Putnam
Massachusetts
Tax Exempt
Income Fund II
ANNUAL REPORT
May 31, 1994
(Artwork of Balance Scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
Putnam Massachusetts Tax Exempt Income Fund II has earned Morningstar's
highest ranking of five stars, based on risk-adjusted performance as of May
31, 1994.*
CDA/Wiesenberger ranked your fund among the top 10% (or # 26) of all 338
single-state municipal bond funds tracked for the three years ended May 31,
1994.+
Performance should always be considered in light of a fund's investment
strategy. Putnam Massachusetts Tax Exempt Income Fund II is designed for
investors seeking a high level of current income free from federal and state
income tax consistent with preservation of capital.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
12 months ended 5/31/94 Class A Class B
<S> <C>
Total return: NAV POP NAV CDSC
............................................................................................
(change in value during
period plus reinvested
earnings) 1.92% -2.97% -- --
Current return: NAV POP NAV
............................................................................................
(end of period:)
Current dividend rate(1) 6.00% 5.72% 5.36%
Taxable equivalent(2) 11.29 10.76 10.08
Current 30-day SEC yield(3) 5.65 5.38 4.96
Taxable equivalent(2) 10.63 10.12 9.33
Share value: NAV POP NAV
............................................................................................
5/31/93 $ 9.55 $10.03 --
7/15/93 (inception
of class B shares) -- -- $ 9.71
5/31/94 9.05 9.50 9.05
Capital gains
Distributions:(4) No. Income Short-term Long-term Total
............................................................................................
Class A 12 $0.548515 $0.113 $0.038 $0.699515
Class B 11 0.414906 0.113 0.038 0.565906
</TABLE>
Performance data represent past results and will differ for each share class.
For performance over longer periods, see pages 8 and 9. POP assumes 4.75%
maximum sales charge. CDSC assumes 5% maximum contingent deferred sales
charge. (1)Income portion of most recent distribution, divided by NAV or POP
at end of period. (2)Assumes maximum combined 46.85% federal and state tax
rate. Results for investors subject to lower tax rates would not be as
advantageous. For some investors, investment income may also be subject to
the federal Alternative Minimum Tax. (3)Based only on investment income,
calculated using SEC guidelines. (4)Capital gains are taxable for federal
and, in most cases, state purposes. Investment income may be subject to state
and local taxes.
*Morningstar, Inc., a mutual fund research firm, rates a fund in relation to
similar funds. A rating is based on risk-adjusted 3-, 5-, and 10-year total
return, as applicable, adjusted for sales charges. The ratings are updated
biweekly.
(+)CDA/Wiesenberger is an independent mutual fund research firm whose
rankings vary over time and do not include the effect of sales charges. For
the 1-year period ended 5/31/94, the fund was # 265 of all 574 funds tracked.
<PAGE>
From the Chairman
(George Putnam Photo)
Karsh, Ottawa
Dear Shareholder:
The Federal Reserve Board's primary concern remains fighting not only
inflation but the fear of inflation. It is pursuing this goal by gradually
raising the short-term interest rates under its control to slow the economy's
growth to what it regards as a sustainable pace.
The policy continues as the effects of last year's tax increase are being
keenly felt by individuals and businesses. This confluence could result in a
greater slowing of business than many observers now expect.
As this slowing becomes more obvious, the Fed will come under growing
pressure from politicians to ease up. The Fed is not likely to yield. But the
very fact that investors think it might could cause some more volatility in
the bond markets in the months ahead.
Meanwhile, you can take comfort in the tax shelter provided for the income
generated by your Putnam tax-exempt fund shares.
In the following report, Fund Manager Triet Nguyen explains how he is
positioning your fund's portfolio to respond to 1994's unfolding events.
Respectfully yours,
(Signature of George Putnam)
George Putnam
Chairman of the Trustees
July 20, 1994
<PAGE>
Report from the fund manager
Triet Nguyen
During the first half of fiscal 1994, Putnam Massachusetts Tax Exempt Income
Fund II took advantage of several positive trends in the Massachusetts bond
market. Nevertheless, your fund's performance -- like that of all municipal
bond funds and most fixed-income investments -- was affected by spring's
market turbulence to some degree.
Beginning in February, the Federal Reserve Board took an increasingly
aggressive stance with regard to inflation. By boosting the federal funds
rate, which determines what banks charge each other for overnight loans, the
board ensured higher interest rates in virtually every sector of the
fixed-income market. Since bond prices fall as interest rates rise, the
result was a market-wide sell-off. While our strategies could not offset the
impact of three short-term interest rate increases in approximately three
months, we believe that the fund's positioning was invaluable in reducing the
magnitude of the decline.
HOW HIGHER-RISK INVESTMENTS HELPED REDUCE VOLATILITY
Lower-rated, higher-yielding municipal bonds tend to perform well during
periods of economic strength. It should be no surprise, then, that
high-yielding Massachusetts bonds have made an important contribution to the
fund's performance over this period.
High-yield bonds carry higher coupon rates than investment-grade bonds in
order to compensate investors for the increased risk inherent in a
lower-rated investment. Thus, the traditional reason for including them in a
fund's portfolio is to increase current income. However, as the state economy
has strengthened, a significant number of lower-rated Massachusetts bonds
have been upgraded. Consequently, they have appreciated in value at a time
when most other income investments were declining.
Because lower ratings can make an investment less liquid, high-yield bonds
were less affected by the recent sell-off in the municipal bond market. Many
investors, anticipating ongoing rate increases, liquidated large holdings of
investment-grade tax-exempt bonds. Since there were more sellers than buyers,
higher-quality bonds declined in
<PAGE>
value to a greater extent than higher-yielding bonds. The average AAA-rated,
insured Massachusetts bond fell 10% or more in value while the average
BB-rated bond fell 6%.
Your fund's high-yield bond holdings, therefore, helped cushion the value of
the portfolio. In other words, our focus on what is traditionally considered
a higher-risk investment actually helped reduce volatility.
It is important to note that Putnam's in-depth credit research has been
instrumental in enabling the fund to maximize benefits from its high-yield
bond investments. It is no coincidence that many of the bonds we purchased
experienced credit upgrades; while no assurances can ever be made, our
research typically allows us to identify those bonds with the greatest
potential for upgrades -- which often translate into price increases.
TOP HOLDINGS (5/31/94)
MA Indl. Fin. Agcy.
Revenue bonds
MA Health & Educational Facility Authority
Revenue bonds
MA Hsg. Fin. Agcy.
Revenue bonds
MA Muni. Wholesale Electric Co. Power Supply System
Revenue bonds
MA Water Resource Authority
Revenue bonds
MA G.O. Cons. Loan Bonds
General obligation bonds
Agawam Resource Recovery
Revenue bonds
Boston, Ind. Dev. Fin. Auth. Swr. Fac.
Revenue bonds
These holdings represent 70.2% of the fund's net assets. Portfolio holdings
are subject to change.
<PAGE>
THE SUPPLY STORY: SHORTAGES SEEM LIKELY
The lower interest rates of the past two years have contributed to a
municipal bond supply surge. Just as mortgage holders rushed to refinance
home mortgages to seize the opportunity presented by lower rates,
municipalities have refinanced older, higher-yielding debt, increasing the
number of new-issue bonds available.
Now that interest rates have changed direction, the refinancing stampede has
slowed to a crawl. Furthermore, we are approaching a time when many
Massachusetts bonds will mature or be called, reducing the supply even more.
In reviewing bond supply trends throughout the country, Merrill Lynch
analysts recently noted that Massachusetts was one of the states most likely
to undergo a shortage. Last year, refundings represented over 80% of
new-issue Massachusetts bonds. For the first 4 months of calendar 1994, new
issuance was down over 70%.
For some time, we have anticipated a significant increase in demand for
tax-free investments. While this demand did not materialize during this
period, we believe the recent market volatility kept people from focusing on
fixed-income investments. Going forward, a supply decline of the magnitude we
expect could help increase the value of existing bonds even without any
increase in demand. And, if we should experience a renewal of interest in
tax-free investments, the benefits to the fund could be even greater.
PORTFOLIO POSITIONS: SECTOR AND DURATION SHIFTS
Our discussion of high-yield bonds should not obscure the fact that over one
third of the portfolio is invested in AAA-rated bonds. As of the end of the
period, average portfolio quality was A, just as it has been over the last
year.
We have, however, made some modest changes in the portfolio's sector
allocations. Health care continues to be a focal point, but we are being
especially selective and somewhat more conservative than in the past. Many of
our health care holdings have recently experienced upgrades and most of these
are also insured.
<PAGE>
(Bar Chart)
HOLDINGS BY INDUSTRY SECTORS*
Health care and
hospitals 34.3%
Utilities 18.3%
Education 17.0%
Transportation 9.3%
Housing 7.2%
*Based on net assets on 5/31/94
Although we have followed the environmental sector for some time, it has not
yet become a significant factor in our investments. This could change in the
future, as we are now considering purchasing bonds issued to support a number
of recycling projects.
The fund's fairly conservative duration proved beneficial during the recent
interest rate increases. Duration is a mathematical formula indicating how
much bond prices will move up or down with each percentage-point shift in
interest rates. Like maturity, duration is measured in years. The shorter the
duration, the less volatility you can expect from the portfolio. In
anticipation of an eventual rise in rates, we reduced the portfolio's
duration from 7-1/2 to 7 years at the beginning of calendar 1994 -- a move
which helped protect the fund this spring.
Looking ahead, we are aware that Massachusetts is continuing to grapple with
a level of unemployment well ahead of the national average, as well as a
proposed graduated income tax to replace the current flat-tax structure. Both
issues may well affect your fund's performance and are likely to influence
our investment decisions over the rest of 1994 and beyond.
<PAGE>
Performance summary
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares changed
over time, assuming you held the shares through the entire period and
reinvested all distributions back into the fund. We show total return in two
ways: on a cumulative long-term basis (see the chart on the facing page) and
how the fund might have grown each year, on average, over varying periods
(see the tables below). For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDING 5/31/94
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B Municipal Bond
NAV POP NAV CDSC Index CPI
<S> <C> <C> <C> <C> <C> <C>
1 year 1.92% -2.97% -- -- 2.47% 2.29%
3 years 28.72 22.64 -- -- 25.99 8.78
Annual average 8.78 7.04 -- -- 8.01 2.84
Life of class A
(since 10/23/89) 47.62 40.66 -- -- 44.97 17.44
Annual average 8.82 7.68 -- -- 8.39 3.55
Life of class B
(since 7/15/93) -- -- -1.15% -5.81% 0.78 2.15
</TABLE>
TOTAL RETURN FOR PERIODS ENDING 6/30/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 year -0.49% -5.20% -- --
3 years 27.42 21.41 -- --
Annual average 8.41 6.68 -- --
Life of class A
(since 10/23/89) 46.67 39.75 -- --
Annual average 8.51 7.40 -- --
Life of class B
(since 7/15/93) -- --
Annual average -- -- -1.81% -6.43%
</TABLE>
Performance data represent past results. Investment returns and principal
value will fluctuate so an investor's shares, when sold, may be worth more or
less than their original cost. Fund performance data do not take into account
any adjustment for taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class A distribution
plan in 1990. Effective July 15, 1993, the fund began offering class B
shares. Performance for each share class will differ.
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
Consumer Price Index is a commonly used measure of inflation. It does not
represent an investment return.
<PAGE>
(Graphic line chart showing growth of a $10,000 investment)
Plot points
Fund Lehman Bros.
Class A Municipal Consumer
shares at Bond Price
POP Index Index
10000 10000 10000
9525 9740 9857
9926 10453 10287
10929 11506 10796
12236 12636 11123
13803 14148 11481
14067 14497 11744
Past performance is no assurance of future results. A $10,000 investment in
the fund's class B shares at inception (7/15/93) would have been valued at
$9,885 by 5/31/94 ($9,419 with a redemption at the end of the period).
TERMS AND DEFINITIONS
Class A fund shares are generally subject to an initial sales charge.
Class B fund shares may be subject to a sales charge on redemption.
Net asset value (NAV) is the value of all fund assets, minus liabilities,
divided by the number of outstanding shares. It does not include any initial
or contingent deferred sales charges.
Public offering price (POP) is the price of a fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown
here assume the maximum 4.75%
sales charge.
Contingent deferred sales charge (CDSC) is applied on redemption of fund
shares. Your fund's CDSC declines from a 5% maximum during the first year to
1% during the sixth year. After the sixth year, the CDSC no longer applies.
<PAGE>
The Putnam Fund Selector(TM)
The Putnam Fund Selector shows the many opportunities for investors within
every investment strategy. All investors should first accumulate a base of
conservative, cash-equivalent investments. Then, with the help of your
investment advisor, diversify your portfolio by investing in the Putnam
Family of Funds.
(Graphic)
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Natural-Resources Fund
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
*State tax-free income funds
*Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio, and Pennsylvania
<PAGE>
Report of Independent Accountants
For the Fiscal Year Ended May 31, 1994
To the Trustees and Shareholders of
Putnam Massachusetts Tax Exempt Income Fund II
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam Massachusetts Tax Exempt Income Fund II (the fund) at May
31, 1994, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of investments owned at
May 31, 1994, by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse, LLP
Boston, Massachusetts
July 18, 1994
<PAGE>
Portfolio of investments owned
May 31, 1994
MUNICIPAL BONDS AND NOTES (97.4%)(a)
PRINCIPAL AMOUNT RATINGS(b)VALUE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Massachusetts (89.2%)
$5,500,000 Agawam, Resource Recvy. Rev. Bonds (Springfield Resources
Recvy. Project), 8-1/2s, 12/1/08 BBB $5,933,125
2,135,000 Boston, Indl. Fing. Auth. Ser. A. (Mass College of Pharmacy,
Project Connie Lee), 5-1/4s, 10/1/26 AAA 1,796,069
5,000,000 Boston, Ind. Dev. Fin. Auth. Swr. Fac. Rev. Bonds (Harbor
Elec. Energy Co. Project), 7-3/8s, 5/15/15 Baa 5,287,500
1,315,000 Boston, Nursing Home Rev. Bonds (St. Joseph Nursing Care Ctr.
Inc.), 10s, 1/1/20 BB/P 1,408,694
5,000,000 Boston, Rev. Rfdg. Ser. B (City Hospital), 5-3/4s, 2/15/23(c) AA 4,618,750
1,500,000 Boston, Wtr. & Swr. Rev. Bonds Ser. A, 5-3/4s, 11/1/13 A 1,426,875
1,000,000 Haverhill, General Obligation (G.O.) Bonds Ser. A, Financial
Guaranty Insurance Corp. (FGIC) 7s, 6/15/12 AAA 1,075,000
Holyoke, G.O. Bonds
1,870,000 9.85s, 11/1/08 AAA 2,138,813
2,000,000 (School Project Loan Act), 7.65s, 8/1/09 Baa 2,172,500
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 AAA 1,439,063
2,455,000 8.3s, 2/15/05 AAA 2,921,450
545,000 8.3s, 2/15/05 Baa 627,431
MA Bay Trans. Auth. Rev. Bonds
1,250,000 Ser. B, 6.2s, 3/1/16 A 1,264,063
4,000,000 (General Trans. Syst.), Ser. A, 5-1/2s, 3/1/12 A 3,780,000
1,625,000 MA Convention Ctr. Auth. Rfdg. Rev. Bonds
(Hynes Convention Ctr.) zero%, 9/1/04 A 912,031
MA G.O. Cons. Loan Bonds
1,000,000 Ser. A, 7-5/8s, 6/1/08 AAA 1,155,000
1,600,000 Ser. A, 7-1/2s, 6/1/04 A 1,842,000
2,520,000 Ser. B, 5.4s, 11/1/06 A 2,475,900
7,500,000 Ser. B, FGIC, zero%, 6/1/07 AAA 3,478,125
MA Hlth. & Edl. Fac. Auth. Rev. Bonds
3,000,000 (Tufts) Inverse Floating Rate, Financial Guaranty Insurance
Corp. FGIC, 9.074s, 8/15/18 AAA 2,685,000
2,000,000 (Fairview Extended Care), Ser. A, 10-1/4s, 1/1/21 BB/P 2,155,000
2,000,000 RIBS (St. Elizabeth Hosp.), Ser. E, 9.97s, 8/15/21 AAA 2,122,500
865,000 (Summerfield Nursing Home), Ser. A, 9-1/2s, 7/1/14 BB/P 942,850
2,000,000 (Nichols College), Ser. B, 8-1/2s, 10/1/16 BBB 2,285,000
1,500,000 (Holy Cross College), Ser E, 8.4s, 11/1/15 AAA 1,586,250
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 2,681,250
4,250,000 (Suffolk U.), Ser. A, 8-1/8s, 7/1/20 Baa 4,940,625
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Baa 2,281,688
1,125,000 (Norwood Hosp.), Ser. E, 7-3/4s, 7/1/07 Baa 1,143,281
3,000,000 (Stonehill College), AMBAC, 7.7s, 7/1/20 AAA 3,446,250
5,000,000 (Med. Ctr. of Central MA), Ser. A, 7.1s, 7/1/21 A 5,225,000
1,550,000 (Worcester Polytechnic Inst.), Ser. E, 6-5/8s, 9/1/17 A 1,596,500
1,000,000 (Wheaton College) 5-1/4s, 7/1/19 A 868,750
6,500,000 RIBS (Boston U.), Ser. L, Municipal Bond Insurance
Association (MBIA), 10.564s, 10/1/31 AAA 6,768,125
3,300,000 (Norwood Hosp.), Ser. E 8s, 7/1/12 Baa 3,378,375
3,250,000 (Cooley Dickinson Hosp.), Ser. A, 7-1/8s, 11/15/18 BBB/P 3,323,125
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6-1/2s, 11/15/18 A 3,875,150
2,000,000 (Harvard U.), Ser. N, 6-1/4s, 4/1/20 AAA 2,070,000
<PAGE>
Massachusetts (continued)
$3,000,000 (MA General Hosp.), Ser. F, AMBAC, 6-1/4s, 7/1/12 AAA $3,060,000
2,000,000 (Williams College), Ser. D, 5-1/2s, 7/1/12 AA 1,857,500
5,500,000 (Boston College), Ser. K, 5-3/8s, 6/1/14 A 5,025,625
2,500,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 Aaa 2,118,750
3,400,000 (Cape Cod Health Svs.), Ser. A-2, Inverse Floating Rate,
8.32s, 11/15/09 AAA 2,919,750
2,000,000 (Winchester Hospital) Ser D. 5-3/4s, 7/1/24 AAA 1,822,500
MA Hsg. Fin. Agcy. Multi-Fam Res. Dev. Rev. Bonds
2,000,000 Ser. A, Government National Mtge. Assn. (GNMA) Coll., 9-1/8s,
12/1/20 AAA 2,142,500
2,000,000 Ser. I, Federal National Mortgage Association (FNMA), 6.9s,
11/15/25 AAA 2,060,000
6,000,000 Ser. C, 6.9s, 11/15/21 AAA 6,247,500
4,845,000 Ser. I, FNMA, 6.85s, 11/15/12 Aaa 5,032,744
MA Indl. Fin. Agcy. Poll. Control Rev. Bonds
4,000,000 (Eastern Edison Co. Project), 5-7/8s, 8/1/08 Baa 3,780,000
4,000,000 (Boston Edison Co.) Ser A. 5-3/4s, 2/1/14 Baa 3,625,000
MA Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds
2,775,000 (Brookhaven-Lexington Project), 10-1/4s, 1/1/18 AAA 3,305,719
240,000 (Brookhaven-Lexington Retirement Community), 10s, 1/1/05 AAA 252,600
1,900,000 (Berkshire Retirement Home), 9-7/8s, 7/1/18 AAA 2,168,375
3,000,000 (Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,790,000
2,000,000 (Brookhaven Project), Ser B. 6.6s, 1/1/17 BBB/P 2,002,500
1,985,677 (Pioneer Valley Living Ctr.), zero%, 10/1/20 B/P 2,482
2,400,000 MA Indl. Fin. Agcy. Hlth. Care Fac. Rev. Bonds (Evanswood
Bethzatha Corp.), Ser. A 9s, 5/1/20 A 2,712,000
MA Indl. Fin. Agcy. Rev. Bonds
3,100,000 (Alpha Inds.-Methuen), 10-1/4s, 8/1/04 BB/P 3,100,000
2,100,000 (Oddfellows Home), 9.6s, 1/1/15 BB/P 2,189,250
5,000,000 (Southeastern MA Project), Ser. B, 9-1/4s, 7/1/15 BB/P 5,556,250
2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,237,500
2,065,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8-3/4s, 7/1/11 Aaa 2,434,119
2,500,000 (Leominster Hosp.), Ser. A, 8-5/8s, 8/1/09 BB/P 2,753,125
3,600,000 (Cape Cod Hlth. Syst.), 8-1/2s, 11/15/20 Aaa 4,311,000
1,165,000 (Clark U.) Ser E, 7s, 7/1/12 A 1,243,638
2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A/P 2,780,838
3,500,000 (Brookhaven Project) Ser A, 7s, 1/1/15 BBB/P 3,412,500
6,000,000 (Berkshire Retirement Home) Ser. A, 6-5/8s, 7/1/16 BB/P 5,602,500
2,000,000 (Brooks School), 5.95s, 7/1/23 A 1,940,000
5,000,000 (Whitehead Inst. Biomedical Res.), 5-1/8s, 7/1/26 Aa 4,150,000
1,460,000 MA Indl. Fin. Agcy. Tunnel Rev. Bonds (MA Tpk.), 9s, 10/1/20 BAA/P 1,545,775
MA Muni. Wholesale Elec. Co. Pwr. Supply Syst. Rev. Rev.
Bonds
2,000,000 Residual Interest Bonds (RIBS) American Municipal Bond
Assurance Corp. (AMBAC) 6.895s, 9/15/00
(acquired 7/9/93, cost $2,000,000)(d) AAA/P 1,802,500
2,240,000 Ser. D, 6s, 7/1/11 A 2,167,200
1,000,000 Ser. A, AMBAC, 5.1s, 7/1/08 AAA 920,000
3,000,000 Ser. A, AMBAC, 5s, 7/1/10 AAA 2,662,500
2,000,000 Ser. B, MBIA, 4-3/4s, 7/1/11 AAA 1,707,500
3,000,000 MA Port Auth. Rev. Bonds Ser. B, 5s, 7/1/13 AA 2,643,750
1,000,000 MA State Coll. Project Rev. Bonds Ser. A, 7.8s, 5/1/16 A 1,103,750
<PAGE>
Massachusetts (continued)
$2,000,000 MA Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern
MA Project), Ser. A , 9s, 7/1/15 BB/P $2,215,000
5,000,000 MA Turnpike Auth. Rev. Bonds Ser. A, 5s, 1/1/13 A 4,368,750
4,400,000 MA Water. Pollution. Abatement. Ser. B, 5-1/4s, 8/1/14 AA 3,899,500
MA Wtr. Resource Auth. Rev. Bonds
2,900,000 Ser. C, 5-1/4s, 12/1/15 A 2,552,000
3,950,000 Ser. C, 4-3/4s, 12/1/23 A 3,071,125
1,000,000 6-1/2s, 7/15/19 A 1,016,250
Somerville, MA Hsg. Auth. Rev. Bonds (Clarendon Hill),
GNMA Coll.
2,000,000 7.95s, 11/20/30 AAA 2,165,000
1,500,000 7.85s, 11/20/10 AAA 1,627,500
1,600,000 U. Mass. Bldg. Auth. Rev. Bonds Ser. A, 7-1/2s, 5/1/14 A 1,752,000
Worcester, Mtge. Rev. Bonds (Briarwood Issue)
3,100,000 9-1/4s, 12/1/22 BB/P 3,204,625
1,350,000 6.4s, 9/15/10 BB/P 1,370,250
Worcester, Rev. Bonds (St. Francis Home)
2,000,000 9-3/4s, 7/1/19 BB/P 2,127,500
1,000,000 9.4s, 7/1/08 BB/P 1,041,250
Total Massachusetts 238,727,098
Puerto Rico (6.6%)
3,000,000 Cmnwlth of Puerto Rico, Elec. Power Auth. Ser S, 6-1/8s,
7/1/09 A 3,033,750
Cmnwlth of Puerto Rico, Tel. Auth. RIBS
1,000,000 MBIA, 6.772s, 1/1/05 (acquired 4/23/93, cost $1,043,660)(d) AAA 971,250
3,000,000 Inverse Floating Rate, AMBAC, 6.742s, 1/1/03 AAA 2,658,750
4,000,000 Cmnwlth. of Puerto Rico, G.O. Bonds zero%, Stepped Coupon,
(8.00s, 7/1/96) 7/1/02(e) A 4,020,000
2,100,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. Rev. Bonds Ser
X, 5s, 7/1/22 A 1,729,875
2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control Fac. Fin. Auth.
Rev. Bonds (American Airlines), Ser. A, 8-3/4s, 12/1/25 Baa 2,785,250
1,500,000 Puerto Rico, Port Auth. Special Fac. Rev. Bonds (American
Airlines), Ser. A, 6.3s, 6/1/23 Baa 1,366,872
1,000,000 Puerto Rico, Pub. Bldgs. Auth. Rev. Bonds Ser. K, 6-7/8s,
7/1/21 AAA 1,122,500
Total Puerto Rico 17,688,247
Virgin Islands (1.6%)
4,000,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds Ser. A, 7-1/4s,
10/1/18 BBB/P 4,205,000
Total Investments (cost $260,408,520)(f) $260,620,345
</TABLE>
<PAGE>
(a) Percentages indicated are based on total net assets of $267,536,064,
which correspond to a net asset value per class A and class B shares of
$9.05.
(b) The Moody's or Standard & Poor's Ratings indicated are believed to be the
most recent ratings available at May 31, 1994, 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 May 31, 1994. Securities rated
by Putnam are indicated by "/P" and are not publicly rated. Ratings are not
covered by the Report of Independent Accountants.
(c) This security having a total value of $4,618,750 or 1.7% of net assets
has been purchased on a "forward commitment" basis, that is, the fund has
agreed to take delivery of and make payment for this security beyond the
settlement time of five business days after the trade date and subsequent to
the date of this report. The purchase price and interest rate of the security
is fixed at the trade date although the fund does not earn any interest on
such security until settlement date.
(d) 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 May 31, 1994, was $2,773,750 or 1.0% of net assets.
(e) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving interest
at this rate.
(f) The aggregate identified cost for federal income tax purposes is
$260,408,626, resulting in gross unrealized appreciation and depreciation of
$8,701,490 and $8,489,771 respectively, or net unrealized appreciation of
$211,719.
The rates shown on Residual Interest Bonds (RIBS) and Inverse Floating Rate
Notes are the current interest rates at May 31, 1994, which are subject to
change based on the terms of the security.
The Fund had the following industry group concentrations greater than 10% on
May 31, 1994 (as a percentage of net assets):
<TABLE>
<CAPTION>
<S> <C>
Health Care/Hospitals 34.3%
Utilities/Water & Sewer 18.3
Education 17.0
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of assets and liabilities
May 31, 1994
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments in securities at value (identified cost
$260,408,520) (Note 1) $260,620,345
Cash 270,740
Receivable for securities sold 6,527,648
Interest receivable 5,488,777
Receivable for shares of the fund sold 1,196,246
Unamortized organization expenses (Note 1) 2,751
Other assets 30,310
Total assets 274,136,817
Liabilities
Payable for shares of the fund repurchased $ 396,101
Payable for securities purchased 4,974,919
Distributions payable to shareholders 603,714
Payable for compensation of Manager (Note 2) 404,283
Payable for administrative services (Note 2) 1,502
Payable for compensation of Trustees (Note 2) 186
Payable for investor servicing and custodian fees (Note 2) 65,866
Payable for distribution fees (Note 2) 96,776
Other accrued expenses 57,406
Total liabilities 6,600,753
Net assets $267,536,064
Represented by
Paid-in capital (Notes 4 and 5) $267,590,185
Distributions in excess of net investment income (Note 5) (118,519)
Accumulated net realized loss on investments and futures
contracts (Note 5) (147,427)
Net unrealized appreciation of investments 211,825
Total--Representing net assets applicable to capital shares
outstanding $267,536,064
Computation of net asset value and offering price
Net asset value and redemption price of class A shares
($244,519,478 divided by 27,006,382 shares) $9.05
Offering price per share (100/95.25 of $9.05) * $9.50
Net asset value and offering price of class B shares
($23,016,586 divided by 2,542,905 shares)+ $9.05
</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.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of operations
Year ended May 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
Tax exempt interest income $ 17,128,279
Expenses:
Compensation of Manager (Note 2) $1,549,215
Investor servicing and custodian fees (Note 2) 268,424
Compensation of Trustees (Note 2) 12,987
Reports to shareholders 23,040
Auditing 26,377
Legal 14,752
Postage 15,602
Administrative services (Note 2) 6,747
Distribution fees--class A (Note 2) 490,082
Distribution fees--class B (Note 2) 103,211
Registration fees 23,812
Amortization of organization expenses (Note 1) 4,516
Other expenses 7,902
Total expenses 2,546,667
Net investment income 14,581,612
Net realized gain on investments (Notes 1 and
3) 1,425,049
Net realized gain on futures contracts (Notes 1 and 3) 198,560
Net unrealized depreciation of investments
during the year (13,149,699)
Net loss on investment transactions (11,526,090)
Net increase in net assets resulting from
operations $ 3,055,522
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<CAPTION>
Year ended
May 31
1994 1993
<S> <C> <C>
Increase in net assets
Operations:
Net investment income $ 14,581,612 $ 11,308,425
Net realized gain on investments 1,425,049 2,895,798
Net realized gain (loss) on futures contracts 198,560 (107,959)
Net unrealized (depreciation) appreciation of
investments and futures contracts (13,149,699) 7,314,508
Net increase in net assets resulting from
operations 3,055,522 21,410,772
Distributions to shareholders from:
Net investment income from:
Class A (13,985,915) (11,346,766)
Class B (595,696) --
In excess of Net investment income from:
Class A (62,493) --
Class B (6,844) --
Net realized gains on investments
Class A (3,941,191) (135,247)
Class B (229,597) --
Increase from capital share transactions (Note
4) 67,691,698 56,671,246
Total increase in net assets 51,925,484 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 $118,519 and
$67,554 respectively) $267,536,064 $215,610,580
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Financial Highlights*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period For the period
July 15, 1993 October 23
(commencement (commencement
of operations) to Year ended of operations) to
May 31 May 31 May 31
1994 1994 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 .41 .55 .59 .61(a) .62(a) .35(a)
Net realized and unrealized
gain (loss) on
investments (.51) (.35) .54 .39 .20 --
Total from Investment
Operations (.10) 0.20 1.13 1.00 .82 .35
Less Distributions from:
Net investment income (.41) (.55) (.59) (.61) (.62) (.35)
Net realized gain
on investments (.15) (.15) (.01) (.07) -- --
Total distributions (.56) (.70) (.60) (.68) (.62) (.35)
Net asset value,
end of period $9.05 $9.05 $9.55 $9.02 $8.70 $8.50
Total investment return at
net asset value (%) (b) (1.31)(c) 1.92 12.80 11.96 10.10 6.84(c)
Net assets, end
of period (in thousands) $23,017 $244,519 $215,611 $149,011 $38,526 $18,249
Ratio of expenses to
average net assets (%) 1.60(c) .96 .97 .88(a) .86(a)
.80(a)(c)
Ratio of net investment
income to average net
assets (%) 4.91(c) 5.69 6.24 6.82(a) 7.27(a)
6.97(a)(c)
Portfolio turnover (%) 36.20 36.20 53.18 94.95(e) 123.29 83.26(d)
</TABLE>
* Financial highlights for periods ended through May 31, 1992 have been
restated to conform with requirements issued by the SEC in April 1993.
(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 per share, 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.
<PAGE>
Notes to financial statements
May 31, 1994
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. 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.
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 provi-
<PAGE>
sion 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. 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. These differences include treatment of losses on wash sales
transactions, realized and unrealized gains and losses on futures contracts
and organization expenses. Reclassifications are made to the fund's capital
accounts in order that they reflect income and gains available for
distribution under income tax regulations. During the year ended May 31, 1994
the fund reclassified $4,517 to decrease accumulated distributions in excess
of net investment income with a decrease of $4,517 to paid in capital.
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 year ended May
31, 1994, the fund paid $6,747 for these services.
Trustees of the fund receive an annual Trustee' fee of $780 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. For the year
ended May 31, 1994 the fund paid $12,987 for these services.
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
<PAGE>
functions for the year ended May 31, 1994 amounted to $268,424.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended May 31, 1994 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 the class A Plan is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services
provided and expenses incurred 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 0.20% of the fund's average net assets attributable to class A
shares. For the year ended May 31, 1994, the fund paid Putnam Mutual Funds
Corp. distribution fees of $490,082 for class A shares.
During the year ended May 31, 1994, Putnam Mutual funds Corp., acting as an
underwriter, received net commissions of $140,316 from the sale of class A
shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
Class A shares purchased as part of an investment of $1 million or more. For
the year ended May 31, 1994 Putnam Mutual Funds Corp., acting as underwriter
received $10,092 on such redemptions.
The fund has adopted a separate distribution plan with respect to its class B
shares (the "class B Plan") pursuant to Rule 12b-1 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 year
ended May 31, 1994, the fund incurred fees of $103,211 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 $34,720 from such redemptions for the
year ended May 31, 1994.
Note 3
Purchases and sales of securities
During the year ended May 31, 1994, purchases and sales of investment
securities other than short-term municipal obligations aggregated
$152,959,736 and $91,328,460, respectively. Purchases and sales of short-term
municipal obligations aggregated $4,900,000 and $6,000,000, 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 year
ended May 31, 1994:
<TABLE>
<CAPTION>
Sales of
Future Contracts
Aggregate
Number of Face
Contracts Value
<S> <C>
Outstanding at
beginning of year -- --
Contracts opened 580 $ 61,971,620
Contracts closed (580) $(61,971,620)
Open at end of period -- --
</TABLE>
<PAGE>
Note 4
Capital shares
At May 31, 1994, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year ended May 31
1994 1993
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 6,728,726 $ 64,885,880 7,076,324 $ 66,143,504
Shares issued in
connection with
reinvestment of
distributions 1,149,973 11,043,802 739,282 6,913,053
7,878,699 75,929,682 7,815,606 73,056,557
Shares repurchased (3,455,423) (32,760,636) (1,752,801) (16,385,311)
Net increase 4,423,276 $ 43,169,046 6,062,805 $ 56,671,246
</TABLE>
<TABLE>
<CAPTION>
For the period
July 15, 1993
(commencement of operations)
to May 31, 1994
Class B Shares Amount
<S> <C> <C> <C>
Shares sold 2,685,178 $25,835,499
Shares issued in
connection with
reinvestment of
distributions 54,232 515,350
2,739,410 26,350,849
Shares repurchased (196,505) (1,828,197)
Net increase 2,542,905 $24,522,652
</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 last
fiscal year-end, for financial reporting and tax purposes. These
reclassifications which have no impact on the total net asset value of the
fund are primarily attributable to organization expenses and utilization of
capital loss carryovers from an acquired fund which are treated differently
in the computation of distributable income and capital gains under federal
income tax rules and regulations versus generally accepted accounting
principles.
<PAGE>
Tax Infomation
The fund has designated all dividends from net investment income during the
fiscal year as exempt-interest dividends. Thus, 100% of these distributions
are exempt from federal income tax, and for residents of Massachusetts, 100%
of these distributions are also exempt from Massachusetts personal income
tax. The fund also paid the following short-term and long term capital gains:
<TABLE>
<CAPTION>
<S> <C>
Short-term capital gain dividends.
Class A $0.113
Class B $0.113
Long-term capital gain dividends.
Class A $0.038
Class B $0.038
</TABLE>
These amounts were reported to you on Form 1099 in January 1994. The Form
1099 you will receive in January 1995 will show the tax status of any capital
gain distributions paid to your account in calendar 1994.
<PAGE>
Our commitment to quality service
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal every
year since the award's 1990 inception. DALBAR, an independent research firm,
ran more than 10,000 tests of 38 shareholder service components. In every
category, Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from
a Putnam fund or from your own checking or savings account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
without a service charge. (This privilege is subject to change or
termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than their original
cost.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative.
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number: 1-800-225-1581.
*Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to
continue purchasing shares during periods of low price levels.
<PAGE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Triet Nguyen
Vice President
and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam 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.
845/236-12983
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ----------------
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
- ----------------
845/236-12993
<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) are omitted.
(3) 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 different.
(6) Trademark symbol replaced with (TM)
