Putnam Michigan Tax-Exempt Income Fund II
SEMIANNUAL REPORT
November 30, 1994
<PAGE>
Performance highlights
The new year is expected to feature more than $200 billion in
(municipal bond) calls and redemptions... Add to this the stock
market correction that is in mind, if not in sight, and the
prospects for a rally in the municipal market do not seem so
farfetched.
- -- Grant's Municipal Bond Observer, November 11, 1994
Performance should always be considered in light of a fund's
investment strategy. Putnam Michigan Tax Exempt Income Fund II is
designed for investors seeking a high level of current income
free from federal and state income tax, consistent with
preservation of capital.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Class A Class B
Total return NAV POP NAV CDSC
- -----------------------------------------------------------------
6 months ended 11/30/94
(change in value during
period plus reinvested
distributions) -4.23% -8.74% -4.62% -9.26%
- -----------------------------------------------------------------
Share value NAV POP NAV
- -----------------------------------------------------------------
5/31/94 $8.90 $9.34 $8.90
11/30/94 8.27 8.68 8.26
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital
Distributions No. Income gains(1) Total
- -----------------------------------------------------------------
Class A 6 $0.261234 -- $0.261234
Class B 6 0.236198 -- 0.236198
- -----------------------------------------------------------------
<S> <C> <C> <C>
Current return NAV
- -----------------------------------------------------------------
End of period
Current dividend rate(2) 6.36% 6.06% 5.78%
Taxable equivalent(3) 11.04 10.52 10.03
Current 30-day SEC yield(4) 6.41 6.11 5.76
Taxable equivalent(3) 11.12 10.60 10.00
- -----------------------------------------------------------------
<FN>
Performance data represent past results. For performance over
longer periods, see pages 8 and 9. POP assumes 4.75% maximum
sales charge. CDSC assumes 5% maximum contingent deferred sales
charge. (1) Capital gains are taxable for federal and, in most
cases, state tax purposes. For some investors, investment income
may also be subject to the federal Alternative Minimum Tax.
Investment income may be subject to state and local taxes. (2)
Income portion of most recent distribution, annualized and
divided by NAV or POP at end of period. (3) Assumes maximum
combined state and federal tax rates of 42.38%. Results for
investors subject to lower tax rates would not be as
advantageous. (4) Based only on investment income, calculated
using SEC guidelines.
</TABLE>
<PAGE>
From the Chairman
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
As we begin a new year, most investors won't regret the passing
of the old. Since last February, when the Federal Reserve Board
began a series of increases in interest rates, 1994 was marked by
sharp corrections followed by small gains and extended
uncertainty for virtually all financial markets.
Well in advance of the Fed's first increase, Fund Manager Howard
Manning had adopted defensive strategies designed to reduce the
impact of rising rates on Putnam Michigan Tax Exempt Income Fund
II's portfolio. While defensive strategies proved relatively
successful, fund performance generally edged into the negative
numbers.
Bonds bore the brunt of the downturn and tax-free municipals
incurred the steepest decline. Although shifts in the market as a
whole inevitably affect your fund, Putnam Management's philosophy
of selecting securities on an issue-by-issue basis with a
thorough examination of each issuer's credit quality should
continue to help protect your fund's portfolio.
In the accompanying report, Howard discusses the first half of
fiscal 1995 and prospects for the challenging months ahead.
Respectfully yours,
/s/ George Putnam
George Putnam
January 18, 1995
<PAGE>
Report from the fund manager
Howard Manning
The bears awoke from their five-year slumber this past spring and
have remained on the prowl ever since. Since our last report in
May, municipal bonds have continued to suffer the repercussions
of additional interest-rate hikes. The accompanying overreaction
by individual investors and many large money management firms
dramatically affected municipal bond prices nationwide. Putnam
Michigan Tax Exempt Income Fund II joined most other fixed-income
investments in the widespread decline.
Over the past six months, we followed several different
strategies to help the fund take advantage of the volatility-
dampening effects of certain issues while, at the same time,
tapping the upside potential of others.
PORTFOLIO POSITIONING HELPS MITIGATE VOLATILITY
Keeping an eye on the fund's average duration -- a mathematical
formula used to assess a portfolio's price volatility -- is
critical in a rising interest-rate environment. The shorter the
duration, the less volatility you can expect from the portfolio.
To shorten the fund's average duration, we sold many of the
deeper discount issues and zero coupon bonds previously held in
the portfolio.
To further reduce price volatility and increase credit quality
without sacrificing yield, we've clustered the fund's holdings in
both premium and discount coupon bonds. We've also anchored a
majority of its assets at the highest (AAA) and the lowest (BBB)
levels of the investment-grade spectrum.
We increased the fund's weighting in premium coupon bonds --
those selling at prices above their par value. These bonds
typically offer coupons that are higher than current rates and
tend to be less seriously affected when prices decline. The fund
also continues to hold discount coupon bonds, those selling at
prices below their par value, because of their potential for
price appreciation. Should the market recover, we believe
discount coupon bonds are more likely to increase in value.
We've selectively increased the fund's exposure to BBB bonds,
which tend to experience less price volatility than higher-grade
bonds and to provide attractive yields. However, because the
yield spread between BBB and AAA bonds remains narrow, we've also
increased the fund's weighting in AAA and insured issues. Should
the yield spread widen and the market rebound, these issues stand
to appreciate significantly.
Maintaining a substantial degree of call protection remains an
ongoing part of our strategy. Between $150-$200 billion worth of
high-coupon bonds issued in the municipal market in 1984 and 1985
are due to mature or become callable over the next 18 months. We
have, therefore, stepped up our purchase of both premium
noncallable bonds and those with first call dates that extend
beyond the year 2000.
TAX-FREE INCOME LEVEL REMAINS RELATIVELY HIGH
Providing shareholders with a steady stream of high tax-free
income while trying to reduce price volatility has been a
particular challenge this year, and we believe our efforts were
commendable. While recent market developments have depressed
municipal bond prices, they have also created some of the most
attractive income opportunities we have seen in many months.
CREDIT QUALITY BREAKDOWN 11/30/94
[PIE CHART]
Plot information
- -----------------------------------------------------------------
AAA = 46%
AA = 7%
A = 11%
BBB/Baa = 27%
BB = 6%
B = 2%
[FN]
A bond rated BBB/Baa or higher is considered investment grade.
Ratings reflect Standard & Poor's(R) descriptions, unless noted
otherwise.
Additionally, the prices of municipal bonds have fallen less than
those of U.S. Treasury securities, keeping the yield spread
between the two relatively narrow. In today's low inflation, high-
tax environment, this has meant attractive real rates of return
for municipal bond fund investors. For investors in the maximum
combined federal and state tax rate of 42.38%, a taxable
investment would have had to provide a current return of 11.04%
to equal the fund's class A share current dividend rate of 6.36%
on November 30, 1994.
STATEWIDE AND SECTOR DIVERSIFICATION CONTINUES TO EXPAND
Michigan is currently enjoying a period of robust economic
growth. Favorable export trends, fueled by a rebounding world
economy, the passage of the North American Free Trade Agreement
(NAFTA) and the General Agreement on Tariffs and Trade (GATT),
have resulted in renewed vitality for the state's omnipresent
manufacturing sector. Additionally, Michigan's ongoing commitment
to economic diversification has played a key role in attracting
us to areas not previously considered. The fund's industry and
geographic mix continues to expand.
Michigan's tax revenues reflect the strength of its economy and
enhance the appeal of state and local general obligation bonds
(GOs). We've chosen to capitalize on such economic vigor by
increasing the fund's exposure to infrastructure financing. This
has led us to purchase Detroit City GOs for the first time.
TOP INDUSTRY SECTORS*
[BAR CHART]
Plot Points
- -----------------------------------------------------------------
Healthcare 22.8%
Utilities 20.4%
Housing 14.7%
Education 14.2%
[FN]
*Based on net assets on 11/30/94.
Health care remains a dominant theme in portfolio composition.
While the federal government has failed to enact a health care
reform package, the state has initiated its own reform, reducing
costs through consolidations and revamped Medicaid programs. Our
expertise in this area has enabled us to uncover a host of
opportunities. Over the past six months, we've selectively
shifted the fund's hospital holdings from the insured part of the
market to higher-yielding BBB-rated bonds. We believe the recent
performance of one particular BBB-rated issue makes a positive
statement about our vast research capabilities. After five years
of net losses, the Hurley Medical Center in Flint, which raised a
few eyebrows when it was purchased in 1993, has proven its
potential by posting nearly $7 million in profits as of September
30, 1994.
KEEPING AN EYE ON THE BIG PICTURE
Given the Federal Reserve Board's firm resolve to fight
inflation, continued bond market turbulence is likely over the
near term. However, as experienced bond fund investors have
learned, time generally favors those with patience and vision.
Our long-term outlook for the Michigan municipal market remains
bullish. Year-to-date new issuance of municipal bonds, at the
national and state levels, has dropped significantly. We believe
this decreased supply combined with a healthy economy and growing
investor demand for tax relief bode well for the appreciation
potential of Michigan municipal bonds.
[FN]
The views expressed throughout the report are exclusively those
of Putnam Management. They are not meant as investment advice.
Although the described holdings were viewed favorably as of
November 30, 1994, there is no guarantee the fund will continue
to hold these securities in the future.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's
shares changed over time, assuming you held the shares through
the entire period and reinvested all distributions back into the
fund. We show total return in two ways: on a cumulative long-term
basis and on average how the fund might have grown each year over
varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDING 11/30/94
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- -----------------------------------------------------------------
6 months -4.23% -8.74% -4.62 -9.26% -3.48% 1.49%
- -----------------------------------------------------------------
1 year -5.77 -10.27 -6.44 -10.84% -5.25% 2.68
- -----------------------------------------------------------------
5 years 33.95 27.53 -- -- 37.52 18.90
Annual average 6.02 4.98 -- -- 6.58 3.52
- -----------------------------------------------------------------
Life of class A 35.05 26.68 -- -- 39.92 19.19
Annual average 6.06 5.06 -- -- 6.79 3.49
- -----------------------------------------------------------------
Life of class B -- -- -5.27 -8.77 -2.73 3.67
Annual average -- -- -3.85 -6.44 -1.99 2.65
- -----------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
most recent calendar quarter
<TABLE><CAPTION
<S> <C> <C> <C> <C>
CLASS A CLASS B
NAV POP NAV CDSC
- -----------------------------------------------------------------
1 year -5.70% -10.16% -6.33% -10.78%
- -----------------------------------------------------------------
5 years 35.94 29.43 -- --
Annual average 6.33 5.29 -- --
- -----------------------------------------------------------------
Life of class A 37.95 31.45 -- --
Annual average 6.40 5.41 -- --
- -----------------------------------------------------------------
Life of class B -- -- -3.25 -6.82
Annual average -- -- -2.24 -4.73
<FN>
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. The fund began
operations on October 23, 1989 offering shares now known as class
A. Effective July 15, 1993, the fund began offering class B
shares. Performance data represent past results and will differ
for each share class. Investment returns and principal value will
fluctuate so an investor's shares, when sold, may be worth more
or less than their original cost.
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred sales
charge.
Public offering price (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales
charge.
Contingent deferred sales charge (CDSC) is a charge applied at
the time of the redemption of class B shares and assumes
redemption at the end of the period. Your fund's CDSC declines
from a 5% maximum during the first year to 1% during the sixth
year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-
term fixed-rate investment-grade tax-exempt bonds representative
of the municipal bond market. The index does not take into
account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks
than the fund.
Consumer Price Index (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
<PAGE>
Life cycle investing
As we move through life, our investment needs change. As these
needs change, so does the way we allocate our assets. Here are
some basic rules for setting up and maintaining an investment
program and some examples of how assets might be allocated.
DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses, or
retirement.
EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with
longer timelines and lower for older investors who may depend on
their investment for current income.
ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your
investable dollars should be allocated to each investment
category.
CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege, you can adjust your own
Putnam portfolio of funds as your financial needs change --
without a service fee.*
Look at the facing page for some ways you can allocate your
assets, then turn the page to see how the Putnam Fund
Selector(tm) can help you make your choices.
* Putnam reserves the right to change or terminate the
exchange privilege. In some cases, a sales charge may apply.
See prospectus for details.
<PAGE>
Four ways to allocate assets
Your investment advisor can help you determine your objectives,
evaluate your risk tolerance, and develop a long-term financial
plan. These sample portfolios can help you diversify your
portfolio within the Putnam Family of Funds. These illustrations
are not intended as investment advice.
[PIE CHARTS]
SEEKING MAXIMUM GROWTH
30% - 40% Growth and income
40% - 50% Growth
5% - 20% Income or tax-free income
Risk tolerance: Generally investors with a higher risk tolerance
(often in their 20s and early 30s.)
SEEKING GROWTH AND SOME INCOME
40% - 50% Growth and income
30% - 40% Growth
10% - 30% Income or tax-free income
Risk tolerance: Generally investors with a high to moderate risk
tolerance (often in their late 30s and early 40s.)
SEEKING INCOME AND SOME GROWTH
WITH PROTECTION AGAINST INFLATION
30% - 40% Growth and income
10% - 20% Growth
25% - 60% Income or tax-free income
Risk tolerance: Generally investors with a moderate risk
tolerance (often in their late 40s and early 50s.)
SEEKING HIGH CURRENT INCOME AND
PROTECTION AGAINST INFLATION
20% - 30% Growth and income
5% - 10% Growth
40% - 70% Income or tax-free income
Risk tolerance: Generally investors with a low risk tolerance
(often over 60 and retired.)
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Trust
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania
LIFESTAGE(SM)FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that
spread your money across a variety of stocks, bonds, and money
market investments to help maximize your return and reduce your
risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS(+)
Putnam money market funds:
Daily Dividend Trust
Tax Exempt Money Market Fund
CDs and savings accounts(++)
* Not available in all states.
(++) Not offered by Putnam Investments. Certificates of deposit
offer a fixed rate of return and may be insured, up to
certain limits, by federal/state agencies. Savings accounts
may also be insured up to certain limits.
(+) Relative to above.
Please call your financial advisor or Putnam at 1-800-225-
1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses.
Please read it carefully before you invest or send money.
<PAGE>
Portfolio of investments owned
November 30, 1994 (Unaudited)
</TABLE>
<TABLE><CAPTION>
<C> <S> <C> <C>
MUNICIPAL BONDS AND NOTES (99.2%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
Michigan (92.5%)
- -----------------------------------------------------------------
$1,000,000Arpt., Cmnty. School Dist.
Rev. Bonds 6.6s, 5/1/22 AA $ 1,057,500
800,00 Central MI, U. Rev. Bonds
Municipal Bond Insurance Assn.
(MBIA), 7.9s, 10/1/15 AAA 866,000
3,500,000Detroit, General Obligation
(G.O.) Bonds 6.35s, 4/1/14 BBB 3,141,250
1,245,000Detroit, Local Dev. Fin. Auth.
Tax Increment Rev. Bond
Ser. A, 9 1/2s, 5/1/21 BBB/P 1,478,437
4,000,000 Detroit, Swr. Disp. Rev.
Inverse Floating Bond (IFB),
Federal Guaranty Insurance Co.
(FGIC), 5.7s, 7/1/23 AAA 3,350,000
Detroit, Wtr. Supply Syst. Rev.
IFB, FGIC
3,500,000Prerefunded, 10.083s, 7/1/22 AAA
3,784,379
1,500,000 10.083s, 7/1/22 AAA
1,256,250
1,750,000Detroit, Wtr. Supply Syst. Rev.
Bonds MBIA, 7 7/8s, 7/1/19 AAA 1,914,062
1,500,000Dexter, Cmnty. School Rev.
Bonds American Municipal Bond
Assurance Corp. (AMBAC),
5.7s, 5/1/14 AAA 1,306,875
5,000,000Dickinson Cnty., Econ. Dev.
Corp. Poll. Control Rev. Bonds
(Champion Intl. Corp. Project),
5.85s, 10/1/18 Baa 4,037,500
2,000,000Flint, Hosp. Bldg. Auth Rev.
Bonds (Hurley Med Ctr),
7.8s, 7/1/14 Baa 1,960,000
1,120,000Garden City, Bldg. Auth. Rev.
Bonds AMBAC, 5 3/4s, 11/1/17 AAA 964,600
1,000,000Grand Rapids Wtr. Supply Syst.
Variable Rate Demand Notes
FGIC, 3.4s, 1/1/20 VMIG1
1,000,000
3,000,000Grand Rapids, Cmnty. College
Rev. Bonds MBIA, 5.9s, 5/1/19 AAA 2,640,000
1,000,000Grand Rapids, Hsg. Fin. Auth.
Multi-Fam. Rev. Bonds Ser. A,
Federal National Mortgage
Association Coll., 7 5/8s,
9/1/23 AAA 1,053,750
Greater Detroit, Res. Recvy.
Auth. Rev. Bonds
1,000,000 Ser. C, 9 1/4s, 12/13/08 BBB
1,045,000
1,000,000 Ser. B, 9 1/4s, 12/13/08 BBB
1,045,000
Highland Park, Hosp. Fin. Auth.
Fac. Rev. Bonds
720,000(MI Hlth. Care Corp. Project),
Ser. A, 9 7/8s, 12/1/19 B 612,000
Kalamazoo, Hosp. Fin. Auth.
Hosp. Fac. Rev. IFB,
3,500,000 FGIC, 6.668s, 6/1/11 AAA
2,362,500
3,000,000 (Borgess Med. Ctr.),
Ser. A, FGIC, 5 1/4s, 6/1/17 AAA 2,392,500
615,000 Kent Cnty., Rev. Bonds
(Refuse Disposal System),
8.4s, 11/1/10 AAA 657,281
1,250,000Lake Orion, Cmnty. School Dist.
Rev. Bonds AMBAC, 7s, 5/1/20 AAA 1,251,563
4,580,000Lincoln, Cons. School Dist.
Rev. Bonds FGIC, 5.8s, 5/1/14 AAA 4,013,225
250,000 MI Muni. Bond Auth. Rev.
Sharing Bonds Group 9,
8 3/4s, 11/1/17 A $ 268,750
1,000,000MI Pub. Pwr. Agy. Rev. Bonds
(River Project), Ser. A,
5 1/2s, 1/1/13 AA 845,000
MI State Hosp. Fin. Auth. Rev. Bonds
500,000(Daughter's Charity-Providence
Hosp.), 10s, 11/1/15 AA 530,625
1,380,000(Garden City Hosp.), 8 1/2s,
9/1/17 BBB 1,398,975
500,000 (Bay Med. Ctr.), Ser. A,
8 1/4s, 7/1/12 Baa 514,375
1,300,000(Metropolitan Hosp.), Ser. B,
8 1/8s, 7/1/18 BBB 1,456,000
4,750,000(Port Huron Hosp.), Ser. A,
7 5/8s, 7/1/15 Baa 4,839,062
500,000(Detroit Med. Ctr.), Ser. A,
7 1/2s, 8/15/11 A 508,125
2,530,000(Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 B 2,213,750
1,250,000(Detroit Med. Ctr.), Ser. A,
6 1/4s, 8/15/13 A 1,093,750
1,000,000MI State Hsg. Dev. Auth. Ltd.
Oblig. Rev. Bonds (Mercy
Bellbrook Project), MBIA,
8 1/8s, 4/1/18 AAA 1,077,500
MI State Hsg. Dev. Auth. Multi-Fam.
Rev. Bonds Ser. A, FGIC
1,650,000 8 7/8s, 7/1/17 AAA
1,693,312
2,525,000 8 3/8s, 7/1/19 AAA
2,597,593
3,600,000 MI State Hsg. Dev. Auth.
Rental Hsg. Rev. Bonds Ser. A,
7.55s, 4/1/23 AAA 3,600,000
2,900,000 MI State Hsg. Dev. Auth.
Rental Hsg. SWAP, AMBAC,
6.29s, 10/1/12 AAA 2,109,750
3,360,000 MI State Hsg. Dev. Auth.
Rev. Bonds (Home Impt. Program),
Ser. B, 7.65s, 12/1/12 A 3,393,600
MI State Hsg. Dev. Auth. Single
Fam. Mtge. Rev. Bonds
1,060,000 Ser. A, 7.7s, 12/1/16 AA
1,089,150
680,000 Ser. A, 7.55s, 12/1/14 AA
698,700
1,250,000 Ser. B, 6.95s, 12/1/20 AA
1,200,000
3,000,000MI State Stragetic Fund Solid
Waste Disp. Rev. Bonds (Genesee
Pwr. Station Project),
7 1/2s, 1/1/21 BB/P 2,651,250
MI State Strategic Fund Ltd.
Oblig. Rev. Bonds
2,940,000 (Arbor Model & Tooling
Project), 10 1/4s, 9/15/19 BB/P 3,189,900
1,600,000 (Mercy Svcs. for Aging
Project), 9.4s, 5/15/20 BBB/P 1,668,000
4,000,000 (Environmental Research
Project), 8 1/8s, 10/1/14 A/P 4,115,000
2,000,000(Ford Motor Co. Project),
Ser. A, 7.1s, 2/1/06 A 2,062,500
1,500,000(Detroit Edison Project),
Ser. BB, AMBAC, 7s, 5/1/21 AAA 1,505,625
1,000,000(Detroit Edison Project),
Ser. CC, 6.95s, 9/1/21 AAA 997,500
1,250,000 (Boston Edison Project),
Ser. B, AMBAC, 6.45s, 6/15/24 AAA 1,162,500
3,000,000 (Clark Retirement Cmnty.
Project), 6 1/4s, 6/1/13 A 2,670,000
2,350,000(Consumers Pwr. Co. Project),
Capital Market Assurance Corp.
(CMAC), 5.8s, 6/15/10 AAA 2,123,813
500,000 MI Technological U., Rev.
Bonds MBIA, 7 3/4s, 10/1/08 AAA 546,250
650,000 Midland, Wtr. Supply Syst.
Rev. Bonds 7.2s, 4/1/10 A 674,375
Monroe Cnty., Poll. Control
Rev. Bonds (Detroit Edison Project)
1,925,000 Ser. A, 10 1/2s, 12/1/16 Baa
2,064,562
4,000,000Ser I-B, MBIA, 6.55s, 9/1/24 AAA
3,740,000
4,000,000Pontiac, Hosp. Fin. Auth.
Hosp. Rev. Bonds 6s, 8/1/23 Baa $ 2,990,000
4,000,000Rockford, Pub. School Rev.
Bonds 5 7/8s, 5/1/19 AA 3,465,000
1,935,000Romulus, Cmnty. School G.O.
Bonds FGIC, 5 3/4s, 5/1/22 AAA 1,615,725
2,645,000Tawas City, Hosp. Fin. Auth.
Rev. Bonds (St. Joseph's
Hosp. Project), Ser. A,
8 1/2s, 3/15/12 BB/P 2,714,431
2,000,000Wayland, Uni. School Dist.
Rev. Bonds FGIC, 8s, 5/1/10 AAA 2,287,500
1,500,000Wayne Charter Cnty. Arpt.
Rev. Bonds (Detroit Met.),
Ser. B, MBIA, 6 1/8s, 12/1/24 AAA 1,291,875
500,000 Wayne Cnty., Bldg. Auth.
Rev. Bonds Ser. A, 8s, 3/1/17 Baa 560,625
1,100,000Wayne Cnty., Downriver Syst.
Swr. Disposal Rev. Bonds Ser. A,
7s, 11/1/13 Baa 1,025,750
Western Townships Util. Auth.
Swr. Disposal Syst. Rev. Bonds
750,000 8.3s, 1/1/19 BBB
763,125
2,500,000 8.2s, 1/1/18 BBB
2,637,500
1,575,000Wyandotte, Elec. Rev. Bonds
AMBAC, 7 7/8s, 10/1/17 AAA 1,704,937
- -----------------------------------------------------------------
$124,545,432
- -----------------------------------------------------------------
Puerto Rico (4.9%)
- -----------------------------------------------------------------
Cmnwlth. of Puerto Rico, Pub. Impt. G.0. Bonds
150,000 Ser. A, 7 3/4s, 7/1/13 AAA
163,687
200,000 7.7s, 7/1/20 AAA
221,250
1,400,000 6.8s, 7/1/21 AAA
1,485,750
1,200,000 Cmnwlth. of Puerto Rico,
Urban Renewal & Hsg. Corp.
Rev. Bonds
7 7/8s, 10/1/04 Baa
1,293,000
Puerto Rico, Pub. Bldg. Auth.
Gtd. Ed. & Hlth. Fac. Rev. Bonds
1,250,000 Ser. J, 7s, 7/1/19 AAA
1,329,687
2,000,000 Ser. L, 6 7/8s, 7/1/21 AAA
2,130,000
- -----------------------------------------------------------------
$ 6,623,374
- -----------------------------------------------------------------
Virgin Islands (1.8%)
- -----------------------------------------------------------------
2,500,000Virgin Islands, Pub. Fin.
Auth. Rev. Bonds (Matching
Funds Loan Notes), Ser. A,
7 1/4s, 10/1/18 BBB/P 2,368,750
- -----------------------------------------------------------------
Total Investments
(cost $139,261,775)(c) $133,537,556
- -----------------------------------------------------------------
<PAGE><FN>
NOTES
(a) Percentages indicated are based on net assets of
$134,625,409, which correspond to a net asset value per
class A and class B share of $8.27 and $8.26, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at November
30, 1994 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, 1994.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated.
(c) The aggregate identified cost on a tax cost basis is
$139,324,200, resulting in gross unrealized appreciation and
depreciation of $2,464,001 and $8,250,645, respectively, or
net unrealized depreciation of $5,786,644.
The rates shown on Variable Rate Demand Notes (VRDN), fixed
interest rate SWAPS and Inverse Floating Bonds (IFB), which
are securities paying variable interest rates that can vary
inversely to changes in market interest rates, are the
current interest rates at November 30, 1994, 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, 1994 (as a percentage of
net assets):
Health Care 22.8%
Utilities 20.4
Housing 14.7
Education 14.2
The Fund had the following insurance group concentrations
greater than 10% at November 30, 1994 (as a percentage of
net assets):
FGIC 19.6%
</TABLE>
Statement of assets and liabilities
November 30, 1994 (Unaudited)
<TABLE><CAPTION>
<S> <C>
Assets
- -----------------------------------------------------------------
Investments in securities, at value
(identified cost $139,261,775) (Note 1) $133,537,556
- -----------------------------------------------------------------
Cash 102,258
- -----------------------------------------------------------------
Interest and other receivable 2,829,474
- -----------------------------------------------------------------
Receivable for shares of the fund sold 365,993
- -----------------------------------------------------------------
Total assets 136,835,281
- -----------------------------------------------------------------
Liabilities
- -----------------------------------------------------------------
Payable for securities purchased 1,231,951
- -----------------------------------------------------------------
Payable for shares of the fund repurchased 176,424
- -----------------------------------------------------------------
Distributions payable to shareholders 467,834
- -----------------------------------------------------------------
Payable for compensation of Manager (Note 2) 208,696
- -----------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 462
- -----------------------------------------------------------------
Payable for administrative services (Note 2) 2,940
- -----------------------------------------------------------------
Payable for investor servicing and
custodian fees (Note 2) 37,956
- -----------------------------------------------------------------
Payable for distribution fees (Note 2) 51,003
- -----------------------------------------------------------------
Other accrued expenses 32,606
- -----------------------------------------------------------------
Total liabilities 2,209,872
- -----------------------------------------------------------------
Net assets $134,625,409
- -----------------------------------------------------------------
Represented by
- -----------------------------------------------------------------
Paid-in capital (Note 4) 143,502,446
- -----------------------------------------------------------------
Undistributed net investment income 1,697
- -----------------------------------------------------------------
Accumulated net realized loss on
investments and futures (3,154,515)
- -----------------------------------------------------------------
Net unrealized depreciation of investments (5,724,219)
- -----------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $134,625,409
- -----------------------------------------------------------------
Computation of net asset value and offering price
- -----------------------------------------------------------------
Net asset value and redemption of
class A shares ($120,764,391 divided
by 14,607,764 shares) $8.27
------
Offering price per share (100/95.25 of $8.27)* $8.68
- -----------------------------------------------------------------
Net asset value and redemption price of
class B shares ($13,861,018 divided by
1,677,827 shares)(+) $8.26
- -----------------------------------------------------------------
<FN>
* 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.
</TABLE>
<PAGE>
Statement of operations
Six months ended November 30, 1994 (Unaudited)
<TABLE><CAPTION>
<S> <C>
Tax exempt investment income $4,952,757
- -----------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------
Compensation of Manager (Note 2) 422,026
- -----------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 79,040
- -----------------------------------------------------------------
Compensation of Trustees (Note 2) 5,265
- -----------------------------------------------------------------
Administrative services (Note 2) 3,610
- -----------------------------------------------------------------
Reports to shareholders 7,871
- -----------------------------------------------------------------
Auditing 17,053
- -----------------------------------------------------------------
Legal 8,775
- -----------------------------------------------------------------
Postage 8,122
- -----------------------------------------------------------------
Distribution fees-class A (Note 2) 128,085
- -----------------------------------------------------------------
Distribution fees-class B (Note 2) 53,509
- -----------------------------------------------------------------
Registration fees 2,909
- -----------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,281
- -----------------------------------------------------------------
Other expenses 2,778
- -----------------------------------------------------------------
Total expenses 741,324
- -----------------------------------------------------------------
Net investment income 4,211,433
- -----------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (2,363,316)
- -----------------------------------------------------------------
Net realized loss on futures contracts (55,577)
- -----------------------------------------------------------------
Net unrealized depreciation of investments
during the year (7,966,433)
- -----------------------------------------------------------------
Net loss on investments (10,385,326)
- -----------------------------------------------------------------
Net decrease in net assets resulting
from operations $(6,173,893)
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Statement of changes in net assets
<TABLE><CAPTION>
<S> <C> <C>
Six months ended Year ended
November 30 May 30
---------------- ----------
1994* 1994
- -----------------------------------------------------------------
Increase (decrease) in net assets
- -----------------------------------------------------------------
Operations:
- -----------------------------------------------------------------
Net investment income $4,211,433 $7,254,308
- -----------------------------------------------------------------
Net realized gain (loss)
on investments (2,363,316) 252,040
- -----------------------------------------------------------------
Net realized gain (loss) on
futures contracts (55,577) 48,857
- -----------------------------------------------------------------
Net unrealized depreciation
of investments (7,966,433) (5,751,612)
- -----------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (6,173,893) 1,803,593
- -----------------------------------------------------------------
Distributions to shareholders from:
- -----------------------------------------------------------------
Net investment income from:
- -----------------------------------------------------------------
class A (3,818,077) (6,991,204)
- -----------------------------------------------------------------
class B (339,415) (225,780)
- -----------------------------------------------------------------
Net realized gain on investments from:
- -----------------------------------------------------------------
class A -- (340,991)
- -----------------------------------------------------------------
In excess of net gain on investments:
- -----------------------------------------------------------------
class A -- (729,509)
- -----------------------------------------------------------------
class B -- (42,639)
- -----------------------------------------------------------------
Increase from capital share
transactions (Note 4) 5,784,923 32,624,378
- -----------------------------------------------------------------
Total increase (decrease) in
net assets (4,546,462) 26,097,848
- -----------------------------------------------------------------
Net assets:
- -----------------------------------------------------------------
Beginning of period 139,171,871 113,074,023
- -----------------------------------------------------------------
End of period (including undistributed
net investment income and distributions
in excess of net investment income of
$1,697 and $52,244, respectively) $134,625,409 $139,171,871
- -----------------------------------------------------------------
<FN>
* Unaudited
</TABLE>
Financial Highlights
(For a share outstanding throughout the year)
<TABLE><CAPTION>
<S> <C> <C>
For the period
July 15, 1993
(commencement of
Six months ended operations) to
November 30 May 31
- -----------------------------------------------------------------
1994(+) 1994
- -----------------------------------------------------------------
Class B
- -----------------------------------------------------------------
Net Asset Value, Beginning of Period $8.90 $9.43
- -----------------------------------------------------------------
Investment operations
Net investment income .24 .41
Net realized and unrealized gain
(loss) on investments (.64) (.46)
- -----------------------------------------------------------------
Total from investment operations (.40) (.05)
- -----------------------------------------------------------------
Less Distributions from:
Net Investment Income (.24) (.40)
Net realized gain on investments -- --
In excess of net gain on investments -- (.08)
- -----------------------------------------------------------------
Total distributions (.24) (.48)
- -----------------------------------------------------------------
Net asset value, end of period $8.26 $8.90
- -----------------------------------------------------------------
Total investment return at
net asset value (%)(b) (4.62)(c) (0.68)(c)
- -----------------------------------------------------------------
Net assets, end of
period (in thousands) $13,861 $10,251
- -----------------------------------------------------------------
Ratio of expenses to average
net assets (%) .82(c) 1.42(c)
- -----------------------------------------------------------------
Ratio of net investment income to
average net assets (%) 2.69(c) 4.25(c)
- -----------------------------------------------------------------
Portfolio turnover (%) 25.57(c) 41.77(c)
- -----------------------------------------------------------------
<PAGE>
Financial Highlights
(continued)
<C> <C> <C> <C> <C> <C>
For the period
October 23, 1989
Six months (commencement
ended of operations)
November 30 Year ended May 31 to May 31
- -----------------------------------------------------------------
1994(+) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------
Class A
- -----------------------------------------------------------------
$8.90 $9.30 $8.80 $8.51 $8.43 $8.50
- -----------------------------------------------------------------
.27 .52 .55 .56(a) .58(a) .33(a)
(.64) (.32) .52 .29 .08 (.07)
- -----------------------------------------------------------------
(.37) .20 1.07 .85 .66 .26
- -----------------------------------------------------------------
(.26) (.52) (.56) (.56) (.58) (.33)
-- (.03) (.01) -- -- --
-- (.05) -- -- -- --
- -----------------------------------------------------------------
(.26) (.60) (.57) (.56) (.58) (.33)
- -----------------------------------------------------------------
$8.27 $8.90 $9.30 $8.80 $8.51 $8.43
- -----------------------------------------------------------------
(4.23)(c) 2.03 12.38 10.25 8.13 3.17(c)
- -----------------------------------------------------------------
$120,764 $128,921 $113,074 $80,310 $19,893 $9,280
- -----------------------------------------------------------------
.50(c) .99 1.04 .95(a) .87(a) .45(a)(c)
- -----------------------------------------------------------------
3.03(c) 5.59 6.04 6.28(a) 6.78(a) 3.84(a)(c)
- -----------------------------------------------------------------
25.57(c) 41.77 15.89 71.68(d) 16.21 10.72(c)
- -----------------------------------------------------------------
<FN>
(+) Unaudited.
(a) Reflects an expense limitation, and, during the period ended
May 31, 1990, an 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) Not annualized.
(d) Portfolio turnover excludes the impact of assets from the
acquisition of Putnam Michigan Tax Exempt Income Fund.
</TABLE>
<PAGE>
Notes to financial statements
November 30, 1994 (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 six years of purchase. In addition,
the Trustees declare separate dividends on each class of shares.
Expenses of the fund are borne pro-rata by the shareholders of
both classes of shares. Each class bears expenses unique to that
class including the distribution fees applicable to such class.
Each 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. Shareholders 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.
The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles.
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 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
"Manager"), 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.
Trustees of the fund receive an annual Trustee's fee of $700 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.
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.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended November 30, 1994 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.
During the six months ended November 30, 1994, Putnam Mutual
funds Corp., acting as an underwriter, received net commissions
of $13,299 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,
1994, Putnam Mutual funds Corp., acting as an underwriter,
received no monies 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.
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. received $15,123 in contingent deferred sales
charges from such redemptions for the period ended November 30,
1994.
Note 3
Purchases and sales of securities
During the six months ended November 30, 1994, purchases and
sales of investment securities other than short-term municipal
obligation aggregated $46,287,019 and $34,568,185 respectively.
Purchases and sales of short-term municipal obligations
aggregated $9,050,000 and $15,150,000, respectively. In
determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Transactions in futures contracts during the period are
summarized as follows:
<TABLE><CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------
Sales of Futures Contracts
- -----------------------------------------------------------------
Number of Aggregate
Contracts Face Value
- -----------------------------------------------------------------
Contracts opened 180 $17,999,688
Contracts closed (180)$(17,999,688)
- -----------------------------------------------------------------
Contracts open at end of year -- --
- -----------------------------------------------------------------
</TABLE>
Note 4
Capital shares
At November 30, 1994, there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, class A
and class B capital shares. Transactions in capital shares were
as follows:
<TABLE><CAPTION>
<S> <C> <C>
Six months ended November 30
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------
Shares sold 793,222 $6,927,407
Shares issued in connection
with reinvestment of
distributions 264,325 2,304,955
- -----------------------------------------------------------------
1,057,547 9,232,362
- -----------------------------------------------------------------
Shares repurchased (937,332) (8,064,892)
- -----------------------------------------------------------------
Net increase 120,215 $1,167,470
- -----------------------------------------------------------------
Year ended May 31
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------
Shares sold 3,156,753 $29,485,331
Shares issued in connection
with reinvestment of
distributions 521,068 4,858,006
- -----------------------------------------------------------------
3,677,821 34,343,337
- -----------------------------------------------------------------
Shares repurchased (1,345,853) (12,460,026)
- -----------------------------------------------------------------
Net increase 2,331,968 $21,883,311
- -----------------------------------------------------------------
Six months ended November 30
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------
Shares sold 586,870 $5,145,384
Shares issued in connection
with reinvestment of
distributions 26,457 230,014
- -----------------------------------------------------------------
613,327 5,375,398
- -----------------------------------------------------------------
Shares repurchased (87,726) (757,945)
- -----------------------------------------------------------------
Net increase 525,601 $4,617,453
- -----------------------------------------------------------------
July 15, 1993
(commencement of
operations) to
May 31
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------
Shares sold 1,214,204 $11,315,559
Shares issued in connection
with reinvestment of
distributions 19,000 174,967
- -----------------------------------------------------------------
1,233,204 11,490,526
- -----------------------------------------------------------------
Shares repurchased (80,978) (749,459)
- -----------------------------------------------------------------
Net increase 1,152,226 $10,741,067
- -----------------------------------------------------------------
</TABLE>
<PAGE>
Our commitment to quality service
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested
Service Seal every year since the award's 1990 inception. DALBAR,
an independent research firm, ran more than 10,000 tests of 38
shareholder service components. In every category, Putnam
outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a
month from a Putnam fund or from your checking or savings
account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same
class of shares without a service charge. (This privilege is
subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business
day at the then-current net asset value, which may be more or
less than their original cost.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and
speak with a helpful Putnam representative.
To make an additional investment in this or any other Putnam
fund, contact your financial advisor or call our toll-free
number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or
protect against a loss in a declining market. Investors
should consider their ability to continue purchasing shares
during periods of low price levels.
<PAGE>
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
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
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
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
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, as well as the
most recent copy of Putnam's Quarterly Performance Summary. For
more information or to request a prospectus, call toll free 1-800-
225-1581
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
846/237-15831
<PAGE>
APPENDIX TO FORM N-30D 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 names 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 symbols are omitted.
(6) Page Numbering is different.
