(Scales logo)
Putnam
Massachusetts
Tax Exempt
Income Fund II
Semiannual
Report
November 30, 1993
(Cover artwork)
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
6 Portfolio of investments owned
11 Financial statements
19 Fund performance supplement
For investors seeking
high current income
free from federal and
Massachusetts income
taxes, consistent with
capital preservation
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended November 30, 1993
<TABLE>
<CAPTION>
Total return* Fund
Lehman
Brothers Consumer
Class A Class B Municipal Price
NAV POP NAV CDSC Bond Index Index
<S> <C> <C> <C> <C> <C> <C>
6 months 4.52% -0.49% -- -- 4.38% 1.11%
1 year 11.68 6.38 -- -- 11.09 2.67
3 years 39.57 32.85 -- -- 34.77 8.97
annualized 11.75 9.93 -- -- 10.46 2.91
Life-of-fund 51.39 44.25 -- -- 47.67 16.09
annualized 10.62 9.32 -- -- 9.95 3.70
Life-of-class**
(class B shares) -- -- 1.71% -3.29% 2.65 0.97
</TABLE>
<TABLE>
<CAPTION>
Share data Class A Class B
NAV POP NAV
<S> <C> <C> <C>
May 31, 1993 $ 9.55 $10.03 --
July 15, 1993 (inception of class B shares) -- -- $ 9.71
November 30, 1993 $ 9.70 $10.18 $ 9.70
</TABLE>
<TABLE>
<CAPTION>
Distributions+
6 months ended Investment Capital
November 30, 1993 Number income gains Total
<S> <C> <C> <C> <C>
Class A 6 $0.279954 -- $0.279954
Class B** 4 $0.176871 -- $0.176871
</TABLE>
<TABLE>
<CAPTION>
Current returns Taxable Taxable
at the end of Class A equivalents++ Class B equivalent++
the period NAV POP NAV POP NAV NAV
<S> <C> <C> <C> <C> <C> <C>
Current dividend rate 5.65% 5.38% 10.63% 10.12% 4.94% 9.29%
Current 30-day yield 5.09 4.85 9.58 9.13 4.45 8.37
<FN>
*Performance data represent past results. Investment return and net asset value will fluctuate so an investor's
shares, when redeemed, may be worth more or less than their original cost.
**The fund began operations October 23, 1989 offering shares now known as class A shares. Effective July 15,
1993, the fund began offering class B shares. Performance for each share class will differ.
+Capital gains, if any, are taxable for federal tax purposes. For some investors, investment income may be
subject to the alternative minimum tax.
++Taxable equivalent rates cited assume the maximum combined state and federal tax rate of 46.85%. Results for
investors subject to lower tax rates would not be as advantageous, although many such investors would still
have the opportunity to receive attractive tax benefits from a fund investment. Consult your tax advisor for
more guidance.
</TABLE>
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions. It may
be shown at net asset value or at public offering price.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of shares rather than the time of purchase. It generally
declines and eventually disappears over a stated period.
Class A shares are the shares of your fund offered subject to an initial
sales charge. Your fund's POP includes the maximum 4.75% sales charge.
Class B shares are the shares of your fund offered with no initial sales
charge. Within the first six years of purchase, they are subject to a CDSC
declining from 5% to 1%. After the sixth year, the CDSC no longer applies.
Current dividend rate is calculated by annualizing the net investment income
paid to shareholders in the fund's most recent distribution, then dividing by
the NAV or POP on the last day of the period.
Current 30-day yield, based only on the fund's net investment income
earnings, is calculated in accordance with Securities and Exchange Commission
guidelines.
Taxable equivalent return is the rate at which a taxable investment would
have to generate income to equal the fund's current dividend rate or yield.
Please see the fund performance supplement on page 19 for total return at the
end of the most current calendar quarter and additional information about
performance comparisons.
<PAGE>
[George Putnam photo]
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
From the
Chairman
Dear Shareholder:
The six months ended November 30, 1993, proved another successful period for
Putnam Massachusetts Tax Exempt Income Fund II, which continued to provide
Bay State investors with a rewarding combination of total return and tax-free
income. As you can see from the table on the facing page, your fund's total
return of 4.52% at NAV and current dividend rate of 5.65% are even more
attractive when compared with taxable investments. For Massachusetts
investors with a combined state and federal tax rate of 46.85%, an equivalent
taxable investment would have had to generate a dividend rate of 10.63% to
keep pace with your fund's dividend rate.
The fund's strong performance has been recognized by some of the mutual fund
industry's most respected monitors. In fact, Morningstar Mutual Fund Values,
Inc., recently assigned the fund its highest rating--five stars--through the
period ended November 30, 1993. In addition, Lipper Analytical Services
ranked your fund in the top quartile of all 20 Massachusetts municipal bond
funds for two-year and 18 funds for three-year total return performance as of
November 30, 1993.
Fund Manager Triet Nguyen attributes his success to a number of factors, with
superior credit research paramount among them. As you will see in the
following Report from Putnam Management, Putnam's research team has been
instrumental in discerning value unperceived by others and in exploiting
market inefficiencies to realize significant capital gains. These research
capabilities have been particularly important in bond selection during the
recent months of Massachusetts' uneven economic recovery.
As Triet notes, the months ahead should also be positive as a strengthening
economy, diminishing bond supply, and high, stable demand strengthen the
municipal market.
Respectfully yours,
[Signature of George Putnam]
George Putnam
January 19, 1994
<PAGE>
Report from
Putnam Management
As we move into 1994, the Massachusetts economy is showing definite signs of
improvement. Sales receipts and other state tax revenues are up, and there is
even talk of a possible tax cut sometime in the future. Meanwhile, the
government has continued to limit expenditures and has made fiscal restraint
a priority. In recent months, investors and respected mutual fund industry
monitors have begun responding to these positive forces. Standard & Poor's(R)
upgraded Massachusetts General Obligation bonds (GO's) to A+. Your fund
benefited handsomely from this turnaround, as its large GO holdings gained
substantially in value.
Continued market strength After a summer rally that pushed interest rates on
30-year Treasuries to 20-year lows, the municipal bond market corrected along
with the rest of the fixed income market. A strengthening economy spurred
fears of rising inflation among many fixed income investors. However,
inflation is still low, and we believe it will remain so for some months to
come. At the same time, municipalities continue to take advantage of today's
low interest rates to issue new bonds and refinance record numbers of older
higher- coupon bonds.
The net result of this market activity has been to make municipal bonds
extremely attractive when compared with equivalent taxable investments. On an
after-tax basis, investors in virtually all tax brackets can now earn greater
income from municipal bonds.
Timely purchases and sales Credit selection has played a key role in your
fund's recent success. For example, early in the year, we reduced our
holdings of Massachusetts Water Resource Authority (MWRA) bonds just before
controversy diminished their value. Several months later, we repurchased some
of the bonds at a lower price. Now the bonds are poised for significant
appreciation once again, as construction continues on the MWRA's massive
Boston harbor cleanup project.
Prerefundings boost value and quality In addition to record issuance of new
municipal bonds, low interest rates and inflation are also producing an
ongoing stream of bond prerefundings. These have boosted the average quality
of your fund's portfolio to its highest level ever.
In a prerefunding, a municipality structures its refinancing by issuing
enough new bonds to pay off the original issue at the first call date or
maturity. Proceeds from the new issue, in an amount sufficient to pay off the
entire original
issue, are invested in an escrow fund made up of U.S. Treasuries. Because of
the safety of principal represented by these securities, the older bonds
generally are considered to have the quality of AAA-rated bonds once the
escrow account is established. Upgrades by the rating services typically
follow. Frequently, the perception of higher quality elevates the bond's
price, and in turn, the portfolio value.
The power of research Putnam has always counted superior credit research
among its most important strengths. The rewards of this research are
particularly evident when a bond we have purchased is prerefunded and a
credit upgrade follows. Superior research also helps us identify attractive
opportunities among nonrated securities. Often, these bonds carry higher
yields and lower prices. Through our experienced credit analysts, we can
apply our own guidelines for creditworthiness to ensure that each nonrated
security purchased for the portfolio meets our strict quality standards.
(Bar chart)
Top industry sectors (based on net assets of 11/30/93)
Health Care 26.39%
Education 13.6%
Transportation 10.7%
Utilities 7.8%
Preparing for the future In recent months, we have taken a cautiously
optimistic stance with respect to those economic sectors likely to be
affected by national economic initiatives--health care, for example. Health
care plays a major role in the Massachusetts economy, and has been a
significant source of income for the fund. In preparation for the President's
proposed health care reforms, we have been diversifying away from bonds
issued by Boston-area teaching hospitals and building up our holdings of
bonds from hospitals in the central and western sectors of the state.
Our diversification efforts have also included the purchase of bonds issued
by colleges and universities.
A positive outlook Overall, we view the municipal bond market quite
positively. Today's temporary glut of supply should dry up over the next year
or so as municipalities exhaust their bond refinancing needs. At the same
time, we believe a record number of bonds will reach their call dates and be
redeemed, bringing a huge amount of money into the municipal market. The new
federal tax rates will further strengthen the demand for tax-free
investments. We will be positioning the portfolio to take full advantage of
the opportunities these trends present, and look forward to continuing to
provide Bay State investors with a steady stream of tax-exempt income.
<PAGE>
Portfolio of
investments owned
November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds and Notes (99.0%)(a)
Principal Amount Ratings(b) Value
<S> <C> <C> <C>
Guam (1.9%)
$1,500,000 Guam, Arpt. Auth. Rev. Bonds,
Ser. A, 6-1/2s, 10/1/23 BBB $1,591,875
3,275,000 Guam, Pwr. Auth. Rev. Bonds,
Ser. A, 6.3s, 10/1/22 BBB 3,397,813
4,989,688
Massachusetts (89.7%)
$5,500,000 Agawam, Resource Recvy. Rev.
Bonds
(Springfield Resources
Recvy. Project), 8-1/2s,
12/1/08 BBB $6,077,500
5,000,000 Boston, Ind. Dev. Fin. Auth
Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co.
Project), 7-3/8s, 5/15/15 Baa 5,531,250
1,315,000 Boston, Nursing Home Rev.
Bonds
(St. Joseph Nursing Care
Ctr. Inc.), 10s, 1/1/20 BB/P 1,439,925
1,500,000 Boston, Wtr. & Swr. Rev. Bonds
Ser. A, 5-3/4 s, 11/1/13 A 1,552,500
1,000,000 Haverhill, General Obligation
(G.O.) Bonds,
Ser. A, Financial Guaranty
Insurance Corp. (FGIC) 7s,
6/15/12 AAA 1,130,000
Holyoke, G.O. Bonds
1,870,000 9.85s, 11/1/08 Baa 2,208,938
2,000,000 (School Project Loan Act),
7.65s, 8/1/09 Baa 2,242,500
1,500,000 Ser. B, 6-1/8s, 8/1/13 AAA 1,571,250
Lowell, G.O. Bonds
1,250,000 8.4s, 1/15/09 Baa 1,489,063
3,000,000 8.3s, 2/15/05 Baa 3,731,250
MA Bay Trans. Auth. Rev. Bonds
2,000,000 6.895s, 9/15/00 BB 1,950,000
1,250,000 Ser. B, 6.2s, 3/1/16 A 1,354,688
7,000,000 (Genl. Trans. Syst.), Ser. A,
Municipal Bond
Insurance Assn. (MBIA) 5-1/2s,
3/1/22 AAA 6,912,500
4,000,000 (Genl. Trans. Syst.), Ser. A,
5-1/2s, 3/1/12 A 4,025,000
2,000,000 Ser. B, MBIA, 5-1/2s, 3/1/21 AAA 1,975,000
1,625,000 MA Convention Ctr. Auth. Rfdg.
Rev. Bonds
(Hynes Convention Ctr.)
zero%, 9/1/04 A 932,344
1,800,000 MA G.O. Bonds Variable Rate
Demand Notes, (VRDN), 1-3/4s,
12/1/97 Aaa 1,800,000
MA G.O. Cons. Loan Bonds
1,000,000 Ser. A, 7-5/8s, 6/1/08 Aaa 1,200,000
1,600,000 Ser. A, 7-1/2s, 6/1/04 A 1,924,000
2,520,000 Ser. A, 5.4s, 11/1/06 A 2,589,300
7,500,000 Ser. B, FGIC, zero %, 6/1/07 AAA 3,637,500
MA Hlth. & Edl. Fac. Auth.
Residual Interest Bonds
(RIBS)
2,000,000 (St. Elizabeth's Hosp.),
10.59s, 8/15/21 AAA 2,430,000
6,500,000 (Boston U.), Ser. L, MBIA,
10.308s, 10/1/31 AAA 7,702,500
3,000,000 FGIC, 9.074s, 8/15/18 AAA 3,191,250
3,400,000 (Cape Connie Lee), Ser. A-2,
6.88s, 11/15/09 (acquired
7/16/93, cost $3,392,384)(c) AAA 3,417,000
MA Hlth. & Edl. Fac. Auth.
Rev. Bonds
2,000,000 (Fairview Extended Care),
Ser. A, 10-1/4s, 1/1/21 BB/P 2,205,000
865,000 (Summerfield Nursing Home),
Ser. A, 9-1/2s, 7/1/14 BBB/P 965,556
2,000,000 (Nichols College), Ser. B,
8-1/2 s, 10/1/16 BBB 2,352,500
1,500,000 (Holy Cross College), Ser E,
8.4s, 11/1/15 AAA 1,661,250
2,500,000 (Waltham-Weston Hosp. & Med.
Ctr.), Ser. B, 8-3/8 s,
7/1/15 Baa 2,762,500
4,250,000 (Suffolk U.), Ser. A, 8 1/8s,
7/1/20 Baa 5,153,125
2,150,000 (Valley Regl. Hlth. Syst.),
Ser. B, 8s, 7/1/18 Baa 2,381,125
1,055,000 (Norwood Hosp.), Ser. E,
7-3/4 s, 7/1/07 Baa 1,134,125
3,000,000 (Stonehill College), Ser. D,
American Municipal Bond
Assurance Corp. (AMBAC),
7.7s, 7/1/20 AAA 3,577,500
3,250,000 (Cooley Dickinson Hosp.),
Ser. A, 7-1/8 s, 11/15/18 AAA 3,505,938
5,000,000 (Med. Ctr. of Central MA),
Ser. A, 7.1s, 7/1/21 A 5,487,500
1,550,000 (Worcester Polytechnic
Inst.), Ser. E, 6-5/8 s,
9/1/17 A 1,685,625
3,880,000 (Metro West Hlth. Inc.), Ser.
C, 6-1/2s, 11/15/18 A 4,107,950
1,000,000 (Suffolk U.), Ser. B, 6.35s,
7/1/22 AAA 1,047,500
2,000,000 (Harvard U.), Ser. N, 6-1/4s,
4/1/20 AAA 2,242,500
3,000,000 (MA General Hosp.), Ser. F,
AMBAC, 6 1/4 s, 7/1/12 AAA 3,307,500
5,615,000 (Baystate Med. Ctr.), Ser. D,
FGIC, 6s, 7/1/15 AAA 5,804,506
1,000,000 (Wentworth Inst.), 5-1/2s,
10/1/23(d) AAA 970,000
2,000,000 (Williams College), Ser. D,
5-1/2s, 7/1/12 AA 2,012,500
5,500,000 (Boston College), Ser. K, 5
5-3/8 s, 6/1/14 A 5,369,375
2,000,000 (Morton Hosp. & Med. Ctr.),
Ser. B, 5 1/4 s, 7/1/14 AAA 1,912,500
2,500,000 (MA Inst. of Techn.), Ser. H,
5s, 7/1/23 Aaa 2,343,750
MA Hsg. Fin. Agcy. Multi-Fam.
Mortgage Rev. Bonds
2,000,000 Ser. A, Government National
Mortgage Assn.
(GNMA) Coll., 9 1/8 s,
12/1/20 AAA 2,182,500
850,000 Ser. A, MBIA, 8 7/8 s, 7/1/18 AAA 904,188
MA Hsg. Fin. Agcy. Multi-
Fam. Res. Dev. Rev. Bonds,
1,000,000 Fed. Hsg. Auth. (FHA) Sec. 8,
Ser A, 7.8s, 8/1/22 A 1,046,250
Ser. A, Federal National
Mortgage Assn. Coll.
(FNMA),
1,750,000 8.15s, 2/1/29 Aaa 1,890,000
2,000,000 Ser. I, FNMA, 6.9s, 11/15/25 AAA 2,135,000
6,000,000 Ser. C, FNMA, 6.9s, 11/15/21 AAA 6,457,500
4,845,000 Ser. I, FNMA, 6.85s, 11/15/12 Aaa 5,202,319
2,710,000 Ser. H, FNMA, 6-3/4 s,
11/15/12 Aaa 2,862,438
2,400,000 MA Indl. Fin. Agcy. Hlth. Care
Fac. Rev. Bonds
(Evanswood Bethzatha Corp.),
Ser. A 9s, 5/1/20 A1 2,826,000
4,000,000 MA Indl. Fin. Agcy. Poll.
Control Rev. Bonds (Eastern
Edison Co. Project), 5 7/8 s,
8/1/08
MA Indl. Fin. Agcy. Rev. Bonds Baa 4,045,000
2,775,000 (Brookhaven-Lexington
Project), 1st Mtge., 10 1/4 s,
1/1/18 BBB/P 3,194,719
3,100,000 (Alpha Inds.-Methuen), 10 1/4 s,
8/1/04 BBB/P 3,572,750
250,000 (Brookhaven-Lexington
Project), 1st Mtge., 10s,
1/1/05 BBB/P 261,875
1,900,000 (Berkshire Retirement Home),
9 7/8 s, 7/1/18 BB/P 2,035,375
2,100,000 (Oddfellows Home), 9.6s,
1/1/15 BB/P 2,254,875
2,000,000 (Orchard Cove Inc.), 9s,
5/1/22 BB/P 2,212,500
2,065,000 (Morton Hosp. & Med. Ctr.),
Ser. A, 8-3/4 s, 7/1/11 BBB/P 2,485,744
2,500,000 (Leominster Hosp.), Ser. A,
8-5/8 s, 8/1/09 BBB/P 2,853,125
3,600,000 (Cape Cod Hlth. Syst.), 8-1/2 s,
11/15/20 AAA 4,491,000
1,165,000 (Clark U.), Ser. E, 7s,
7/1/12 A 1,309,169
2,605,000 (Clark U.), Ser F, 7s, 7/1/12 A 2,911,088
3,000,000 (Pioneer Valley Living Ctr.),
VRDN 7s, 10/1/20 B/P 3,000,000
2,460,000 (Holy Cross College II),
6-3/8 s, 11/1/15 A 2,610,675
2,000,000 (Brooks School), 5.95s,
7/1/23 A 2,055,000
5,000,000 (Whitehead Inst. Biomedical
Res.), 5 1/8 s, 7/1/26 Aa 4,643,750
MA Indl. Fin. Agcy. Tunnel
Rev. Bonds
1,460,000 (MA Tpk.), 9s, 10/1/20 BBB/ P 1,534,825
MA Muni. Wholesale Elec. Co.
Pwr. Supply Syst. Rev Bonds
2,240,000 Ser. D, 6s, 7/1/10 Baa 2,276,400
1,000,000 Ser. A, AMBAC, 5.1s, 7/1/08 AAA 972,500
3,000,000 Ser. A, AMBAC, 5s, 7/1/10 AAA 2,883,750
MA Port Auth. Rev. Bonds
3,000,000 Ser. B, 5s, 7/1/13 AA 2,842,500
MA State Coll. Rev. Bonds
1,000,000 (Bldg. Auth. Project), Ser.
A, 7.8s, 5/1/16 A 1,130,000
MA Tpk. Auth. Rev. Bonds
5,000,000 Ser. A, 5s, 1/1/13 A 4,693,750
MA Wtr. Res. Auth. Rev. Bonds
1,000,000 Ser. A, 6-1/2 s, 7/15/19 A 1,110,000
1,800,000 Ser. B, 6-1/4 s, 11/1/10 A 1,885,500
2,900,000 Ser. C, 5-1/4 s, 12/1/15(d) A 2,755,000
Somerville, Hsg. Auth. Rev.
Bonds (Clarendon Hill), GNMA
Coll.
2,000,000 7.95s, 11/20/30 AAA 2,195,000
1,500,000 7.85s, 11/20/10 AAA 1,650,000
U. of Mass. Bldg. Auth. Rev.
Bonds
1,600,000 7-1/2 s, 5/1/14 A 1,792,000
Worcester, Mtge. Rev. Bonds
3,100,000 (Briarwood Issue), 9-1/4 s,
12/1/22 BB/P 3,247,250
1,350,000 (Briarwood Issue), 6.4s,
9/15/10 BB/P 1,338,188
Worcester, Rev. Bonds (St.
Francis Home),
2,000,000 9-3/4 s, 7/1/19 BB/P 2,172,500
1,000,000 9.4s, 7/1/08 BB/P 1,058,750
238,985,836
Puerto Rico (5.7%)
$4,000,000 Cmnwlth. of Puerto Rico, G.O.
Bonds zero %, Stepped-Coupon
(8%, 7/1/96) 7/1/02(e) A $ 4,030,000
2,600,000 Puerto Rico, Indl. Med. & Env.
Poll. Control Fac. Fin. Auth.
Rev. Bonds
(American Airlines), Ser. A,
8-3/4 s, 12/1/25 Baa 2,843,750
1,500,000 Puerto Rico, Port Auth.
Special Fac. Rev. Bonds
Ser. A, 6.3s, 6/1/23 Baa 1,522,500
Puerto Rico, Pub. Bldgs. Auth.
Rev. Bonds
1,000,000 Ser. K, 6 7/8 s, 7/1/21 AAA 1,166,250
$1,500,000 (Pub. Ed. & Hlth. Fac.), Ser.
M, 5-1/2 s, 7/1/06 A $ 1,520,620
Puerto Rico, Tel. Auth. RIBS
7.47s, 1/1/05
1,000,000 (acquired 4/23/93, cost
$1,043,660)(c) AAA 982,500
3,000,000 AMBAC, 7.3s, 1/1/03 (acquired
3/26/93, cost $3,000,000)(c) AAA 3,037,500
15,103,120
Virgin Islands (1.7%)
$4,000,000 Virgin Islands, Pub. Fin.
Auth. Rev. Bonds, Ser. A, 7
1/4 s, 10/1/18 BBB/P $ 4,435,000
Total Investments
(cost $249,004,895)(f) $263,513,644
</TABLE>
Notes
(a) Percentages indicated are based on total net assets of $266,175,073,
which correspond to a net asset value per Class A and Class B share of $9.70.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at November 30, 1993 for the securities listed.
Ratings are generally ascribed to securities at the time of issuance. While
the 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 whould ascribe to these securities at November 30, 1993. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(c) Restricted as to public resale. At the date of acquisition, these
securities were valued at cost. There were no outstanding unrestricted
securities of the same class as those held. Total market value of restricted
securities held at November 30, 1993 was $7,437,000 or 2.8% of net assets.
(d) These securities, having a total value of $3,725,000 or 1.4% of net
assets, have been purchased on a "forward commitment" basis, that is, the
Fund has agreed to take delivery of and make payment for these securities
beyond the settlement time of five business days after the trade date and
subsequent to the date of this report. The pur-chase price and interest rate
of such securities are fixed at the trade date although the Fund does not
earn any interest on such securities until settlement date.
(e) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing this rate.
(f) The aggregate identified cost for tax purposes is $249,005,002 resulting
in gross unrealized appreciation and depreciation of $15,963,955 and
$1,455,313 respectively, or net unrealized appreciation of $14,508,642.
The rates shown on Variable Rate Demand Notes (VRDN) and Residual Interest
Bonds (RIBS) are the current interest rates at November 30, 1993, which are
subject to change based on the terms of the security.
The Fund had the following industry group concentrations greater than 10% on
November 30, 1993 (as a percentage of net assets):
Hospitals/Health
Care 26.4%
Education 13.6
Transportation 10.7
<PAGE>
Statement of
assets and liabilities
November 30, 1993 (Unaudited)
<TABLE>
<S> <C> <C> <C>
Assets Investments in securities, at value (identified cost $249,004,895)
(Note 1) $263,513,644
Cash 1,951,514
Interest receivable 4,643,227
Receivable for shares of the Fund sold 1,091,788
Unamortized organization expenses (Note 1) 4,950
Total assets 271,205,123
Liabilities Payable for securities purchased $3,749,171
Distributions payable to shareholders 525,070
Payable for shares of the Fund repurchased 171,087
Payable for compensation of Manager (Note 2) 390,583
Payable for administrative services (Note 2) 1,219
Payable for compensation of Trustees (Note 2) 138
Payable for investor servicing and custodian fees (Note 2) 60,054
Payable for distribution fees (Note 2) 93,420
Other accrued expenses 39,308
Total liabilities 5,030,050
Net assets $266,175,073
Represented by Paid-in capital (Note 4) $247,331,837
Distributions in excess of net investment income (155,443)
Accumulated net realized gain on investments and futures contracts 4,489,930
Net unrealized appreciation of investments 14,508,749
Total--Representing net assets applicable to capital shares
outstanding $266,175,073
Computation of Net asset value and redemption price of Class A shares
net asset value ($252,484,611 divided by 26,025,911 shares) $ 9.70
and offering price Offering price per share (100/95.25 of $9.70)* $ 10.18
Net asset value and offering price of Class B shares
($13,690,462 divided by 1,411,437 shares)** $ 9.70
</TABLE>
* 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.
<PAGE>
Statement of
operations
Six months ended November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Tax exempt interest income $ 8,055,444
Expenses:
Compensation of Manager (Note 2) $736,451
Investor servicing and custodian fees (Note 2) 119,557
Compensation of Trustees (Note 2) 6,769
Distribution fees--Class A (Note 2) 239,469
Distribution fees--Class B (Note 2) 23,435
Auditing 13,104
Legal 10,045
Administrative services (Note 2) 2,364
Reports to shareholders 13,343
Registration fees 13,071
Amortization of organization expenses (Note 1) 2,317
Other 5,898
Total expenses 1,185,823
Net investment income $ 6,869,621
Net realized gain on investments (Notes 1 and 3) 2,151,890
Net realized loss on futures contracts (Notes 1 and 3) (61,712)
Net unrealized appreciation of investments during the period 1,147,225
Net gain on investment transactions 3,237,403
Net increase in net assets resulting from operations $10,107,024
</TABLE>
*Unaudited
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
Six months
ended Year ended
November 30 May 31
1993* 1993
<S> <C> <C> <C>
Increase in Operations:
net assets Net investment income $ 6,869,621 $ 11,308,425
Net realized gain on investments 2,151,890 2,895,798
Net realized loss on futures contracts (61,712) (107,959)
Net unrealized appreciation of investments and futures contracts 1,147,225 7,314,508
Net increase in net assets resulting from operations 10,107,024 21,410,772
Distributions to shareholders from net investment income:
Class A (6,844,886) (11,346,766)
Class B (126,478) --
Net realized gain on investments -- (135,247)
Increase from capital share transactions (Note 4) 47,428,833 56,671,246
Total increase in net assets 50,564,493 66,600,005
Net assets Beginning of year 215,610,580 149,010,575
End of year (including distributions in excess of net investment
income of $155,443 and $67,554, respectively) $266,175,073 $215,610,580
</TABLE>
<PAGE>
Financial highlights*
(For a share outstanding
throughout the period)
<TABLE>
<CAPTION>
For the period For the period
July 15, 1993 For the October 23, 1989
(commencement six months (commencement
of operations) to ended of operations) to
November 30 November 30 Year ended May 31 May 31
1993** 1993** 1993 1992 1991 1990
Class B Class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.71 $ 9.55 $ 9.02 $ 8.70 $ 8.50 $ 8.50
Investment Operations
Net Investment Income .17 .28 .59 .61(a) .62(a) .35(a)
Net Realized and Unrealized Gain on
Investments -- .15 .54 .39 .20 --
Total from investment operations .17 .43 1.13 1.00 .82 .35
Less Distributions from:
Net Investment Income (.18) (.28) (.59) (.61) (.62) (.35)
Net Realized Gain on Investments -- -- (.01) (.07) -- --
Total Distributions (.18) (.28) (.60) (.68) (.62) (.35)
Net Asset Value, End of Period $ 9.70 $ 9.70 $ 9.55 $ 9.02 $ 8.70 $ 8.50
Total Investment Return at Net Asset
Value (%)(b) 4.50(c) 9.04(c) 12.80 11.96 10.10 6.84(c)
Net Assets, End of Period
(in thousands) $13,690 $252,485 $215,611 $149,011 $38,526 $18,249
Ratio of Expenses to Average Net Assets
(%) 1.58(c) .95(c) .97 .88(a) .86(a) .80(a)(c)
Ratio of Net Investment Income to Average
Net Assets (%) 4.42(c) 5.63(c) 6.24 6.82(a) 7.27(a) 6.97(a)(c)
Portfolio Turnover (%) 18.95(d) 18.95(d) 53.18 94.95(e) 123.29 83.26(d)
<FN>
* Financial highlights for periods ended through May 31, 1992 have been restated to conform with
requirements issued by the SEC in April 1993.
** Unaudited.
(a) Reflects a voluntary expense limitation, and, during the period ended May 31, 1990, a voluntary absorption
of expenses incurred by the Fund. As a result, net investment income of the Fund for the years ended May 31,
1992, 1991 and the period ended May 31, 1990, reflect expense reductions of approximately $0.01, $0.02 and
$0.04, respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Annualized
(d) Not annualized.
(e) Portfolio turnover excludes the impact from the acquisition of Putnam Massachusetts Tax Exempt Income Fund.
</TABLE>
<PAGE>
Notes to
financial statements
November 30, 1993 (Unaudited)
Note 1 Significant accounting policies
The Fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The Fund seeks as
high a level of current income exempt from federal income tax and
Massachusetts personal income tax as Putnam Management believes is consistent
with preservation of capital by investing primarily in a portfolio of
Massachusetts tax-exempt securities.
The Fund offers both class A and class B shares. The Fund commenced its
public offering of class B shares on July 15, 1993. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares do not pay a
front-end sales charge, but pay a higher ongoing distribution fee than class
A shares, and may be subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. In addition, the Trustees
declare separate dividends on each class of shares. Expenses of the Fund are
borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class including the distribution fees
applicable to such class. Each votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law
or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the Fund, if the Fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. Short-term tax-exempt
investments having remaining maturities of 60 days or less are stated at
amortized cost.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures A futures contract is an agreement between two parties to buy and
sell a security at a set price on a future date. Upon entering into such a
contract the Fund is required to pledge to the broker an amount of cash or
tax-exempt securities equal to the minimum "initial margin" requirements of
the exchange. Pursuant to the contract, the Fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin"
and are recorded by the Fund as unrealized gains or losses. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The potential risk to the Fund is that the change in
value of the underlying securities may not correspond to the change in value
of the futures contracts.
D) Federal taxes It is the policy of the Fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the Fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income,
capital gains or unrealized appreciation of securities held and excise tax on
income and capital gains.
E) Distributions to shareholders Income dividends are recorded daily by the
Fund and are distributed monthly. Capital gains distributions, if any, are
recorded on the ex-dividend date and paid annually.
F) Amortization of bond premium and discount Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a
yield-to-maturity basis. Discount on zero-coupon bonds, original issue
discount bonds and stepped-coupon bonds is accreted according to the
effective yield method.
G) Unamortized organization expenses Expenses incurred by the Fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states, and the initial public offering
of its shares aggregated $13,072. These expenses are being amortized over a
five-year period based on current and projected net asset levels.
Note 2 Management fee, administrative services, and other transactions
Compensation of Putnam Investment Management, Inc. ("Putnam Management"), the
Fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., for
management and investment advisory services is paid quarterly based on the
average net assets of the Fund. Such fee is based on the following annual
rates: 0.6% of the first $500 million of average net assets, 0.5% of the next
$500 million, 0.45% of the next $500 million, and 0.4% of any amount over
$1.5 billion, subject to reduction in any year by the amount of certain
brokerage commissions and fees (less expenses) received by affiliates of the
Manager on the Fund's portfolio transactions.
The Fund also reimburses the Manager for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the six months
ended November 30, 1993, the Fund paid $2,364 for these services.
Trustees of the Fund receive an annual Trustee's fee of $1,080 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the Fund are provided by Putnam Fiduciary Trust
Company ("PFTC"), a subsidiary of Putnam Investments, Inc.. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC. Fees paid for these investor servicing and custodial
functions for the six months ended November 30, 1993 amounted to $119,557.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended November 30, 1993 have been reduced by credits
allowed by PFTC.
The Fund has adopted a distribution plan with respect to its Class A shares
(the "Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. The purpose of Class A Plan is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services
provided and expenses incurred by it in distributing Class A shares. The
Trustees have approved payment by the Fund to Putnam Mutual Funds Corp. at an
annual rate of 0.25% of the Fund's average net assets attributable to Class A
shares. For the six months ended November 30, 1993, the Fund paid Putnam
Mutual Funds Corp. distribution fees of $239,469 for Class A shares.
During the six months ended November 30, 1993, Putnam Mutual Funds Corp.,
acting as an underwriter, received net commissions of $95,072 from the sale
of Class A shares of the Fund.
The Fund has adopted a separate distribution plan with respect to its Class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing Class B shares. The Class B Plan provides for payments by the
Fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the funds
average net assets attributable to Class B shares. Currently, the Trustees
have limited payments by the Fund to .85% of such net assets. For the six
months ended November 30, 1993, the Fund incurred fees of $23,435 for Class B
shares.
Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred
sales charges levied on Class B share redemptions within six years of
purchase. The charge is based on declining rates, which begin at 5.0% of the
net asset value of the redeemed shares. Putnam Mutual Funds Corp. received
contingent deferred sales charges of $987 from such redemptions for the six
months ended November 30, 1993.
Note 3 Purchases and sales of securities
During the six months ended November 30, 1993, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$95,214,311 and $45,519,445, respectively. Purchases and sales of short-term
municipal obligations aggregated $3,100,000 and $4,200,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
The following is a summary of futures contracts activity during the six
months ended November 30, 1993:
<TABLE>
<CAPTION>
Sales of Futures Contracts
Number of Aggregate
Contracts Face Value
<S> <C> <C>
Contracts opened 130 $ 14,794,342
Contracts closed (130) (14,794,342)
Open at end of period -- $--
</TABLE>
Note 4 Capital shares
At November 30, 1993, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
November 30 May 31
1993 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 4,211,562 $ 41,079,085 7,076,324 $ 66,143,504
Shares issued in connection with
reinvestment of distributions 413,110 4,040,650 739,282 6,913,053
4,624,672 45,119,735 7,815,606 73,056,557
Shares repurchased (1,181,867) (11,527,404) (1,752,801) (16,385,311)
Net increase 3,442,805 $ 33,592,331 6,062,805 $ 56,671,246
</TABLE>
<TABLE>
<CAPTION>
For the period
July 15, 1993
(commencement
of operations) to
November 30
1993
<S> <C> <C>
Class B Shares Amount
Shares sold 1,420,150 $13,922,271
Shares issued in connection with
reinvestment of distributions 5,988 58,975
1,426,138 13,981,246
Shares repurchased (14,701) (144,744)
Net increase 1,411,437 $13,836,502
</TABLE>
Note 5 Reclassification of Capital Account
Effective June 1, 1993, Putnam Massachusetts Tax Exempt Income Fund II has
adopted the provisions of Statement of Position 93-2 "Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies (SOP)." The purpose
of this SOP is to report the accumulated net investment income (loss) and
accumulated net realized gain (loss) accounts in such a manner as to
approximate amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP, the Fund has reclassified $450,460 to decrease
accumulated net realized gain, $13,854 to decrease distributions in excess of
net investment income, with an increase of $436,606 to additional paid-in
capital. These adjustments represent the cumulative amounts necessary to
report these balances through May 31, 1993, the close of the Fund's most
recent fiscal year-end, for financial reporting and tax purposes.
Fund
performance
supplement
Putnam Massachusetts Tax Exempt Income Fund II is a portfolio managed for
high current income free from federal and state income taxes and consistent
with capital preservation. This fund invests at least 75% of its portfolio in
investment-grade tax-exempt bonds. The balance may be invested in securities
rated below investment-grade.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment- grade, fixed rate, long-term maturity
tax-exempt bonds, which are selected to be representative of the market in
terms of price movement and sector distribution. The average quality of bonds
held in the index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of the lower
rating classifications in which the fund may invest. The index does not take
into account brokerage commissions or other costs and may pose different
risks from the fund. Total return performance for the index reflects
mathematically derived changes of market price and reinvestment of interest
payments, as computed by Lehman Brothers. The fund's portfolio contains
securities that do not match those in the index.
The Consumer Price Index is a commonly used measure of inflation; it does not
represent an investment return.
This fund performance supplement has been prepared by Putnam Management to
provide further detail about the fund and the indexes used for performance
comparisons. It is not part of the portfolio of investments owned or the
financial statements and notes.
<TABLE>
<CAPTION>
Total return at end of most recent calendar quarter
Periods ended December 31, 1993
Cumulative Annualized
NAV POP NAV POP
<S> <C> <C> <C> <C>
1 year 12.04% 6.75% 12.04% 6.75%
3 years 41.02 34.26 12.14 10.32
annualized 53.94 46.68 10.84 9.57
NAV CDSC NAV CDSC
Life-of-class*
(class B shares) 3.29% 1.70% -- --
</TABLE>
*The fund began operations October 23, 1989 offering shares now known as
class A shares. Effective July 15, 1993, the fund began offering class B
shares. Performance for each share class will differ.
<PAGE>
Putnam
Massachusetts
Tax Exempt
Income Fund II
Fund information
Investment manager
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
Marketing services
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
(Dalbar logo)
Putnam Investor Services has
received the DALBAR award
each year since the award's
1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
A37/B06-10025
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Triet Nguyen
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistant Treasurer
Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Hans H. Estin, John A. Hill,
Elizabeth T. Kennan, Lawrence J. Lasser,
Robert E. Patterson, Donald S. Perkins,
George Putnam, III, A.J.C. Smith,
W. Nicholas Thorndike
This report is for the information of shareholders of Putnam Massachusetts
Tax Exempt Income Fund II. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details of
sales charges, investment objectives and operating policies of the fund.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS:
(1) Bold and italic typefaces are displayed in normal type.
(2) Headers (e.g., the name of the fund) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(3) Because the printed page breaks are not reflected, certain tabular
and columnar headings and symbols are displayed differently in
this filing.
(4) Bullet points and similar graphic signals are omitted.
(5) Page numbering is omitted.
(6) Dagger footnote symbol replaced with plus sign (+).
