Putnam
Michigan
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
This is the last letter to you and the other shareholders of Putnam
Michigan Tax Exempt Income Fund that I will be signing. After more than 30
years as Chairman of the Trustees and President of the Putnam Funds, the
time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
In one final piece of news, I am pleased to announce the appointment of
Susan A. McCormack as your fund's manager. Before joining Putnam as a
tax-exempt bond analyst in 1994, Susan was with Merrill Lynch. She has 13
years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Manager
Susan McCormack
During the first six months of Putnam Michigan Tax Exempt Income Fund's
fiscal year, which ended November 30, 1999, the Federal Reserve Board
raised short-term interest rates by a quarter percentage point on three
separate occasions -- in June, August, and November. As rates rose and
prices fell during the period, your fund's relatively short maturity
structure enabled it to hold up better than more aggressively positioned
bond portfolios during this period. However, it was by no means immune to
the price declines that all fixed-income investments experience when
interest rates rise.
Total return for 6 months ended 11/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------
-3.20% -7.83% -3.42% -8.14% -3.24% -6.42%
- -------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
Rather than trying to seek temporary shelter during the market downturn,
we took advantage of rising interest rates to extend the portfolio's
duration gradually as we identified opportunities. As a result, at the end
of November the fund's duration was just over eight years, compared with
slightly more than seven years at the end of May. Although this strategy
makes your fund more sensitive to changes in bond prices, up or down, it
is designed to secure a stable future dividend stream as well as to
improve the total return on portfolio securities over the full market
cycle. What's more, as we swapped lower-yielding issues with shorter
maturities for higher-yielding, longer-term securities, some transactions
generated capital losses that may be available to defer taxes on any
capital gains the fund realizes in the future.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 21.2%
Water and sewer 10.2%
Housing 8.2%
Transportation 8.0%
Education 7.9%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
* OUTLOOK SEEMS TO JUSTIFY GRADUALLY LENGTHENING MATURITIES
Calendar 1999 has been described as the second-worst period in bond market
history. Despite this or perhaps because of it, we believe that this is a
good time for municipal bond investors to be incrementally lengthening
maturities. The combination of a healthy economy and a protracted period
of declining interest rates during the fund's previous fiscal year led to
a diminished need for municipal financing and a dwindling supply of new
issues. Meanwhile, the yield spread between municipal bonds and Treasuries
has been narrow. Municipal bonds have been yielding almost 100% of the
yield on long-term taxable Treasury bonds versus the historical norm of
about 85%. Furthermore, municipal bond prices have been less volatile than
those of even the highest quality government bonds. In the past few
months, these truths have been coming home to investors who are attracted
back into the market by tax-free yields that are next to impossible to
equal in the taxable market. Demand is mounting, but supply is not,
creating a favorable situation for municipal bond fund owners.
Our optimism is tempered primarily by the specter of inflation. In the
past, a strong economy and low unemployment such as we are experiencing
today led to wage increases and a rise in the cost of living. This
scenario seems unlikely, but some caution seems justified. Furthermore, it
is never possible to pinpoint the peak in interest rates. Our job is to
balance the need to preserve principal with the importance of maintaining
a strong, steady income stream for shareholders as far into the future as
possible. We believe the near-term price risks posed by securities with
longer durations are justified by the long-term potential for higher
returns in a healthy economy.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
B -- 3.1%
Ba/BB -- 8.7%
Baa/BBB -- 14.3%
A -- 10.7%
Aa/AA -- 3.0%
Aaa/AAA -- 60.2%
Footnote reads:
*As a percentage of market value as of 11/30/99. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
* MICHIGAN ECONOMY MORE DIVERSIFIED
Like most other U.S. states, Michigan is benefiting from the strong
economy. The state has been on a prolonged campaign to diversify its
industry mix and has had some success. Auto industry workers make up less
than 6% of Michigan's work force, according to statistics released
recently by the Commerce Department, down from 10% about 2 decades ago,
and factory workers generally make up 14% of the work force, down from
23%. Finance has emerged as another major state industry, as has
agriculture, and Governor Engler continues to work hard to attract
technology companies. What's more, the auto industry itself has been
undergoing a transformation. Today it is better managed, more efficient,
and more competitive with Asian automakers. Only a sharp downturn in the
U.S. economy or in world economies is likely to put a damper on this
state's vitality, and that scenario doesn't seem likely.
"States enjoy another year of bulging tax coffers. State tax revenues grew
5.7% in fiscal 1999 over 1998, says the Center for The Study of the States
at the Nelson A. Rockefeller Institute of Government.
- -- The Wall Street Journal, December 15, 1999
Thousands of projects financed by just two types of bonds
Municipal bonds are the most important means of financing thousands of
different public projects, but surprisingly there are only two basic types of
bonds. General Obligation bonds (GOs), secured by the full faith and credit
of the city or town, are repaid by either a limited or an unlimited tax on
property. Cities and towns usually issue general obligation bonds for school,
park, and public building projects. The voters in a community must approve
each issue of general obligation bonds.
Revenue bonds, on the other hand, are secured by fees derived from tolls,
charges, and rents paid by the users of the facility. Highways, bridges, and
water and sewage treatment plants are typical projects financed or improved
by revenue bond proceeds. Industrial revenue bonds are issued through
an industrial development authority to finance projects for a private user
(usually a corporation) that also guarantees repayment of the principal and
interest. Hospital, dormitory, airport, and housing projects are commonly
financed with industrial revenue bonds.
Diversification is as important for a fund as it is for a state. Health
care continues to constitute a meaningful portion of your fund's
portfolio, but across the nation this industry is undergoing a period of
consolidations, mergers, alignments, and formations of networks. The rapid
pace of these activities makes the sector liquid and provides
opportunities, but it also demands extensive research on an ongoing basis
and it reinforces the need for investments in other fields. What's more,
we believe the best opportunities for investors come from careful bond
selection in addition to the performance of any given sector.
As we moved to lengthen the fund's duration, in some cases, if we could,
we would swap one series of bonds for another of the same issuer with a
more distant call date. In other cases, we added new securities; this had
the effect of expanding the portfolio's diversification. For example, in
one recent trade, we sold some Puerto Rico highway bonds scheduled to
mature in 2013 and yielding 4.89%. We used the proceeds to invest in
insured bonds issued by Manistee School District, a Michigan school
system. These bonds carry a 5 3/4% yield and are scheduled to mature in
2019. Not only is this school district a strong credit because it's FGIC
insured, these issues broaden portfolio participation in the education
sector as well as extend the fund's duration.
Another recent purchase -- Wayne Charter Airport BB+-rated bonds with a 6%
yield and maturing in 2029 -- illustrates the fund's sector
diversification as well as the importance we place on credit research,
which sometimes can help us identify issues that have been overlooked or
which may be upgraded. The Wayne Charter Airport is heavily used by
Northwest Airlines, which we believe to be one of the stronger airlines.
What's more, the airline industry as a whole is attractive because a
strong economy increases both business and discretionary travel.
We also continue to diversify the fund's portfolio with tax-free bonds
issued by U.S. territories. Hence, another recent addition to your fund's
portfolio, Guam Power Authority, is the sole supply of electric power for
the island. These AAA-rated issues offer a high tax-free yield and expand
the fund's participation in utilities, one of the most stable industries.
* DESPITE UNCERTAINTIES, OPPORTUNITIES LIE AHEAD
For fixed-income investors, opportunities to secure high income over
longer periods are attractive at present, despite the fact that rising
interest rates are always accompanied by falling bond prices. Successful
investors in all markets have accepted difficult periods because of the
promise that often lies beyond them. We believe this may prove to be
another opportunity point. Undoubtedly there will be stumbling blocks
ahead, and the Fed could increase rates again at their meeting in February
if the economy is unable to grow at a slower, noninflationary pace.
Consequently we intend to continue to move forward with caution, edging
the fund into a longer duration position to minimize the impact of
declining rates as much as possible while securing a strong future income
stream for shareholders.
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 11/30/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Michigan Tax
Exempt Fund is designed for investors seeking a high level of current income
free from federal and state income tax consistent with preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/17/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
6 months -3.20% -7.83% -3.42% -8.14% -3.24% -6.42%
- -----------------------------------------------------------------------------
1 year -3.06 -7.69 -3.70 -8.30 -3.35 -6.44
- -----------------------------------------------------------------------------
5 years 36.24 29.81 31.92 29.92 34.09 29.71
Annual average 6.38 5.36 5.70 5.37 6.04 5.34
- -----------------------------------------------------------------------------
10 years 82.49 73.75 69.93 69.93 76.06 70.40
Annual average 6.20 5.68 5.45 5.45 5.82 5.47
- -----------------------------------------------------------------------------
Life of fund 84.00 75.32 71.08 71.08 77.26 71.55
Annual average 6.22 5.72 5.46 5.46 5.83 5.49
- -----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Lehman Bros. Municipal Consumer
Bond Index price index
- -----------------------------------------------------------------------------
6 months -1.87% 1.32%
- -----------------------------------------------------------------------------
1 year -1.08 2.68
- -----------------------------------------------------------------------------
5 years 43.85 12.49
Annual average 7.54 2.38
- -----------------------------------------------------------------------------
10 years 97.86 33.76
Annual average 7.06 2.95
- -----------------------------------------------------------------------------
Life of fund 101.32 34.08
Annual average 7.19 2.95
- -----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 4.75% and
3.25% respectively. Class B share returns for the 1-, 5-, and 10-year
(where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/99
Class A Class B Class M
- --------------------------------------------------------------------------
Distributions (number) 6 6 6
- --------------------------------------------------------------------------
Income $0.229288 $0.199750 $0.215428
- --------------------------------------------------------------------------
Capital gains1 -- -- --
- --------------------------------------------------------------------------
Total $0.229288 $0.199750 $0.215428
- --------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------------
5/31/99 $9.14 $9.60 $9.12 $9.13 $9.44
- --------------------------------------------------------------------------
11/30/99 8.62 9.05 8.61 8.62 8.91
- --------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------
Current dividend rate2 5.32% 5.06% 4.67% 5.01% 4.85%
- --------------------------------------------------------------------------
Taxable equivalent3 9.21 8.77 8.08 8.68 8.40
- --------------------------------------------------------------------------
Current 30-day SEC yield4 4.81 4.58 4.16 4.51 4.36
- --------------------------------------------------------------------------
Taxable equivalent 8.33 7.93 7.20 7.81 7.55
- --------------------------------------------------------------------------
1 Capital 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 42.26% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/17/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months -3.14% -7.77% -3.37% -8.09% -3.19% -6.32%
- ----------------------------------------------------------------------------
1 year -4.45 -8.95 -5.08 -9.62 -4.74 -7.81
- ----------------------------------------------------------------------------
5 years 31.22 24.99 27.05 25.05 29.13 24.98
Annual average 5.58 4.56 4.90 4.57 5.25 4.56
- ----------------------------------------------------------------------------
10 years 78.96 70.39 66.73 66.73 72.63 67.07
Annual average 5.99 5.47 5.24 5.24 5.61 5.27
- ----------------------------------------------------------------------------
Life of fund 81.62 73.05 68.77 68.77 74.92 69.28
Annual average 6.03 5.53 5.27 5.27 5.64 5.30
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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. See first
page of performance section for performance calculation method.
Terms and definitions
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.
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 4.75% maximum 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 class B 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 assumes reinvestment of all distributions
and interest payments and does not take into account brokerage fees or
taxes. Securities in the fund do not match those in the index and
performance of the fund will differ. 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.
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A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
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
TAN -- Tax Anticipation Notes
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.7%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Guam (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,500,000 Guam, Pwr. Auth. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 10/1/29 AAA $ 1,335,000
Michigan (89.1%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Battle Creek, Downtown Dev.TAN, MBIA,
5s, 5/1/17 AAA 3,605,000
5,500,000 Battle Creek, Downtown Dev. Auth. Tax
Increment Rev. Bonds, 7.65s, 5/1/22 BBB 6,235,625
2,000,000 Battle Creek, Tax Incremental Fin Auth.
Rev. Bonds, 7.1s, 5/1/10 A- 2,225,000
1,500,000 Big Rapids, Pub. Schools Dist. G.O. Bonds,
FSA, 4 3/4s, 5/1/25 Aaa 1,231,875
Detroit, G.O. Bonds
2,475,000 Ser. B, 7s, 4/1/04 A- 2,666,813
4,875,000 Ser. A, 6.8s, 4/1/15 Aaa 5,386,875
Detroit, City School Dist. G.O. Bonds
1,500,000 Ser. A, AMBAC, 6 1/2s, 5/1/11 Aaa 1,651,875
2,455,000 Ser. A, AMBAC, 6 1/2s, 5/1/09 Aaa 2,706,638
5,000,000 Ser. B, FGIC, 4 3/4s, 5/1/28 Aaa 4,068,750
Detroit, Loc. Dev. Fin. Auth. Tax Increment
Rev. Bonds, Ser. A,
1,130,000 9 1/2s, 5/1/21 BBB+/P 1,296,675
1,500,000 5 1/2s, 5/1/21 A2 1,357,500
5,390,000 Detroit, Downtown Dev. Auth. Tax Increment
Rev. Bonds (Dev. Area No. 1), Ser. A, MBIA,
4 3/4s, 7/1/25 Aaa 4,433,275
Detroit, Wtr. Supply Syst. IFB, FGIC
1,500,000 9.729s, 7/1/22 Aaa 1,563,750
7,000,000 9.729s, 7/1/22, Prerefunded Aaa 7,910,000
3,000,000 Detroit, Wtr. Supply Syst. Rev. Bonds, MBIA,
Second Lien, Ser. A, 5 3/4s, 7/1/11 Aaa 3,127,500
3,065,000 Detroit/Wayne Cnty., Stad. Auth. Rev. Bonds,
FGIC, 5 1/4s, 2/1/27 Aaa 2,754,669
4,700,000 Dickinson Cnty., Hosp. Rev. Bonds
(Memorial Hosp. Syst.), 8 1/8s, 11/1/24 Ba1 5,457,875
1,400,000 Ecorse, Pub. School Dist. G.O. Bonds, FGIC,
6 1/2s, 5/1/08 Aaa 1,536,500
Flint, Hosp. Bldg. Auth. Rev. Bonds
(Hurley Med. Ctr.), Ser. A
2,000,000 7.8s, 7/1/14 Baa1 2,082,100
630,000 6s, 7/1/06 Baa1 630,788
1,250,000 5 3/8s, 7/1/28 Baa1 1,023,438
1,000,000 5 3/8s, 7/1/20 Baa1 845,000
4,235,000 Garden Cty, Hosp. Fin. Auth. Rev. Bonds
Ser. A, 5 3/4s, 9/1/17 BB/P 3,684,450
1,000,000 Grand Rapids, Hsg. Fin. Auth. Multi-Fam.
Rev. Bonds, Ser. A, FNMA Coll., 7 5/8s, 9/1/23 AAA 1,067,500
5,500,000 Grand Rapids, Sanitation Swr. Syst. Rev. Bonds,
Ser. A, FGIC, 4 3/4s, 1/1/28 Aaa 4,510,000
4,000,000 Greater Detroit, Res. Recvy. Auth. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 12/13/06 Aaa 4,290,000
3,500,000 Kalamazoo, Hosp. Fin. Auth. Fac. IFB, FGIC,
7.608s, 6/1/11 Aaa 3,408,125
800,000 Manistee, Area Pub. Schools G.O. Bonds, FGIC,
5 3/4s, 5/1/19 AAA 788,000
3,840,000 MI Muni. Board Auth. State Revolving Rev. Bonds,
6 1/2s, 10/1/17 Aa1 4,200,000
1,000,000 MI Muni. Bond Auth. Rev. Bonds (Drinking Wtr.
Revolving FD), 5 1/2s, 10/1/18 Aa1 968,750
3,280,000 MI Pub. Pwr. Agcy. Rev. Bonds (Belle Riv.), Ser. A,
MBIA, 5 1/4s, 1/1/18 Aaa 3,066,800
7,000,000 MI State Bldg. Auth. Rev. Bonds, Ser. I, AMBAC,
6 1/2s, 10/1/07 Aaa 7,673,750
MI State Hosp. Fin. Auth. Rev. Bonds
920,000 (Garden City Hosp.), 8 1/2s, 9/1/17 Ba3 1,001,650
460,000 (Garden City Hosp.), 8 1/2s, 9/1/17, Prerefunded Ba3 500,825
4,500,000 (Sinai Hosp.), 6.7s, 1/1/26 A- 4,370,625
2,000,000 (Sinai Hosp.), 6 5/8s, 1/1/16 Baa2 1,950,000
2,000,000 (Presbyterian Villages), 6 1/2s, 1/1/25 BBB/P 1,962,500
2,000,000 (Presbyterian Villages), 6.4s, 1/1/15 BBB/P 1,972,500
3,000,000 (Chelsea Cmnty. Hosp.), 5 3/8s, 5/15/19 BBB 2,568,750
MI State Hsg. Dev. Auth. Rental Hsg. Rev. Bonds
1,600,000 Ser. A, FSA, 7.55s, 4/1/23 Aaa 1,676,000
2,900,000 Ser. B, AMBAC, 6 3/4s, 10/1/12 Aaa 2,874,625
2,500,000 MI State Strategic Fund Solid Waste Disp. Rev.
Bonds (SD Warren Co.), Ser. C, 7 3/8s, 1/15/22 BB-/P 2,650,000
MI State Strategic Fund Ltd. Oblig. Rev. Bonds
2,735,000 (Arbor Model & Tooling), 10 1/4s, 9/15/19 B/P 2,933,288
3,600,000 (Mercy Svcs. for Aging), 9.4s, 5/15/20 Aaa 3,756,024
3,150,000 (Ford Motor Co.), Ser. A, 7.1s, 2/1/06 A1 3,484,688
1,500,000 (Detroit Pollution), AMBAC, 7s, 5/1/21 Aaa 1,711,875
3,000,000 (Worthington Armstrong Venture),
5 3/4s, 10/1/22 A- 2,805,000
5,000,000 MI State Strategic Fund Ltd. Rev. Bonds (Detroit
Edison Co.), Ser. A, MBIA, 5.55s, 9/1/29 Aaa 4,600,000
5,000,000 Pontiac Hosp. Fin. Auth. Rev. Bonds, 6s, 8/1/23 Baa3 4,525,000
3,000,000 Waterford, Econ. Dev. Corp. Rev. Bonds
(Canterbury Hlth.), 6s, 1/1/39 B-/P 2,550,000
2,000,000 Wayland, Uni. School Dist. Rev. Bonds, FGIC,
8s, 5/1/10 Aaa 2,430,000
2,000,000 Wayne Charter Cnty., Arpt. Rev. Bonds (Detroit
Met. Wayne Cnty), Ser. A, MBIA, 5s, 12/1/28 Aaa 1,697,500
Wayne Charter Cnty., Special Arpt. Fac. Rev. Bonds
(Northwest Airlines Inc.)
1,000,000 6 3/4s, 12/1/15 BB+/P 1,025,000
1,000,000 6s, 12/1/29 BB+/P 911,250
2,405,000 Wayne Cnty., Bldg. Auth. G.O. Bonds, Ser. A, MBIA,
6s, 6/1/08 Aaa 2,558,319
3,200,000 Wyandotte, Elec. Rev. Bonds, MBIA, 6 1/4s, 10/1/17 Aaa 3,340,000
1,240,000 Ypsilanti, School Dist. G.O. Bonds, FGIC,
5 3/8s, 5/1/26 Aaa 1,137,700
--------------
158,448,015
Puerto Rico (8.8%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 5.4s, 7/1/25 AAA 957,500
2,835,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Z, MBIA, 6 1/4s, 7/1/11 Aaa 3,122,044
1,900,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN,
AMBAC, 3 1/4s, 7/1/28 A-1+ 1,900,000
2,000,000 Cmnwlth. of PR, Pub. Impt. G.O. Bonds, FSA,
5 1/2s, 7/1/13 Aaa 2,030,000
3,000,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. X, MBIA,
6s, 7/1/15 Aaa 3,142,500
2,500,000 PR Pub. Bldg. Auth. Rev. Gtd. (Govt. Fac.), Ser. B,
AMBAC, 5s, 7/1/27 AAA 2,209,375
2,100,000 PR Pub. Bldg. Auth. Fac. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 7/1/14 Aaa 2,281,121
--------------
15,642,540
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $178,306,340) (b) $175,425,555
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $177,751,979.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1999 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 ratings
do not necessarily represent what the agencies would ascribe to these securities at November 30, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $178,306,340, resulting in gross unrealized appreciation and
depreciation of $4,165,642 and $7,046,427, respectively, or net unrealized depreciation of $2,880,785.
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, 1999.
The fund had the following industry group concentrations greater than 10% at November 30, 1999 (as a percentage
of net assets):
Health care 21.2%
Water and sewer 10.2
The fund had the following insurance concentrations greater than 10% at November 30, 1999 (as a percentage of net
assets):
MBIA 19.1%
FGIC 16.1
AMBAC 15.4
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $178,306,340) (Note 1) $175,425,555
- -----------------------------------------------------------------------------------------------
Cash 706,419
- -----------------------------------------------------------------------------------------------
Interest and other receivables 2,610,165
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 58,790
- -----------------------------------------------------------------------------------------------
Total assets 178,800,929
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 502,492
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 193,729
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 226,188
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 10,101
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 9,879
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,044
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 77,016
- -----------------------------------------------------------------------------------------------
Other accrued expenses 28,501
- -----------------------------------------------------------------------------------------------
Total liabilities 1,048,950
- -----------------------------------------------------------------------------------------------
Net assets $177,751,979
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $183,092,498
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 133,208
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,592,942)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,880,785)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $177,751,979
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($132,633,099 divided by 15,383,915 shares) $8.62
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.62)* $9.05
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($42,766,236 divided by 4,967,246 shares)+ $8.61
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,352,644 divided by 273,007 shares) $8.62
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.62)** $8.91
- -----------------------------------------------------------------------------------------------
* 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.
** 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.
+ Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 5,591,242
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 480,253
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 101,285
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,407
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,087
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 139,136
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 190,531
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5,207
- -----------------------------------------------------------------------------------------------
Auditing 22,399
- -----------------------------------------------------------------------------------------------
Legal 3,795
- -----------------------------------------------------------------------------------------------
Postage 5,685
- -----------------------------------------------------------------------------------------------
Other 10,173
- -----------------------------------------------------------------------------------------------
Total expenses 966,958
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (40,102)
- -----------------------------------------------------------------------------------------------
Net expenses 926,856
- -----------------------------------------------------------------------------------------------
Net investment income 4,664,386
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (662,383)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 68,579
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (10,262,435)
- -----------------------------------------------------------------------------------------------
Net loss on investments (10,856,239)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(6,191,853)
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 4,664,386 $ 8,987,766
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (593,804) (785,926)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (10,262,435) (3,345,589)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (6,191,853) 4,856,251
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (3,601,024) (7,013,975)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,013,058) (1,834,233)
- ---------------------------------------------------------------------------------------------------------------
Class M (50,352) (80,990)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A -- (408,453)
- ---------------------------------------------------------------------------------------------------------------
Class B -- (125,863)
- ---------------------------------------------------------------------------------------------------------------
Class M -- (4,470)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (5,578,987) 10,354,967
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (16,435,274) 5,743,234
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 194,187,253 188,444,019
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $133,208 and $133,256, respectively) $177,751,979 $194,187,253
- ---------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.14 $9.35 $9.12 $8.85 $9.01 $8.90
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .44 .47 .48 .49 .52
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.52) (.18) .27 .27 (.16) .11
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.29) .26 .74 .75 .33 .63
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.44) (.47) (.48) (.49) (.52)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.03) (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net gain
on investments -- -- (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.51) (.48) (.49) (.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.62 $9.14 $9.35 $9.12 $8.85 $9.01
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.20)* 2.77 8.28 8.67 3.76 7.45
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $132,633 $145,438 $145,547 $142,038 $138,390 $136,010
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .44* 1.00 .99 .99 1.00 .95
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.59* 4.81 5.02 5.33 5.42 6.03
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 3.30* 19.51 32.44 55.30 139.08 82.91
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended May 31,1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.12 $9.34 $9.11 $8.84 $9.00 $8.90
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .38 .41 .43 .43 .47
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.51) (.19) .27 .26 (.16) .10
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.31) .19 .68 .69 .27 .57
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.38) (.41) (.42) (.43) (.47)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.03) (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net gain
on investments -- -- (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.41) (.45) (.42) (.43) (.47)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.61 $9.12 $9.34 $9.11 $8.84 $9.00
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.42)* 2.00 7.58 7.99 3.05 6.72
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $42,766 $46,827 $41,155 $35,041 $29,371 $21,071
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77* 1.65 1.64 1.64 1.65 1.59
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.27* 4.16 4.36 4.68 4.74 5.31
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 3.30* 19.51 32.44 55.30 139.08 82.91
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended May 31,1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 April 17, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.13 $9.35 $9.12 $8.85 $9.00 $8.80
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .42 .44 .46 .47 .05(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.51) (.20) .27 .27 (.16) .21
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.29) .22 .71 .73 .31 .26
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.41) (.44) (.46) (.46) (.06)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.03) (.03) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net gain
on investments -- -- (.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.48) (.46) (.46) (.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.62 $9.13 $9.35 $9.12 $8.85 $9.00
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.24)* 2.36 7.95 8.36 3.53 2.03*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,353 $1,922 $1,742 $719 $558 $119
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .59* 1.30 1.29 1.29 1.28 .20*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.46* 4.51 4.70 5.01 5.06 .84*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 3.30* 19.51 32.44 55.30 139.08 82.91
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended May 31,1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
November 30, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Michigan Tax Exempt Income Fund (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 higher than class A shares but lower than class B
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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. Restricted
securities are stated at fair value following procedures approved by the
Trustees. Such valuations and procedures are reviewed periodically by the
Trustees.
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). Gains or losses on securities sold are determined on
the identified cost basis.
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. When the contract is closed, the fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities.
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) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the six months
ended November 30, 1999, the fund had no borrowings against the line of
credit.
E) 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, as amended. 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, 1999, the fund had a capital loss carryover of approximately
$493,000 available to offset future net capital gain, if any, which will
expire on May 31, 2007.
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least 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.
G) 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 original issue
discount are accreted according to the yield-to-maturity basis.
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, 0.34% of the next $5 billion, and 0.33% thereafter.
On June 4, 1999, the Trustees approved a management fee schedule to become
effective on July 1, 1999, based upon the lesser of (i) an annual rate of
0.50% of the average net asset value of the Fund or (ii) the initial tiers
mentioned above.
The fund reimburses Putnam Management an allocated amount 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 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, 1999, fund expenses were reduced by
$40,102 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.
Each Trustee of the fund receives an annual Trustee fee, of which $533 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral 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
invested in certain Putnam funds until distribution in accordance with the
Deferral 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 a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and meeting
fees 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 to 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, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $7,978 and $95 from the
sale of class A and class M shares, respectively and $89,182 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, 1999, Putnam Mutual Funds
Corp., acting as underwriter received no monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $6,038,019 and $14,130,579, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 499,232 $ 4,428,899
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 240,875 2,124,344
- -----------------------------------------------------------------------------
740,107 6,553,243
Shares
repurchased (1,275,286) (11,247,140)
- -----------------------------------------------------------------------------
Net decrease (535,179) $(4,693,897)
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,725,193 $16,064,790
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 479,808 4,473,481
- -----------------------------------------------------------------------------
2,205,001 20,538,271
Shares
repurchased (1,845,179) (17,183,402)
- -----------------------------------------------------------------------------
Net increase 359,822 $ 3,354,869
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 385,483 $ 3,409,953
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 72,853 641,432
- -----------------------------------------------------------------------------
458,336 4,051,385
Shares
repurchased (623,750) (5,498,536)
- -----------------------------------------------------------------------------
Net decrease (165,414) $(1,447,151)
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,234,921 $11,495,290
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 131,932 1,228,568
- -----------------------------------------------------------------------------
1,366,853 12,723,858
Shares
repurchased (639,785) (5,947,004)
- -----------------------------------------------------------------------------
Net increase 727,068 $ 6,776,854
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 91,663 $820,749
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,059 44,477
- -----------------------------------------------------------------------------
96,722 865,226
Shares repurchased (34,163) (303,165)
- -----------------------------------------------------------------------------
Net increase 62,559 $562,061
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 94,529 $877,829
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,653 62,037
- -----------------------------------------------------------------------------
101,182 939,866
Shares repurchased (77,035) (716,622)
- -----------------------------------------------------------------------------
Net increase 24,147 $223,244
- -----------------------------------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another 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 the original
cost of the shares.
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 learn more about Putnam, visit our Web site.
www.putnaminv.com
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
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]**
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Susan McCormack
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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 the
principal amount invested.
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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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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
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