Putnam
Michigan Tax
Exempt Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including enhanced disclosure
about your fund. For example, in the spring of 2004 we began showing
expense and risk comparisons in shareholder reports. We are now
including in this report portfolio turnover information for your fund,
which explains how the rate at which a fund buys and sells portfolio
securities might affect its return and its taxable distributions to
shareholders. We are also including additional disclosure about your
fund's management team. Following the section entitled, "The outlook for
your fund," we list any changes regarding your fund's Portfolio Leader
and Portfolio Members during the prior year period, as well as
information about the current Portfolio Leader's and Portfolio Members'
other fund management responsibilities at Putnam. We also show how much
these individuals have invested in the fund (in dollar ranges). Fund
ownership (in dollar ranges) is also shown for the members of Putnam's
Executive Board.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Michigan Tax
Exempt Income Fund delivered respectable results. In the following pages,
the fund's management discusses fund performance, strategy, and its outlook
for the remainder of fiscal 2005.
We thank you for your support of the Putnam funds throughout 2004 and
wish you all the best in 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 19, 2005
Report from Fund Management
Fund highlights
* For the six months ended November 30, 2004, Putnam Michigan Tax Exempt
Income Fund's class A shares returned 3.57% without sales charges and
-1.09% with maximum sales charges reflected.
* The fund's benchmark, the Lehman Municipal Bond Index, returned 4.29%
during the same period.
* The average return for the fund's Lipper category, Michigan Municipal
Debt Funds, was 3.50%.
* See the Performance Summary beginning on page 10 for additional fund
performance, comparative performance, and Lipper data.
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TOTAL RETURN FOR
PERIODS ENDED 11/30/04
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Class A
(inception 10/23/89) NAV POP
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6 months 3.57% -1.09%
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1 year 3.04 -1.58
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5 years 31.49 25.53
Annual average 5.63 4.65
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10 years 79.19 71.12
Annual average 6.01 5.52
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Annual average
(life of fund) 6.03 5.70
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return and principal value will fluctuate and you may have a gain or a
loss when you sell your shares. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 4.50%. For the most recent month-end
performance, visit www.putnaminvestments.com. For a portion of the
period, this fund limited expenses, without which returns would have
been lower. A 2% short-term trading fee may be applied to shares
exchanged or sold within 5 days of purchase.
Performance commentary
During the six months ended November 30, 2004, despite uncertainty about
the war in Iraq and the political landscape at home, the economy was on
relatively solid ground and continuing to improve. The fixed-income market
generally fared well in this environment. There was a flattening of the
yield curve as short-term interest rates rose slightly and rates on
longer-term bonds declined. This drove prices on medium- to long-term bonds
higher. However, because we had positioned your fund's portfolio
defensively in anticipation of a broader-based increase in rates, the fund
did not benefit fully from these higher prices. The fund's underperformance
of its benchmark index is due in part to this defensive strategy, but also
to the fact that the benchmark is nationally diversified and will therefore
reflect the strength of other states' municipal bond markets. The fund's
returns at net asset value (NAV) were in line with the average for its
Lipper category.
FUND PROFILE
Putnam Michigan Tax Exempt Income Fund seeks to provide as high a level
of current income free from federal and state of Michigan personal
income taxes, as is believed to be consistent with the preservation of
capital. It may be suitable for Michigan investors seeking tax-free
income through a diversified portfolio primarily consisting of Michigan
municipal bonds.
Market overview
Over the past six months, most municipal yields fell and bond prices,
which move in the opposite direction of yields, rose. Early 2004 was
marked by rising yields, as bond market investors were anticipating that
the Federal Reserve Board (the Fed) would need to raise short-term
interest rates. Interestingly, when the Fed announced what had been a
widely anticipated 25-basis-point (one quarter of a percentage point)
increase at its June 30 meeting, the bond market changed course. Yields
of municipal bonds with maturities greater than two years generally
trended downward. At the same time, yields rose for bonds with very
short maturities (two years and shorter). This resulted in a flattening
of the yield curve -- that is, shorter- and longer-term interest rates
began to converge.
Among uninsured bonds and bonds rated A and below, yield spreads
generally tightened and bond prices rose. These higher-yielding
securities continued to provide attractive income streams that also
contributed to the fund's total return. Municipal bonds issued by the
State of California were generally strong performers, as the economy
improved and rating agencies upgraded the state's credit rating. Yields
on tobacco settlement bonds varied with the results of ongoing legal
battles, but declined overall for the period and their prices rose,
accordingly. Airline-related industrial development bonds (IDBs)
performed poorly, in general, as the industry continued to face
financial difficulties that were made worse by record high oil prices.
New York City general obligation bonds rose in price over the past six
months, reflecting a dearth of new issuance, as well as investors'
confidence in improving economic prospects for the city.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/04
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 4.29%
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Lehman Aggregate Bond Index (broad bond market) 3.82%
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Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) 2.19%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.02%
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Equities
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S&P 500 Index (broad stock market) 5.68%
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Russell 2000 Index (stocks of small and midsize companies) 12.18%
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MSCI EAFE Index (international stocks) 12.58%
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These indexes provide an overview of performance in different market
sectors for the six months ended 11/30/04.
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Strategy overview
We believe that interest rates will likely rise and we are positioning
the portfolio more defensively. This involves shortening the fund's
duration, which means reducing its sensitivity to changes in interest
rates. Because we believe the yield curve will likely continue to
flatten, we have concentrated our bond sales in shorter and intermediate
maturities, which we believe are likely to underperform. We also used
interest-rate swaps to manage the fund's duration. Meanwhile, we
continued to trim and diversify the fund's positions in uninsured bonds
and bonds rated A and below, which have performed strongly. The fund
maintained an overweight position in tobacco settlement bonds relative
to its benchmark. We closely monitored developments in this sector.
In previous fiscal years, the fund emphasized non-callable bonds --
bonds that the issuer is not permitted to redeem (or call) before the
maturity date. These issues performed well as rates fell through March
2004, but during the spring we began to moderate this position, selling
non-callable bonds and purchasing longer callable issues. We believe
these callable bonds may perform better than non-callable bonds if
interest rates rise and the yield curve flattens further.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
5/31/04 11/30/04
Average effective
maturity in years 7.6 6.2
Duration in years 5.4 4.6
Footnotes read:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
How fund holdings affected performance
Tobacco settlement bonds continued to perform well for the fund. These
bonds are secured by the income stream from tobacco companies'
settlement obligations to the states and generally offer higher yields
than bonds of comparable quality. This income could be jeopardized as a
result of multibillion-dollar judgments against the tobacco companies,
and prices in this sector have shifted as concerns about litigation
overshadowed optimism. These bonds had generated mixed returns during
the period, but as credit spreads -- the difference in yields between
higher-quality and lower-quality bonds -- continued to narrow late in
the reporting period, tobacco settlement bonds saw a meaningful uptick.
We expect a certain degree of continued volatility from these holdings,
but on the whole, we find them an attractive investment opportunity and
remain slightly overweighted in this sector, relative to the benchmark
index. While these holdings performed well, due to the size of our
positions, they had a limited impact on the performance of the
portfolio.
Also of significance were the returns generated by your fund's other
lower-quality positions. As yields on lower-rated bonds fell during the
period, prices on older issues tended to rise. This trend was not
surprising, and to that end, we tried to capitalize on narrowing spreads by
selling into investor demand for yield. One specific example of a
lower-rated bond that performed well is Flint Hospital Building Authority
revenue bonds for Hurley Medical Center, which has a maturity date of 2020.
Bonds from the state's hospital and health-care sectors performed well for
the fund, and this particular issue was among the stronger performers over
the period. In an effort to further diversify the fund's holdings and
because hospitals are generally under a certain degree of pressure from
rising labor costs, we sold off some of the fund's position in Pontiac
Hospital Financing Authority for North Oakland Medical Center bonds. While
this holding had performed well, we felt there were other, more attractive
opportunities in the market, especially among callable bonds.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
AAA (69.0%)
Aa (6.2%)
A (8.2%)
Baa (7.0%)
Ba (3.4%)
B (1.9%)
VMIG1 (4.3%)
Footnote reads:
As a percentage of market value as of 11/30/04. A bond rated Baa or
higher is considered investment grade. The chart reflects Moody's
ratings; percentages may include bonds not rated by Moody's but
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
For the last few years, the fund has maintained a position in
non-callable bonds -- bonds that cannot be refunded by the issuer before
the maturity date. In a declining interest-rate environment, the
fixed-income market tends to put a premium on this feature. With
interest rates rising, that added layer of protection is less useful and
we believe these bonds are becoming less attractive. With that in mind,
we sold non-callable securities like Michigan Public Power Refunding
bonds and purchased callable bonds such as Gull Lake School District
bonds, which are callable in 2014. This type of move was beneficial from
a relative value standpoint, since we believe callable bonds are likely
to outperform their non-callable counterparts going forward.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
Judging from the flattened yield curve, the bond market appears to have
largely shrugged off the recent Fed rate hikes. However, we believe that
interest rates all along the yield curve are more likely to rise than
fall. The Fed has raised the fed funds rate four times in 25-basis-point
increments since June 2004, bringing it to two percent at the end of the
period. We believe the Fed will likely continue to raise short-term
rates incrementally through mid-2005, which is likely to cause rising
yields among bonds with shorter maturities. This also suggests possible
further flattening of the yield curve. The fund is positioned
defensively in terms of duration, and we will continue to monitor and
adjust the fund's duration as it seems appropriate. We believe inflation
will likely remain low, despite the threat posed by high oil prices. We
also anticipate that the rate of GDP growth may slow during the next two
quarters, as the effects of the Fed's tightening policy are felt.
In general, these signs indicate that we are headed into a potentially
more challenging environment for bond investing. Our task will be to
continue to search for the most attractive opportunities among
tax-exempt securities and to balance the pursuit of attractive current
income with prudent risk management.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. This fund
concentrates its investments in one state and involves more risk than a
fund that invests more broadly. Capital gains, if any, are taxable for
federal and, in most cases, state purposes. For some investors,
investment income may be subject to the federal alternative minimum tax.
Income from federally exempt funds may be subject to state and local
taxes. Mutual funds that invest in bonds are subject to certain risks,
including interest-rate risk, credit risk, and inflation risk. As
interest rates rise, the prices of bonds fall. Long-term bonds are more
exposed to interest-rate risk than short-term bonds. Unlike bonds, bond
funds have ongoing fees and expenses. Tax-free funds may not be suitable
for IRAs and other non-taxable accounts.
Your fund's management
Your fund is managed by the members of the Putnam Tax Exempt
Fixed-Income Team. David Hamlin is the Portfolio Leader, and Paul Drury,
Susan McCormack, and James St. John are Portfolio Members of your fund.
The Portfolio Leader and Portfolio Members coordinate the team's
management of the fund.
For a complete listing of the members of the Putnam Tax Exempt
Fixed-Income Team, including those who are not Portfolio Leaders or
Portfolio Members of your fund, visit Putnam's Individual Investor Web
site at www.putnaminvestments.com.
Fund ownership
The table below shows how much the fund's current Portfolio Leader and
Portfolio Members have invested in the fund (in dollar ranges).
Information shown is for the current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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David Hamlin 2004 *
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Portfolio Leader 2003 *
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Paul Drury 2004 *
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Portfolio Member 2003 *
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Susan McCormack 2004 *
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Portfolio Member 2003 *
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James St. John 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Members
David Hamlin is the Portfolio Leader and Paul Drury, Susan McCormack,
and James St. John are Portfolio Members for Putnam's tax-exempt funds
for the following states: Arizona, California, Florida, Massachusetts,
Minnesota, New Jersey, New York, Ohio, and Pennsylvania. The same group
also manages Putnam AMT-Free Insured Munici pal Fund*, Putnam California
Investment Grade Municipal Trust, Putnam High Yield Municipal Trust,
Putnam Investment Grade Municipal Trust, Putnam Managed Municipal Income
Trust, Putnam Municipal Bond Fund, Putnam Municipal Income Fund, Putnam
Municipal Opportunities Trust, Putnam New York Investment Grade
Municipal Trust, Putnam Tax Exempt Income Fund, Putnam Tax-Free Health
Care Fund, and Putnam Tax-Free High Yield Fund.
David Hamlin, Paul Drury, Susan McCormack, and James St. John may also
manage other accounts advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
During the year ended November 30, 2004, Portfolio Member Richard Wyke
left your fund's management team.
* Formerly Putnam Tax-Free Insured Fund.
Fund ownership
The table below shows how much the members of Putnam's Executive Board
have invested in the fund (in dollar ranges). Information shown is for
the current and prior year ended December 31.
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PUTNAM EXECUTIVE BOARD
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$1 - $10,001 - $50,001 - $100,001
Year $0 $10,000 $50,000 $100,000 $500,000
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Philippe Bibi 2004 *
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Chief Technology Officer 2003 *
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John Boneparth 2004 *
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Head of Global Institutional Mgmt 2003 *
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Kevin Cronin 2004 *
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Deputy Head of Investments N/A
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Charles Haldeman, Jr. 2004 *
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President and CEO 2003 *
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Amrit Kanwal 2004 *
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Chief Financial Officer N/A
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Steven Krichmar 2004 *
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Chief of Operations N/A
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Francis McNamara, III 2004 *
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General Counsel N/A
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Richard Monaghan 2004 *
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Head of Retail Management 2003 *
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Stephen Oristaglio 2004 *
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Head of Investments 2003 *
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Richard Robie, III 2004 *
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Chief Administrative Officer N/A
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N/A indicates the individual was not a member of Putnam's Executive
Board as of 12/31/03.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended November 30, 2004. In accordance with
regulatory requirements, we also include performance for the most
current calendar quarter-end. Performance should always be considered in
light of a fund's investment strategy. Data represents past performance.
Past performance does not guarantee future results. More recent returns
may be less or more than those shown. Investment return and principal
value will fluctuate and you may have a gain or a loss when you sell
your shares. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 11/30/04
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Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/17/95)
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NAV POP NAV CDSC NAV POP
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6 months 3.57% -1.09% 3.23% -1.77% 3.41% 0.04%
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1 year 3.04 -1.58 2.25 -2.69 2.73 -0.65
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5 years 31.49 25.53 27.29 25.29 29.51 25.32
Annual average 5.63 4.65 4.94 4.61 5.31 4.62
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10 years 79.19 71.12 67.94 67.94 73.67 67.99
Annual average 6.01 5.52 5.32 5.32 5.67 5.32
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Annual average
(life of fund) 6.03 5.70 5.29 5.29 5.66 5.43
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Performance assumes reinvestment of distributions and does not account for
taxes. Returns at public offering price (POP) for class A and M shares
reflect a sales charge of 4.50% and 3.25%, respectively. Class B share
returns reflect the applicable contingent deferred sales charge (CDSC),
which is 5% in the first year, declining to 1% in the sixth year, and is
eliminated thereafter. Performance for class B and M shares before their
inception is derived from the historical performance of class A shares,
adjusted for the applicable sales charge (or CDSC) and higher operating
expenses for such shares.
For a portion of the period, this fund limited expenses, without which
returns would have been lower.
A 2% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/04
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Lehman Lipper Michigan
Municipal Municipal Debt Funds
Bond Index category average*
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6 months 4.29% 3.50%
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1 year 4.07 2.77
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5 years 38.84 32.46
Annual average 6.78 5.78
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10 years 99.68 85.32
Annual average 7.16 6.35
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Annual average
(life of fund) 7.05 6.39
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Index and Lipper results should be compared to fund performance
at net asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/04,
there were 37, 37, 35, and 24 funds, respectively, in this
Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/04
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Class A Class B Class M
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Distributions (number) 6 6 6
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Income 1 $0.175464 $0.146066 $0.161959
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Capital gains 1 -- -- --
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Total $0.175464 $0.146066 $0.161959
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Share value: NAV POP NAV NAV POP
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5/31/04 $8.86 $9.28 $8.85 $8.86 $9.16
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11/30/04 9.00 9.42 8.99 9.00 9.30
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Current return (end of period)
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Current dividend rate 2 3.81% 3.64% 3.15% 3.50% 3.39%
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Taxable equivalent 3 6.10 5.83 5.05 5.61 5.43
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Current 30-day SEC yield
(with expense limitation) 4,5 2.67 2.55 2.02 2.37 2.29
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Taxable equivalent 3 4.28 4.08 3.24 3.80 3.67
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Current 30-day SEC yield
(without expense limitation) 4 2.65 2.54 2.01 2.35 2.28
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 37.57% federal and state combined tax rate for 2004.
Results for investors subject to lower tax rates would not be
advantageous.
4 Based only on investment income, calculated using SEC guidelines.
5 For a portion of the period, this fund limited expenses, without which
yields would have been lower.
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TOTAL RETURN FOR PERIODS ENDED 12/31/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/17/95)
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NAV POP NAV CDSC NAV POP
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6 months 4.22% -0.46% 3.89% -1.11% 4.06% 0.68%
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1 year 3.45 -1.17 2.78 -2.20 3.14 -0.24
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5 years 34.53 28.44 30.23 28.23 32.49 28.26
Annual average 6.11 5.13 5.42 5.10 5.79 5.10
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10 years 76.54 68.53 65.44 65.44 71.10 65.59
Annual average 5.85 5.36 5.16 5.16 5.52 5.17
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Annual average
(life of fund) 6.06 5.74 5.32 5.32 5.69 5.46
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Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. In the most
recent six-month period, your fund limited these expenses; had it not done
so, expenses would have been higher. Using the information below, you can
estimate how these expenses affect your investment and compare them with
the expenses of other funds. You may also pay one-time transaction
expenses, including sales charges (loads) and redemption fees, which are
not shown in this section and would have resulted in higher total expenses.
For more information, see your fund's prospectus or talk to your financial
advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Michigan Tax Exempt Income Fund from June 1, 2004, to
November 30, 2004. It also shows how much a $1,000 investment would be
worth at the close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 11/30/04
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Class A Class B Class M
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Expenses paid per $1,000* $4.64 $7.95 $6.17
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Ending value (after expenses) $1,035.70 $1,032.30 $1,034.10
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* Expenses for each share class are calculated using the fund's annualized
expense ratio for each class, which represents the ongoing expenses as a
percentage of net assets for the six months ended 11/30/04. The expense
ratio may differ for each share class (see the table at the bottom of the
next page). Expenses are calculated by multiplying the expense ratio by the
average account value for the period; then multiplying the result by the
number of days in the period; and then dividing that result by the number of
days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended November
30, 2004, use the calculation method below. To find the value of your
investment on June 1, 2004, go to www.putnaminvestments.com and log on to
your account. Click on the "Transaction History" tab in your Daily
Statement and enter 06/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 6/1/04 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $4.64 (see table above) = $46.40
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines to
help investors assess fund expenses. Per these guidelines, the table below
shows your fund's expenses based on a $1,000 investment, assuming a
hypothetical 5% annualized return. You can use this information to compare
the ongoing expenses (but not transaction expenses or total costs) of
investing in the fund with those of other funds. All mutual fund
shareholder reports will provide this information to help you make this
comparison. Please note that you cannot use this information to estimate
your actual ending account balance and expenses paid during the period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 11/30/04
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Class A Class B Class M
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Expenses paid per $1,000* $4.61 $7.89 $6.12
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Ending value (after expenses) $1,020.51 $1,017.25 $1,019.00
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended
11/30/04. The expense ratio may differ for each share class (see the
table at the bottom of this page). Expenses are calculated by
multiplying the expense ratio by the average account value for the
period; then multiplying the result by the number of days in the period;
and then dividing that result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment styles
or objectives. The expense ratio for each share class shown below indicates
how much of your fund's net assets have been used to pay ongoing expenses
during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class M
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Your fund's annualized
expense ratio 0.91% 1.56% 1.21%
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Average annualized expense
ratio for Lipper peer
group+ 0.95% 1.60% 1.25%
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+ Average of the expenses of front-end load funds viewed by Lipper as
having the same investment classification or objective as the fund, as of
9/30/04, calculated in accordance with Lipper's standard reporting
methodology for comparing expenses within a given universe (excluding 12b-1
fees and without giving effect to any expense offset and brokerage service
arrangements that may reduce fund expenses). To facilitate comparison,
Putnam has adjusted this average to reflect the 12b-1 fees carried by each
class of shares. The peer group may include funds that are significantly
larger or smaller than the fund, which may limit the comparability of the
fund's expenses to the Lipper average.
Understanding your fund's
portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries, economies,
and markets. Portfolio turnover is a measure of how often a fund's managers
buy and sell securities for your fund. A portfolio turnover of 100%, for
example, means that the managers sold and replaced securities valued at
100% of a fund's assets within a one-year period. Funds with high turnover
may be more likely to generate capital gains and dividends that must be
distributed to shareholders as taxable income. High turnover may also cause
a fund to pay more brokerage commissions and other transaction costs, which
may detract from performance.
Funds that invest in bonds may have higher turnover than funds that invest
only in stocks. Short-term bond funds tend to have higher turnover than
longer-term bond funds, because shorter-term bonds will mature or be sold
more frequently than longer-term bonds. You can use the table below to
compare your fund's turnover with the average turnover for funds in its
Lipper category.
- -----------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- -----------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------
Putnam Michigan Tax
Exempt Income Fund 10% 24% 21% 14% 7%
- -----------------------------------------------------------------------------
Lipper Michigan Municipal
Debt Funds category
average 26% 30% 20% 29% 47%
- -----------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on May 31. Turnover data for the fund's Lipper category
is calculated based on the average of the turnover of each fund in the
category for its fiscal year ended during the indicated year. Fiscal years
vary across funds in the Lipper category, which may limit the comparability
of the fund's portfolio turnover rate to the Lipper average. Comparative
data for 2004 is based on information available as of 9/30/04.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a risk
comparison to help you understand how your fund compares with other funds.
The comparison utilizes a risk measure developed by Morningstar, an
independent fund-rating agency. This risk measure is referred to as the
fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 0.16
Municipal bond
fund average 0.21
0% INCREASING RISK 100%
Your fund's Overall Morningstar Risk is shown alongside that of the average
fund in its broad asset class, as determined by Morningstar. The risk bar
broadens the com par ison by translating the fund's Overall Morningstar
Risk into a percentile, which is based on the fund's ranking among all
funds rated by Morningstar as of December 31, 2004. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class A
shares only; information for other classes may vary. Overall Morningstar
Risk is based on historical data and does not indicate future results.
Morningstar does not purport to measure the risk associated with a current
investment in a fund, either on an absolute basis or on a relative basis.
Low Overall Morningstar Risk does not mean that you cannot lose money on an
investment in a fund. Copyright 2004 Morningstar, Inc. All Rights Reserved.
The information contained herein (1) is proprietary to Morningstar and/or
its content providers; (2) may not be copied or distributed; and (3) is not
warranted to be accurate, complete, or timely. Neither Morningstar nor its
content providers are responsible for any damages or losses arising from
any use of this information.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assum ing you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of pur chase. POP performance
figures shown here assume the 4.50% 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
Comparative indexes
JP Morgan Global High Yield Index is an unmanaged index used to mirror
the investable universe of the U.S. dollar global high-yield corporate
debt market of both developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, 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.
The fund's portfolio
November 30, 2004 (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
MBIA MBIA Insurance Company
Q-SBLF Qualified School Board Loan Fund
U.S. Govt. Coll. U.S. Government Collateralized
VRDN Variable Rate Demand Notes
Municipal bonds and notes (93.4%) (a)
Principal amount Rating (RAT) Value
Michigan (87.6%)
- -------------------------------------------------------------------------------
$4,875,000 Detroit, G.O. Bonds, Ser. A, 6.8s,
4/1/15 A- $5,002,043
1,500,000 Detroit, City School Dist. G.O.
Bonds, Ser. C, FGIC, Q-SBLF, 5 1/4s,
5/1/17 Aaa 1,677,285
1,500,000 Detroit, Downtown Dev. Auth. Tax
Increment Rev. Bonds (Dev. Area No.
1), Ser. A, MBIA, 4 3/4s, 7/1/25 Aaa 1,505,820
5,700,000 Detroit, Swr. Disp. VRDN, Ser. B,
FSA, 1.68s, 7/1/33 VMIG1 5,700,000
2,480,000 Detroit, Wtr. Supply Syst.
Rev. Bonds (Sr. Lien), Ser. A, MBIA,
5 1/4s, 7/1/19 Aaa 2,697,496
3,065,000 Detroit/Wayne Cnty., Stad. Auth.
Rev. Bonds, FGIC, 5 1/4s, 2/1/27 Aaa 3,166,727
1,000,000 Dickinson Cnty., Econ. Dev. Corp.
Rev. Bonds, 5 3/4s, 6/1/16 Baa2 1,072,200
Flint, Hosp. Auth. Rev. Bonds
(Hurley Med. Ctr.), Ser. A
630,000 6s, 7/1/06 Baa3 650,129
1,000,000 5 3/8s, 7/1/20 Baa3 950,840
1,000,000 Garden City, Hosp. Fin. Auth.
Rev. Bonds (Garden City Hosp. OB
Group), Ser. A, 5 3/4s, 9/1/17 Ba2 932,280
2,000,000 Gibraltar, School Dist. G.O.
Bonds (School Bldg. & Site), FGIC,
5s, 5/1/21 Aaa 2,107,340
1,000,000 Grand Rapids, Hsg. Fin. Auth.
Rev. Bonds, Ser. A, FNMA Coll.,
7 5/8s, 9/1/23 AAA 1,000,630
2,000,000 Greater Detroit, Res. Recvy. Auth.
Rev. Bonds, Ser. A, AMBAC, 6 1/4s,
12/13/06 Aaa 2,155,220
1,925,000 Gull Lake Cmnty., School Dist. G.O.
Bonds (School Bldg. & Site), FSA,
Q-SBLF, 5s, 5/1/26 Aaa 1,977,283
2,190,000 Harper Creek, Cmnty. School Dist.
G.O. Bonds, Q-SBLF, 5 1/8s, 5/1/31 Aa1 2,233,625
1,500,000 Hartland, Cons. School Dist. G.O.
Bonds, FGIC, 6s, 5/1/18 Aaa 1,718,340
1,000,000 Huron, School Dist. G.O. Bonds, FSA,
5 5/8s, 5/1/15 Aaa 1,109,540
7,000,000 Kalamazoo, Hosp. Fin. Auth. Fac.
Rev. Bonds, FGIC, 5.244s, 6/1/11 Aaa 7,151,410
1,450,000 Kent, Hosp. Fin. Auth. Rev. Bonds
(Spectrum Hlth.), Ser. A, MBIA,
5 1/2s, 1/15/16 AAA 1,597,987
1,035,000 Lansing, Bldg. Auth. G.O. Bonds,
Ser. A, MBIA, 5 3/8s, 6/1/20 Aaa 1,130,406
3,000,000 Livonia, Pub. School Dist. G.O.
Bonds, Ser. A, MBIA, 5s, 5/1/22 Aaa 3,146,790
800,000 Manistee, Area School Dist. G.O.
Bonds, FGIC, 5 3/4s, 5/1/19 Aaa 902,584
MI Higher Ed. Fac. Auth. Rev. Bonds
1,000,000 (Ltd. Obligation-Hope College),
Ser. A, 5.55s, 4/1/24 BBB 1,053,370
250,000 (Kalamazoo College), 5s, 12/1/20 A1 256,795
1,000,000 MI Muni. Bond Auth. Rev. Bonds
(Drinking Wtr. Revolving Fund),
5 1/2s, 10/1/18 Aaa 1,127,420
MI State Bldg. Auth. Rev. Bonds
5,750,000 Ser. I, AMBAC, 6 1/2s, 10/1/07 Aaa 6,407,283
1,815,000 (Fac. Program), Ser. I, 4 3/4s,
10/15/25 Aa2 1,863,315
MI State Hosp. Fin. Auth. Rev. Bonds
1,000,000 (Oakwood Hosp.), Ser. A, 6s, 4/1/22 A2 1,074,400
1,000,000 (Holland Cmnty. Hosp.), Ser. A,
FGIC, 5 3/4s, 1/1/21 A2 1,065,410
650,000 (Sparrow Hosp.), 5 1/2s, 11/15/21 A1 669,799
1,000,000 (Oakwood Oblig. Group), 5 1/2s,
11/1/17 A2 1,069,670
1,000,000 (Chelsea Cmnty. Hosp.), 5 3/8s,
5/15/19 BBB 1,001,600
MI State Hsg. Dev. Auth. Ltd. Oblig.
Rev. Bonds (Parkway Meadows), FSA
1,085,000 4s, 10/15/12 Aaa 1,111,474
1,045,000 4s, 10/15/11 Aaa 1,082,432
2,900,000 MI State Hsg. Dev. Auth. Rental Hsg.
Rev. Bonds, Ser. B, AMBAC, 5.45s,
10/1/12 Aaa 2,963,278
2,000,000 MI State South Central Pwr. Agcy.
Rev. Bonds, AMBAC, 5s, 11/1/09 Aaa 2,185,160
1,150,000 MI State Strategic Fund, Ltd.
Rev. Bonds (Ford Motor Co.), Ser. A,
7.1s, 2/1/06 Baa1 1,204,694
1,000,000 MI State Strategic Fund, Ltd. Solid
Waste Disp. Mandatory Put Bonds
(Waste Mgt., Inc.), 4.2s, 12/1/05 BBB 1,010,100
MI State Strategic Fund, Ltd. Solid
Waste Disp. Rev. Bonds
300,000 (Genesee Pwr. Station), 7 1/2s,
1/1/21 B/P 265,695
700,000 (SD Warren Co.), Ser. C, 7 3/8s,
1/15/22 BB/P 726,019
1,250,000 MI State Strategic Fund, Ltd.
Mandatory Put Bonds (Dow Chemical),
3.8s, 6/1/06 A3 1,267,438
MI State Strategic Fund, Ltd.
Rev. Bonds
1,500,000 (Detroit Edison Co.), AMBAC, 7s,
5/1/21 Aaa 1,950,285
3,000,000 (Worthington Armstrong Venture),
U.S. Govt. Coll., 5 3/4s, 10/1/22 AAA/P 3,373,320
420,000 (Detroit Edison Poll. Control),
5.65s, 9/1/29 A3 431,319
5,000,000 (Detroit Edison Co.), Ser. A, MBIA,
5.55s, 9/1/29 Aaa 5,242,850
MI State Strategic Fund, Ltd.
Rev. Bonds
1,000,000 (Detroit Edison Co.), AMBAC, 4.85s,
9/1/30 Aaa 1,061,290
850,000 Midland Cnty., Econ. Dev. Corp.
Rev. Bonds, 6 7/8s, 7/23/09 Ba3 883,958
1,350,000 Mount Clemens, Cmnty. School Dist.
Rev. Bonds (School Bldg. & Site),
Q-SBLF, 5 1/2s, 5/1/18 AAA 1,485,716
1,600,000 Otsego, Pub. School Dist. G.O. Bonds
(School Bldg. & Site), FSA, Q-SBLF,
5s, 5/1/27 Aaa 1,632,448
1,060,000 Oxford Area Cmnty., School Dist.
G.O. Bonds, FSA, Q-SBLF, 5s, 5/1/25 Aaa 1,093,687
1,000,000 Pennfield, School Dist. G.O. Bonds
(School Bldg. and Site), FGIC, 5s,
5/1/26 Aaa 1,027,160
2,000,000 Plymouth-Canton Cmnty., School Dist.
G.O. Bonds, FGIC, Q-SBLF, 5s, 5/1/28 Aaa 2,028,400
1,500,000 Pontiac, Tax Increment Finance
Authority Rev. Bonds, 6 3/8s, 6/1/31 BB+ 1,523,055
500,000 Pontiac, Hosp. Fin. Auth. Rev. Bonds
(North Oakland Med. Ctr.), 6s,
8/1/23 Ba1 428,375
1,400,000 Rochester Cmnty. School Dist. G.O.
Bonds, Ser. II, Q-SBLF, 5 1/2s,
5/1/21 Aa1 1,530,956
1,015,000 Romulus, Township Cmnty. Schools
G.O. Bonds, Q-SBLF, 5s, 5/1/11 Aa1 1,112,105
1,000,000 Royal Oak, Hosp. Fin. Auth.
Rev. Bonds (William Beaumont Hosp.),
Ser. M, MBIA, 5 1/4s, 11/15/35 Aaa 1,020,380
2,500,000 Southfield, Pub. Schools G.O. Bonds,
Ser. B, FSA, 5s, 5/1/14 Aaa 2,749,975
1,000,000 St, Clair Cnty., G.O. Bonds, AMBAC,
5s, 4/1/21 Aaa 1,053,260
1,370,000 Warren, Cons. School Dist. G.O.
Bonds, Q-SBLF, 5s, 5/1/12 Aa1 1,500,273
3,000,000 Waterford, Econ. Dev. Corp.
Rev. Bonds (Canterbury Hlth.), 6s,
1/1/39 B-/P 2,217,840
2,000,000 Wayland, Unified School Dist.
Rev. Bonds, FGIC, Q-SBLF, 8s, 5/1/10 Aaa 2,396,440
2,405,000 Wayne Cnty., Bldg. Auth. G.O. Bonds,
Ser. A, MBIA, 6s, 6/1/08 Aaa 2,578,136
West Bloomfield, School Dist. G.O.
Bonds (School Bldg. & Site)
1,000,000 MBIA, 5 5/8s, 5/1/16 Aaa 1,106,540
1,325,000 FSA, 5s, 5/1/24 Aaa 1,374,290
1,120,000 Western MI U. Rev. Bonds, AMBAC, 5s,
7/15/10 Aaa 1,223,454
2,000,000 Whitmore Lake, Pub. School Dist.
G.O. Bonds, FGIC, Q-SBLF, 5s, 5/1/28 Aaa 2,039,820
1,240,000 Ypsilanti, School Dist. G.O. Bonds,
FGIC, 5 3/8s, 5/1/26 Aaa 1,302,310
1,425,000 Zeeland, Pub. Schools G.O. Bonds
(School Bldg. & Site), MBIA, 5s,
5/1/27 Aaa 1,459,328
--------------
123,818,297
Puerto Rico (5.8%)
- -------------------------------------------------------------------------------
675,000 Children's Trust Fund Tobacco
Settlement Rev. Bonds, 5 3/8s,
5/15/33 BBB 629,910
2,500,000 Cmnwlth. of PR, G.O. Bonds (Pub.
Impt.), MBIA, 5 3/4s, 7/1/26 Aaa 2,828,675
3,000,000 PR Elec. Pwr. Auth. Rev. Bonds,
Ser. HH, FSA, 5 1/4s, 7/1/29 Aaa 3,140,668
1,500,000 PR Indl. Tourist Edl. Med. & Env.
Control Fac. Rev. Bonds (Cogen.
Fac.-AES), 6 5/8s, 6/1/26 Baa3 1,618,290
--------------
8,217,543
- -------------------------------------------------------------------------------
Total Investments
(cost $128,154,610) $132,035,840
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $141,439,899.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at November 30, 2004 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, 2004. Securities rated by Putnam are
indicated by "/P". Security ratings are defined in the Statement of
Additional Information.
The rates shown on VRDNs and Mandatory Put Bonds are the current
interest rates at November 30, 2004.
The dates shown on Mandatory Put Bonds are the next mandatory put dates.
The fund had the following industry group concentrations greater than
10% at November 30, 2004
(as a percentage of net assets):
Health care 14.0%
The fund had the following insurance concentrations greater than 10% at
November 30, 2004
(as a percentage of net assets):
FGIC 18.8%
FSA 17.5
MBIA 17.2
AMBAC 13.4
Interest rate swap contracts outstanding at November 30, 2004
(Unaudited)
Notional Termination Unrealized
amount date appreciation
- -------------------------------------------------------------------------------
Agreement with JP Morgan Chase Bank
dated September 24, 2004 to pay
quarterly the notional amount
multiplied by 3.513% and
receive quarterly the notional
amount multiplied by the Bond
Market Association Municipal
Swap Index. $1,000,000 12/19/14 $16,318
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
November 30, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$128,154,610) (Note 1) $132,035,840
- -------------------------------------------------------------------------------
Cash 8,460,140
- -------------------------------------------------------------------------------
Interest and other receivables 1,464,540
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 62,665
- -------------------------------------------------------------------------------
Receivable for securities sold 2,407,590
- -------------------------------------------------------------------------------
Receivable for open swap contracts (Note 1) 16,318
- -------------------------------------------------------------------------------
Total assets 144,447,093
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 262,855
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 331,355
- -------------------------------------------------------------------------------
Payable for securities purchased 2,048,751
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 179,378
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 36,141
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 30,420
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,436
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 58,508
- -------------------------------------------------------------------------------
Other accrued expenses 58,350
- -------------------------------------------------------------------------------
Total liabilities 3,007,194
- -------------------------------------------------------------------------------
Net assets $141,439,899
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4) $139,578,122
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 50,005
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,085,776)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,897,548
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $141,439,899
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($111,233,883 divided by 12,362,863 shares) $9.00
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.50 of $9.00)* $9.42
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($28,830,438 divided by 3,207,559 shares)** $8.99
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,375,578 divided by 152,855 shares) $9.00
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.00)*** $9.30
- -------------------------------------------------------------------------------
* 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.
Statement of operations
Six months ended November 30, 2004 (Unaudited)
Interest income: $3,558,801
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 365,297
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 68,369
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 33,243
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 6,013
- -------------------------------------------------------------------------------
Administrative services (Note 2) 4,285
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 113,905
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 129,755
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,463
- -------------------------------------------------------------------------------
Other 60,608
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 5) 2,510
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 5) (2,510)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 2) (17,489)
- -------------------------------------------------------------------------------
Total expenses 767,449
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (9,120)
- -------------------------------------------------------------------------------
Net expenses 758,329
- -------------------------------------------------------------------------------
Net investment income 2,800,472
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,367,780
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments and swap
contracts during the period 844,866
- -------------------------------------------------------------------------------
Net gain on investments 2,212,646
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,013,118
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
Decrease in net assets 2004* 2004
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $2,800,472 $6,807,240
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments 1,367,780 (22,039)
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 844,866 (7,532,979)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 5,013,118 (747,778)
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax-exempt income
Class A (2,223,559) (5,356,150)
- -------------------------------------------------------------------------------
Class B (497,278) (1,302,027)
- -------------------------------------------------------------------------------
Class M (24,951) (65,732)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (10,882,147) (34,383,705)
- -------------------------------------------------------------------------------
Total decrease in net assets (8,614,817) (41,855,392)
- -------------------------------------------------------------------------------
Net assets
- -------------------------------------------------------------------------------
Beginning of period 150,054,716 191,910,108
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $50,005 and
distributions in excess of net investment
income of $4,679, respectively) $141,439,899 $150,054,716
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2004 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.86 $9.26 $8.95 $8.83 $8.38 $9.14
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .18 (c) .37 (c) .38 .43 .45 .46
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 (.40) .32 .12 .45 (.76)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32 (.03) .70 .55 .90 (.30)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.37) (.39) (.43) (.45) (.46)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.18) (.37) (.39) (.43) (.45) (.46)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.00 $8.86 $9.26 $8.95 $8.83 $8.38
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.57* (.34) 8.03 6.39 10.95 (3.30)
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $111,234 $116,485 $146,255 $142,706 $130,071 $116,715
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .46*(c) .90 (c) .89 .87 .87 .88
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.99*(c) 4.12 (c) 4.23 4.82 5.18 5.30
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.85* 9.90 24.48 20.71 14.46 7.36
- ----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary expense limitation in effect during the
period. As a result of such limitation, the expenses of the fund for the
periods ended November 30, 2004 and May 31, 2004, reflect a reduction of
0.01% and less than 0.01%, respectively, of average net assets for class
A shares (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2004 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.85 $9.25 $8.94 $8.83 $8.36 $9.12
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .15 (c) .31 (c) .33 .37 .39 .40
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .14 (.40) .31 .12 .48 (.76)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .29 (.09) .64 .49 .87 (.36)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.15) (.31) (.33) (.38) (.40) (.40)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.15) (.31) (.33) (.38) (.40) (.40)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.99 $8.85 $9.25 $8.94 $8.83 $8.36
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.23* (1.00) 7.33 5.58 10.50 (3.95)
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $28,830 $32,165 $43,632 $43,308 $45,406 $40,060
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .78*(c) 1.55 (c) 1.54 1.52 1.52 1.53
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.67*(c) 3.47 (c) 3.58 4.17 4.53 4.65
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.85* 9.90 24.48 20.71 14.46 7.36
- ----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary expense limitation in effect during the
period. As a result of such limitation, the expenses of the fund for the
periods ended November 30, 2004 and May 31, 2004, reflect a reduction of
0.01% and less than 0.01%, respectively, of average net assets for class
B shares (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ----------------------------------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2004 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $8.86 $9.26 $8.95 $8.83 $8.37 $9.13
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .17 (c) .35 (c) .36 .40 .43 .43
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .13 (.41) .32 .13 .46 (.76)
- ----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .30 (.06) .68 .53 .89 (.33)
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.34) (.37) (.41) (.43) (.43)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.34) (.37) (.41) (.43) (.43)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.00 $8.86 $9.26 $8.95 $8.83 $8.37
- ----------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.41* (.65) 7.70 6.07 10.75 (3.60)
- ----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,376 $1,404 $2,023 $2,852 $2,320 $2,010
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61*(c) 1.20 (c) 1.19 1.17 1.17 1.18
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.84*(c) 3.82 (c) 3.93 4.53 4.88 5.02
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 9.85* 9.90 24.48 20.71 14.46 7.36
- ----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
(c) Reflects an involuntary expense limitation in effect during the
period. As a result of such limitation, the expenses of the fund for the
periods ended November 30, 2004 and May 31, 2004, reflect a reduction of
0.01% and less than 0.01%, respectively, of average net assets for class
M shares (Note 2).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
November 30, 2004 (Unaudited)
Note 1
Significant accounting policies
Putnam Michigan Tax Exempt Income Fund (the "fund"), a Massachusetts
business trust, 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, LLC ("Putnam Management"), the fund's Manager, an indirect
wholly-owned subsidiary of Putnam, LLC, believes is consistent with
preservation of capital by investing primarily in a portfolio of
investment-grade Michigan tax-exempt securities with intermediate to
long-term maturities. The fund may be affected by economic and political
developments in the state of Michigan.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.50%. 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 but lower than
class B shares.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). 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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued at fair
value on the basis of valuations provided by an independent pricing
service, approved by the Trustees. Such services use information with
respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Other investments are valued 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 recorded 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. All premiums/discounts
are amortized/accreted on a yield-to-maturity basis. The premium in excess
of the call price, if any, is amortized to the call date; thereafter, any
remaining premium is amortized to maturity.
C) Interest rate swap contracts The fund may enter into interest rate
swap contracts, which are arrangements between two parties to exchange
cash flows based on a notional principal amount, to manage the fund's
exposure to interest rates. Interest rate swap contracts are marked to
market daily based upon quotations from market makers and the change, if
any, is recorded as unrealized gain or loss. Payments received or made
are recorded as realized gains or loss. The fund could be exposed to
credit or market risk due to unfavorable changes in the fluctuation of
interest rates or if the counterparty defaults on its obligation to
perform. Risk of loss may exceed amounts recognized on the statement of
assets and liabilities. Interest rate swap contracts outstanding at
period end, if any, are listed after the fund's portfolio.
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 of 1986 (the "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 Code, 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, 2004, the fund had a capital loss carryover of $2,703,197
available to the extent allowed by the Code to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------
$939,071 May 31, 2008
1,546,980 May 31, 2009
217,146 May 31, 2012
Pursuant to federal income tax regulations applicable to regulated
investment companies, the fund has elected to defer to its fiscal year
ending May 31, 2005 $162,284 of losses recognized during the period
November 1, 2003 to May 31, 2004.
The aggregate identified cost on a tax basis is $128,154,610, resulting
in gross unrealized appreciation and depreciation of $5,213,718 and
$1,332,488, respectively, or net unrealized appreciation of $3,881,230.
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Distributions from capital gains, 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.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the lesser of (i) an annual rate of 0.50% of the average net
assets of the fund or (ii) the following annual rates expressed as a
percentage of the fund's average net assets: 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
then next $5 billion, 0.34% of the next $5 billion and 0.33% thereafter.
Effective January 28, 2004, Putnam Management has agreed to waive fees and
reimburse expenses of the fund through May 31, 2005 to the extent necessary
to ensure that the fund's expenses do not exceed the average expenses of
the front-end load funds viewed by Lipper Inc. as having the same
investment classification or objective as the fund. The expense
reimbursement is based on a comparison of the fund's expenses with the
average annualized operating expenses of the funds in its Lipper peer group
for each calendar quarter during the fund's last fiscal year, excluding
12b-1 fees and without giving effect to any expense offset and brokerage
service arrangements that may reduce fund expenses. For the period ended
November 30, 2004, Putnam Management waived $17,489 of its management fee
from the fund.
For the period ended November 30, 2004, Putnam Management has assumed
$2,510 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters, (including those described in Note 5).
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, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended November 30, 2004,
the fund paid PFTC $99,142 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2004, the fund's expenses were reduced by $9,120 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $635, as a quarterly retainer, has been allocated to the fund, and
an additional fee for each Trustees 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
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 Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Retail Management at annual
rates of 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 the annual rates 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, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $76 and $11 from the
sale of class A and class M shares, respectively, and $28,357 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1.00% is assessed on certain redemptions
of class A shares that were purchased without an initial sales charge as
part of an investment of $1 million or more. For the six months ended
November 30, 2004, Putnam Retail Management, acting as underwriter,
received no monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $13,682,811 and $35,000,835, respectively. There
were no purchases or sales of U.S. government securities.
Note 4
Capital shares
At November 30, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 251,077 $2,257,007
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 170,454 1,530,667
- ----------------------------------------------------------------
421,531 3,787,674
Shares repurchased (1,204,038) (10,796,797)
- ----------------------------------------------------------------
Net decrease (782,507) $(7,009,123)
- ----------------------------------------------------------------
Year ended May 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 1,079,595 $9,793,106
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 405,926 3,683,254
- ----------------------------------------------------------------
1,485,521 13,476,360
Shares repurchased (4,139,537) (37,510,747)
- ----------------------------------------------------------------
Net decrease (2,654,016) $(24,034,387)
- ----------------------------------------------------------------
Six months ended November 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 14,193 $123,277
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 38,441 348,897
- ----------------------------------------------------------------
52,634 472,174
Shares repurchased (478,605) (4,295,254)
- ----------------------------------------------------------------
Net decrease (425,971) $(3,823,080)
- ----------------------------------------------------------------
Year ended May 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 136,998 $1,244,800
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 99,345 900,733
- ----------------------------------------------------------------
236,343 2,145,533
Shares repurchased (1,320,716) (11,952,810)
- ----------------------------------------------------------------
Net decrease (1,084,373) $(9,807,277)
- ----------------------------------------------------------------
Six months ended November 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 470 $4,232
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2,045 18,368
- ----------------------------------------------------------------
2,515 22,600
Shares repurchased (8,115) (72,544)
- ----------------------------------------------------------------
Net decrease (5,600) $(49,944)
- ----------------------------------------------------------------
Year ended May 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 11,513 $103,700
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,319 48,262
- ----------------------------------------------------------------
16,832 151,962
Shares repurchased (76,816) (694,003)
- ----------------------------------------------------------------
Net decrease (59,984) $(542,041)
- ----------------------------------------------------------------
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts
Securities Division representing a final settlement of all charges
brought against Putnam Management by those agencies on October 28, 2003
in connection with excessive short-term trading by Putnam employees and,
in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Results of November 11, 2004 shareholder meeting
(Unaudited)
A special meeting of shareholders of the fund was held on November 11,
2004. At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes Votes
for withheld
- -------------------------------------------------------------------------------
Jameson A. Baxter 10,220,391 250,907
Charles B. Curtis 10,214,649 256,649
Myra R. Drucker 10,214,624 256,674
Charles E. Haldeman, Jr. 10,214,064 257,234
John A. Hill 10,208,884 262,414
Ronald J. Jackson 10,213,523 257,775
Paul L. Joskow 10,210,999 260,299
Elizabeth T. Kennan 10,211,523 259,775
John H. Mullin, III 10,209,713 261,585
Robert E. Patterson 10,214,046 257,252
George Putnam, III 10,212,976 258,322
A.J.C. Smith 10,179,227 292,071
W. Thomas Stephens 10,219,322 251,976
Richard B. Worley 10,214,077 257,221
A proposal to amend the fund's fundamental investment restriction with
respect to borrowing to allow the fund the investment flexibility permitted
by the Investment Company Act was approved as follows:
Votes Votes
for against Abstentions
- -------------------------------------------------------------------------------
7,266,351 510,398 2,694,549
A proposal to amend the fund's fundamental investment restriction with
respect to making loans to enhance the fund's ability to participate in an
interfund borrowing and lending program was approved as follows:
Votes Votes
for against Abstentions
- -------------------------------------------------------------------------------
7,274,700 484,957 2,711,641
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments to enhance the fund's ability to
invest in registered investment companies such as Putnam Prime Money Market
Fund was approved as follows:
Votes Votes
for against Abstentions
- -------------------------------------------------------------------------------
7,413,438 326,399 2,731,461
A proposal to amend the fund's Agreement and Declaration of Trust to permit
the fund to satisfy redemption requests other than in cash was adjourned.*
* Since sufficient votes in favor of this proposal were not received as of
November 11, 2004, the shareholder meeting with respect to this proposal has
been adjourned until no later than January 10, 2005 to permit further
solicitation in the Trustees' discretion.
All tabulations are rounded to nearest whole number.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds.
Investors should carefully consider the investment objective, risks,
charges, and expenses of a fund before investing. For a prospectus
containing this and other information for any Putnam fund or product, call
your financial advisor at 1-800-225-1581 and ask for a prospectus. Please
read the prospectus carefully before investing.
Growth Funds
Discovery Growth Fund
Growth Opportunities Fund
Health Sciences Trust
International New Opportunities Fund*
New Opportunities Fund
OTC & Emerging Growth Fund
Small Cap Growth Fund
Vista Fund
Voyager Fund
Blend Funds
Capital Appreciation Fund
Capital Opportunities Fund
Europe Equity Fund*
Global Equity Fund*
Global Natural Resources Fund*
International Capital
Opportunities Fund*
International Equity Fund*
Investors Fund
Research Fund
Tax Smart Equity Fund
Utilities Growth and Income Fund
Value Funds
Classic Equity Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth
and Income
International Growth and Income Fund*
Mid Cap Value Fund
New Value Fund
Small Cap Value Fund+
Income Funds
American Government Income Fund
Diversified Income Trust
Floating Rate Income Fund
Global Income Trust*
High Yield Advantage Fund*+
High Yield Trust*
Income Fund
Limited Duration Government
Income Fund++
Money Market Fund[SECTION MARK]
U.S. Government Income Trust
* A 1% redemption fee on total assets redeemed or exchanged between 6 and 90
days of purchase may be imposed for all share classes of these funds.
+ Closed to new investors.
++ Formerly Putnam Intermediate U.S. Government Income Fund.
[SECTION MARK] 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 fund seeks
to preserve your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
The Putnam family of funds
Tax-free Income Funds
AMT-Free Insured Municipal Fund**
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund[SECTION MARK]
Tax-Free High Yield Fund
State tax-free income funds:
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio, and Pennsylvania
Asset Allocation Portfolios
Putnam Asset Allocation Portfolios--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
Putnam RetirementReady[REGISTRATION MARK] Funds
Putnam RetirementReady Funds -- nine investment portfolios that offer
diversification among stocks, bonds, and money market instruments and adjust
to become more conservative over time based on a target date for
withdrawing assets.
The nine portfolios:
Putnam RetirementReady 2045 Fund
Putnam RetirementReady 2040 Fund
Putnam RetirementReady 2035 Fund
Putnam RetirementReady 2030 Fund
Putnam RetirementReady 2025 Fund
Putnam RetirementReady 2020 Fund
Putnam RetirementReady 2015 Fund
Putnam RetirementReady 2010 Fund
Putnam RetirementReady Maturity Fund
** Formerly Putnam Tax-Free Insured Fund.
With the exception of money market funds, a 2% redemption fee will be
applied to shares exchanged or sold within 5 days of purchase.
Check your account balances and the most recent month-end performance at
www.putnaminvestments.com.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary
Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and
Principal Executive Officer
Jonathan S. Horwitz
Senior Vice President
and Treasurer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
Francis J. McNamara, III
Vice President and
Chief Legal Officer
Charles A. Ruys de Perez
Vice President and Chief
Compliance Officer
Judith Cohen
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, the most recent copy
of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
SA048-216553 1/05
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: January 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: January 28, 2005
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 28, 2005