Putnam
Michigan
Tax Exempt
Income Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While the stock market's higher returns may be a lure,
diversification is imperative in any investment portfolio, and municipal
bonds can provide that variety."
-- Business Week, December 6, 1996
* "We believe that our emphasis on extensive research and analysis will
continue to help your fund in the months and years ahead."
-- Leslie J. Burke, manager
Putnam Michigan Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
17 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam Michigan Tax Exempt Income Fund's fiscal 1997
presented a significantly brighter municipal bond market environment
than that which had prevailed in the preceding months. As the fiscal
year unfolded, the municipal bond market -- including the market for
Michigan tax-exempt bonds -- began to develop a sense of serenity,
closing the semiannual period on November 30, 1996, in an almost upbeat
mood.
During the period, Leslie Burke was appointed your fund's manager.
Leslie joined Putnam in 1992 as a credit analyst in the Tax-Exempt Bond
Group. Before joining Putnam, she was with Fidelity Investments. She has
10 years of investment experience.
In the report that follows, Leslie discusses the events and strategies
that drove your fund's performance during the fiscal year's first half
and takes a look at prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Leslie J. Burke
Putnam Michigan Tax Exempt Income Fund began its new fiscal year during
a period of uncertainty. For the first three months of fiscal year 1997
(and for most of calendar 1996), virtually every economic statistic
triggered renewed speculation about the direction of interest rates. As
a result, bond prices fluctuated broadly.
During the fall, however, the investment environment for bonds improved.
Because we had anticipated a rally in the municipal market, your fund
was well positioned to take full advantage of the increase in bond
prices. As a result, your fund's class A shares generated a total return
of 6.89% at net asset value and 1.83% at public offering price for the
six months ended November 30, 1996. Full performance details for other
time periods and for class B and class M shares can be found on page 9
of this report.
* SLOWING ECONOMY AND STRONG DEMAND SPARK MUNICIPAL BOND RALLY
After a difficult and volatile year, the municipal bond market shifted
gears into a long-awaited rally in the fall. The United States economy's
fast-paced growth of 4.6% during the third quarter of calendar 1996 gave
way to a projection of 2.2% growth for the final three months of the
year. Economists expect this slowdown to continue into early 1997. This
cooling of economic growth soothed investors' concerns over rising
interest rates and helped lead fixed-income investments, including
municipal bonds, to higher price levels.
Strong demand also helped spur the bond market's recent rally. While
large numbers of individual investors in the United States focused their
attention on the unprecedented gains of the stock market, overseas
investors purchased approximately $175 billion in U.S. bonds -- an
amount that exceeds the federal budget deficit. Although foreign
investors -- ineligible for the tax benefits of U.S. municipal bonds --
invested primarily in Treasury securities, their interest sparked
greater demand and, consequently, rising prices for the municipal market
as well.
In terms of supply, the market for municipal securities was relatively
tight through the first few months of the period. Traditionally June and
July are months in which many bonds mature or reach their call dates and
September's municipal bond issuance was the lowest in more than a year.
Autumn's lower interest rates, however, made bond issuance more
attractive for cash-strapped municipalities, and the supply of new bonds
rose.
* TAKING A MORE DEFENSIVE APPROACH TO REDUCE PORTFOLIO VOLATILITY
Throughout the six-month period, we maintained a strategy first put in
place toward the end of fiscal year 1996 -- taking several steps to
reduce the volatility of the portfolio. This more defensive strategy is
designed to preserve the fund's net asset value, reduce its sensitivity
to interest-rate changes, and enable it to continue providing
shareholders with a relatively high level of tax-free income. To achieve
this goal, we focused both on reducing the overall duration and
improving the portfolio's call protection. Duration is a mathematical
formula that indicates how much bond prices are likely to move up or
down with each percentage point shift in interest rates. Like maturity,
duration is measured in years. Shorter durations generally go hand in
hand with lower levels of volatility. To shorten the portfolio's
duration, we redeployed assets to concentrate fund holdings in
intermediate-term securities with maturities of 7 to 10 years rather
than splitting holdings between short- and long-term securities. By
shifting to this configuration, we believe we have created a portfolio
that offers not only better value but also a better balance of income
and market risk.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals and health care 23.0%
Water and sewer 16.1%
Education 10.6%
Utilities 10.4%
Housing 9.3%
Footnote reads:
* Based on net assets as of 11/30/96. Holdings will vary over time.
To protect your fund from early bond calls, we selectively replaced a
portion of the portfolio's callable lower-coupon bonds that were
approaching their call dates with bonds whose call dates were farther
away and with higher-coupon noncallable bonds. We believe this action
should provide your fund with the dual benefits of reducing call risk
and enhancing its income stream.
* MICHIGAN ECONOMY CONTINUES TO BE ROBUST
Governor John Engler's conservative approach to fiscal management
continues to keep the Michigan economy on an upward course. While the
entire state is on a healthy economic and financial footing, the city of
Detroit is really the star in the Michigan economy. Detroit has
benefited from strength in the auto industry, increased industrial and
commercial development, and higher levels of trade with Canada.
We made our first investments in Detroit bonds more than a year ago on
recommendations from Putnam's Research Department. Our research
indicated that Detroit was poised for an economic turnaround, and on the
strength of this early analysis, we added Detroit general obligation
(GO) debt and insured securities from various issuers to the portfolio.
At the time, Detroit debt was out of favor with many investors, and we
were able to acquire the bonds at very low prices. During the past three
months, the city's general obligation bonds have been upgraded from Ba
to Baa, a significant rating change from below investment-grade to
investment-grade status. Their prices have appreciated to reflect their
improved credit quality. There's no question that our investments in
Detroit have contributed significantly to your fund's returns.
We have also provided exposure to diverse areas of the Michigan economy
by investing in local general obligation bonds in communities across the
state. For example, we have a 5% position in Battle Creek securities,
which, because of declining interest rates, are soon to be prerefunded.
When bonds are prerefunded, the issuer generally floats new bonds and
invests the proceeds in top-quality securities such as U.S. Treasury
bonds, which are pledged to paying off the older debt. Because of the
safety of principal represented by the high-quality securities, a
prerefunding improves the credit quality of older bonds. This, in turn,
often boosts their prices, in which case the fund would benefit.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa--37.5%
Aa--4.7%
A--13.5%
Baa--26.3%
Ba--11.1%
VMIG1--6.9%
Footnote reads:
Based on percentage of market value as of 11/30/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* HEALTH-CARE BONDS ARE STILL A DOMINANT THEME IN THE PORTFOLIO
During the period, we continued to favor health-care bonds. Several of
the hospital issues in which we invested were chosen for their potential
to benefit from a changing health-care environment. Michigan is at the
very early stages of mixing non-profit and for-profit health-care
operations, and many of the non-profit hospitals whose bonds we hold in
the portfolio are attractive takeover candidates for for-profit
institutions. When a hospital is acquired by another institution, its
bonds are usually prerefunded. Your fund should benefit from appreciated
prices, should these prerefundings occur.
* CONSTRUCTIVE, YET CAUTIOUS, OUTLOOK PREVAILS
Going forward, we expect economic growth to remain at a moderate level.
While we believe that interest rates may rise modestly in the short term
as a result of above average holiday retail sales, we anticipate that
the general trend for interest rates is stable. We also expect inflation
to remain relatively low. We will continue to monitor any changes in the
state's economy and make adjustments to the portfolio as necessary to
maintain a relatively high level of tax-free income.
As your fund enters the second half of fiscal year 1997, our large staff
of experienced research analysts will continue to scrutinize existing
and new municipal bond issues to find securities that can best
contribute to your fund's stream of tax-exempt income. In a post-rally
environment, however, we must remain mindful of another tax consequence
- -- capital gains from the sales of portfolio holdings that have risen in
value. Although it is unlikely that any fund could avoid capital gains
altogether, we plan to shift portfolio holdings only when the benefits
will substantially outweigh the potential negative effects of any
taxable distributions.
Footnote reads:
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 11/30/96, there is no guarantee the fund
will continue to hold these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Michigan Tax Exempt Income Fund is designed for
investors seeking a high level of current income free from federal and
state income taxes consistent with preservation of capital.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/96
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/17/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 6.89% 1.83% 6.55% 1.55% 6.73% 3.23%
- ------------------------------------------------------------------------
1 year 5.53 0.51 4.92 -0.07 5.29 1.86
- ------------------------------------------------------------------------
5 years 42.97 36.22 -- -- -- --
Annual average 7.41 6.38 -- -- -- --
- ------------------------------------------------------------------------
Life of class 68.04 60.12 16.38 13.45 13.77 10.02
Annual average 7.57 6.84 4.59 3.80 8.24 6.03
- ------------------------------------------------------------------------
Footnote reads:
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions or
for distribution fees prior to implementation of the class A
distribution plan in 1990. Investment returns and principal value will
fluctuate so that an investor's shares, when sold, may be worth more or
less than their original cost. POP assumes 4.75% maximum sales charge
for class A shares and 3.25% for class M shares. CDSC for class B shares
assumes the applicable sales charge, with the maximum being 5%.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.50% 1.28%
- ------------------------------------------------------------------------
1 year 5.89 3.26
- ------------------------------------------------------------------------
5 years 45.83 15.09
Annual average 7.83 2.85
- ------------------------------------------------------------------------
Life of class A 76.21 26.27
Annual average 8.33 3.34
- ------------------------------------------------------------------------
Life of class B 22.34 9.83
Annual average 6.23 2.81
- ------------------------------------------------------------------------
Life of class M 14.92 4.41
Annual average 9.15 2.68
- ------------------------------------------------------------------------
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.241319 $0.211567 $0.227707
- ------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------
Total $0.241319 $0.211567 $0.227707
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/96 $8.85 $9.29 $8.84 $8.85 $9.15
- ------------------------------------------------------------------------
11/30/96 9.21 9.67 9.20 9.21 9.52
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend rate2 5.23% 4.98% 4.59% 4.93% 4.77%
- ------------------------------------------------------------------------
Taxable equivalent3 9.06 8.62 7.95 8.54 8.26
- ------------------------------------------------------------------------
Current 30-day SEC yield4 5.02 4.77 4.37 4.76 4.60
- ------------------------------------------------------------------------
Taxable equivalent3 8.69 8.26 7.57 8.24 7.97
- ------------------------------------------------------------------------
1Capital gains, if any, 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.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 42.26% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 5.06% 0.12% 4.76% -0.24% 4.92% 1.50%
- ------------------------------------------------------------------------
1 year 3.86 -1.05 3.30 -1.64 3.54 0.19
- ------------------------------------------------------------------------
5 years 38.65 32.07 -- -- -- --
Annual average 6.75 5.72 -- -- -- --
- ------------------------------------------------------------------------
Life of class 67.21 59.33 15.78 12.87 13.20 9.46
Annual average 7.41 6.69 4.31 3.55 7.52 5.43
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal value will fluctuate so that 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.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B shares and assumes redemption at the end of
the period. Your fund's 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. It is not possible
to invest directly in an index.
Consumer Price Index (CPI)* is a commonly used measure of inflation; it
does not represent an investment return.
* Securities indexes assume reinvestment of all distributions and
interest payments and do not take in account brokerage fees or taxes.
Securities in the fund do not match those in the indexes and performance
of the fund will differ. It is not possible to invest directly in an
index.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Federal Guaranty Insurance Corporation
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (100.3%) *
PRINCIPAL AMOUNT RATING** VALUE
Michigan (87.9%)
- --------------------------------------------------------------------------------------------
$ 5,500,000 Battle Creek, Downtown Dev. Auth. Tax
Increment Rev. Bonds, 7.65s, 5/1/22 BBB $ 6,503,750
2,000,000 Battle Creek, Tax Incremental Fin Auth. Rev.
Bonds, 7.1s, 5/1/10 A 2,247,500
3,700,000 Cornell Township, Econ. Dev. Corp. VRDN
(Escabana Paper Co.), 3.9s, 11/1/16 VMIG1 3,700,000
4,300,000 Delta Cnty., Econ. Dev. Corp. Env. Impt. VRDN
(Mead-Escabana Co.), 3.9s, 12/1/23 VMIG1 4,300,000
Detroit, G.O. Bonds
4,875,000 Ser. A, 6.8s, 4/1/15 Baa 5,344,218
2,475,000 Ser. B, 7s, 4/1/04 Baa 2,765,812
Detroit, City School Dist. G.O. Bonds,
Ser. A, AMBAC
1,500,000 6 1/2s, 5/1/11 Aaa 1,668,750
2,455,000 6 1/2s, 5/1/09 Aaa 2,752,669
1,170,000 Detroit, Loc. Dev. Fin. Auth. Tax Increment Rev.
Bonds, Ser. A, 9.5s, 5/1/21 BBB/P 1,453,725
Detroit, Wtr. Supply Syst. IFB
1,500,000 FGIC, 8.841s, 7/1/22 Aaa 1,691,250
7,000,000 Prerefunded, FGIC, 8.841s, 7/1/22 Aaa 8,557,500
Detroit, Wtr. Supply Syst. Rev. Bonds
1,750,000 MBIA, 7 7/8s, 7/1/19 # Aaa 1,890,000
3,380,000 Second Lien, Ser. A, MBIA, 5.4s, 7/1/11 Aaa 3,443,375
3,000,000 Dickinson Cnty., Hosp. Rev. Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 Ba 3,311,250
Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.)
2,000,000 7.8s, 7/1/14 Baa 2,172,500
630,000 Ser. A, 6s, 7/1/06 Baa 631,575
2,500,000 Grand Ledge, Pub. School Dist. G.O. Bonds,
MBIA, 5 3/8s, 5/1/24 Aaa 2,484,375
4,200,000 Grand Rapids Wtr. Supply Syst. VRDN, FGIC,
3.4s, 1/1/20 VMIG1 4,200,000
1,550,000 Grand Rapids, Cmnty. College G.O. Bonds,
MBIA, 5 3/8s, 5/1/19 Aaa 1,536,437
1,000,000 Grand Rapids, Hsg. Fin. Auth. Multi-Fam. Rev.
Bonds, Ser. A, FNMA Coll., 7 5/8s, 9/1/23 AAA 1,092,500
3,000,000 Greater Detroit, Res. Rcvy. Auth. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 12/13/06 Aaa 3,318,750
2,280,000 Holland, Area Cmnty. Swimming Pool Auth.
G.O. Bonds, FGIC, 5 1/8s, 5/1/19 Aaa 2,191,650
3,500,000 Kalamazoo, Hosp. Fin. Auth. Fac. IFB, FGIC,
6.668s, 6/1/11 Aaa 3,447,500
3,840,000 MI Muni. Board Auth. State Revolving Rev.
Bonds, 6 1/2s, 10/1/17 Aa 4,353,600
2,500,000 MI State Stragetic Fund Solid Waste Disp. Rev.
Bonds (SD Warren Co.), Ser. C, 7 3/8s, 1/15/22 BB/P 2,590,625
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
2,870,000 (Arbor Model & Tooling), 10 1/4s, 9/15/19 BB 3,078,936
3,825,000 (Env. Research), 8 1/8s, 10/1/14 A 4,250,531
3,150,000 (Ford Motor Co.), Ser. A, 7.1s, 2/1/06 Aa 3,697,313
1,500,000 (Detroit Edison), Ser. BB, AMBAC, 7s, 5/1/21 Aaa 1,841,250
MI State Hosp. Fin. Auth. Rev. Bonds
460,000 (Garden City), 8 1/2s, 9/1/17 Ba 547,400
920,000 (Garden City Hosp.), 8 1/2s, 9/1/17 Ba 977,500
1,300,000 (Metropolitan Hosp.), Ser. B, 8 1/8s, 7/1/18 Baa 1,459,250
2,000,000 (Detroit-Macomb Hosp. Corp.),
Ser. A, 7.4s, 6/1/13 BB 2,010,000
1,350,000 (Detroit-Macomb Hosp. Corp),
Ser. A, 7s, 6/1/15 BB 1,350,162
4,500,000 (Sinai Hosp.), 6.7s, 1/1/26 Baa 4,629,375
2,000,000 (Sinai Hosp.), 6 5/8s, 1/1/16 Baa 2,050,000
2,000,000 (Presbyterian Villages), 6 1/2s, 1/1/25 BBB/P 2,032,500
2,000,000 (Presbyterian Villages), 6.4s, 1/1/15 BBB/P 2,032,500
2,575,000 (Pontiac Osteopathic Hosp.), Ser. A, 6s, 2/1/24 Baa 2,494,531
MI State Hsg. Dev. Auth.
1,000,000 Ltd. Oblig. Rev. Bonds (Mercy Bellbrook),
MBIA, 8 1/8s, 4/1/18 Aaa 1,034,980
2,500,000 Multi-Fam. Rev. Bonds, Ser. A, FGIC, 8 3/8s,
7/1/19 Aaa 2,613,675
1,600,000 Rental Hsg. Rev. Bonds, Ser. A, FSA, 7.55s,
4/1/23 Aaa 1,728,000
2,900,000 Rental Hsg. Rev. IFB, Ser. B, AMBAC, 4.93s,
10/1/12 Aaa 2,711,500
195,000 Single Fam. Mtge. Rev. Bonds, Ser. A, 7.55s,
12/1/14 AA 203,044
3,600,000 MI State Strategic Fund Rev. Bonds
(Mercy Svcs. for Aging), 9.4s, 5/15/20 BBB/P 4,068,000
5,000,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/23 Baa 4,743,750
2,505,000 Tawas City Hosp. Fin. Auth. Rev. Bonds
(St. Joseph's Hosp.), Ser. A, 8 1/2s, 3/15/12 BB/P 2,586,137
5,875,000 Thornapple Kellogg, School Dist. G.O. Bonds,
FGIC, 5 3/8s, 5/1/22 Aaa 5,794,219
Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth. Care)
1,500,000 8 3/8s, 7/1/23 BB/P 1,584,375
1,485,000 8s, 7/1/08 BB/P 1,557,394
2,000,000 Wayland, Uni. School Dist. Rev. Bonds,
FGIC, 8s, 5/1/10 Aaa 2,557,500
2,405,000 Wayne Cnty., Bldg. Auth. G.O. Bonds,
Ser. A, MBIA, 6s, 6/1/08 Aaa 2,603,413
2,000,000 Western MI Univ. Rev. Bonds,
Ser. A, FGIC, 5s, 7/15/21 Aaa 1,847,500
4,000,000 Western Townships Util. Auth. Swr. Disp. Syst.
Rev. Bonds, 8.2s, 1/1/18 BBB 4,355,000
Wyandotte Elec. Rev. Bonds
1,575,000 AMBAC, 7 7/8s, 10/1/17 Aaa 1,662,365
3,200,000 MBIA, 6 1/4s, 10/1/17 Aaa 3,428,000
--------------
155,179,411
Puerto Rico (12.4%)
- --------------------------------------------------------------------------------------------
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
2,000,000 Ser. Y, 6 1/4s, 7/1/13 A 2,190,000
2,835,000 Ser. Z, MBIA, 6 1/4s, 7/1/11 Aaa 3,203,550
2,000,000 Ser. Y, 5 1/2s, 7/1/36 A 1,967,500
2,000,000 Ser. X, 5s, 7/1/22 A 1,820,000
PR Elec. Pwr. Auth. Rev. Bonds
3,000,000 Ser. X, 6s, 7/1/15 A 3,097,500
1,500,000 Ser. X, 5 1/2s, 7/1/25 A 1,460,625
7,255,000 Ser. Z, 5 1/4s, 7/1/21 A 6,865,044
1,100,000 PR Pub. Bldg. Auth. Fac. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 7/1/14 Aaa 1,233,375
--------------
21,837,594
- --------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes (cost $168,725,466)*** $177,017,005
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $176,430,504.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent
ratings available at November 30, 1996, for the securities listed. Ratings are generally
ascribed to securities at the time of issuance. While the agencies may from time to time
revise such ratings, they undertake no obligation to do so, and the the ratings do not
necessarily represent what the agencies would ascribe to these securities at November 30, 1996.
Securities rated by Putnam are indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $168,725,466, resulting in gross unrealized
appreciation and depreciation of $20,987,103 and $12,695,564, respectively, or net unrealized
appreciation of $8,291,539.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at November 30, 1996.
The rates shown on IFB, which are securities paying interest rates that vary inversely to
changes in the market interest rates, and VRDN's are the current interest rates at November 30, 1996.
The fund had the following industry group concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
Hospitals/Health Care 23.0%
Water/Sewer 16.1
Education 10.6
Utilities 10.4
The fund had the following insurance concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
FGIC 18.6%
MBIA 11.1
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1996
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond Futures
(Short) $5,927,156 $5,885,125 Dec - 96 $ (42,031)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------
Investments in securities, at value (identified
cost $168,725,466) (Note 1) $ 177,017,005
- -----------------------------------------------------------------------------
Cash 523,408
- -----------------------------------------------------------------------------
Interest and other receivables 3,004,116
- -----------------------------------------------------------------------------
Receivable for shares of the fund sold 256,203
- -----------------------------------------------------------------------------
Total assets 180,800,732
Liabilities
- -----------------------------------------------------------------------------
Payable for variation margin 46,219
- -----------------------------------------------------------------------------
Distributions payable to shareholders 437,334
- -----------------------------------------------------------------------------
Payable for securities purchased 3,452,033
- -----------------------------------------------------------------------------
Payable for shares of the fund repurchased 23,065
- -----------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 258,924
- -----------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 12,967
- -----------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,913
- -----------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,172
- -----------------------------------------------------------------------------
Payable for distribution fees (Note 2) 70,953
- -----------------------------------------------------------------------------
Other accrued expenses 62,648
- -----------------------------------------------------------------------------
Total liabilities 4,370,228
- -----------------------------------------------------------------------------
Net assets $176,430,504
Represented by
- -----------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 169,064,728
- -----------------------------------------------------------------------------
Undistributed net investment income (Note 1) 67,117
- -----------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (950,849)
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments 8,249,508
- -----------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $176,430,504
Computation of net asset value and offering price
- -----------------------------------------------------------------------------
Net asset value and redemption price per class A share
($143,065,417 divided by 15,525,762 shares) $9.21
- -----------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.21)* $9.67
- -----------------------------------------------------------------------------
Net asset value and offering price per class B share
($32,698,655 divided by 3,553,309 shares)** $9.20
- -----------------------------------------------------------------------------
Net asset value and redemption price per class M share
($666,432 divided by 72,339 shares) $9.21
- -----------------------------------------------------------------------------
Offering price per class M share (100/96.75 of 9.21)*** $9.52
- -----------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more
and on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income: $ 5,343,149
- -----------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------
Compensation of Manager (Note 2) 515,248
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 93,750
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,334
- -----------------------------------------------------------------------------
Administrative services (Note 2) 3,493
- -----------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 140,035
- -----------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 132,119
- -----------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,581
- -----------------------------------------------------------------------------
Reports to shareholders 9,586
- -----------------------------------------------------------------------------
Registration fees 5,632
- -----------------------------------------------------------------------------
Auditing 12,445
- -----------------------------------------------------------------------------
Legal 9,489
- -----------------------------------------------------------------------------
Postage 40,815
- -----------------------------------------------------------------------------
Other 3,055
- -----------------------------------------------------------------------------
Total expenses 977,582
- -----------------------------------------------------------------------------
Expense reduction (Note 2) (114,255)
- -----------------------------------------------------------------------------
Net expenses 863,327
- -----------------------------------------------------------------------------
Net investment income 4,479,822
- -----------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 275,156
- -----------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 137,952
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments
and futures during the period 6,558,716
- -----------------------------------------------------------------------------
Net gain on investments 6,971,824
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $11,451,646
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -----------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------
Net investment income $4,479,822 $8,755,309
- -----------------------------------------------------------------------------------------
Net realized gain on investments 413,108 1,753,438
- -----------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 6,558,716 (4,781,877)
- -----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,451,646 5,726,870
- -----------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------
From net investment income
Class A (3,763,632) (7,598,988)
- -----------------------------------------------------------------------------------------
Class B (718,596) (1,242,161)
- -----------------------------------------------------------------------------------------
Class M (15,824) (15,675)
- -----------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 1,157,817 14,248,432
- -----------------------------------------------------------------------------------------
Total increase in net assets 8,111,411 11,118,478
- -----------------------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------------------
Beginning of period 168,319,093 157,200,615
- -----------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $67,117 and $85,347, respectively) $176,430,504 $168,319,093
- -----------------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months April 17, 1995 Six months
ended (commencement ended
November 30 Year ended of operations) November 30 Year ended
(Unaudited) May 31 to May 31 (Unaudited) May 31
------------------------------------------------------------------------------------------
1996 1996 1995 1996 1996
------------------------------------------------------------------------------------------
Class M Class B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $8.85 $9.00 $8.80 $8.84 $9.00
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .05(e) .21 .43
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .36 (.16) .21 .36 (.16)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .59 .31 .26 .57 .27
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income (.23) (.46) (.06) (.21) (.43)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net gain on
investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.46) (.06) (.21) (.43)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.21 $8.85 $9.00 $9.20 $8.84
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 6.73* 3.53 2.03* 6.55* 3.05
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $666 $558 $119 $32,699 $29,371
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) .66* 1.28 .20* .84* 1.65
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.49* 5.06 .84* 2.34* 4.74
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40.15* 139.08 82.91 40.15* 139.08
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
July 15, 1993 Six months
(commencement ended
Year ended of operations) November 30 Year ended
May 31 to May 31 (Unaudited) May 31
------------------------------------------------------------------------------------------
1995 1994 1996 1996
------------------------------------------------------------------------------------------
Class B Class A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $8.90 $9.43 $8.85 $9.01
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .41 .24 .49
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .10 (.46) .36 (.16)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .57 (.05) .60 .33
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income (.47) (.40) (.24) (.49)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net gain on
investments -- (.08) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.48) (.24) (.49)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.00 $8.90 $9.21 $8.85
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 6.72 (.68)* 6.89* 3.76
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $21,071 $10,251 $143,065 $138,390
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) 1.59 1.42* .51* 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.31 4.25* 2.67* 5.42
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.91 41.77 40.15* 139.08
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended May 31
------------------------------------------------------------------------------------------
1995 1994 1993 1992
------------------------------------------------------------------------------------------
Class A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $8.90 $9.30 $8.80 $8.51
- ------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income .52 .52 .55 .56(a)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .11 (.32) .52 .29
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations .63 .20 1.07 .85
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
From net investment income (.52) (.52) (.56) (.56)
- ------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments -- (.03) (.01) --
- ------------------------------------------------------------------------------------------------------------------------------
In excess of net gain on
investments -- (.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (.52) (.60) (.57) (.56)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.01 $8.90 $9.30 $8.80
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 7.45 2.03 12.38 10.25
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $136,010 $128,921 $113,074 $80,310
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) .95 .99 1.04 .95(a)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.03 5.58 6.04 6.28(a)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 82.91 41.77 15.89 71.68(c)
- ------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Reflects an expense limitation in effect during the year ended May 31, 1992. As a result of such limitation,
expenses for the fund reflect a reduction of $0.01 per share.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Portfolio turnover excludes the impact of assets received from the acquisition of Michigan Tax Exempt Income Fund,
then known as Putnam Michigan Tax Exempt Fund II.
(d) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(e) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
</TABLE>
Notes to financial statements
November 30, 1996 (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 Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc., believes is consistent with
preservation of capital by investing primarily in a portfolio of
Michigan tax-exempt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75 %. Class B shares,
which convert to class A shares after approximately eight years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.
D) 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 on securities held nor for excise tax on income and capital
gains.
At May 31, 1996, the fund had a capital loss carryover of approximately
$1,182,000 available to offset future net capital gain, if any, which
will expire on May 31, 2003.
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are distributed monthly. Capital gain distributions if any,
are recorded on the ex-dividend date and paid annually. The amount and
character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
F) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. Discounts on zero
coupon and original issue bonds are accreted according to the effective
yield method.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, 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: 0.60% of the
first $500 million, 0.50% of the next $500 million, 0.45% of the next
$500 million, 0.40% of the next $5 billion, 0.375% of the next $5
billion, 0.355% of the next $5 billion, 0.340% of the next $5 billion
and 0.330% thereafter. Prior to September 20, 1996, any amount over $1.5
billion was based on 0.40%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended November 30, 1996, fund expenses were reduced
by $114,255 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested a portion of the
assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $700 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The Fund has adopted an unfunded noncontributory defined benefit pension
plan (The "Pension Plan") covering all Trustees of the Fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average compensation for the
three years preceding retirement. Pension expense for the fund is
included in Compensation of trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plans provide for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.20%, 0.85% and 0.50% of the average
net assets attributable to class A, class B and class M shares,
respectively.
For the six months ended November 30, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $10,931 and $254 from
the sale of class A and class M shares, respectively and $22,543 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of
class A shares. For the six months ended November 30, 1996, Putnam
Mutual Funds Corp., acting as underwriter received no monies on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$67,449,710 and $65,090,055, respectively. There were no purchases and
sales of U.S. government obligations. In determining the net gain or
loss on securities sold, the cost of securities has been determined on
the identified cost basis.
Note 4
Capital shares
At November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 548,170 $ 4,931,666
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 251,955 2,259,938
- ----------------------------------------------------
800,125 7,191,604
Shares
repurchased (908,502) (8,172,967)
- ----------------------------------------------------
Net decrease (108,377) $ (981,363)
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,790,658 $ 16,179,778
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 521,536 4,702,178
- ----------------------------------------------------
2,312,194 20,881,956
Shares
repurchased (1,767,677) (15,933,085)
- ----------------------------------------------------
Net increase 544,517 $ 4,948,871
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 363,763 $ 3,265,112
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 54,129 485,039
- ----------------------------------------------------
417,892 3,750,151
Shares
repurchased (188,596) (1,692,599)
- ----------------------------------------------------
Net increase 229,296 $ 2,057,552
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,169,338 $10,523,158
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 90,726 816,160
- ----------------------------------------------------
1,260,064 11,339,318
Shares
repurchased (277,570) (2,492,726)
- ----------------------------------------------------
Net increase 982,494 $ 8,846,592
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 17,519 $156,377
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,008 9,041
- ----------------------------------------------------
18,527 165,418
Shares
repurchased (9,288) (83,790)
- ----------------------------------------------------
Net increase 9,239 $ 81,628
- ----------------------------------------------------
Year ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 51,346 $466,168
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,184 10,679
- ----------------------------------------------------
52,530 476,847
Shares
repurchased (2,683) (23,878)
- ----------------------------------------------------
Net increase 49,847 $452,969
- ----------------------------------------------------
Results of December 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 11,553,202 235,096
Hans H. Estin 11,594,959 193,339
John A. Hill 11,598,313 189,985
Ronald J. Jackson 11,558,705 229,593
Elizabeth T. Kennan 11,583,778 204,520
Lawrence J. Lasser 11,599,553 188,745
Robert E. Patterson 11,596,381 191,917
Donald S. Perkins 11,584,790 203,508
William F. Pounds 11,594,959 193,339
George Putnam 11,593,391 194,907
George Putnam, III 11,586,163 202,135
Eli Shapiro 11,525,145 263,153
A.J.C. Smith 11,596,381 191,917
W. Nicholas Thorndike 11,590,519 197,779
A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
auditors for the fund was approved as follows: 11,394,150 votes for, and
71,553 votes against, with 322,595 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
10,757,935 votes for, and 431,755 votes against, with 598,608
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 10,501,140 votes for, and 571,191 votes against, with
715,967 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
10,097,701 votes for, and 1,020,547 votes against, with 670,050
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
10,403,221 votes for, and 718,052 votes against, with 667,025
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
10,668,603 votes for, and 453,558 votes against, with 666,137
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in senior securities was approved as follows:
10,449,650 votes for, and 634,216 votes against, with 704,432
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 10,105,539 votes for, and 1,027,080 votes against,
with 655,679 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 10,278,904 votes for, and 785,908 votes against,
with 723,486 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 10,114,398
votes for, and 879,394 votes against, with 794,506 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 10,225,407 votes
for, and 820,228 votes against, with 742,663 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 10,031,379 votes for, and 998,362 votes against, with 758,557
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 10,220,691 votes for, and 814,763 votes against, with 752,844
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 10,413,573 votes for, and 733,825 votes
against, with 640,900 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 10,111,331 votes for, and 939,033 votes against,
with 737,934 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
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against a loss in a declining market.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
Vice President
Leslie J. Burke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. 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. 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, and 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. You can also learn more at Putnam Investments'
website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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29936-846/237/126 1/97
