Putnam
Massachusetts
Tax Exempt
Income
Fund
ANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* Returns for Putnam Massachusetts Tax Exempt Income Fund's class A
shares have consistently ranked in the top quartile of its Lipper
category. For periods ended June 30, 1997 -- the most recent calendar
quarter -- Lipper Analytical Services* ranked the fund's class A shares 8
out of 51 for one year, 5 out of 37 for three years and 2 out of 23 for
five years. Class B shares ranked 28 out of 51 for one year and 20 out of
37 for three years. Class M shares ranked 19 out of 51 for one year and
were not tracked for longer periods.
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Rankings vary over time and do
not reflect the effects of sales charges. Past performance is not indicative
of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Massachusetts Tax Exempt Income Fund began fiscal 1997 on a hopeful,
yet cautious note in June 1996 after a somewhat tumultuous year for the
municipal bond market. The hope was warranted, as the market rallied in the
fall. The caution was justified, for the rally ended abruptly in late winter,
cut short by investor worries that inflation and interest rates would both
rise in the wake of an economy still growing too fast.
From the vantage point of the fiscal year's close on May 31, 1997, we can see
that the volatility, while somewhat nerve-racking for many investors, was
unusually low. By spring, even the Federal Reserve Board's increase in the
federal funds rate in late March, the source of considerable earlier anxiety,
caused little stir.
It is in these contexts that Fund Manager Leslie Burke discusses your fund's
performance for the year just past and her view of its prospects for the year
ahead. Her report begins on the following page.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Leslie J. Burke
Drawing on the extensive analytical skills of Putnam's research staff and
careful positioning, Putnam Massachusetts Tax Exempt Income Fund delivered
solid, competitive performance for its 1997 fiscal year. For the 12 months
ended May 31, 1997, your fund's class A shares returned 8.17% at net asset
value (3.07% at public offering price), well ahead of its Lipper category
average. Complete Lipper information for the fiscal year and the most current
calendar quarter appears on page 2, and performance details for class B and
class M shares, as well as information on other periods, can be found on pages
9 through 11.
* TAX-EXEMPT SECTOR OUTPERFORMS EXPECTATIONS
Municipal bonds delivered an impressive performance in the past 12 months,
clearing the obstacles that many investors thought would limit their returns.
It was widely expected that heavy supply and falling demand would keep a lid
on prices in the tax-exempt sector. Instead, municipal bond prices rose --
outperforming the benchmark U.S. Treasuries -- as fears of a flat tax
diminished and the uncertainties of last year's election season became
resolved.
Toward the end of 1996, interest rates began to rise in response to investors'
concerns about a strengthening economy and its effect on future inflation. The
Federal Reserve Board validated these concerns in March 1997 with an increase
in the federal funds rate -- the rate at which banks lend to each other
overnight. As interest rates rose, tax-exempt bonds held their value better
than their counterparts in the U.S. government sector. Their credit-driven
characteristics made municipal bonds less sensitive to changes in interest
rates and provided investors with pockets of value and opportunity.
* DEFENSIVE FRAMEWORK FOCUSES ON VALUE
In such an environment, we sought to enhance total return by working to limit
price fluctuations, emphasizing income and targeting issues that provided both
high yields and potential for long-term capital appreciation. We sold bonds
with 25- to 30-year maturities and reinvested the resulting assets in the 15-
to 20-year sector. The shorter maturities should enhance the portfolio's price
stability, and in our opinion, represent better value from a total return
standpoint.
We believe one of the fund's best values came from bonds issued by the
Commonwealth of Puerto Rico and its authorities. These bonds provided the fund
with an attractive alternative to Massachusetts bonds, since Puerto Rican debt
is exempt from all state, city, and local taxes and the supply of
Massachusetts bonds with the characteristics we sought was thin. Puerto Rico
officials accelerated their issuance calendar this year, bringing most of
their supply of new bonds to market in a three-month period, rather than
spreading it out over a longer span as they have done in the past. This bulge
of supply pushed yields on Puerto Rican bonds higher, relative to other
issuers, and provided a broad selection of securities that had the structural
characteristics we sought. We were able to build a position of higher-coupon,
noncallable bonds with maturities in the 15- to 20-year range --
characteristics that dovetailed with our defensive strategy.
* OPPORTUNITY CONTINUES TO PREVAIL IN HEALTH CARE
Your fund continued to uncover significant opportunities among health-care and
health-care-related bonds. Consolidation within the industry remains a major
force, with small community hospitals and providers being purchased by larger
health-care systems. Often, the smaller hospitals and providers have lower
debt ratings and limited trading and balance sheet liquidity. Merging with a
larger and stronger health-care system can result in a credit upgrade and
considerable price appreciation for the smaller provider's bonds. Our location
in Massachusetts gives us a unique vantage point for this fund, enhancing our
in-depth approach to credit research and helping us to discover new areas of
value.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospital/Health care 31.4%
Education 18.7%
Transportation 11.6%
Water and Sewerage 11.0%
Utilities 5.7%
Footnote reads:
* Based on net assets as of 5/31/97. Holdings will vary over time.
The fund's top-performing sector -- nearly 2% of the portfolio -- was in bonds
issued to support Orchard Cove, a long-term care facility. These bonds were
prerefunded early this year, raising their credit quality and pushing their
value considerably higher. In a prerefunding, the issuer floats a second bond
to pay off an earlier one on its first call date. Proceeds from the new issue
are invested in top-quality instruments, such as U.S. Treasuries, which are
pledged to pay off the older debt. Because of the safety of principal
represented by the pledged securities, a prerefunding improves the credit
quality and often boosts the price of the older bonds.
We also expect the bonds of Norwood Hospital to perform well. Columbia Health
Systems recently announced that it will add this local hospital to its
health-care network, which we expect will result in an improved credit rating
for Norwood Hospital issues. As of the fund's fiscal year-end, investors were
still waiting for the final approval from Norwood Hospital's board of
directors and the attorney general's office; but we already have begun to see
the bonds appreciate in value as investors anticipate a successful merger.
* COMMONWEALTH'S ECONOMIC AND FISCAL STRENGTH MEANS GAINS FOR BONDHOLDERS
The Massachusetts economy has exhibited strength in many sectors, particularly
in biotechnology, mutual funds, communication technology, and commercial real
estate. This strength, combined with sound and improving fiscal management,
creates an extremely favorable credit outlook. Your fund capitalized on this
environment by establishing a substantial position in noncallable
Massachusetts general obligation bonds, which fit in well with our defensive
strategy. Given our favorable assessment and optimistic outlook, it is not
surprising that the bond has been one of the fund's top performers.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
A -- 19.8%
Aa -- 1.9%
Aaa -- 43.7%
B -- 3.6%
Ba -- 8.3%
Baa -- 21.7%
AI & VMIGI -- 1.0%
Footnote reads:
As a percentage of market value as of 5/31/97. A bond rated Baa or higher is
considered investment grade. All ratings reflect Moody's descriptions unless
noted otherwise; percentages may include unrated bonds considered by Putnam
Management to be of comparable quality. Ratings will vary over time.
* OUTLOOK CAUTIOUS ON RATES BUT POSITIVE ON OPPORTUNITY
We head into the fund's new fiscal year cautious about the direction of
interest rates, but optimistic about the total return opportunities we believe
undervalued securities can offer.
We think the economy could strengthen later in 1997, which may create concerns
about future inflation. Consumer confidence is at a record high. Consistent
job creation has resulted in the lowest unemployment rate in nearly 25 years.
Consumers appear to feel comfortable spending money; and since consumer
spending accounts for two thirds of economic activity, we believe that
stronger growth could lie ahead. Price volatility, which has been abnormally
low over the past 12 months, could also increase. We will maintain a defensive
investment posture and focus on income to help insulate the fund against
rising interest rates.
The strong performance logged by municipal bonds over the past year also has
made us cautious about their current valuation versus taxable alternatives.
The tax-exempt sector began the year quite "cheap" in terms of relative value
compared to the benchmark U.S. Treasuries, yet provided considerably less
relative value by most measures at the end of fiscal 1997. This could result
in a period of adjustment for municipal bond prices while these two market
sectors ease back into their more normal historical relationships.
Opportunities exist in all market conditions and we continue to expect the
fund to generate attractive total returns. We will maintain our search for
credit-driven situations that are undervalued. We also anticipate steady
demand for Massachusetts debt. Supply is expected to remain thin, and with
strength in the local economy pushing incomes higher, we think more investors
could seek Massachusetts municipal bonds as a shelter against taxes.
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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
Class A* Class B Class M
(inception date) (10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 8.17% 3.07% 7.47% 2.47% 7.96% 4.41%
- ------------------------------------------------------------------------------
5 years 41.34 34.63 36.19 34.19 38.87 34.30
Annual average 7.17 6.13 6.37 6.06 6.79 6.08
- ----------------------------------------------------------------------------
Life of fund 81.50 72.94 70.98 70.98 76.12 70.44
Annual average 8.16 7.47 7.31 7.31 7.73 7.27
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Lehman Bros. Consumer
Municipal Price
Bond Index Index
- ------------------------------------------------------------------------------
1 year 8.29% 2.23%
- ------------------------------------------------------------------------------
5 years 41.80 14.60
Annual average 7.24 2.76
- ------------------------------------------------------------------------------
Life of fund 79.18 27.47
Annual average 8.00 3.25
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One, five, and ten year and life of fund returns for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
* Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its implementation.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/23/89
PLOT POINTS
Fund's Lehman Bros. Consumer
Date Class A Shares Municipal Bond Price
at POP Index Index
10/23/89 9,525 10,000 10,000
5/31/90 9,926 10,453 10,287
5/31/91 10,929 11,506 10,796
5/31/92 12,236 12,636 11,123
5/31/93 13,803 14,148 11,481
5/31/94 14,067 14,497 11,744
5/31/95 15,255 15,822 12,118
5/31/96 15,989 16,545 12,468
5/31/97 17,294 17,918 12,747
Footnote reads:
Past performance is no assurance of future results. Over the same time period,
a $10,000 investment in the fund's class B shares at inception would have been
valued at $17,098 and no contingent deferred sales charge would apply; and a
$10,000 investment in the fund's class M shares at inception would have been
valued at $17,612 at net asset value ($17,044 at public offering price.)
Please see first page of performance section for performance calculation
method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/97
Class A Class B Class M
- -------------------------------------------------------------------------------
Distributions (number) 12 12 12
- -------------------------------------------------------------------------------
Income $0.526942 $0.466135 $0.498836
- -------------------------------------------------------------------------------
Capital gains1 -- -- --
- -------------------------------------------------------------------------------
Total $0.526942 $0.466135 $0.498836
- -------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------------
5/31/96 $9.11 $9.56 $9.10 $9.10 $9.41
- -------------------------------------------------------------------------------
5/31/97 9.31 9.77 9.30 9.31 9.62
- -------------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------------
Current dividend
rate2 5.56% 5.30% 4.91% 5.26% 5.09%
- -------------------------------------------------------------------------------
Taxable equivalent3 10.46 9.97 9.24 9.90 9.58
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 5.23 4.98 4.57 4.94 4.77
- ------------------------------------------------------------------------------
Taxable equivalent3 9.84 9.37 8.60 9.29 8.97
- ------------------------------------------------------------------------------
1Capital 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.
2Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3Assumes maximum 46.85% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 8.14% 2.97% 7.36% 2.36% 7.72% 4.20%
- ------------------------------------------------------------------------------
5 years 40.13 33.41 35.00 33.00 37.51 33.05
Annual average 6.98 5.93 6.19 5.87 6.58 5.88
- ------------------------------------------------------------------------------
Life of fund 83.33 74.68 72.65 72.65 77.68 71.96
Annual average 8.20 7.52 7.36 7.36 7.76 7.30
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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. Please see first page
of performance section for the method of performance calculation.
TERMS AND DEFINITIONS
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.
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 and a higher 12b-1 fee than
class A shares and no sales charge on 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 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.
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. 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.
WELCOME TO
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VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
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New features will be added to the site on an ongoing basis. So, visit us
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Report of independent accountants
To the Trustees and Shareholders of
Putnam Massachusetts Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam Massachusetts Tax Exempt Income Fund (the "fund") at May
31, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31, 1997
by correspondence with the custodian and brokers, provide a reasonable basis
for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 11, 1997
Portfolio of investments owned
May 31, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (97.7%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Massachusetts (89.0%)
- ------------------------------------------------------------------------------------------------------------
$ 5,500,000 Agawam, Res. Recvy. Rev. Bonds (Springfield
Res. Recvy.), 8 1/2s, 12/1/08 BBB $ 5,692,775
7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co.), 7 3/8s, 5/15/15 Baa 7,533,750
1,285,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,402,256
7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds, Ser. A,
5 3/4s, 11/1/13 A 8,133,375
5,000,000 City of Quincy, IFB (Quincy Hosp.), FSA,
6.47s, 1/15/11 Aaa 4,793,750
1,585,000 Holyoke, G.O. Bonds, 9.85s, 11/1/08 Aaa 1,654,883
1,040,000 Holyoke, Poll. Control VRDN (Holyoke Wtr.
Pwr. Co.), 3.85s, 11/1/13 A-1 1,040,000
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 Baa 1,412,500
2,455,000 8.3s, 2/15/05 Aaa 2,832,456
MA Bay Trans. Auth. Rev. Bonds
3,550,000 Ser. B, 6.2s, 3/1/16 A 3,882,813
4,800,000 Ser. C, 6.1s, 3/1/23 A 4,920,000
4,000,000 Ser. A, 5 1/2s, 3/1/12 A 4,080,000
7,400,000 (Gen. Trans. Syst.), Ser. B, AMBAC, 5 3/8s, 3/1/25 Aaa 7,150,250
1,000,000 MA Collg. Bldg. Auth. Project Rev. Bonds, Ser. A,
7.8s, 5/1/16 A 1,053,910
2,680,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, Ser. A, AMBAC, 5.1s, 7/1/07 Aaa 2,683,350
2,600,000 MA Muni. Whsl. Pwr. Supply VRDN, Ser. C,
3 3/4s, 7/1/19 VMIG1 2,600,000
MA State Cons. Loan G.O. Bonds
1,000,000 Ser. A, 7 5/8s, 6/1/08 Aaa 1,130,000
4,400,000 Ser. B, 6 1/2s, 8/1/08 A 4,939,000
MA State G.O. Bonds
8,200,000 Ser. A, AMBAC, 6 1/2s, 11/1/14 Aaa 9,307,000
5,000,000 Ser. B, AMBAC, 6 1/4s, 7/1/20 Aaa 5,118,750
3,870,000 Ser. A, 6s, 11/1/11 A 4,160,250
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.29s, 8/15/21 Aaa 2,265,000
7,500,000 (Boston U.), Ser. L, MBIA, 9.122s, 10/1/31 Aaa 8,465,625
6,000,000 (Beth Israel Hosp.), AMBAC, 8.196s, 7/1/25 Aaa 6,127,500
7,900,000 (New England Medical Ctr.), MBIA, 6.98s, 7/1/18 Aaa 7,050,750
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 2,272,500
5,670,000 (Goddard Memorial Hosp.), Ser. B, 9s, 7/1/15 Baa 6,371,663
2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BBB 2,262,500
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B,
8 3/8s, 7/1/15 Baa 2,712,500
4,250,000 (Suffolk U.), Ser. A, 8 1/8s, 7/1/20 Baa 4,738,750
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,405,313
3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,433,617
6,010,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 6,363,088
1,125,000 (Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 Ba 1,167,660
3,000,000 (Stonehill College), Ser. D, AMBAC, 7.7s, 7/1/20 Aaa 3,330,000
2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba 2,256,075
8,985,000 (Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 10,220,438
1,900,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 Baa 1,914,250
1,550,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 A 1,716,625
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6 1/2s, 11/15/18 Aaa 4,297,100
4,850,000 (MA General Hosp.), Ser. F, AMBAC,
6 1/4s, 7/1/12 Aaa 5,335,000
7,250,000 (Newton-Wellesley Hosp.), Ser. E, MBIA,
6s, 7/1/25 Aaa 7,340,625
3,000,000 (Williams College), Ser. F, 5 1/2s, 7/1/26 Aa 2,917,500
4,250,000 (Boston College), Ser. K, 5 3/8s, 6/1/14 A 4,202,188
3,475,000 (Boston College), 5 1/4s, 6/1/23 A 3,214,375
6,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Residential
Dev.), FNMA Coll., Ser. C, 6.9s, 11/15/21 Aaa 6,375,000
MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds
6,500,000 (Southeastern MA) Ser. B, 9 1/4s, 7/1/15 BB/P 7,345,000
3,410,000 (Southeastern MA) Ser. A, 9s, 7/1/15 BB/P 3,844,775
MA State Indl. Fin. Agcy. Rev. Bonds
2,775,000 (1st Mtge. Brookhaven-Lexington),
10 1/4s, 1/1/18 BBB/P 2,954,987
2,000,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB/P 2,130,000
6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 AAA/P 7,267,500
3,865,000 (Mass Tpk.), 9s, 10/1/20 AAA/P 4,459,244
1,900,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 Aaa 2,082,875
2,500,000 (Leominster Hosp.), Ser. A, 8 5/8s, 8/1/09 AAA/P 2,765,625
3,600,000 (Cape Cod Hlth. Syst.), 8 1/2s, 11/15/20 Aaa 4,126,500
3,000,000 (1st Mtge. Stone Institution & Newton),
7.9s, 1/1/24 B/P 3,067,500
5,140,000 (1st Mtge. Loomis House & Village),
7 5/8s, 7/1/25 BBB 5,666,850
7,840,000 (Merrimack College), 7 1/8s, 7/1/12 BBB 8,320,200
3,000,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 3,000,390
1,165,000 (Clark U.), Ser. E, 7s, 7/1/12 A 1,248,006
2,605,000 (Clark U.), Ser. F, 7s, 7/1/11 A 2,819,913
3,000,000 (1st mtge. Brookhaven), Ser. A, 7s, 1/1/09 BBB/P 3,146,250
3,500,000 (1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 3,648,750
5,875,000 (American Hingham, Wtr. Treatment),
6 3/4s, 12/1/25 BBB/P 6,014,531
6,000,000 (1st Mtge. Berkshire Retirement Home), Ser. A,
6 5/8s, 7/1/16 BBB 5,947,500
2,000,000 (1st Mtge. Brookhaven), Ser. B, 6.6s, 1/1/17 BBB/P 2,052,500
1,350,000 (Worcester Visiting Nurse Assoc.), 6.4s, 9/15/10 A/P 1,387,125
1,000,000 (Combined Jewish Philanthropies), Ser. A,
AMBAC, 6 3/8s, 2/1/15 Aaa 1,057,500
1,000,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/07 Aaa 1,026,250
1,000,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/06 # Aaa 1,027,500
1,725,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/05 Aaa 1,772,438
5,000,000 (Worcester Polytechnical Institute), MBIA,
5 1/8s, 9/1/17 Aaa 4,750,000
1,985,677 (1st Mtge. Pioneer Valley Living Ctr.),
zero %, 10/1/20 B/P 2,482
4,500,000 MA State Wtr. Poll. Abatement Rev. Bonds
(MWRA Loan Program), Ser. A, 5s, 8/1/15 Aa 4,185,000
MA State Wtr. Resources Auth. Rev. Bonds
7,500,000 Ser. A, 7s, 4/1/18 Aaa 8,146,875
10,000,000 Ser. A, 6 1/2s, 7/15/19 A 11,162,500
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 Aaa 2,863,750
1,100,000 Somerville G.O. Bonds, FSA, 5.4s, 2/15/17 Aaa 1,067,000
Somerville, Hsg. Auth. Rev. Bonds
(Clarendon Hill Mtge.)
2,000,000 GNMA Coll., 7.95s, 11/20/30 AAA 2,120,000
1,455,000 GNMA Coll., 7.85s, 11/20/10 AAA 1,545,938
1,600,000 U. Mass. Bldg. Auth. Rev. Bonds, Ser. A,
7 1/2s, 5/1/14 Aaa 1,682,016
3,075,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB/P 3,347,906
1,755,000 Worcester Municipal Purpose G.O. Bonds, Ser. G,
MBIA, 5.3s, 7/1/15 Aaa 1,700,156
Worcester Rev. Bonds (St. Francis Home)
2,000,000 9 3/4s, 7/1/19 BB/P 2,024,160
1,000,000 9.4s, 7/1/08 BB/P 1,000,190
--------------
328,054,392
Puerto Rico (8.7%)
- ------------------------------------------------------------------------------------------------------------
1,700,000 Cmnwlth. of PR, G.O. Bonds, 6 1/2s, 7/1/13 A 1,899,750
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Y, 6 1/4s, 7/1/14 A 1,083,750
2,925,000 Ser. Z, MBIA, 6 1/4s, 7/1/13 Aaa 3,239,438
4,500,000 Ser. Y, 5 1/2s, 7/1/18 A 4,415,625
5,000,000 Ser. W, 5 1/2s, 7/1/15 A 4,956,250
2,100,000 Ser. X, 5s, 7/1/22 A 1,884,750
PR Elec. Pwr. Auth. Rev. Bonds
5,000,000 Ser. BB, MBIA, 6 1/4s, 7/1/10 Aaa 5,518,750
5,200,000 Ser. Z, 5 1/2s, 7/1/16 Baa 5,083,000
2,600,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth.
Rev. Bonds (Special Facilities-American Airlines, Inc.),
Ser. A, 6.45s, 12/1/25 Baa 2,726,750
1,000,000 PR Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 1,119,995
--------------
31,928,058
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $343,915,981) *** $359,982,450
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $368,433,166.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1997 for the securities listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to
do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities
at May 31, 1997. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are
not covered by the Report of independent accountants.
*** The aggregate identified cost on a tax basis is $343,916,079, resulting in gross unrealized appreciation
and depreciation of $18,299,858 and $2,233,487, respectively, or net unrealized appreciation of $16,066,371.
# A portion of this security was pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1997.
The rates shown on IFBs, which are securities paying interest rates that vary inversely to changes in
the market interest rates, and VRDN's are the current interest rates at May 31, 1997.
The fund had the following industry group concentrations greater than 10% at May 31, 1997 (as a
percentage of net assets):
Hospitals/Health care 31.4%
Education 18.7
Transportation 11.6
Water & Sewerage 11.0
The fund had the following insurance concentrations greater than 10% at May 31, 1997 (as a percentage
of net assets):
MBIA 12.2%
AMBAC 10.9
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1997
Total Aggregate Face Expiration Unrealized
Market Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds
Index Futures (Short) $ 10,998,000 $ 10,618,875 Jun 97 $ (379,125)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $343,915,981) (Note 1) $ 359,982,450
- ---------------------------------------------------------------------------------------------------
Cash 2,226,680
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 7,102,525
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,134,843
- ---------------------------------------------------------------------------------------------------
Total assets 370,446,498
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 29,375
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 873,452
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 303,319
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 544,062
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 36,920
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,173
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,203
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 154,911
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 63,917
- ---------------------------------------------------------------------------------------------------
Total liabilities 2,013,332
- ---------------------------------------------------------------------------------------------------
Net assets $ 368,433,166
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 359,371,680
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 28,496
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,654,354)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 15,687,344
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 368,433,166
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($280,401,843 divided by 30,107,019 shares) $9.31
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.31)* $9.77
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($85,192,066 divided by 9,156,193 shares)+ $9.30
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,839,257 divided by 305,076 shares) $9.31
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.31)** $9.62
- ---------------------------------------------------------------------------------------------------
* 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1997
<S> <C>
Tax exempt interest income $ 22,850,585
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,084,991
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 357,700
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 18,091
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,465
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 537,675
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 640,628
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 13,506
- --------------------------------------------------------------------------------------------------
Reports to shareholders 35,688
- --------------------------------------------------------------------------------------------------
Registration fees 9,072
- --------------------------------------------------------------------------------------------------
Auditing 27,971
- --------------------------------------------------------------------------------------------------
Legal 26,946
- --------------------------------------------------------------------------------------------------
Postage 50,320
- --------------------------------------------------------------------------------------------------
Other 37,237
- --------------------------------------------------------------------------------------------------
Total expenses 3,847,290
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (179,836)
- --------------------------------------------------------------------------------------------------
Net expenses 3,667,454
- --------------------------------------------------------------------------------------------------
Net investment income 19,183,131
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (42,985)
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 917,967
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the year 6,717,772
- --------------------------------------------------------------------------------------------------
Net gain on investments 7,592,754
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 26,775,885
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 19,183,131 $ 17,846,366
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 874,982 873,800
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 6,717,772 (4,662,141)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 26,775,885 14,058,025
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
- ----------------------------------------------------------------------------------------------------------------------
Class A (15,338,843) (14,858,958)
- ----------------------------------------------------------------------------------------------------------------------
Class B (3,806,282) (2,875,759)
- ----------------------------------------------------------------------------------------------------------------------
Class M (145,040) (32,748)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 34,185,964 31,644,533
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 41,671,684 27,935,093
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 326,761,482 298,826,389
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $28,496 and $93,750, respectively) $368,433,166 $326,761,482
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.11 $9.21 $9.05 $9.55 $9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .52 .54 .55 .55 .59
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 (.10) .18 (.35) .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .73 .44 .73 .20 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.53) (.54) (.55) (.55) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.15) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.53) (.54) (.57) (.70) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.31 $9.11 $9.21 $9.05 $9.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.17 4.81 8.45 1.92 12.80
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $280,402 $259,934 $251,232 $244,519 $215,611
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .96 .95 .89 .96 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.67 5.80 6.11 5.69 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.12 34.57 47.53 36.20 53.18
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 15, 1993+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.10 $9.20 $9.05 $9.71
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .46 .48 .49 .41
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 (.11) .17 (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .67 .37 .66 (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.47) (.49) (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.30 $9.10 $9.20 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.47 4.12 7.64 (1.15)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $85,192 $65,538 $47,573 $23,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 1.60 1.53 1.41 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.99 5.13 5.46 4.32 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.12 34.57 47.53 36.20
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share May 12, 1995+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $9.10 $9.21 $9.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .50 .51 .02 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 (.11) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .71 .40 .14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.50) (.51) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.51) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.31 $9.10 $9.21
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.96 4.37 1.53 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,839 $1,290 $22
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.26 1.24 .06 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.30 5.58 .30 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 19.12 34.57 47.53
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
Notes to financial statements
May 31, 1997
Note 1
Significant accounting policies
Putnam Massachusetts Tax Exempt Income Fund (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
the fund's Manager, Putnam Investment Management, Inc. ("Putnam Management"),
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 class A, class B and class M shares. 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 approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
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 class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
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 which approximates market value.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) Futures 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 in which it may invest 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.
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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At May 31, 1997, the fund had a capital loss carryover of approximately
$5,412,000 available to offset future capital gains, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------------------------
$3,398,000 May 31, 2003
$2,014,000 May 31, 2004
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 at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of original issue
discount, market discount, realized and unrealized gains and losses on certain
futures contracts and capital loss carryover. 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. For the year ended May 31, 1997, the fund reclassified $41,780 to
increase undistributed net investment income and $27,030 to decrease
paid-in-capital, with an increase to accumulated net realized loss on
investments of $14,750. The calculation of net investment income per share in
the financial highlights table excludes these adjustments.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on zero coupon bonds 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 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: 0.60% of the first $500 million of
average net assets, 0.50% of the next $500 million, 0.45% of the next $500
million, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
of the next $5 billion, 0.34% of the next $5 billion, and 0.33% of any amount
thereafter. Prior to September 20, 1996, any amount over $1.5 billion was
based on 0.40%.
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.
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.
For the year ended May 31, 1997, fund expenses were reduced by $179,836 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 a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered into
such arrangements.
Trustees of the fund receive an annual Trustees fee of $550 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
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 certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 year ended May 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $69,935 and $1,657 from the sale of
class A and class M shares, respectively and $172,410 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended May 31, 1997, Putnam Mutual Funds Corp., acting as underwriter received
$5,892 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $97,467,864 and
$64,227,900, respectively. There were no purchases and sales of U.S.
government obligations. 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 May 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 8,155,750 $ 75,375,346
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 907,303 8,396,075
- ------------------------------------------------------------
9,063,053 83,771,421
Shares
repurchased (7,487,476) (69,171,078)
- ------------------------------------------------------------
Net increase 1,575,577 $ 14,600,343
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 7,159,447 $66,222,517
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 903,123 8,342,312
- ------------------------------------------------------------
8,062,570 74,564,829
Shares
repurchased (6,805,725) (63,049,343)
- ------------------------------------------------------------
Net increase 1,256,845 $11,515,486
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 2,973,186 $27,502,900
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 249,991 2,312,165
- ------------------------------------------------------------
3,223,177 29,815,065
Shares
repurchased (1,266,942) (11,717,045)
- ------------------------------------------------------------
Net increase 1,956,235 $18,098,020
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 3,039,068 $28,149,353
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 187,468 1,731,060
- ------------------------------------------------------------
3,226,536 29,880,413
Shares
repurchased (1,196,103) (11,056,843)
- ------------------------------------------------------------
Net increase 2,030,433 $18,823,570
- ------------------------------------------------------------
Year ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 322,143 $ 2,954,455
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 11,245 104,193
- ------------------------------------------------------------
333,388 3,058,648
Shares
repurchased (169,995) (1,571,047)
- ------------------------------------------------------------
Net increase 163,393 $ 1,487,601
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 145,572 $ 1,362,998
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,806 16,751
- ------------------------------------------------------------
147,378 1,379,749
Shares
repurchased (8,040) (74,272)
- ------------------------------------------------------------
Net increase 139,338 $ 1,305,477
- ------------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 99.8% of dividends paid from net
investment income during the fiscal year as tax exempt for
Federal income tax purposes.
The Form 1099 you receive in January 1998 will show the tax
status of all distributions paid to your account in calendar
1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up
to certain limits by federal/state agencies. Savings
accounts may also be insured up to certain limits. Please
call your financial advisor or Putnam at 1-800-225-1581 to
obtain a prospectus for any Putnam fund. It contains more
complete information, including charges and expenses.
Please read it carefully before you invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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 D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Leslie J. Burke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
33413-845/236/258 7/97
