Putnam
Massachusetts
Tax Exempt
Income Fund II
SEMIANNUAL REPORT
November 30, 1994
(Art--balance Scales)
B O S T O N * L O N D O N * T O K Y O
<PAGE>
Performance highlights
> "On a trailing five-year basis, the portfolio has one of the most
attractive risk/reward profiles in its peer group."*
--Morningstar Mutual Funds analysis, November 25, 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 income
tax consistent with preservation of capital.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months ended 11/30/94
(change in value during
period plus reinvested
distributions) -4.14% -8.69% -4.57% -9.21%
Share value NAV POP NAV
- ---------------------------------------------------------------------------
5/31/94 $9.05 $ 9.50 $ 9.05
11/30/94 8.41 8.83 8.40
Distributions: Capital
No. Income gains(1) Total
- ---------------------------------------------------------------------------
Class A
6 $0.273817 -- $0.273817
Class B 6 0.245112 -- 0.245112
Current return: NAV POP NAV
- ---------------------------------------------------------------------------
End of period
Current dividend rate(2) 6.54% 6.22% 5.89%
Taxable equivalent(3) 12.30 11.70 11.08
Current 30-day SEC
yield(4) 6.48 6.17 5.82
Taxable equivalent(3) 12.19 11.61 10.95
<FN>
Performance data represent past results. For performance over longer periods,
see page 8. POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum
contingent deferred sales charge. (1)Capital gains, if any, are taxable for
federal and, in most cases, state tax purposes. For some investors,
investment income may also be subject to the federal Alternative Minimum Tax.
Investment income may be subject to state and local taxes. (2)Income portion
of most recent distribution, annualized and divided by NAV or POP at end of
period. (3)Assumes maximum combined state and federal tax rates of 46.85%.
Results for investors subject to lower tax rates would not be as
advantageous. (4)Based only on investment income, calculated using SEC
guidelines.
*Morningstar is an independent research firm that rates funds relative to
funds with similar objectives, based on risk-adjusted three-, five- and
ten-year average annual returns, as applicable, and adjusted for sales
charges.
</FN>
</TABLE>
<PAGE>
FROM THE CHAIRMAN
(Photo George Putnam)
(c) Karsh, Ottawa
Dear Shareholder:
As we begin a new year, most investors won't regret the passing of the old.
Since last February, when the Federal Reserve Board began a series of
increases in interest rates, the 1994 bond market has experienced one decline
after another, adding up to one of the worst selloffs since 1967.
Well in advance of the Fed's first increase, Fund Manager Triet Nguyen had
adopted defensive strategies designed to reduce the impact of rising rates on
Putnam Massachusetts Tax Exempt Income Fund II's portfolio. While defensive
strategies proved relatively successful, fund performance still edged into
the negative numbers.
Among fixed-income investments, tax-free municipals incurred the steepest
decline. Although shifts in the market as a whole inevitably affect your
fund, we believe Putnam Management's philosophy of selecting securities on an
issue-by-issue basis with a thorough examination of each issuer's credit
quality should continue to help protect your fund's portfolio. Furthermore,
current conditions have a silver lining of sorts; tax-exempt yields are now
at their most attractive levels in two years.
In the accompanying report, Triet discusses the first half of fiscal 1995 and
prospects for the challenging months ahead.
Respectfully yours,
(Signature George Putnam)
George Putnam
Chairman of the Trustees
January 18, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
TRIET NGUYEN
November 30, 1994, found Putnam Massachusetts Tax Exempt Income Fund II at
what may well turn out to be the nadir of fiscal 1995. During the six-month
period ended on this date, virtually all fixed-income markets declined as
they adjusted to changes brought about by ongoing interest rate increases by
the Federal Reserve Board. Market volatility, investor uncertainty about
additional interest rate increases, and a tide of no-load fund redemptions
further affected bond prices and, inevitably, your fund's performance.
While the fund outperformed the majority of funds in its Lipper category,
total returns for the period were somewhat disappointing: -4.14% and -4.57%
at net asset value for class A and class B shares, respectively. Over the
longer term, results remain impressive. For the three- and five-year periods
ended November 30, the fund's class A shares were ranked #4 of 20 funds and
#1 of 17 funds, respectively. Additional performance details can be found on
page 8.*
We believe the psychological impact of rising interest rates, rather than any
indication of poor market fundamentals, was the main cause of the recent
declines. However, we also believe the municipal bond market is close to
reaching bottom -- perhaps even past this point -- and thus, the potential
for more attractive performance over the near term is extremely strong. There
can be no guarantees, of course, but your fund's long-term record speaks well
for its ability to take full advantage of market opportunities.
> INVESTMENT-GRADE HOLDINGS ON THE INCREASE
Our emphasis on higher-yielding lower-quality bonds helped cushion the
portfolio against the market's initial declines this past spring. Because of
their higher initial coupons, these bonds were less affected by early
selloffs. At the same time, the strengthening state economy contributed to
credit upgrades for a
* For the 12 months ended November 30, 1994, the fund's class A and class B
shares ranked 15th and 20th, respectively, of 31 Massachusetts bond funds
tracked. Past performance is no assurance of future results.
<PAGE>
number of lower-rated holdings. These upgrades, in turn, led to higher
prices.
Investment-grade bond prices, on the other hand, have declined dramatically
over the past eight months, reflecting liquidations by large numbers of
nervous investors. Now, however, the pendulum is beginning to swing the other
way. The spread between high-yield and investment-grade bonds has narrowed to
the point where values in the higher-quality sectors are too compelling to
resist. So, we have gradually sold off some of the lower-rated bonds and
redeployed the assets into investment-grade bonds. At the end of the period,
78.68% of the portfolio was invested in bonds rated BBB or above, up from
just over a third at the end of fiscal 1994.
As we built up investment-grade holdings, we have used what
is known as a barbell approach to restructure the portfolio. Portfolio
holdings are currently anchored at the highest level, AAA, and the lowest
level, BBB, of the investment grade spectrum, resulting in an average quality
rating of A. This represents our effort to tap the price appreciation
potential of certain issues while, at the same time, taking advantage of the
volatility-dampening effects of others.
(Pie Chart)
PORTFOLIO QUALITY OVERVIEW
35.95% AAA
5.55% AA
16.02% A*
21.52% BBB/Baa
18.60% BB/Ba
1.42% below BB and unrated
(End of pie chart)
*Based on net assets on 11/30/94
*Includes bonds rated VMIGI, a rating which is equivelant to A.
<PAGE>
> SECTOR AND DURATION SHIFTS SHOULD HELP MAXIMIZE AFTER-TAX RETURNS
The fund's fairly conservative average duration (6 to 8 years) proved
beneficial during 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. Shorter durations generally go hand in hand with lower levels of
volatility.
We have shortened the portfolio's duration slightly over the period --
bringing it to 7.42 years as of November 30, 1994. While further shortening
might have provided greater protection for the fund's net asset value, the
resulting tradeoff in terms of current income would not have been in keeping
with the fund's objective. Maximizing after-tax returns is, after all, our
primary goal, and our tendency has been to preserve the fund's tax-free
income stream through differing market conditions. While we certainly target
sectors with potential for appreciation, our allocation decisions generally
reflect a current-income bias.
Health care remains a dominant theme in your portfolio's composition. While
this sector remains out of favor on a national level, the large number of
reputable teaching hospitals in Massachusetts helps outweigh risks on a local
level. In addition, most of the fund's health care holdings are insured or
prerefunded bonds, which further reduces their risk.
College and university bonds are also a substantial part of the portfolio.
Their relative scarcity helps keep their prices relatively stable. The
environmental sector, which we have been monitoring for some time, has become
more attractive, and we have begun to position a portion of assets there,
particularly in alternative waste-disposal facilities and companies. The
SEMASS corporation, which serves the Cape Cod area, is one example of such an
environmental player.
> SUPPLY SHORTAGES CONTINUE AS FUTURE PROSPECTS
STRENGTHEN
The lower interest rates of the past two years contributed to a surge in the
municipal bond supply. Now that interest rates have changed direction, the
refinancing stampede has slowed to a crawl. Year-to-date new issuance of
municipal bonds, at both the national and state levels, has dropped by more
than 40%.
<PAGE>
TOP 10 MUNICIPAL ISSUERS (11/30/94)
MA Hlth. & Edl. Fac Auth.
...................................
MA Indl. Fin. Agcy.
...................................
MA State Indl. Fin. Agcy.
...................................
MA Bay Trans. Auth.
...................................
MA Hsg. Fin. Agcy.
...................................
MA Wtr. Resource Auth.
...................................
Worcester Rev. Bonds
...................................
Agawam, Resource Recvy. Rev. Bond
...................................
Boston, Indl. Dev. Fin. Auth.
...................................
MA State Special Obligation Bonds
These holdings represent 81.2% of the fund's net assets. Portfolio holdings
are subject to change.
Furthermore, this coming July, many older municipal bonds will mature or
reach their call dates. In our opinion, investors holding these bonds are
likely to seek other tax-free investments to reinvest their assets -- which
could significantly boost demand for an already limited supply. We believe
that in 1995, for the first time in decades, the municipal sector may
experience a net shrinkage.
Massachusetts' state economy continues to strengthen, and the recent defeat
of the graduated income tax proposal -- which, if approved, could have
negatively affected bond prices -- bodes well for the future health of
Massachusetts municipal bonds. As experienced bond fund investors have
learned, time generally favors those with patience and vision. Corrections
are not only a natural part of any business cycle, but frequently bring about
rewarding opportunities. We will do our best to take advantage of them over
the rest of fiscal 1995.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 11/30/94, there is no guarantee the fund will continue to
hold these securities in the future.
<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 and on average how the fund might have
grown each year over varying periods. For comparative purposes, we show how
the fund performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 11/30/94
<TABLE>
<CAPTION>
Lehman
Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
<S> <C> <C> <C> <C> <C> <C>
6 months -4.14% -8.69% -4.57% -9.21% -3.48% 1.49%
1 year -6.53 -10.94 -7.24 -11.57 -5.25 2.68
5 years 39.84 33.14 -- -- 37.52 18.90
Annual average 6.94 5.89 -- -- 6.58 3.52
Life of class A 41.50 34.82 -- -- 39.92 19.19
Annual Average 7.03 6.02 -- -- 6.79 3.49
Life of class B -- -- -5.66 -9.12 -2.73 3.67
Annual average -- -- -4.14 -6.70 -1.99 2.65
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
(most recent calendar quarter)
<TABLE>
<CAPTION>
Class A Class B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
6 months -1.69% -6.39% -2.10% -6.86%
1 year -6.33 -10.75 -6.92 -11.33
5 years 41.79 34.99 -- --
Annual average 7.23 6.18 -- --
Life of class A 44.54 37.72 -- --
Annual average 7.36 6.36 -- --
Life of class B -- -- -3.66 -7.18
Annual average -- -- -2.52 -4.97
<FN>
POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent
deferred sales charge. Fund performance data do not take into account any
adjustment for taxes payable on reinvested distributions. The fund began
operations on October 23, 1989, offering shares now known as class A.
Effective July 15, 1993, the fund began offering class B shares. Performance
data represent past results and will differ for each share class. Investment
returns and net asset value will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost.
</FN>
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance figures
shown here assume the maximum 4.75% sales charge.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year to
1% during the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the municipal
bond market. The index does not take into account brokerage commissions or
other costs, may include bonds different from those in the fund, and may pose
different risks than the fund.
Consumer Price Index (CPI) is a commonly used measure of inflation; it does
not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (98.7%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
Massachusetts (94.0%)
<S> <C> <C> <C>
$5,500,000 Agawam, Resource Recvy. Rev. Bonds
(Springfield Resources Recvy. Project), 8-1/2s, 12/1/08 BBB $5,788,750
5,000,000 Boston, Ind. Dev. Fin. Auth. Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co. Project), 7-3/8s, 5/15/15 Baa 4,937,500
2,135,000 Boston Indl. Fing. Auth. Rev. Bonds (MA College of Pharmacy Project),
Connie Lee, Ser. A, 5-1/4s, 10/1/26 AAA 1,561,219
1,315,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,410,338
5,000,000 Boston, Rev. Rfdg. Bonds (City Hosp.), Ser. B, 5-3/4s, 2/15/23 AA 4,093,750
3,500,000 Boston, Wtr. & Swr. Rev. Bonds, Ser. A, 5-3/4s, 11/1/13 A 3,066,875
1,760,000 Holyoke, General Obligation (G.O.) Bonds, 9.85s, 11/1/08 Aaa 1,960,200
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 Aaa 1,373,438
2,455,000 8.3s, 2/15/05 Aaa 2,789,494
MA Bay Trans. Auth. Rev. Bonds
1,250,000 Ser. B, 6.2s, 3/1/16 A 1,146,875
4,750,000 (Gen. Trans. Syst.), Ser. B, 5-7/8s, 3/1/19 A 4,079,063
2,000,000 5-7/8s, 9/15/00 AAA/P 1,652,500
4,000,000 (General Trans. Syst.), Ser. A, 5-1/2s, 3/1/12 A 3,405,000
MA G.O. Cons. Loan Bonds
1,000,000 Ser. A, 7-5/8s, 6/1/08 Aaa 1,105,000
7,500,000 Ser. B, Financial Guaranty Insurance Corp. (FGIC), zero %, 6/1/07 AAA 3,393,750
MA Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (Fairview Extended Care), Ser. A, 10-1/4s, 1/1/21 BB/P 2,157,500
865,000 (Summerfield Nursing Home), Ser. A, 9-1/2s, 7/1/14 B/P 921,225
2,000,000 (Nichols College), Ser. B, 8-1/2s, 10/1/16 BBB 2,187,500
6,000,000 (Beth Israel), American Municipal Bond Assurance Corp., (AMBAC) 8.472s,
7/1/25 AAA 4,297,500
1,500,000 (Holy Cross College), Ser E, 8.4s, 11/1/15 AAA 1,555,313
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 2,540,625
4,250,000 (Suffolk U.), Ser. A, 8-1/8s, 7/1/20 Baa 4,733,438
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,389,188
3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,064,875
4,010,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7-7/8s, 8/15/24 BB/P 3,719,275
1,125,000 (Norwood Hosp.), Ser. E, 7-3/4s, 7/1/07 Baa 1,036,406
3,000,000 (Stonehill College), Ser. D, AMBAC, 7.7s, 7/1/20 AAA 3,311,250
2,820,000 (MA Eye & Ear Infirmary), Ser. A, 7-3/8s, 7/1/11 Baa 2,548,575
2,670,000 (MA Eye & Ear Infirmary), Ser. A, 7-1/4s, 7/1/03 BB 2,479,763
6,380,000 (Cooley Dickinson Hosp.), Ser. A, 7-1/8s, 11/15/18 BBB/P 5,558,575
5,000,000 (Med. Ctrs.-Central MA), Ser. A, AMBAC, 7.1s, 7/1/21 AAA 5,018,750
2,900,000 (N.E. Med. Ctr. Hosps.), Municipal Bond Insurance Assn., (MBIA), 7.08s,
7/1/18 AAA 1,711,000
1,000,000 (Valley Regl. Hlth. Syst.), Ser. C, Connie Lee, 7s, 7/1/10 AAA 986,250
1,705,000 (Valley Regl. Hlth. Syst.), Ser. C, Connie Lee, 7s, 7/1/09 AAA 1,705,000
1,550,000 (Worcester Polytech Inst.), Ser. E, 6-5/8s, 9/1/17 A 1,460,875
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6-1/2s, 11/15/18 A 3,254,350
<PAGE>
Massachusetts (continued)
$2,000,000 (Harvard U.), Ser. N, 6-1/4s, 4/1/20 AAA $1,880,000
4,850,000 (MA General Hosp.), Ser. F, AMBAC, 6-1/4s, 7/1/12 AAA 4,528,688
1,480,000 (Smith College), Ser. D, 5-3/4s, 7/1/24 AA 1,235,800
2,000,000 (Winchester Hosp.), Ser D, 5-3/4s, 7/1/24 AAA 1,592,500
5,000,000 (Beth Israel Hosp.), Ser. G, AMBAC, 5-3/4s, 7/1/12 AAA 4,362,500
2,100,000 (Harvard U.), 5-1/2s, 12/1/15 AAA 1,819,125
2,000,000 (Williams College), Ser. D, 5-1/2s, 7/1/12 AA 1,740,000
5,500,000 (Boston College), Ser. K, 5-3/8s, 6/1/14 A 4,626,875
1,000,000 (Wheaton College), 5-1/4s, 7/1/19 A 782,500
3,365,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 Aaa 2,527,956
6,500,000 MA Hlth. & Edl. Facs. Auth. Inverse Floating Bonds (IFB) (Boston U.),
Ser. L, MBIA, 9.507s, 10/1/31 AAA 5,825,625
2,000,000 MA Hlth. & Edl. Fac. Auth. Residual Interest Bonds (RIBS),
(St. Elizabeth Hosp.), Ser. E, Financial Security Assurance (FSA),
9.77s, 8/15/21 AAA 1,805,000
MA Hsg. Fin. Agcy. Multi-Fam. Hsg. Rev. Bonds
2,000,000 Ser. A, Government National Mtge. Assn. (GNMA) Coll, 9-1/8s, 12/1/20 AAA 2,100,000
6,000,000 Ser. C, 6.9s, 11/15/21 AAA 5,752,500
MA Indl. Fin Agcy. Rev. Bonds
3,500,000 (Brookhaven Project) Ser A, 7s, 1/1/15 BBB/P 3,241,875
2,000,000 (Brookhaven Project), 1st Mtge. Ser B, 6.6s, 1/1/17 BBB/P 1,892,500
MA Indl. Fin. Agcy. Hlth. Care Fac. Rev. Bonds
2,775,000 (Brookhaven-Lexington Project), 1st Mtge., 10-1/4s, 1/1/18 AAA 3,201,655
3,100,000 (Alpha Inds.-Methuen), 10-1/4s, 8/1/04 BB/P 3,003,125
240,000 (Brookhaven-Lexington Retirement Community), 1st Mtge., 10s, 1/1/05 AAA 245,700
1,900,000 (Berkshire Retirement Home), 1st Mtge., 9-7/8s, 7/1/18 AAA 2,109,000
2,400,000 (Evanswood Bethzatha Corp.), Ser. A, 9s, 5/1/20 A 2,358,000
2,015,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8-3/4s, 7/1/11 Aaa 2,261,838
2,500,000 (Leominster Hosp.), Ser. A, 8-5/8s, 8/1/09 BBB/P 2,825,000
1,165,000 (Clark U.), Ser E, 7s, 7/1/12 A 1,183,930
2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A 2,647,330
2,000,000 (Brooks School), 5.95s, 7/1/23 A 1,727,500
MA Indl. Fin. Acgy. Poll. Control Rev. Bonds
6,000,000 (Berkshire Retirement Home), Ser A, 6-5/8s, 7/1/16 BB/P 5,310,000
4,000,000 (Eastern Edison Co. Project), 5-7/8s, 8/1/08 Baa 3,520,000
4,000,000 Ser A, (Boston Edison Co.) 5-3/4s, 2/1/14 Baa 3,315,000
MA Indl. Fin. Agcy. 1st Mtg. Rev. Bonds
3,000,000 (Evanswood Bethzatha), Ser. A, 7-7/8s, 1/15/20 BB/P 2,786,250
3,000,000 (Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,681,250
1,985,677 (Pioneer Valley Living Ctr.) zero %, 10/1/20 B/P 2,482
3,000,000 MA Port Auth. Rev. Bonds, Ser. B, 5s, 7/1/13 AA 2,347,500
1,000,000 MA State College Project Rev. Bonds, Ser. A, 7.8s, 5/1/16 A 1,080,000
3,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Stone Institute), 7.9s, 1/1/24 BB/P 2,910,000
MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA
Project)
5,000,000 Ser. B, 9-1/4s, 7/1/15 BB/P 5,412,500
3,000,000 Ser. A, 9s, 7/1/15 BB/P 3,236,250
MA State Indl. Fin. Agcy. Rev. Bonds
2,100,000 (Oddfellows Home of MA), 9.6s, 1/1/15 BB 2,163,000
2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,125,000
3,600,000 (Cape Cod Hlth. Syst.), 8-1/2s, 11/15/20 Aaa 4,126,500
3,950,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds (MA Tpk.), 9s, 10/1/20 Baa/P 4,098,125
<PAGE>
Massachusetts (continued)
$5,500,000 MA State Special Obligation Bonds, Ser. A, 5-3/4s, 6/1/12 AA $ 4,716,250
2,900,000 MA State, VRDN, Ser. D, 1.8s, 6/1/95 VMIG1 2,900,000
MA Wtr. Resource Auth. Rev. Bonds, Ser. A
1,000,000 6-1/2s, 7/15/19 A 937,500
2,100,000 5-1/2s, 3/1/17 AAA 1,729,875
2,900,000 5-1/4s, 12/1/15 AAA 2,327,250
3,950,000 4-3/4s, 12/1/23 AAA 2,784,750
Somerville, Hsg. Auth. Rev. Bonds (Clarendon Hill), GNMA Coll.
2,000,000 7.95s, 11/20/30 AAA 2,112,500
1,500,000 7.85s, 11/20/10 AAA 1,588,125
1,600,000 U. Mass., Bldg. Auth. Rev. Bonds, Ser. A, 7-1/2s, 5/1/14 A 1,636,000
Worcester, Mtge. Rev. Bonds (Briarwood Issue)
3,100,000 9-1/4s, 12/1/22 BB/P 3,119,375
1,350,000 6.4s, 9/15/10 BB/P 1,324,687
Worcester, Rev. Bonds (St. Francis Home)
2,000,000 9-3/4s, 7/1/19 BB/P 2,092,500
1,000,000 9.4s, 7/1/08 BB/P 1,028,750
239,088,926
Puerto Rico (3.2%)
Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. Rev. Bonds, Ser. X
2,100,000 5s, 7/1/22 A 1,540,875
2,900,000 2.2s, 7/1/99 VMIG1 2,900,000
2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds
(American Airlines, Inc.), Ser. A, 8-3/4s, 12/1/25 Baa 2,720,250
1,000,000 Puerto Rico, Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6-7/8s, 7/1/21 AAA 1,065,000
8,226,125
Virgin Islands (1.5%)
4,000,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds (Matching Funds Loan Notes),
Ser. A, 7-1/4s, 10/1/18 BBB/P 3,790,000
Total Investments (cost $263,679,104)(c) $251,105,051
<FN>
(a) Percentages indicated are based on net assets of $254,434,731, which
correspond to a net asset value per class A and class B share of $8.41 and
$8.40, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at November 30, 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 November 30, 1994. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(c) The aggregate identified cost on a tax basis is $263,679,203, resulting
in gross unrealized appreciation and depreciation of $4,535,951 and
$17,110,103, respectively, or net unrealized depreciation of $12,574,152.
The rates shown on Variable Rate Demand Notes (VRDN) and Residual Interest
Bonds (RIBS) are the current interest rates at November 30, 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
November 30, 1994 (as a percentage of net assets):
Health Care 40.8%
Education 19.1
Utilities 13.3
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)
<TABLE>
<S> <C>
Assets
Investments in securities, at value (identified cost $263,679,104) (Note 1) $251,105,051
Cash 88,335
Receivable for securities sold 3,160,785
Interest receivable 5,748,909
Receivable for shares of the fund sold 512,589
Total assets 260,615,669
Liabilities
Payable for shares of the fund repurchased 855,546
Payable for securities purchased 4,101,120
Distributions payable to shareholders 623,319
Payable for compensation of Manager (Note 2) 397,408
Payable for administrative services (Note 2) 3,286
Payable for compensation of Trustees (Note 2) 352
Payable for investor servicing and custodian fees (Note 2) 78,828
Payable for distribution fees (Note 2) 97,526
Other accrued expenses 23,553
Total liabilities 6,180,938
Net assets $254,434,731
Represented by
Paid-in capital (Note 4) $274,325,259
Distributions in excess of net investment income (130,859)
Accumulated net realized loss on investments and future contracts (7,185,616)
Net unrealized depreciation of investments (12,574,053)
Total--Representing net assets applicable to capital shares outstanding $254,434,731
Computation of net asset value and offering price
Net asset value and redemption price of class A shares ($223,106,095 divided
by 26,542,380 shares) $8.41
Offering price per share (100/95.25 of $8.41) * $8.83
Net asset value and offering price of class B shares ($31,328,636 divided by
3,729,643 shares)+ $8.40
<FN>
* 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.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Total exempt interest income $ 9,509,687
Expenses:
Compensation of Manager (Note 2) 807,701
Investor servicing and custodian fees (Note 2) 109,043
Compensation of Trustees (Note 2) 5,984
Reports to shareholders 13,734
Auditing 12,669
Legal 7,979
Postage 9,337
Administrative services (Note 2) 3,989
Distribution fees--Class A (Note 2) 241,307
Distribution fees--Class B (Note 2) 118,687
Registration fees 693
Amortization of organization expenses (Note 1) 2,751
Other expenses 4,702
Total expenses 1,338,576
Net investment income 8,171,111
Net realized loss on investments (Notes 1 and 3) (7,131,007)
Net realized gain on futures contracts (Notes 1 and 3) 92,818
Net unrealized depreciation of investments during the period (12,785,878)
Net loss on investment transactions (19,824,067)
Net decrease in net assets resulting from operations $ (11,652,956)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six months
ended Year ended
November 30 May 31
1994* 1994
<S> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income $ 8,171,111 $ 14,581,612
Net realized gain (loss) on investments (7,131,007) 1,425,049
Net realized gain on futures contracts 92,818 198,560
Net unrealized depreciation of investments and
futures contracts (12,785,878) (13,149,699)
Net increase (decrease) in net assets resulting from
operations (11,652,956) 3,055,522
Distributions to shareholders from:
Net investment income from:
Class A (7,414,705) (13,985,915)
Class B (768,746) (595,696)
In excess of net investment income:
Class A -- (62,493)
Class B -- (6,844)
Net realized gains on investments:
Class A -- (3,941,191)
Class B -- (229,597)
Increase from capital share transactions (Note 4) 6,735,074 67,691,698
Total increase (decrease) in net assets (13,101,333) 51,925,484
Net assets
Beginning of period 267,536,064 215,610,580
End of period (including distributions in excess of
net investment income of $130,859 and $118,519,
respectively) $254,434,731 $267,536,064
</TABLE>
*Unaudited
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
July 15, 1993
Six months (commencement of
ended operations) to
November 30 May 31
1994* 1994
Class B
<S> <C> <C>
Net asset value, beginning of period $ 9.05 $ 9.71
Investment operations
Net investment income .25 .41
Net realized and unrealized gain (loss) on investments (.65) (.51)
Total from investment activities (.40) (.10)
Less distributions from:
Net investment income (.25) (.41)
Net realized gain on investments -- (.15)
Total distributions (.25) (.56)
Net asset value, end of period $ 8.40 $ 9.05
Total investment return at net asset value (%) (b) -4.57(c) -1.15(c)
Net assets, end of period (in thousands) $31,329 $23,017
Ratio of expenses to average net assets (%) .79(c) 1.41(c)
Ratio of net investment income to average net assets (%) 2.73(c) 4.32(c)
Portfolio turnover (%) 25.18(c) 36.20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the period
October 23, 1989
For six months (commencement of
ended operations) to
November 30 Year ended May 31 May 31
1994* 1994 1993 1992 1991 1990
Class A
<S> <C> <C> <C> <C> <C>
$9.05 $ 9.55 $ 9.02 $ 8.70 $ 8.50 8.50
.27 .55 .59 .61(a) .62(a) .35(a)
(.64) (.35) .54 .39 .20 --
(.37) 0.20 1.13 1.00 .82 .35
(.27) (.55) (.59) (.61) (.62) (.35)
-- (.15) (.01) (.07) -- --
(.27) (.70) (.60) (.68) (.62) (.35)
$8.41 $ 9.05 $ 9.55 $ 9.02 $ 8.70 $ 8.50
-4.14(c) 1.92 12.80 11.96 10.10 4.17(c)
$223,106 $244,519 $215,611 $149,011 $38,526 $18,249
.46(c) .96 .97 .88(a) .86(a) .48(a)(c)
3.02(c) 5.69 6.24 6.82(a) 7.27(a) 4.22(a)(c)
25.18(c) 36.20 53.18 94.95(d) 123.29 83.26(c)
<FN>
* Unaudited
(a) Reflects an expense limitation, and, during the period ended May 31,
1990, an 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) Not annualized.
(d) Portfolio turnover excludes the impact from the acquisition of Putnam
Massachusetts Tax Exempt Income Fund
</FN>
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994 (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 Investment Management, Inc.
("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of
Putnam Investments, Inc., believes is consistent with preservation of capital
by investing primarily in a portfolio of Massachusetts tax-exempt
securities.
The fund offers both class A and class B shares. 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 to be necessary 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
<PAGE>
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.
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. The differences include treatment of gains
and losses realized on paydowns for mortgage-backed securities and
amortization of market discount. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
F Amortization of bond premium and 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 were being amortized over a
five-year period based on current and projected net asset levels which
concluded during the period ended November 30, 1994.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.6% 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, under current
law, 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.
Trustees of the fund receive an annual Trustee's 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.
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 byPutnam Investor Services, a division of PFTC.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended November 30, 1994 have been reduced by credits
allowed by PFTC.
<PAGE>
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 .20% of the fund's average net assets attributable to class A
shares.
During the six months ended November 30, 1994, Putnam Mutual Funds Corp.,
acting as the underwriter, received net commissions of $30,769 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.
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 $31,104 from such redemptions for the
six months ended November 30, 1994.
Note 3 Purchases and sales of securities
During the six months ended November 30, 1994, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$70,707,244 and $66,249,266, respectively. Purchases of short-term municipal
obligations aggregated $5,800,000 and during the period there were no sales
of short term municipal obligations. 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, 1994:
<TABLE>
<CAPTION>
Sales of Future Contracts
Number of Aggregate
Contracts Face Value
<S> <C> <C>
Contracts opened 1,095 $ 109,355,938
Contracts closed (1,095) (109,355,938)
Contracts
open at end
of period -- $ --
</TABLE>
<PAGE>
Note 4
Capital shares
At November 30, 1994 there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
shares. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
November 30 May 31
1994 1994
Class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 2,169,964 $ 19,139,940 6,728,726 $ 64,885,880
Shares issued in connection with
reinvestment of distributions 483,176 4,286,280 1,149,973 11,043,802
2,653,140 23,426,220 7,878,699 75,929,682
Shares repurchased (3,117,142) (27,231,755) (3,455,423) (32,760,636)
Net increase (decrease) (464,002) $ (3,805,535) 4,423,276 $ 43,169,046
</TABLE>
<TABLE>
<CAPTION>
For the period
July 15, 1993
(commencement
Six months ended of operations)
November 30 to May 31
1994 1994
Class B Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,352,089 $11,998,596 2,685,178 $25,835,499
Shares issued in connection with
reinvestment of distributions 54,453 481,492 54,232 515,350
1,406,542 12,480,088 2,739,410 26,350,849
Shares repurchased (219,804) (1,939,479) (196,505) (1,828,197)
Net increase 1,186,738 $10,540,609 2,542,905 $24,522,652
</TABLE>
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
> CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for
the past five years, through 1994. 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 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 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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
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
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
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
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, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll-free: 1-800-225-1581.
<PAGE>
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
845/236-15820
Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
<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 omitted.
(6) Trademark symbol replaced with (TM)
