax Reform Act. Issuance surged
before the enactment of the Act, which placed several
restrictions on the issuers of municipal debt. We expect the
supply of available municipal bonds to shrink next year by about
$100 billion, with $36 billion redeemed in January alone. The
resulting scarcity of issues, coupled with the increasing
attractiveness of the after-tax yields offered by these
securities, should boost the value of the municipal bonds left in
circulation. Given the already limited supply of municipal issues
in Michigan, we feel that the prospects for appreciation are very
good.
Stabilizing factors When an issue is called, principal is
returned to investors prematurely. For a mutual fund invested in
hundreds of issues, an active call schedule can be quite
disruptive, since the principal from many different investments
has to be reinvested at new -- and now generally lower -- coupon
rates. With municipal bond redemptions on the rise, the coming
weeks and months will require careful management. To protect the
fund's portfolio from these potentially disruptive changes, we
have, whenever possible, extended the fund's average duration and
call protection.
The duration of a bond relates to the time remaining before its
call date or maturity. Generally, the longer the time remaining,
the more sensitive that issue is to changes in interest rates,
since the bond has a longer interval in which either to
underperform or outperform the prevailing market. By extending
the average duration of your fund's portfolio with bonds
purchased at a discount, we hope to make the most of the decline
in overall supply. We believe that, as the supply of bonds
shrinks and prices of those remaining reflect the current low
interest rates, bonds purchased at a discount with higher
effective yields will become more valuable.
By extending your fund's call protection, we hope to reduce
potential instabilities in both income and price, which could
result from the expected surge in municipal bond redemptions. To
this end, we have focused our purchases on issues that have
several years left before they are eligible to be called.
Currently, we have only one bond in the portfolio callable in
1994, with most not callable for another seven years or more.
Given these changes and the encouraging outlook for bond prices,
we believe investors in the fund will be well served in the
coming months.
(bar chart)
Top industry sectors (Based on net assets as of 11/30/93)
- ---------------------------------------------------------
Education ...................................21.6%
Health care ...............................20.6%
Utilities .......................14.3%
Housing ...............12.9%
<PAGE>
<TABLE>
<CAPTION>
Portfolio of
investments owned
November 30, 1993 (Unaudited)
Municipal Bonds and Notes (97.6%)(a)
Principal Amount Ratings(b) Value
<S> <C> <C> <C> <C>
Guam (1.5%)
$1,850,000 Guam Airport Auth. Rev. Bonds, Ser. B,
6.7s, 10/1/23 BBB $1,970,250
Michigan (85.0%)
1,000,000 Airport, Cmnty. School Dist. Rev. Bonds,
6.6s, 5/1/22 AA 1,096,250
2,000,000 Avondale, School Dist. Rev. Bonds, 5 3/4s,
5/1/11 AA 2,045,000
800,000 Central MI, U. Rev. Bonds, Municipal Bond
Insurance Assn. (MBIA), 7.9s, 10/1/15 AAA 922,000
1,500,000 Chippewa Valley, School Rev. Bonds,
Financial Guaranty Insurance Co. (FGIC),
5s, 5/1/21 AAA 1,380,000
Dearborn, School Dist. Rev. Bonds
(School Bldg. & Site Project)
2,350,000 6s, 5/1/14 AA 2,441,063
1,875,000 MBIA, 6s, 5/1/11 AAA 1,947,656
125,000 Detroit, Convention Fac. Rev. Bonds (Cobo
Hall Expansion Project), 9s, 9/30/10 A 134,844
1,000,000 Detroit, Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A, 9 1/2s, 5/1/21 BBB/P 1,241,250
5,000,000 Detroit, Wtr. Supply Syst. Residual
Interest Bonds, FGIC, 9.83s, 7/1/22 AAA 5,693,750
1,750,000 Detroit, Wtr. Supply Syst. Rev. Bonds,
MBIA, 7 7/8s, 7/1/19 AAA 2,043,125
3,000,000 Dickinson Cnty., Econ. Dev. Corp. Solid
Waste Disposal Rev. Bonds (Champion
Intl. Corp.), 6.55s, 3/1/07 BBB 3,138,750
1,750,000 Grand Rapids, Bldg. Auth. Impt. Rev.
Bonds, 5 1/2s, 4/1/13 A 1,717,181
1,000,000 Grand Rapids, Hsg. Fin. Auth. Multi-Fam.
Rev. Bonds, Ser. A, Federal National
Mortgage Association Coll., 7 5/8s,
9/1/23 AAA 1,168,750
Greater Detroit, Resource Recvy. Auth.
Rev. Bonds
500,000 Ser. B, 9 1/4s, 12/13/08 BBB 546,250
500,000 Ser. C, 9 1/4s, 12/13/08 BBB 546,250
200,000 Ser. D, 9 1/4s, 12/13/08 BBB 218,500
745,000 Ser. H, 9 1/4s, 12/13/08 BBB 813,913
720,000 Highland Park, Hosp. Fin. Auth. Fac. Rev.
Bonds (MI Hlth. Care Corp. Project),
Ser. A, 9 7/8s, 12/1/19 B 765,000
1,000,000 Huron Valley, School Dist. General
Obligation (G.O.) Bonds, FGIC, 6 1/8s,
5/1/20 AAA 1,046,250
4,250,000 Jackson Cnty., Hosp. Fin. Auth. Rev.
Bonds (W.A. Foote Memorial Hosp.),
Ser. A, FGIC, 4 3/4s, 6/1/15 AAA 3,803,750
1,845,000 Kalamazoo, City School Dist. G.O. Bonds,
zero %, 5/1/08 AA 844,088
Kent Cnty., Hosp. Fin. Auth. Fac. Rev.
Bonds
200,000 (Pine Rest Christian Hosp. Assn.),
FGIC, 9s, 11/1/10 AAA 223,500
2,500,000 (Butterworth Hosp.), Ser. A, 5 3/8s,
1/15/19 A 2,365,625
Kent Cnty., Rev. Bonds (Refuse Disposal
Syst.)
615,000 8.4s, 11/1/10 AAA 701,100
100,000 8.3s, 11/1/07 AAA 115,625
1,780,000 MI Muni. Bond Auth. Rev. Bonds, Ser. C-A,
zero %, 6/15/05 AAA 970,100
250,000 MI Muni. Bond Auth. Rev. Sharing Bonds
Group 9, 8 3/4s, 11/1/17 A 285,938
MI State Hosp. Fin. Auth. Rev. Bonds
500,000 (Daughter's Charity-Providence Hosp.),
10s, 11/1/15 AA 565,000
100,000 (St. John's Hosp.), 9.2s, 12/1/10 A 112,625
1,000,000 (Brighton Hosp.), Ser. A, 8 5/8s,
10/1/18 BB/P 1,045,000
880,000 (Garden City Hosp.), 8 1/2s, 9/1/17 BBB 977,900
500,000 (Bay Med. Ctr.), Ser. A, 8 1/4s, 7/1/12 Baa 566,875
1,300,000 (Metropolitan Hosp.), Ser. B, 8 1/8s,
7/1/18 BBB 1,459,250
3,750,000 (Port Huron Hosp.), Ser. A, 7 5/8s,
7/1/15 BBB 3,960,938
500,000 (Detroit Med. Ctr.), Ser. A, 7 1/2s,
8/15/11 A 558,750
1,250,000 (Detroit Med. Ctr.), Ser. A, 6 1/4s,
8/15/13 A 1,289,063
2,000,000 (Sisters of Mercy), Ser. P, MBIA,
5 3/8s, 8/15/14 AAA 1,960,000
4,300,000 (McLaren Oblig. Group), Ser. A, 5 3/8s,
10/15/13 A 4,122,625
1,000,000 MI State Hsg. Dev. Auth. Ltd. Oblig. Rev.
Bonds (Mercy Bellbrook Project), MBIA,
8 1/8s, 4/1/18 AAA 1,141,250
MI State Hsg. Dev. Auth. Multi-Fam. Rev.
Bonds
1,650,000 Ser. A, FGIC, 8 7/8s, 7/1/17 AAA 1,730,438
2,525,000 Ser. A, FGIC, 8 3/8s, 7/1/19 AAA 2,685,969
1,600,000 MI State Hsg. Dev. Auth. Rental Hsg. Rev.
Bonds Ser. A, 7.55s, 4/1/23 AAA 1,776,000
3,360,000 MI State Hsg. Dev. Auth. Rev. Bonds
(Home Impt. Program), Ser. B, 7.65s,
12/1/12 A 3,523,800
MI State Hsg. Dev. Auth. Single Fam. Mtge.
Rev. Bonds, Ser. A
1,060,000 7.7s, 12/1/16 AA 1,130,225
1,500,000 7.55s, 12/1/14 AA 1,595,625
235,000 7 1/2s, 6/1/15 AA 252,038
100,000 7.4s, 6/1/09 AA 106,250
445,000 6 7/8s, 6/1/23 AA 478,375
1,000,000 MI State Job Dev. Auth. Poll. Control Rev.
Bonds (Chrysler Corp. Project), 5.7s,
11/1/99 BBB/P 1,027,500
MI State Strategic Fund Ltd. Oblig. Rev.
Bonds
2,970,000 (Arbor Model & Tooling Project), 10 1/4s,
9/15/19 BB/P 3,189,038
1,600,000 (Mercy Svcs. for Aging Project), 9.4s,
5/15/20 BBB/P 1,756,000
1,700,000 (Environmental Research Project),
8 1/8s, 10/1/14 A/P 1,933,750
1,500,000 (Ford Motor Co. Project), Ser. A, 7.1s,
2/1/06 A 1,755,000
1,500,000 (Detroit Edison Project), Ser. BB,
American Municipal Bond Assurance Corp.
(AMBAC), 7s, 5/1/21 AAA 1,831,875
750,000 (Detroit Edison Project), Ser. AA, FGIC,
6.95s, 5/1/11 AAA 876,563
3,000,000 (Clark Retirement Cmnty. Project),
6 1/4s, 6/1/13 A 3,045,000
2,350,000 (Consumers Pwr. Co. Project), 5.8s,
6/15/10 AAA 2,397,000
500,000 MI Technological U., Rev. Bonds, MBIA,
7 3/4s, 10/1/08 AAA 572,500
650,000 Midland, Wtr. Supply Syst. Rev. Bonds,
7.2s, 4/1/10 A 722,313
1,925,000 Monroe Cnty., Poll. Control Rev. Bonds
(Detroit Edison Co.), Ser. A, 10 1/2s,
12/1/16 BBB 2,204,125
2,000,000 Muskegon Cnty., Wastewater Management Syst.
Rev. Bonds No. 1, AMBAC, 5 3/4s, 7/1/08 AAA 2,047,500
2,600,000 Novi, Cmnty. School Dist. G.O. Bonds,
FGIC, 6 1/8s, 5/1/13 AAA 2,720,250
3,500,000 Pinckney, Cmnty. Schools of Livingston &
Washenaw Cntys. Rev. Bonds, FGIC, 5s,
5/1/14 AAA 3,259,375
2,750,000 Portage, Pub. Schools G.O. Bonds, MBIA,
5 5/8s, 5/1/19 AAA 2,750,000
2,000,000 Rockford, Pub. School Rev. Bonds, 5 7/8s,
5/1/19 AA 2,050,000
1,735,000 Tawas City, Hosp. Fin. Auth. Rev. Bonds
(St. Joseph's Hosp. Project), Ser. A,
8 1/2s, 3/15/12 BB/P 1,845,607
500,000 Wayne Cnty., Bldg. Auth. Rev. Bonds,
Ser. A, 8s, 3/1/17 BBB 570,000
1,000,000 Wayne Westland, Cmnty. Schools G.O.
Bonds, FGIC, 5 3/4s, 5/1/11 AAA 1,017,500
Western Townships Util. Auth. Swr.
Disposal Syst. Rev. Bonds
750,000 8.3s, 1/1/19 BBB 806,250
2,500,000 8.2s, 1/1/18 BBB 2,809,375
1,575,000 Wyandotte, Elec. Rev. Bonds, AMBAC,
7 7/8s, 10/1/17 AAA 1,815,188
112,255,213
Puerto Rico (8.2%)
500,000 Cmnwlth. of Puerto Rico, Aqueduct & Swr.
Auth. Rev. Bonds, Ser. A, 7 7/8s, 7/1/17 BBB 574,375
100,000 Cmnwlth. of Puerto Rico, Hwy. Auth. Rev.
Bonds, Ser. O, 8s, 7/1/05 AAA 117,250
Cmnwlth. of Puerto Rico, Pub. Impt. G.O.
Bonds
150,000 7 3/4s, 7/1/13 AAA 174,375
200,000 7.7s, 7/1/20 AAA 239,750
1,400,000 6.8s, 7/1/21 A 1,624,000
2,000,000 zero %, (8s, 7/1/96), 7/1/02(c) A 2,015,000
1,200,000 Cmnwlth. of Puerto Rico, Urban Renewal &
Hsg. Corp. Rev. Bonds, 7 7/8s, 10/1/04 A 1,392,000
1,000,000 Puerto Rico, Port Auth. Special Fac. Rev.
Bonds, Ser. A, 6.3s, 6/1/23 Baa 1,015,000
Puerto Rico, Pub. Bldg. Auth. Gtd. Ed. &
Hlth. Fac. Rev. Bonds
1,250,000 Ser. J, 7s, 7/1/19 A 1,409,375
2,000,000 Ser. L, 6 7/8s, 7/1/21 A 2,332,500
10,893,625
Virgin Islands (2.9%)
2,500,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds
(Matching Fund Loan Notes), Ser. A,
7 1/4s, 10/1/18 BBB/P 2,771,875
900,000 Virgin Islands, Wtr. & Pwr. Auth. Elec.
Syst. Rev. Bonds, Ser. A, 7.4s, 7/1/11 BBB/P 1,026,000
3,797,875
Total Investments (cost $121,103,368)(d) $128,916,963
/TABLE
<PAGE>
(a) Percentages indicated are based on total net assets of
$132,091,245, which correspond to a net asset value per both
class A and class B shares of $9.38.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at November 30,
1993 for the securities listed. Ratings are generally ascribed to
securities at the time of issuance. While the rating agencies may
from time to time revise such ratings, they undertake no
obligation to do so, and the ratings indicated do not necessarily
represent what the agencies would ascribe to these securities at
November 30, 1993. Securities rated by Putnam are indicated by
"/P" and are not publicly rated.
(c) The interest rate and date shown parenthetically represent
the new interest rate to be paid and the date the Fund will begin
accruing this rate.
(d) The aggregate identified cost on a tax basis is $121,103,368
resulting in gross unrealized appreciation and depreciation of
$8,396,138 and $582,543, respectively, or net unrealized
appreciation of $7,813,595.
The rates shown on Residual Interest Bonds (RIBS) are the current
interest rates at November 30, 1993 which are subject to change
based on the terms of the security.
The Fund had the following industry group concentrations greater
than 10% on November 30, 1993 (as a percentage of net assets):
Education 21.6%
Hospital/Healthcare 20.6
Utilities 14.3
Housing 12.9
The Fund had the following insurance concentrations greater than
10% at November 30, 1993 (as a percentage of net assets):
FGIC 18.5%
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Statement of
assets and liabilities
November 30, 1993 (Unaudited)
<S> <C> <C>
Assets
Investments in securities, at value (identified cost
$121,103,368) (Note 1) $128,916,963
Cash 999,244
Interest receivable 2,265,243
Receivable for shares of the Fund sold 646,300
Unamortized organization expenses (Note 1) 4,563
Total assets 132,832,313
Liabilities
Payable for shares of the Fund repurchased $50,510
Distributions payable to shareholders 392,494
Payable for compensation of Manager (Note 2) 192,914
Payable for compensation of Trustees (Note 2) 104
Payable for administrative services (Note 2) 934
Payable for investor servicing and custodian fees
(Note 2) 37,914
Payable for distribution fees (Note 2) 45,250
Other accrued expenses 20,948
Total liabilities 741,068
Net assets $132,091,245
Represented by
Paid-in capital (Note 4) 123,222,781
Distributions in excess of net investment income (98,959)
Accumulated net realized gain on investments 1,153,828
Net unrealized appreciation of investments 7,813,595
Total -- Representing net assets applicable to capital
shares outstanding $132,091,245
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($127,105,855 divided by 13,548,169 shares) $9.38
-----
Offering price per share (100/95.25 of $9.38)* $9.85
Net asset value and offering price of class B shares
($4,985,390 divided by 531,282 shares)** $9.38
*On single retail sales of less than $25,000. On sales of $25,000 or more and on group
sales the offering price is reduced.
**Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
operations
Six months ended November 30, 1993 (Unaudited)
<S> <C> <C>
Tax exempt interest income $4,034,303
Expenses:
Compensation of Manager (Note 2) $371,790
Investor servicing and custodian fees (Note 2) 79,197
Compensation of Trustees (Note 2) 6,061
Administrative services (Note 2) 1,753
Reports to shareholders 8,707
Auditing 9,668
Legal 9,607
Postage 2,027
Distribution fees -- Class A (Note 2) 121,982
Distribution fees -- Class B (Note 2) 6,701
Registration fees 6,071
Amortization of organization expenses (Note 1) 2,281
Other expenses 2,367
Total expenses 628,212
Net investment income 3,406,091
Net realized gain on investments (Notes 1 and 3) 1,014,051
Net unrealized appreciation of investments during the period (180,231)
Net gain on investments 833,820
Net increase in net assets resulting from operations $4,239,911
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Statement of
changes in net assets
Six months ended Year ended
November 30 May 31
---------------- ----------
1993* 1993
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $3,406,091 $5,775,819
Net realized gain on investments 1,014,051 604,579
Net unrealized appreciation (depreciation)
of investments (180,231) 4,615,531
Net increase in net assets resulting from
operations 4,239,911 10,995,929
Distributions to shareholders from:
Net investment income
Class A (3,380,763) (5,823,671)
Class B (34,719) --
Net realized gain on investments
Class A -- (52,744)
Increase from capital share transactions
(Note 4) 18,192,793 27,644,801
Total increase in net assets 19,017,222 32,764,315
Net assets
Beginning of period 113,074,023 80,309,708
End of period (including distributions in
excess of net investment income of
$98,959 and $96,468, respectively) $132,091,245 $113,074,023
*Unaudited.
The accompanying notes are an integral part of these financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
Financial
Highlights*
(For a share outstanding throughout the period)
For the period For the period
July 15, 1993 For the October 23, 1989
(commencement six months (commencement
of operations) ended of operations)
November 30 November 30 Year ended May 31 May 31
-------------- --------------------------
1993**(f) 1993** 1993 1992 1991 1990
Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.43 $9.30 $8.80 $8.51 $8.43 $8.50
Investment Operations
Net Investment Income .16 .27 .55 .56(a) .58(a) .33(a)
Net Realized and Unrealized Gain (loss) on Investments(.04) .07 .52 .29 .08 (.07)
Total from Investment Operations .12 .34 1.07 .85 .66 .26
Less Distributions from:
Net Investment Income (.17) (.26) (.56) (.56) (.58) (.33)
Net Realized Gain on Investments -- -- (.01) -- -- --
Total Distributions (.17) (.26) (.57) (.56) (.58) (.33)
Net Asset Value, End of Period $9.38 $9.38 $9.30 $8.80 $8.51 $8.43
Total Investment Return at Net Asset Value (%)(b) 3.29(c) 7.38(c) 12.38 10.25 8.13 5.20(c)
Net Assets, End of Period (in thousands) $4,985 $127,106 $113,074 $80,310 $19,893 $9,280
<PAGE>
Ratio of Expenses to Average Net Assets (%) 1.22(c) 1.00(c) 1.04 .95(a) .87(a) .75(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 3.27(c) 5.50(c) 6.04 6.28(a) 6.78(a) 6.37(a)(c)
Portfolio Turnover (%) 12.07(d) 12.07(d) 15.89 71.68(e) 16.21 10.72(d)
*Financial Highlights for periods ended through May 31, 1992 have been reclassified and data has been presented to
conform with requirements issued by the SEC in April 1993.
**Unaudited.
(a) Reflects a voluntary expense limitation, and, during the period ended May 31, 1990, a voluntary absorption of
expenses incurred by the Fund. As a result, net investment income of the Fund for the years ended May 31, 1992, 1991 and
the period ended May 31, 1990 reflect expense reductions of approximately $0.01, $0.05, and $0.05, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Annualized.
(d) Not annualized.
(e) Portfolio turnover excludes the impact of assets received from the acquisition of Putnam Michigan Tax Exempt Income
Fund.
(Note 5)
(f) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
/TABLE
<PAGE>
Notes to
financial statements
November 30, 1993 (Unaudited)
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment
company. The Fund seeks as high a level of current income exempt
from federal income tax and Michigan personal income tax as
Putnam Management believes is consistent with preservation of
capital by investing primarily in a portfolio of Michigan
tax-exempt securities.
The Fund offers both class A and class B shares. The Fund
commenced its public offering of class B shares on July 15, 1993.
Class A shares are sold with a maximum front-end sales charge of
4.75%. Class B shares do not pay a front-end sales charge, but
pay a higher ongoing distribution fee than class A shares, and
may be subject to a contingent deferred sales charge if those
shares are redeemed within four years of purchase. Expenses of
the Fund are borne pro-rata by the holders of both classes of
shares, except that each class bears expenses unique to that
class (including the distribution fees applicable to such class)
and votes as a class only with respect to its own distribution
plan or other matters on which a class vote is required by law or
determined by the Trustees. Shares of each class would receive
their pro-rata share of the net assets of the Fund, if the Fund
were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its
financial statements. The policies are in conformity with
generally accepted accounting principles.
A) Security valuation Tax-exempt bonds and notes are stated on
the basis of valuations provided by a pricing service, approved
by the Trustees, which uses information with respect to
transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships
between securities in determining value.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order
to buy or sell is executed). Interest income is recorded on the
accrual basis.
C) Federal taxes It is the policy of the Fund to distribute all
of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
Fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code of
1986. Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of securities
held and excise tax on income and capital gains.
D) Distributions to shareholders Income dividends are recorded
daily by the Fund and are distributed monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and
paid annually, or as necessary to meet the distribution
requirements described above.
E) Amortization of bond premium and discount Any premium
resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. Discount on
zero-coupon and stepped-coupon bonds is accreted according to the
effective yield method.
F) Unamortized organization expenses Expenses incurred by the
Fund in connection with its organization, its registration with
the Securities and Exchange Commission and with various states,
and the initial public offering of its shares aggregated $13,688.
These expenses are being amortized over a five-year period based
on projected net assets of the Fund.
Note 2 Management fee, administrative services, and other
transactions
Compensation of Putnam Investment Management, Inc., the Fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.,
for management and investment advisory services is paid quarterly
based on the average net assets of the Fund. Such fee is based on
the following annual rates: 0.6% of the first $500 million of
average net assets, 0.5% of the next $500 million, 0.45% of the
next $500 million and 0.4% of any amount over $1.5 billion,
subject to reduction in any year by the amount of certain
brokerage commissions and fees (less expenses) received by
affiliates of the manager of the Fund's portfolio transactions.
The Fund also reimburses the Manager for the compensation and
related expenses of certain officers of the Fund and their staff
who provide administrative services to the Fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees. For the six months ended November 30, 1993, the Fund
paid $1,753 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,010
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
<PAGE>
Custodial functions for the Fund are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam
Investor Services, a division of PFTC. Fees paid for these
investor servicing and custodial functions for the six months
ended November 30, 1993 amounted to $79,197.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended November 30, 1993 have
been reduced by credits allowed by PFTC.
The Fund has adopted a distribution plan with respect to class A
shares (the "class A plan") pursuant to Rule 12b-1 of the
Investment Company Act of 1940. The purpose of the class A plan
is to compensate Putnam Mutual Funds Corp., a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and
expenses incurred in distributing class A shares. The Trustees
have approved payments by the Fund to Putnam Mutual Funds Corp.
at an annual rate of 0.20% of average net assets attributable to
class A shares. For the six months ended November 30, 1993, the
Fund paid $121,982 in distribution fees for class A shares.
During the six months ended November 30, 1993, Putnam Mutual
Funds Corp., acting as an underwriter, received net commissions
of $38,671 from the sale of class A shares of the Fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares purchased as part of an investment
of $1 million or more. For the six months ended November 30,
1993, Putnam Mutual Funds Corp., acting as an underwriter, did
not receive any sales charge on such redemptions.
The Fund has adopted a separate distribution plan with respect to
its class B shares (the "class B plan") pursuant to Rule 12b-1 of
the Investment Company Act of 1940. The purpose of the class B
plan is to compensate Putnam Mutual Funds Corp. for services
provided and expenses incurred in distributing class B shares.
The class B plan provides for payments by the Fund to Putnam
Mutual Funds Corp. at an annual rate of 0.85% of the Fund's
average net assets attributable to class B shares. For the six
months ended November 30, 1993, the Fund paid Putnam Mutual Funds
Corp. distribution fees of $6,701 for class B shares.
Putnam Mutual Funds Corp., acting as an underwriter, also
receives the proceeds of the contingent deferred sales charges
levied on class B share redemptions within four years of
purchase. The charge is based on declining rates, which begin at
5.0% of the net asset value of the redeemed shares. Putnam Mutual
Funds Corp. did not receive any contingent deferred sales charges
from such redemptions for the six months ended November 30, 1993.
<PAGE>
Note 3 Purchases and sales of securities
During the six months ended November 30, 1993, purchases and
sales of investment securities other than short-term municipal
obligation aggregated $33,787,237 and $14,525,372, respectively.
Purchases and sales of short-term municipal obligations
aggregated $12,600,000 and $19,300,000, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
<PAGE>
<TABLE>
<CAPTION>
Note 4 Capital shares
At November 30, 1993, there was an unlimited number of shares of beneficial interest
authorized, divided into two classes, class A and class B capital stock. Transactions in
capital shares were as follows:
Six months ended Year ended
November 30 May 31
1993 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,792,214 $16,924,948 3,416,866 $31,166,932
Shares issued in connection
with reinvestment of
distributions 206,392 1,954,019 380,095 3,459,746
1,998,606 18,878,967 3,796,961 34,626,678
Shares repurchased (606,018) (5,726,512) (767,938) (6,981,877)
Net increase 1,392,588 $13,152,455 3,029,023 $27,644,801
July 15, 1993
(commencement of
operations) to
November 30
1993
Class B Shares Amount
Shares sold 543,239 $5,153,998
Shares issued in connection with reinvestment
of distributions 1,644 15,605
544,883 5,169,603
Shares repurchased (13,601) (129,265)
Net increase 531,282 $5,040,338
/TABLE
<PAGE>
Note 5 Acquisition of Putnam Michigan Tax Exempt Income Fund
On March 9, 1992, the exchange date, the Fund acquired the net
assets of Putnam Michigan Tax Exempt Income Fund (PMTEIF) by a
tax-free exchange approved by the shareholders.
Net assets of the Fund immediately following the acquisition on
March 9, 1992, were $77,191,301.
PMTEIF
Net assets of PMTEIF on March 6, 1992, valuation date
(including unrealized appreciation of $2,109,134) $44,033,501
Shares of the Fund issued in the acquisition 5,032,400
Note 6 Reclassification of Capital Account
Effective June 1, 1993, Putnam Michigan Tax Exempt Income Fund II
has adopted the provisions of Statement of Position 93-2
"Determination, Disclosure and Financial Statement Presentation
of Income, Capital Gain and Return of Capital Distributions by
Investment Companies (SOP)." The purpose of this SOP is to report
the accumulated net investment income (loss) and accumulated net
realized gain (loss) accounts in such a manner as to approximate
amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the
presentation of distributions by investment companies.
As a result of the SOP, the Fund has reclassified $6,900 to
increase undistributed net investment income and decreased
accumulated net realized gain by $416,735, with an increase of
$409,835 to additional paid-in capital. These adjustments
represent the cumulative amounts necessary to report these
balances through May 31, 1993, the close of the Fund's most
recent fiscal year-end, for financial reporting and tax purposes.
Fund performance supplement
Putnam Michigan Tax Exempt Income Fund II is a portfolio managed
for high current income free from federal and state income taxes
and consistent with capital preservation. This fund invests at
least 75% of its portfolio in investment-grade tax-exempt bonds.
The balance may be invested in securities rated below investment
grade.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment-grade, fixed rate, long-term
maturity tax-exempt bonds, which are selected to be
representative of the market in terms of price movement and
sector distribution. The average quality of bonds held in the
index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of
the lower rating classifications in which the fund may invest.
The index does not take into account brokerage commissions or
other costs and may pose different risks from the fund. Total
return performance for the index reflects mathematically derived
changes of market price and reinvestment of interest payments, as
computed by Lehman Brothers. The fund's portfolio contains
securities that do not match those in the index.
This fund performance supplement has been prepared by Putnam
Management to provide further detail about the fund and the
indexes used for performance comparisons. It is not part of the
portfolio of investments owned or the financial statements and
notes.
Total return at end of most recent calendar quarter
Periods ended December 31, 1993
Class A Class B
NAV POP NAV CDSC
1 Year 11.23% 5.96% -- --
Life of class*
(since 10/23/89) 45.87 38.99 -- --
Annualized 9.43 8.18 -- --
Life of class*
(since 7/15/93) -- -- 1.76% -2.24%
*The fund began operations on October 23, 1989, offering shares
known as class A shares. Effective July 15, 1993, the fund began
offering class B shares. Performance for each share class will
differ.
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
The Putnam Funds,
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
<PAGE>
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Michigan
Tax Exempt
Income Fund II
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
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
(DALBAR logo)
Putnam Investor Services has received the DALBAR award each year
since the award's 1990 inception. In more than 10,000 tests of 38
shareholder service components, Putnam outperformed the industry
standard in every category.
A39/B07-10024<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistant Treasurer
This report is for the information of shareholders of Putnam
Michigan Tax Exempt Income Fund II. It may also be used as sales
literature when preceded or accompanied by the current
prospectus, which gives details of sales charges, investment
objectives and operating policies of the fund.
<PAGE>
- ---------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ---------------
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<PAGE>
APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN
PRINTED AND EDGAR-FILED TEXTS:
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal type.
(3) Headers (e.g, the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
