PUTNAM
MASSACHUSETTS
TAX EXEMPT
INCOME FUND
SEMIANNUAL REPORT
November 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
FUND HIGHLIGHTS
"The fund's income emphasis and strong credit research capabilities
continue to reward shareholders, even in this period of declining
interest rates. In fact, credit upgrades on some of our high-yield
hospital bond holdings added price appreciation to current income for
a significant performance boost to the fund during the recent
semiannual period."
-- Triet M. Nguyen, manager,
Putnam Massachusetts Tax Exempt Income Fund
"[T]he upheaval in the muni market has created some great deals for
investors who know where to look."
-- Money, November 1995
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
17 Financial statements
<PAGE>
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
TAX-EXEMPT BOND INVESTORS WILL LONG REMEMBER 1995 AS A YEAR OF HIGHS
AND LOWS, EMOTIONALLY AS WELL AS IN THE MARKET. THE YEAR BEGAN AS THE
BOND MARKET WAS COMING OFF ONE OF ITS WORST PERIODS IN RECENT MEMORY.
JUST AS THINGS BEGAN TO LOOK BRIGHTER FOR TAX-EXEMPT BONDS, TALK IN
WASHINGTON ABOUT TAX REFORM THREW A FRIGHT INTO INVESTORS.
BY THE TIME PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND ENTERED ITS
NEW FISCAL YEAR IN JUNE, INVESTORS HAD BEGUN TO REGAIN THEIR
COMPOSURE, REALIZING THAT THE ENACTMENT OF ANY TAX-REFORM LEGISLATION
WAS UNLIKELY TO OCCUR DURING AN ELECTION YEAR. AS THE FUND REACHED THE
FISCAL YEAR'S MIDPOINT ON NOVEMBER 30, 1995, SHAREHOLDERS COULD LOOK
BACK ON A PERIOD OF IMPRESSIVE RECOVERY.
FURTHERMORE, BECAUSE OF THE EARLIER INTERRUPTION OVER TAX- REFORM
PROPOSALS, FUND MANAGER TRIET M. NGUYEN BELIEVES THE RALLY WILL BE
SUSTAINED DURING THE SECOND HALF OF FISCAL 1996 AS THE TAX-EXEMPT BOND
MARKET CONTINUES TO MAKE UP LOST GROUND. HIS REPORT, WHICH FOLLOWS,
PROVIDES MORE DETAILS.
RESPECTFULLY YOURS,
[SIGNATURE]
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JANUARY 17, 1996
<PAGE>
REPORT FROM THE FUND MANAGER
TRIET M. NGUYEN
Putnam Massachusetts Tax Exempt Income Fund rewarded shareholders well
during the recent semiannual period, as astute strategic moves and a
rising municipal bond market contributed to strong returns. For the
six months ended November 30, 1995, the fund provided shareholders
with a total return of 5.65% for class A shares and 5.30% for class B
shares, both at net asset value.
STRONG RELATIVE PERFORMANCE: A MATTER OF PERSPECTIVE
After overcoming a brief stall in midsummer, the broad fixed-income
market continued its impressive run throughout the six months ended
November 30, 1995. Increased investor confidence in the Federal
Reserve Board's ability to thwart inflation and effectively manage
economic growth over the long term fueled the gains of most fixed-
income investments. Indeed, the rally had gained such momentum by
period's end that the current yield on the benchmark 30-year Treasury
bond seems to be fast approaching the historically low level of 5.79%
reached in October 1993.
On an absolute basis, municipal bonds participated in the rally's
strength in a highly respectable fashion. However, their performance
relative to taxable investments may appear somewhat lackluster. This
is due to the fact that investors' lingering concerns about the
perceived effects of the flat-tax proposal introduced in April --
which, in its purest form, would deprive municipal bonds of their
beneficial tax treatment -- prevented your fund's investments from
attaining the full price appreciation potential presented by the
favorable investment environment.
We prefer to note that in any good year, your fund's performance would
have been quite satisfactory -- and even more so during 1994's bear
market. Furthermore, on a tax-equivalent basis, a Massachusetts
investor in the combined maximum federal and
<PAGE>
state income tax bracket of 46.85% would have had to earn 10.58%,
9.36%, and 10.03%, respectively, to match the 5.62%, 4.97%, and 5.33%
current dividend rates your fund's class A, class B, and class M
shares produced.
EARLY CHANGES PAY OFF
While a long-term commitment is essential to investment success, there
is no question that making the right move at the right time can often
produce exceptional short-term results. This was certainly the case
with two timely portfolio shifts we made during the semiannual period.
The first and most important shift was our decision to begin extending
the portfolio's duration in the summer. Duration is a mathematical
formula used to assess a portfolio's price volatility; the longer the
duration, the greater the price appreciation when interest rates
decline as they did over the past several months. When interest rates
increase, prices decline.
In July, the Federal Reserve Board cut short-term interest rates for
the first time in nearly three years, and although the Fed took no
additional action during the period, rates continued to trend lower in
subsequent months. With a longer duration, the fund was well
positioned to provide shareholders with solid income despite the
decline in interest rates. At the same time, fund holdings appreciated
handsomely, especially in the closing three months of the period when
rates continued to fall and longer-term securities gained even more in
value.
PORTFOLIO QUALITY OVERVIEW 11/30/95
[PIE CHART]
AAA AA A BBB BB B VMIG1
- ---------------------------------------------------------------
43.04% 0.91% 17.11% 20.43% 16.45% 1.23% 0.83%
Based on portfolio market value as of 11/30/95 and will vary over
time. Based on Standard and Poors rating terminology. While the fund
has the flexibility to invest in higher-yielding lower-rated bonds,
generally at least 75% of the portfolio will be investment grade.
Investment-grade securities are those rated BBB or higher by Standard
& Poors or Moodys Investors Service, Inc. Holdings will vary over
time.
<PAGE>
Another timely strategy was the decision to liquidate some of our
utility holdings at a profit for the fund. With Massachusetts
legislators and utility commissioners now discussing industry
deregulation, the market has been gripped by uncertainty. Although no
laws have been enacted, some utility investments have been adversely
affected. We will be watching this industry carefully, however, since
utility securities are traditionally a very good source of income and
change in any market sector often produces opportunities for astute
investors.
THE BENEFITS OF STRONG CREDIT RESEARCH
In seeking to maximize the fund's after-tax returns, we rely heavily
on Putnam's extensive credit research capabilities. Recently, numerous
fund holdings have enjoyed credit upgrades that translated into price
increases.
One such holding, Cooley Dickinson Hospital, gained 22.72% in total
return in just two months (September 29, 1995 - November 30, 1995). In
the wave of mergers and acquisitions sweeping the health-care
industry, Cooley Dickinson Hospital was purchased by the A-rated Mary
Hitchcock System earlier this year. Shortly thereafter, the fund's
high-yield Cooley Dickinson bonds were prerefunded as the hospital's
new owners took advantage of lower interest rates to reduce their
borrowing costs. In prerefunding, the issuer floats a second bond to
raise funds to pay off an older issue -- in which your fund had
invested -- at its first call date. Proceeds from the new bond are
invested in top-quality instruments such as U.S. Treasury securities.
Because of the safety of principal represented by these securities,
the older prerefunded bond is generally considered to have a credit
rating of AAA. Thus, your fund's holdings gained significant value in
this transaction.
FUNDAMENTALS SOUND, VALUATIONS APPEALING
As we enter the second half of fiscal 1996, we expect conditions for
investing in municipal securities to remain hospitable. Subsiding
inflation, a benign interest rate environment, and decelerating
economic growth seem likely to continue. While the debate over tax
reform is probably the most critical factor that could influence tax-
exempt bond performance over the next 12 months, most investors seem
to have realized that changes are not likely to occur until after the
1996 presidential election. Even then, any revisions
<PAGE>
TOP INDUSTRY SECTORS*
[BAR CHART]
- ------------------------------------------------------
Hospitals and health care 38.0%
Education 19.2%
Transportation 12.1%
Utilities/Water & Sewerage 7.3%
Resource recovery 5.3%
- ------------------------------------------------------
* Based on net assets as of 11/30/95. Holdings will vary over time.
would most likely involve simplifications rather than a major overhaul
of the entire system.
In Massachusetts, low supply continues to boost the value of existing
municipal securities, including those in your fund's portfolio. At the
same time, investor demand has picked up with the easing of flat-tax
concerns and should continue to do so as part of the reinvestment
surge that usually occurs in December and January each year.
With municipal bonds underperforming Treasuries during the recent
semiannual period, we believe that buying opportunities exist and that
there is good potential for further price appreciation. We intend to
continue upgrading the portfolio's quality and will also be watching
federal budget negotiations carefully, since changes in funding for
research, Medicare, and Medicaid could be a concern for the
Massachusetts economy. On balance, we remain cautiously optimistic,
based on strong market fundamentals and favorable securities
valuations.
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 11/30/95, there is no guarantee
the fund will continue to hold these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
PERFORMANCE SHOULD ALWAYS BE CONSIDERED IN LIGHT OF A FUND'S
INVESTMENT STRATEGY. PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND IS
DESIGNED FOR INVESTORS SEEKING A HIGH LEVEL OF CURRENT INCOME FREE
FROM FEDERAL AND STATE INCOME TAX CONSISTENT WITH PRESERVATION OF
CAPITAL.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 11/30/95
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS M
(10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
6 months 5.65% 0.63% 5.30% 0.30% 5.48% 1.95%
- ----------------------------------------------------------------------
1 year 19.53 13.85 18.78 13.78 -- --
- ----------------------------------------------------------------------
5 years 55.93 48.42 -- -- -- --
Annual average 9.29 8.22 -- -- -- --
- ----------------------------------------------------------------------
Life of class 69.14 61.15 12.05 9.13 7.09 3.46
Annual average 8.98 8.12 4.90 3.74 -- --
- ----------------------------------------------------------------------
COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95
LEHMAN BROS.
MUNICIPAL CONSUMER
BOND INDEX PRICE INDEX
- ----------------------------------------------------------------------
6 months 5.18% 0.92%
- ----------------------------------------------------------------------
1 year 18.90 2.61
- ----------------------------------------------------------------------
5 years 51.82 14.80
Annual average 8.71 2.80
- ----------------------------------------------------------------------
Life of class A 66.37 22.29
Annual average 8.69 3.35
- ----------------------------------------------------------------------
Life of class B 15.66 6.37
Annual average 6.30 2.63
- ----------------------------------------------------------------------
Life of class M 8.53 1.12
- ----------------------------------------------------------------------
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take
into account any adjustment for taxes payable on reinvested
distributions or for distribution fees prior to implementation of the
class A distribution plan in 1990. Investment returns and principal
value will fluctuate so that an investor's shares, when sold, may be
worth more or less than their original cost. POP assumes 4.75% maximum
sales charge for class A shares and 3.25% for class M shares. CDSC for
class B shares assumes 5% maximum contingent deferred sales charge,
declining to 1% in the sixth year.
<PAGE>
TOTAL RETURN FOR PERIODS ENDED 12/31/95
(most recent calendar quarter)
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
1 year 17.86% 12.22% 17.14% 12.14% -- --
- ----------------------------------------------------------------------
5 years 56.49 48.99 -- -- -- --
Annual average 9.37 8.30 -- -- -- --
- ----------------------------------------------------------------------
Life of class 70.83 62.77 13.14 10.20 8.15 4.47
Annual average 9.04 8.19 5.15 4.03 -- --
- ----------------------------------------------------------------------
<FN>
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take
into account any adjustment for taxes payable on reinvested
distributions. Investment returns and principal value fluctuate so
that an investor's shares, when sold, may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/95
CLASS A CLASS B CLASS M
- ----------------------------------------------------------------------
DISTRIBUTIONS (NO.) 6 6 6
- ----------------------------------------------------------------------
Income $0.269198 $0.238393 $0.253922
- ----------------------------------------------------------------------
Capital gains(1) -- -- --
TOTAL $0.269198 $0.238393 $0.253922
- ----------------------------------------------------------------------
SHARE VALUE: NAV POP NAV NAV POP
- ----------------------------------------------------------------------
5/31/95 $9.21 $9.67 $9.20 $9.21 $9.52
- ----------------------------------------------------------------------
11/30/95 9.45 9.92 9.44 9.45 9.77
- ----------------------------------------------------------------------
CURRENT RETURN
End of period
- ----------------------------------------------------------------------
Current dividend rate(2) 5.62% 5.35% 4.97% 5.33%
5.16%
Taxable equivalent(3) 10.58 10.07 9.36 10.03 9.70
- ----------------------------------------------------------------------
Current 30-day
SEC yield(4) 5.27% 5.02% 4.64% 4.97%
4.80%
Taxable equivalent(3) 9.92 9.44 8.73 9.35 9.03
- ----------------------------------------------------------------------
<FN>
(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 Ssubject 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 on investment income, calculated using SEC
guidelines.
</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.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1
fee than class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of the fund's assets, minus any
liabilities, the liquidation preference and cumulative undeclared
dividends paid on the remarketed preferred shares, divided by the
number of outstanding common shares.
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
for class A shares and 3.25% for class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the
time of the redemption of class B shares and assumes redemption at the
end of the period. Your fund's 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.
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. It is not
possible to invest directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1995 (Unaudited)
KEY TO ABBREVIATIONS
AMBAC -AMBAC Indemnity Corporation
Connie-Lee -College Construction Loan Insurance Association
FGIC -Financial Guaranty Insurance Company
FNMA -Federal National Mortgage Association
FSA -Financial Security Assurance
GNMA -Government National Mortgage Association
GO Bonds -General Obligation Bonds
IFB -Inverse Floating Rate Bonds
MBIA -Municipal Bond Investors Assurance Corporation
VRDN -Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (97.5%)*
<TABLE><CAPTION>
<C> <S> <C> <C>
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (86.2%)
- ----------------------------------------------------------------------
$5,500,000 Agawam, Resource Recvy. Rev. Bonds
(Springfield Resources Recvy. Project),
8 1/2s, 12/1/08 BBB$5,831,705
5,350,000 Boston, Hsg. Dev. Corp. Rev. Bonds,
Ser. A, MBIA, 5 1/2s, 7/1/24 AAA 5,202,875
7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac.
Rev. Bonds (Harbor Elec. Energy Co. Project),
7 3/8s, 5/15/15 BBB 7,673,750
2,805,000 Boston, Indl. Dev. Fin. Auth. Indl. Rev.
Bonds (Mass. College of Pharmacy),
Ser. A, Connie-Lee, 5 1/4s, 10/1/26 AAA 2,647,219
1,305,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.),
10s, 1/1/20 BB/P 1,450,181
7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds,
Ser. A, 5 3/4s, 11/1/13 A 8,182,969
5,000,000 City of Quincy IFB (Quincy Hosp.), FSA,
6.420s, 1/15/11 AAA 4,843,750
1,675,000 Holyoke, G.O. Bonds 9.85s, 11/1/08 Aaa 1,886,469
Lowell, G.O. Bonds
1,250,000 8.4s, 1/15/09 Baa 1,462,500
2,455,000 8.3s, 2/15/05 Aaa2,955,206
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (continued)
- ----------------------------------------------------------------------
MA Bay Trans. Auth. Rev. Bonds
$3,550,000 Ser. B, 6.2s, 3/1/16 A$3,878,375
3,400,000 (Gen. Trans. Syst.), Ser. B, AMBAC, 5 3/8s,
3/1/25 AAA 3,306,500
4,000,000 (Gen. Trans. Syst.), Ser. A, 5 1/2s, 3/1/12 A 4,070,000
1,000,000 MA College. Bldg. Auth. Project Rev.
Bonds, Ser. A, 7.8s, 5/1/16 AAA 1,100,000
1,000,000 MA G.O. Cons. Loan Bonds, Ser. A,
7 5/8s, 6/1/08 AAA 1,173,750
1,665,000 MA State G.O. Bonds, Ser. D, FGIC,
5 1/8s, 11/1/10 AAA 1,650,431
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (St. Elizabeth's Hosp.), Ser. E, FSA,
9.380s, 8/15/21 AAA 2,305,000
6,500,000 (Boston U.), Ser. L, MBIA, 9.092s, 10/1/31 AAA 7,548,125
6,000,000 (Beth Israel Hosp.), AMBAC, 8.320s, 7/1/25 AAA 6,375,000
2,900,000 (New England Medical Ctr.), MBIA, 6.310s,
7/1/18 AAA 2,780,375
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (1st Mtge. Fairview Extended Care), Ser. A,
10 1/4s, 1/1/21 BB/P 2,277,500
855,000 (Summerfield Nursing Home), Ser. A, 9 1/2s,
7/1/14 B/P 884,925
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B,
8 3/8s, 7/1/15 Baa 2,668,750
2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BBB 2,340,000
4,250,000 (Suffolk U.), Ser. A, 8 1/8s, 7/1/20 AAA 4,967,188
2,150,000 (Valley Regl. Hlth. Syst. Issue), Ser. B, 8s,
7/1/18 Aaa 2,515,500
3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,324,750
3,510,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s,
8/15/24 BB/P 3,619,688
1,125,000 (Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 BB 1,127,813
3,000,000 (Stonehill College Issue), Ser. D, AMBAC 7.7s,
7/1/20 AAA 3,476,250
2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s,
7/1/11 Baa 2,225,550
1,155,000 (Cooley Dickinson Hosp. Issue), Ser. A,
7 1/8s, 11/15/18 AAA10,722,794
1,550,000 (Worcester Polytech Inst.) 6 5/8s, 9/1/17 A 1,666,250
3,880,000 (Metro. West Hlth. Inc.), Ser. C, 6 1/2s,
11/15/18 Baa 3,928,500
2,000,000 (Harvard U.), Ser. N, 6 1/4s, 4/1/20 AAA2,255,000
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (CONTINUED)
- ----------------------------------------------------------------------
$4,850,000 (MA General Hosp.), Ser. F, AMBAC, 6 1/4s,
7/1/12 AAA$5,389,563
6,580,000 (Cooley Dickinson Hosp.), Ser. B, AMBAC, 5 1/2s,
11/15/25 AAA 6,456,625
5,500,000 (Boston College), Ser. K, 5 3/8s, 6/1/14 A 5,520,625
3,475,000 (Boston College), 5 1/4s, 6/1/23 A 3,331,656
1,000,000 (Wheaton College), Ser. C, 5 1/4s, 7/1/19 A 960,000
3,365,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 AAA 3,188,338
2,245,000 (Cooley Dickinson Hosp.), Ser. B, AMBAC,
5 1/2s, 11/15/18 AAA 2,222,550
6,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Res.
Dev.) FNMA Coll., 6.9s, 11/15/21 AAA 6,397,500
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
6,500,000 (Southeastern MA Project), Ser. B, 9 1/4s,
7/1/15 BB/P 7,304,375
3,410,000 (Southeastern MA Project), Ser. A, 9s,
7/1/15 BB/P 3,819,200
MA State Indl. Fin. Agcy. Rev. Bonds
2,775,000 (1st Mtge. Brookhaven-Lexington), 10 1/4s,
1/1/18 AAA/P 3,191,250
1,900,000 (1st Mtge. Berkshire Retirement Home), 9 7/8s,
7/1/18 AAA/P 2,040,371
2,100,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB/P 2,281,125
6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 6,847,500
1,960,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s,
7/1/11 AAA 2,258,900
2,500,000 (Leominster Hosp.), Ser. A, 8 5/8s, 8/1/09 AAA/P 2,912,500
3,600,000 (Cape Cod Hlth. Syst. Issue), 8 1/2s,
11/15/20 Aaa 4,329,000
3,000,000 (1st. Mtge. Stone Institution & Newton),
7.9s, 1/1/24 BB/P 3,195,000
3,500,000 (1st. Mtge. Evanswood Bethzatha), 7 7/8s,
1/15/20 BB/P 3,705,625
5,140,000 (1st. Mtge Loomis & Village Projects),
7 5/8s, 7/1/25 BBB 5,467,675
8,105,000 (Merrimack College), 7 1/8s, 7/1/12 BBB 8,733,138
3,000,000 (1st. Mtge. Pioneer), 7s, 10/1/20 B/P 2,955,000
3,500,000 (1st. Mtge. Brookhaven), Ser A, 7s, 1/1/15 BBB/P 3,591,875
1,165,000 (Clark U.), Ser E, 7s, 7/1/12 A/P 1,284,412
2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A/P2,891,550
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
MASSACHUSETTS (continued)
- ----------------------------------------------------------------------
$3,000,000 (Brookhaven 1st. mtge.), Ser. A, 7s, 1/1/09 BBB$3,101,250
5,875,000 (American Hingham, Water Treatment),
6 3/4s, 12/1/25 BBB 6,146,718
6,000,000 (1st Mtge. Berkshire Retirement Home),
6 5/8s, 7/1/16 BB 5,955,000
2,000,000 (1st Mtge. Brookhaven Project),
Ser. B, 6.6s, 1/1/17 BBB/P 2,062,500
1,000,000 (Combined Jewish Philanthropies), AMBAC,
6 3/8s, 2/1/15 AAA 1,080,000
2,000,000 (Brooks School), 5.95s, 7/1/23 A 2,065,000
1,985,677 (1st. Mtge. Pioneer Valley Living Ctr.),
zero %, 10/1/20+ B/P 2,482
3,905,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(Mass Tpk.), 9s, 10/1/20 BBB/P 4,500,512
2,600,000 MA State VRDN Ser. B, 3 3/4s, 12/1/97 VMIGI 2,600,000
3,000,000 MA State Wtr. Poll. Abatement Rev. Bonds
(MWRA Loan Program), Ser. A, 5s, 8/1/15 AA 2,850,000
MA State Wtr. Resources Auth. Rev. Bonds
1,000,000 Ser. A, 6 1/2s, 7/15/19 A 1,133,750
2,100,000 Ser. B, MBIA, 5 1/2s, 3/1/17 AAA 2,086,875
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 AAA 2,845,625
Somerville, Hsg. Auth. Rev. Bonds
(Clarendon-Hill Mtge.), GNMA Coll.
2,000,000 7.95s, 11/20/30 AAA 2,167,500
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 1,754,000
1,755,000 Worcester City, Municipal Purpose G.O.
Bonds, Ser. G, MBIA, 5.3s, 7/1/15 AAA 1,704,543
Worcester, Mtge. Rev. Bonds
3,100,000 (Briarwood Issue), 9 1/4s, 12/1/22 BB/P 3,406,125
1,350,000 (Shawmut Bank Letter Of Credit), 6.4s,
9/15/10 BBB/P 1,393,875
Worcester, Rev. Bonds (St. Francis Home)
2,000,000 9 3/4s, 7/1/19 BB/P 2,070,180
1,000,000 9.4s, 7/1/08 BB/P 1,019,910
----------------
276,173,336
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
PUERTO RICO (11.3%)
- ----------------------------------------------------------------------
$6,040,000 Cmnwlth. of Puerto Rico, Hwy. & Trans.
Auth. Hwy. Rev. Bonds, Ser. X, FSA,
5 1/4s, 7/1/21 AAA$5,851,250
5,000,000 Puerto Rico Comnwlth. G.O Bonds, MBIA,
5 3/8s, 7/1/22 AAA 4,993,750
Puerto Rico Comnwlth. Hwy. & Trans.
Auth. Hwy. Rev. Bonds
5,000,000 Ser. W, 5 1/2s, 7/1/15 A 4,968,750
2,100,000 Ser. X, 5s, 7/1/22 A 1,900,500
Puerto Rico Elec. Pwr. Auth. Rev. Bonds
5,000,000 Ser. Z, 5 1/4s, 7/1/21 A 4,756,250
5,200,000 Ser. Z, 5 1/2s, 7/1/16 A 5,102,500
2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control
Fac. Fin. Auth. Rev. Bonds (Special Facilities-
American Airlines), Ser. A, 8 3/4s, 12/1/25 Baa 2,707,562
1,000,000 Puerto Rico, Pub. Bldgs. Auth. Gtd. Rev.
Bonds, Ser. K, 6 7/8s, 7/1/21 AAA 1,157,500
4,975,000 U. of Puerto Rico Rev. Bonds, Ser. M, MBIA,
5 1/4s, 6/1/25 AAA 4,863,063
- ----------------------------------------------------------------------
$36,301,125
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (cost $291,289,860)*** $312,474,461
- ----------------------------------------------------------------------
<PAGE>
<FN>
NOTES
* Percentages indicated are based on net assets of $320,570,386.
*** The aggregate identified cost on a tax cost basis is
$291,289,966, resulting in gross unrealized appreciation and
depreciation of $22,281,210 and $1,096,715, respectively, or net
unrealized appreciation of $21,184,495.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at November 30, 1995 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, 1995.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated.
+ Non-income-producing security.
The rates shown on IFB's and VRDN's which are securities paying
variable interest rates that vary inversely to changes in the
market interest rates are the current interest rates at November
30, 1995, which are subject to change based on the terms of the
security.
The fund had the following industry group concentrations greater
than 10% of net assets at November 30,1995:
Hospitals/Health Care 38.0
Education 19.2
Transportation 12.1
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (Unaudited)
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities, at value
(identified cost $291,289,860) (Note 1) $312,474,461
- ----------------------------------------------------------------------
Cash 462,871
- ----------------------------------------------------------------------
Receivable for securities sold 8,492,293
- ----------------------------------------------------------------------
Interest receivable 6,174,195
- ----------------------------------------------------------------------
Receivable for shares of the fund sold 582,102
- ----------------------------------------------------------------------
TOTAL ASSETS 328,185,922
LIABILITIES
- ----------------------------------------------------------------------
Payable for shares of the fund repurchased 357,137
- ----------------------------------------------------------------------
Payable for securities purchased 5,899,766
- ----------------------------------------------------------------------
Distributions payable to shareholders 719,754
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 462,029
- ----------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 7,865
- ----------------------------------------------------------------------
Payable for administrative services (Note 2) 1,425
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 178
- ----------------------------------------------------------------------
Payable for distribution fees (Note 2) 125,133
- ----------------------------------------------------------------------
Other accrued expenses 42,249
- ----------------------------------------------------------------------
TOTAL LIABILITIES 7,615,536
- ----------------------------------------------------------------------
NET ASSETS $320,570,386
- ----------------------------------------------------------------------
REPRESENTED BY
- ----------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $307,207,530
- ----------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (68,092)
- ----------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,753,653)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 21,184,601
- ----------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES
OUTSTANDING $320,570,386
- ----------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- ----------------------------------------------------------------------
Net asset value and redemption of class A shares ($262,796,545 divided
by 27,807,464 shares) $9.45
- ----------------------------------------------------------------------
Offering price per share (100/95.25 of $9.45)* $9.92
- ----------------------------------------------------------------------
Net asset value and offering price of class B shares ($57,503,156
divided by 6,090,626 shares)+ $9.44
- ----------------------------------------------------------------------
Net asset value and offering price of class M shares ($270,685 divided
by 28,654 shares) $9.45
- ----------------------------------------------------------------------
Offering price per share (100/96.75 of $9.45)** $9.77
- ----------------------------------------------------------------------
<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.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Six months ended November 30, 1995 (Unaudited)
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $10,232,147
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) 909,927
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 163,653
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,206
- ----------------------------------------------------------------------
Reports to shareholders 10,394
- ----------------------------------------------------------------------
Registration fees 12,671
- ----------------------------------------------------------------------
Auditing 13,981
- ----------------------------------------------------------------------
Legal 8,420
- ----------------------------------------------------------------------
Postage 16,963
- ----------------------------------------------------------------------
Administrative services (Note 2) 4,267
- ----------------------------------------------------------------------
Distribution fees--class A (Note 2) 252,450
- ----------------------------------------------------------------------
Distribution fees--class B (Note 2) 218,242
- ----------------------------------------------------------------------
Distribution fees--class M (Note 2) 301
- ----------------------------------------------------------------------
Other expenses 3,427
- ----------------------------------------------------------------------
TOTAL EXPENSES 1,620,902
- ----------------------------------------------------------------------
Expense reduction (Note 2) (132,928)
- ----------------------------------------------------------------------
NET EXPENSES 1,487,974
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 8,744,173
- ----------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,554,560
- ----------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1 and 3) (960,035)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments during the period 7,552,888
- ----------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 8,147,413
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,891,586
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED YEAR ENDED
NOVEMBER 30 MAY 31
- ----------------------------------------------------------------------
1995* 1995
- ----------------------------------------------------------------------
INCREASE IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $8,744,173 $16,618,595
- ----------------------------------------------------------------------
Net realized gain (loss) on investment
transactions 594,525 (7,682,592)
- ----------------------------------------------------------------------
Net unrealized appreciation of investments 7,552,888 13,419,888
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 16,891,586 22,355,891
- ----------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
- ----------------------------------------------------------------------
From net investment income:
- ----------------------------------------------------------------------
class A (7,382,946) (14,766,465)
- ----------------------------------------------------------------------
class B (1,327,810) (1,834,523)
- ----------------------------------------------------------------------
class M (3,275) (73)
- ----------------------------------------------------------------------
From net realized gains on investments:
class A (57) --
- ----------------------------------------------------------------------
In excess of realized gain on investments
- ----------------------------------------------------------------------
class A -- (449,070)
- ----------------------------------------------------------------------
class B -- (65,122)
- ----------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 13,566,499 26,049,687
- ----------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 21,743,997 31,290,325
- ----------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------
Beginning of period 298,826,389 267,536,064
- ----------------------------------------------------------------------
END OF PERIOD (including distributions in
excess of net investment income of $68,092 and
$98,234, respectively) $320,570,386 $298,826,389
- ----------------------------------------------------------------------
<FN>
* Unaudited
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
FOR THE PERIOD
MAY 12, 1995
SIX MONTHS (COMMENCEMENT SIX MONTHS YEAR
ENDED OF OPERATIONS) ENDED ENDED
NOVEMBER 30 TO MAY 31 NOVEMBER 30 MAY 31
- ----------------------------------------------------------------------
1995* 1995** 1995* 1995
- ----------------------------------------------------------------------
CLASS M CLASS B
- ----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF PERIOD $9.21 $9.10 $9.20 $9.05
- ----------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .26 .02 .24 .49
Net realized and unrealized gain
(loss) on investments .23 .12 .24 .17
- ----------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS.49 .14 .48 .66
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (.25) (.03) (.24) (.49)
From net realized gain on
investments -- -- -- --
- ----------------------------------------------------------------------
In excess of net realized gain -- -- -- (.02)
- ----------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.25) (.03) (.24) (.51)
- ----------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD$9.45 $9.21 $9.44 $9.20
- ----------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE (%)(b) 5.48(c) 1.53(c) 5.30(c) 7.64
NET ASSETS, end of period
(in thousands) $271 $22 $57,503 $47,573
- ----------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(d) .62(c) .06(c) 0.80(c) 1.53
- ----------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.69(c) .30(c) 2.60(c) 5.46
- ----------------------------------------------------------------------
Portfolio turnover (%) 23.08(c) 47.53 23.08(c) 47.53
- ----------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<C> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD
JULY 15, 1993
(COMMENCEMENT SIX MONTHS
OF OPERATIONS) TO ENDED
MAY 31 NOVEMBER 30 YEAR ENDED MAY 31
- --------------------------------------------------------------------------------
- --------------
1994 1995* 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------
- --------------
CLASS A
- --------------------------------------------------------------------------------
- --------------
$9.71 $9.21 $9.05 $9.55 $9.02 $8.70 $8.50
- --------------------------------------------------------------------------------
- --------------
.41 .27 .55 .55 .59 .61(a) .62(a)
(.51) .24 .18 (.35) .54 .39 .20
- --------------------------------------------------------------------------------
- --------------
(.10) .51 .73 .20 1.13 1.00 .82
- --------------------------------------------------------------------------------
- --------------
(.41) (.27) (.55) (.55) (.59) (.61) (.62)
(.15) -- -- (.15) (.01) (.07) --
- --------------------------------------------------------------------------------
- --------------
-- -- (.02) -- -- -- --
- --------------------------------------------------------------------------------
- --------------
(.56) (.27) (.57) (.70) (.60) (.68) (.62)
- --------------------------------------------------------------------------------
- --------------
$9.05 $9.45 $9.21 $9.05 $9.55 $9.02 $8.70
- --------------------------------------------------------------------------------
- --------------
(1.15)(c) 5.65(c) 8.45 1.92 12.80 11.96 10.10
- --------------------------------------------------------------------------------
- --------------
$23,017 $262,797 $251,232 $244,519 $215,611 $149,011 $38,526
- --------------------------------------------------------------------------------
- --------------
1.41(c) 0.48(c) .89 .96 .97 .88(a) .86(a)
- --------------------------------------------------------------------------------
- --------------
4.32(c) 2.94(c) 6.11 5.69 6.24 6.82(a) 7.27(a)
- --------------------------------------------------------------------------------
- --------------
36.20 23.08(c) 47.53 36.20 53.18 94.95(e) 123.29
- --------------------------------------------------------------------------------
- --------------
<FN>
* Unaudited
** Per share net investment income for the period ended May 31, 1995 has been
determined on the basis of the weighted average number of shares
outstanding during the period.
(a) Reflects an expense limitation. As a result, net investment income of the
fund for the years ended May 31, 1992 and 1991 reflects per share expense
reductions of approximately $0.01 and $0.02 respectively.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not annualized
(d) The ratio of expenses to average net assets for the period ended November
30, 1995 included amounts paid through expense offset arrangments. Prior
period ratios exclude these amounts (See Note 2).
(e) Portfolio turnover excludes the impact of assets received by the fund, then
known as Putnam Massachusetts Tax Exempt Income Fund II, from the
acquisition of Putnam Massachusetts Tax Exempt Income Fund.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES Putnam Tax Exempt Income Fund,
formerly Putnam Tax Exempt Income Fnd II (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 class A, class B and class M shares. The fund
commenced its public offering of class M shares on May 12, 1995. Class
A shares are sold with a maximum front-end sales charge of 4.75%.
Class B shares, which convert to class A shares after 8 years 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 each class
of shares, except that each class bears expenses unique to that class,
including the distribution fees applicable to such class. Each votes
as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of
the net assets of the fund, if the fund were liquidated. In addition,
the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the
basis of valuations provided by a pricing service, approved by the
Trustees, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining
value. Short-term tax-exempt investments having remaining maturities
of 60 days or less are stated at amortized cost.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security trans-
actions 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 AND OPTIONS CONTRACTS The fund may use futures and options
contracts to hedge against changes in the values of securities the
fund owns or expects to purchase. The fund may also write options on
securities it owns or which it invests to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.
<PAGE>
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded
options are valued at the last sale price, or if no sales are
reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by dealers.
D 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 gain 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.
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 and original issue
discount bonds are accreted according to the effective yield-method.
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 reimburses Putnam Management 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.
During the period ended November 30, 1995, the fund adopted a Trustee
Fee Deferral Plan (the "Plan") which allows the Trustees to defer the
receipt of all or a portion of Trustees Fees payable on or after July
1, 1995. The deferred fees remain in the fund and are invested in the
fund or in other Putnam funds until distribution in accordance with
the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
<PAGE>
For the period ended November 30, 1995, fund expenses were reduced by
$132,928 under expense offset arrangements with PFTC. Investor
servicing and custodian fees reported in the Statement of operations
exclude these credits. The fund could have invested the assets
utilized in connection with the expense offset arrangements in an
income-producing asset if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments Inc., for services provided and expenses incurred
by it in distributing shares of the fund. The Plans provide for
payments by the fund to Putnam Mutual Funds Corp. at an annual rate up
to 0.35%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.20%, 0.85% and
0.50% of the average net assets attributable to class A, class B and
class M shares respectively.
For the period ended November 30, 1995 , Putnam Mutual Funds Corp.,
acting as underwriter, received net commissions of $33,088 and $324
from the sale of class A shares and M shares, respectively, and
received $80,424 in contingent deferred sales charges from redemption
of class B shares. A deferred sales charge of up to 1% is assessed on
certain redemption of class A shares. For the period ended November
30, 1995, Putnam Mutual Funds Cop., acting as an underwriter,
received $1,421 on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES During the period ended November 30,
1995, purchases and sales of investment securities other than short-
term municipal obligations aggregated $85,036,652 and $68,919,432,
respectively. Purchases and sales of short-term municipal obligations
aggregated $16,100,000 and $20,000,000, respectively. In determining
the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES At November 30, 1995, there was an unlimited number of
shares of beneficial interest authorized. Transactions in capital
shares were as follows:
<TABLE><CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
NOVEMBER 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 3,038,145 $27,918,904
Shares issued in connection with
reinvestment of distributions 454,190 4,165,699
- ----------------------------------------------------------------------
3,492,335 32,084,603
- ----------------------------------------------------------------------
Shares repurchased (2,959,468) (27,240,148)
- ----------------------------------------------------------------------
NET INCREASE 532,867 $4,844,455
- ----------------------------------------------------------------------
YEAR ENDED
MAY 31
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS A SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 5,201,533 $45,927,477
- ----------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 995,911 8,827,656
- ----------------------------------------------------------------------
6,197,444 54,755,133
- ----------------------------------------------------------------------
Shares repurchased (5,929,229) (52,081,162)
- ----------------------------------------------------------------------
NET INCREASE 268,215 $2,673,971
- ----------------------------------------------------------------------
<PAGE>
SIX MONTHS ENDED
NOVEMBER 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 1,361,646 $12,518,877
- ----------------------------------------------------------------------
Shares issued in connection
with reinvestment of distributions 87,253 799,884
- ----------------------------------------------------------------------
1,448,899 13,318,761
- ----------------------------------------------------------------------
Shares repurchased (527,798) (4,837,585)
- ----------------------------------------------------------------------
NET INCREASE 921,101 $8,481,176
- ----------------------------------------------------------------------
YEAR ENDED
MAY 31
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS B SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 3,031,023 $26,913,769
Shares issued in connection with
reinvestment of distributions 131,326 1,163,043
- ----------------------------------------------------------------------
3,162,349 28,076,812
- ----------------------------------------------------------------------
Shares repurchased (535,729) (4,722,431)
- ----------------------------------------------------------------------
NET INCREASE 2,626,620 $23,354,381
- ----------------------------------------------------------------------
SIX MONTHS ENDED
NOVEMBER 30
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 25,950 $237,556
- ----------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 359 3,312
- ----------------------------------------------------------------------
26,309 240,868
- ----------------------------------------------------------------------
Shares repurchased -- --
- ----------------------------------------------------------------------
NET INCREASE 26,309 $240,868
- ----------------------------------------------------------------------
FOR THE PERIOD
MAY 12, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31
- ----------------------------------------------------------------------
1995
- ----------------------------------------------------------------------
CLASS M SHARES AMOUNT
- ----------------------------------------------------------------------
Shares sold 2,342 $21,309
Shares issued in connection with
reinvestment of distributions 3 26
- ----------------------------------------------------------------------
2,345 21,335
- ----------------------------------------------------------------------
Shares repurchased -- --
- ----------------------------------------------------------------------
NET INCREASE 2,345 $21,335
- ----------------------------------------------------------------------
</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. In 1994, over 80,000 tests of 55
shareholder service components demonstrated that Putnam outperformed
the industry standard in every category.
HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a
month from a Putnam money market fund or from your checking or savings
account.*
SWITCH FUNDS EASILY
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 terminations.)
ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and speak
with a helpful Putnam representative.
To 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.
<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
Eli Shapiro
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 M. 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. 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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
22194-845/236/258 1/96
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
