Putnam
Massachusetts
Tax Exempt
Income
Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
*Putnam Massachusetts Tax Exempt Income Fund's class A shares were
ranked among the top 25% of all Massachusetts municipal bond funds
tracked by Lipper Analytical Services, based on total returns for
the 1-, 3-, and 5-year periods ended December 31, 1996. Over these
periods, class A shares were ranked 12 out of 51, 1 out of 30 and 2
out of 20 for 1-, 3-, and 5-year performance, respectively; class B
shares were ranked 27 out of 51 for 1-year performance and 16 out of
30 for 3-year performance while class M shares were ranked 17 out of
51 for 1-year performance.*
* "The secret to the fund's success is its willingness to dig for
potentially undervalued issues, especially among nonrateds, which
make up 25% of assets."
-- Morningstar analysis, October 25, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
17 Financial statements
26 Results of December 5, 1996, shareholder meeting
Footnote reads:
* 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
[PHOTO OF GEORGE PUTNAM OMITTED]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam Massachusetts Tax Exempt Income Fund's
fiscal 1997 presented a significantly brighter municipal bond market
environment than that which had prevailed in the preceding months.
As the fiscal year's first half unfolded, the municipal bond market
- -- including the market for Massachusetts tax-exempt bonds -- began
to develop a sense of serenity, closing the semiannual period on
November 30, 1996, in an almost upbeat mood.
During the period, Leslie Burke was appointed your fund's manager.
Leslie joined Putnam in 1992 as a credit analyst in the Tax-Exempt
Bond Group. Before joining Putnam, she was with Fidelity
Investments. She has 10 years of investment experience.
In the report that follows, Leslie discusses the events and
strategies that drove your fund's performance during the fiscal
year's first half and takes a look at prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Leslie J. Burke
Well positioned to take advantage of a strong bond market run that
began in September, Putnam Massachusetts Tax Exempt Income Fund
completed the first half of fiscal 1997 with competitive results,
keeping in close step with its competitive index while outperforming
the 51 funds in its Lipper category. Performance details for the
semiannual period, which ended November 30, 1996, can be found on
pages 9 and 10 while the most current Lipper rankings appear on page
2.
Your fund's strategies have served it well in recent months,
rewarding shareholders with both attractive returns and above-
average yields relative to other funds in the category. However
current market and interest-rate trends prompt us toward a cautious,
yet constructive outlook for the rest of fiscal '97. Our key priorities
over the remainder of the year will be to preserve the fund's gains and
reduce the portfolio's exposure to market volatility.
*SLOWING ECONOMY, STRONG DEMAND SPARK MUNICIPAL BOND RALLY
Although the municipal bond market experienced many challenges
during the first half of calendar 1996, it shifted gears and rallied
during your fund's semiannual period. The U.S. economy's fast-paced
growth of 4.6% during the third quarter of calendar 1996 gave way to
a projection of 2.2% growth for the final three months of the year.
Economists expect this slowdown to continue into early 1997. This
cooling of economic growth soothed investors' concerns over rising
interest rates and helped lead fixed-income investments, including
municipal bonds, to higher price levels.
Strong demand also helped spur the period's bond market rally. While
large numbers of individual investors in the U.S. focused their
attention on the unprecedented gains in the stock market, overseas
investors purchased upward of $175 billion in U.S. bonds -- an
amount that exceeds the federal budget deficit. Although foreign
investors -- ineligible for the tax benefits of U.S. municipal bonds
- -- invested primarily in Treasury securities, their interest sparked
greater demand and, consequently, rising prices for the municipal
market as well.
In terms of supply, the market for municipal securities was
relatively tight through the first few months of the period. June
and July are traditionally months in which many bonds mature or
reach their call dates and September's municipal bond issuance was
the lowest in more than a year. Autumn's lower interest rates,
however, made bond issuance more attractive for cash-strapped
municipalities, and the supply of new bonds rose.
*DURATION MANAGEMENT BUILDS -- AND SHOULD HELP PROTECT -- GAINS
We have capitalized on the positive performance of the municipal
bond market by maintaining an above-market portfolio duration for
the past three months. Duration, measured in years, indicates a
portfolio's sensitivity to interest-rate changes. A longer duration
can mean a more volatile net asset value if rates change -- but also
one more likely to appreciate substantially if rates decline. A
shorter duration can help preserve portfolio value as interest rates
rise. The fund's longer duration helped boost performance during the
period as yields on medium- and long-term municipal bonds dropped by
0.046% and 0.050%, respectively. (Bond prices rise as yields fall.)
[GRAPHIC OMITTED: HORIZONTAL BAR CHART TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospital and health care 35.9%
Education 14.6%
Transportation 13.8%
Water and sewerage 10.5%
Utilities 7.0%
Footnote reads:
*Based on net assets as of 11/30/96. Sector allocations will vary
over time.
By the end of the period, however, we were seeing a much flatter
yield curve; in other words, longer-term bonds no longer offered a
substantial enough yield advantage over shorter-term bonds to
compensate investors for their greater risk. This led us to take
profits on longer-term holdings we considered fully valued and to
re-allocate the assets into shorter-term bonds. Consequently,
portfolio duration has shortened from 9 years in October -- its
longest point, at the height of the rally -- to 7 years at the end
of November.
*ONE MAJOR BOND PURCHASE SUPPORTS SEVERAL GOALS
Duration management played a role in our decision to take a large
position in shorter-term new-issue general obligation bonds this
fall. Since this type of bond is supported by the financial
resources and taxing power of the state, its price and
creditworthiness will reflect the state's economic and fiscal
health. In Massachusetts' case, both are quite healthy at present,
and now that Governor Weld will not be leaving us for the Senate, no
significant changes are expected in the state's fiscal policies.
These characteristics pointed to attractive prospects for the new
bonds, but since the bonds are also noncallable, the purchase
enabled us to increase the portfolio's call protection as well. Call
structure has taken on more importance in recent months due to the
fact that in 1993, the municipal bond market witnessed the largest
issuance of tax-free bonds in its history. With such a large portion
of the marketplace callable in 2003 -- just seven years away -- many
investors are now selling these bonds in favor of more recent
issues, which can offer more potential for appreciation.
Concentrating assets in noncallable bonds can allow us to benefit
from this appreciation while helping to protect the stability of the
fund's income stream.
*FOCUS ON HEALTH CARE CONTINUES TO PROVE REWARDING
Much of the fund's recent success can be attributed to careful
observation of hospitals and long-term care facilities in the state
and the investment opportunities they continue to provide. Our in-state
location enables Putnam's credit analysts to keep a close watch on current
developments and allows us to quickly take advantage of opportunities as
they arise.
[GRAPHIC OMITTED: PIE CHART CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
B --1.7%
Ba --12.7%
Baa --17.8%
A --15.5%
VMIG1 --0.9%
Aaa --49.3%
Aa --2.1%
Footnote reads:
*As a percentage of market value as of 11/30/96. 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.
We believe Massachusetts hospital bonds offer a significant
opportunity for appreciation, due to the growth of hospital systems
within the state. This trend been fueled by cost-reduction pressure
throughout the industry, as well as the arrival of for-profit
hospital companies. Two such companies, Columbia and OrNda, are
moving into the state and are in the process of establishing
geographical networks for their health-care services. Columbia's
recent purchase of MetroWest Hospital favorably affected prices of
MetroWest bonds in your fund's portfolio. This trend could have
positive implications for other Massachusetts hospitals and their
bonds.
We also rely heavily on in-depth credit research to identify
appreciation potential within the health-care and long-term care
sector. This approach served the fund well when bonds issued to
support the Orchard Cove long-term care facility were scheduled for
prerefunding. In a prerefunding, the issuer floats a second bond to
pay off an earlier one at its first call date. Proceeds from the new
issue are invested in top-quality instruments such as U.S.
Treasuries. Because of the safety of principal represented by these
securities, the older, prerefunded bond is likely to experience a
credit upgrade -- generally with a corresponding increase in price.
In the case of the Orchard Cove bonds, which were originally rated
BB, an upgrade to what is effectively AAA status overnight has the
potential to result in significant appreciation -- and a substantial
gain for the fund.
*POSITIVE YET DISCIPLINED APPROACH REMAINS ESSENTIAL
Over the last three years, Boston experienced the fastest recovery
of any central business district in the country. Its strength has
been driven, in part, by small start-up companies in software,
biotechnology, and health care. These new companies have provided
countless jobs in the service sector to aid in long-term growth and
development; current growth is expected to be much more stable than
the health care and defense boom in the late 1980s due to its
diversification across several industries. After several years of
weak demand and pricing following the economic contraction of the
early '90s real estate has also benefited from this resurgence of
business. The state's economic health is likely to support
attractive prices for Massachusetts bonds for some time to come.
By shortening duration, selling off longer-maturity holdings and
buying more non-callable bonds, your fund is preparing to
conservatively enter the second half of its fiscal year. We are also
aiming to reposition the portfolio from a barbell structure, which
favors holdings in both short- and long-term bonds, to one that
emphasizes bonds in the 15- to 20-year maturity range, where we
expect to find better values. As the duration levels out in a post-
rally environment, our health-care holdings -- particularly hospital
and long-term care facility bonds -- are likely to play an
increasingly important role in your fund's overall strategy.
Footnote reads:
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 11/30/96, there is no guarantee
the fund will continue to hold these securities in the future.
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 taxes 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 11/30/96
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------
6 months 6.30% 1.30% 5.96% 0.96% 6.14% 2.65%
- ----------------------------------------------------------------
1 year 5.45 0.46 4.77 -0.21 5.03 1.59
- ----------------------------------------------------------------
5 years 46.88 39.96 -- -- -- --
Annual average 7.99 6.96 -- -- -- --
- ----------------------------------------------------------------
Life of class 78.36 69.95 17.38 14.48 12.47 8.77
Annual average 8.48 7.74 4.86 4.08 7.82 5.53
- ----------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ----------------------------------------------------------------
6 months 6.50% 1.28%
- ----------------------------------------------------------------
1 year 5.89 3.26
- ----------------------------------------------------------------
5 years 45.83 15.09
Annual average 7.83 2.85
- ----------------------------------------------------------------
Life of class A 76.21 26.27
Annual average 8.33 3.34
- ----------------------------------------------------------------
Life of class B 22.34 9.83
Annual average 6.23 2.81
- ----------------------------------------------------------------
Life of class M 14.92 4.41
Annual average 9.15 2.81
- ----------------------------------------------------------------
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 the applicable sales
charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
- --------------------------------------------------------------------
Distributions (number) 6 6 6
- --------------------------------------------------------------------
Income $0.265282 $0.234951 $0.250978
- --------------------------------------------------------------------
Capital gains1 -- -- --
- --------------------------------------------------------------------
Total $0.265282 $0.234951 $0.250978
- --------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- --------------------------------------------------------------------
5/31/96 $9.11 $9.56 $9.10 $9.10 $9.41
- --------------------------------------------------------------------
11/30/96 9.41 9.88 9.40 9.40 9.72
- --------------------------------------------------------------------
Current return
(end of period)
- --------------------------------------------------------------------
Current dividend rate2 5.55% 5.28% 4.91% 5.25% 5.08%
- --------------------------------------------------------------------
Taxable equivalent3 10.44 9.93 9.24 9.88 9.56
- --------------------------------------------------------------------
Current 30-day
SEC yield4 5.10 4.85 4.44 4.71 4.56
- --------------------------------------------------------------------
Taxable equivalent3 9.60 9.13 8.35 8.86 8.58
- --------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases,
state tax purposes. For some investors, investment income may also
be subject to the federal alternative minimum tax. Investment
income may be subject to state and local taxes.
2 Income portion of most recent distribution, annualized and divided
by NAV or POP at end of period.
3 Assumes maximum 46.85% combined federal and state tax rate.
Results for investors subject to lower tax rates would not be as
advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(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
- ------------------------------------------------------------------
6 months 4.71% -0.29% 4.29% -0.71% 4.46% 1.04%
- ------------------------------------------------------------------
1 year 3.68 -1.20 3.03 -1.87 3.27 -0.09
- ------------------------------------------------------------------
5 years 43.07 36.23 -- -- -- --
Annual average 7.43 6.38 -- -- -- --
- ------------------------------------------------------------------
Life of class 77.50 69.13 16.78 13.90 11.91 8.23
Annual average 8.31 7.58 4.57 3.82 7.10 4.94
- -----------------------------------------------------------------
*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.
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 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.
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Portfolio of investments owned
November 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
FNMA Coll. -- Federal National Mortgage Association Collateralized
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.5%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (90.9%)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$5,500,000 Agawam, Rev. Bonds (Springfield Resources Recvy.),
8 1/2s, 12/1/08 BBB $ 5,747,500
1,295,000 Boston Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,422,881
7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co.), 7 3/8s, 5/15/15 Baa 7,603,750
7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds, Ser. A,
5 3/4s, 11/1/13 A 8,301,990
5,000,000 City of Quincy (Quincy Hosp.), IFB, FSA,
6.74s, 1/15/11 Aaa 4,918,750
1,675,000 Holyoke, G.O. Bonds, 9.85s, 11/1/08 Aaa 1,802,417
1,040,000 Holyoke, Poll. Control VRDN
(Holyoke Wtr. Pwr. Co.), 3 3/4s, 11/1/13 VMIG 1,040,000
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 A 1,434,375
2,455,000 8.3s, 2/15/05 Aaa 2,884,625
1,000,000 MA Cons. Loan G.O. Bonds, Ser. A, 7 5/8s, 6/1/08 Aaa 1,151,250
MA Bay Trans. Auth. Rev. Bonds
3,550,000 Ser. B, 6.2s, 3/1/16 A 3,918,313
4,000,000 Ser. A, 5 1/2s, 3/1/12 A 4,085,000
7,400,000 (Gen. Trans. Syst.), Ser. B, AMBAC, 5 3/8s, 3/1/25 Aaa 7,326,000
1,000,000 MA Collg. Bldg. Auth. Project Rev. Bonds, Ser. A,
7.8s, 5/1/16 Aaa 1,070,000
2,680,000 MA Muni. Whsl. Elec. Co. Pwr. Supply Syst.
Rev. Bonds, Ser. A, AMBAC, 5.1s, 7/1/07 Aaa 2,706,800
4,400,000 MA State Cons. Loan G.O. Bonds, Ser. B,
6 1/2s, 8/1/08 A 4,972,000
MA State G.O. Bonds
8,200,000 Ser. A, AMBAC, 6 1/2s, 11/1/14 Aaa 9,409,500
5,000,000 Ser. B, MBIA, 6 1/4s, 7/1/20 Aaa 5,181,250
3,870,000 Ser. A, 6s, 11/1/11 A 4,198,950
2,100,000 MA State VRDN, Ser. B, 2.45s, 12/1/97 VMIG 2,100,000
4,500,000 MA State Wtr. Poll. Abatement Rev. Bonds
(MWRA Loan Program), Ser. A, 5s, 8/1/15 Aa 4,275,000
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 9.952s, 8/15/21 Aaa 2,317,500
7,500,000 (Boston U.), Ser. L, MBIA, 9.548s, 10/1/31 Aaa 8,653,125
6,000,000 (Beth Israel Hosp.), AMBAC, 8.573s, 7/1/25 Aaa 6,285,000
7,900,000 (New England Med. Ctr. Hosp.), MBIA,
6.63s, 7/1/18 Aaa 7,416,125
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 2,270,000
2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BBB 2,305,000
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B,
8 3/8s, 7/1/15 Baa 2,700,000
4,250,000 (Suffolk U.), Ser. A, 8 1/8s, 7/1/20 Aaa/P 4,839,688
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,451,000
3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,403,125
3,510,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 3,729,375
1,125,000 (Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 Ba 1,150,313
3,000,000 (Stonehill College Issue), Ser. D, AMBAC,
7.7s, 7/1/20 Aaa 3,397,500
2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba 2,264,400
8,985,000 (Cooley Dickinson Hosp.), Ser. A, 7 1/8s,
11/15/18 Aaa/P 10,400,138
1,900,000 (Sisters Providence Hlth. Syst), Ser. A, 6 5/8s,
11/15/22 Baa 1,926,125
1,550,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 A 1,641,063
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6 1/2s, 11/15/18 Aaa 4,360,150
4,850,000 (MA General Hosp.), Ser. F, AMBAC, 6 1/4s,
7/1/12 Aaa 5,328,937
5,500,000 (MA General Hosp.), Ser. F, AMBAC, 5 3/8s,
7/1/24 Aaa 5,335,000
8,250,000 (Newton-Wellesley Hosp.), Ser. E, MBIA, 6s,
7/1/25 Aaa 8,466,563
3,000,000 (Williams College), Ser. F, 5 1/2s, 7/1/26 Aa 2,985,000
3,475,000 (Boston College), Ser. K, 5 1/4s, 6/1/23 A 3,279,531
1,000,000 (Wheaton College), Ser. C, 5 1/4s, 7/1/19 A 973,750
6,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Residential
Dev.), FNMA Coll., Ser.C, 6.9s, 11/15/21 Aaa 6,420,000
MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds
(Southeastern MA)
6,500,000 Ser. B, 9 1/4s, 7/1/15 BB/P 7,401,875
3,410,000 Ser. A, 9s, 7/1/15 BB/P 3,870,350
MA State Indl. Fin. Agcy. Rev. Bonds
2,775,000 (1st Mtge. Brookhaven-Lexington), 10 1/4s,
1/1/18 Aaa 3,038,431
2,050,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB/P 2,193,500
6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 6,765,000
1,900,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 Aaa 2,101,875
2,500,000 (Leominster Hosp.), Ser. A, 8 5/8s, 8/1/09 Aaa 2,821,875
3,600,000 (Cape Cod Hlth. Syst.), 8 1/2s, 11/15/20 Aaa 4,212,000
3,000,000 (1st Mtge. Stone Institution & Newton), 7.9s,
1/1/24 B/P 3,052,500
3,500,000 (1st Mtge. Evanswood Bethzatha), Ser. A, 7 7/8s,
1/15/20 BB/P 3,451,875
MA State Indl. Fin. Agcy. Rev. Bonds (continued)
5,140,000 (1st Mtge. Loomis & Village Projects), 7 5/8s,
7/1/25 BBB 5,435,550
7,840,000 (Merrimack College), 7 1/8s, 7/1/12 BBB 8,418,200
3,000,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 3,000,480
3,500,000 (1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 3,631,250
1,165,000 (Clark U.), Ser. E, 7s, 7/1/12 A 1,262,569
2,605,000 (Clark U.), Ser. F, 7s, 7/1/11 A 2,852,475
3,000,000 (1st. Mtge. Brookhaven), Ser. A, 7s, 1/1/09 BBB/P 3,131,250
5,875,000 (American Hingham, Water Treatment), 6 3/4s,
12/1/25 BBB/P 6,132,031
6,000,000 (1st Mtge. Berkshire Retirement Home), Ser. A,
6 5/8s, 7/1/16 BBB/P 5,887,500
2,000,000 (1st Mtge. Brookhaven), Ser. B, 6.6s, 1/1/17 BBB/P 2,057,500
1,350,000 (Worcester Visiting Nurse Assoc.), 6.4s, 9/15/10 A 1,393,875
1,000,000 (Combined Jewish Philanthropies), Ser. A,
AMBAC, 6 3/8s, 2/1/15 Aaa 1,068,750
1,000,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/07 Aaa 1,043,750
1,000,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/06# Aaa 1,047,500
1,725,000 (Museum of Fine Arts), MBIA, 5 3/8s, 1/1/05 Aaa 1,809,094
1,985,677 (1st Mtge. Pioneer Valley Living Ctr.), zero %,
10/1/20 + B/P 2,482
3,865,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds
(Mass Tpk.,), 9s, 10/1/20 Aaa/P 4,555,869
MA State Wtr. Resources Auth. Rev. Bonds
7,500,000 Ser. A, 7s, 4/1/18 Aaa 8,278,125
1,000,000 Ser. A, 6 1/2s, 7/15/19 A 1,132,500
5,000,000 Ser. C, MBIA, 5 1/4s, 12/1/20 Aaa 4,887,500
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 Aaa 2,900,000
2,500,000 Ser. B, AMBAC, 5s, 3/1/22 Aaa 2,343,750
3,000,000 Ser. B, MBIA, 4 3/4s, 12/1/21 Aaa 2,632,500
Somerville, Hsg. Auth. Rev. Bonds
(Clarendon-Hill Mtge.)
2,000,000 GNMA Coll., 7.95s, 11/20/30 Aaa 2,137,500
1,500,000 GNMA Coll., 7.85s, 11/20/10 Aaa 1,606,875
South Essex, Swr. Dist. Auth. G.O. Bonds, Ser. A
1,000,000 MBIA, 5 1/8s, 6/15/10 Aaa 982,500
1,925,000 MBIA, 5 1/8s, 6/15/09 Aaa 1,912,969
1,500,000 MBIA, 5s, 6/15/08 Aaa 1,485,000
1,600,000 U. Mass. Bldg. Auth. Rev. Bonds, Ser. A, 7 1/2s, 5/1/14 Aaa 1,710,000
3,075,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB/P 3,347,906
Worcester Rev. Bonds (St. Francis Home)
2,000,000 9 3/4s, 7/1/19 BB/P 2,043,920
1,000,000 9.4s, 7/1/08 BB/P 1,003,340
1,755,000 Worcester City Municipal Purpose G.O. Bonds,
Ser. G, MBIA, 5.3s, 7/1/15 Aaa 1,733,063
------------
321,625,613
Puerto Rico (7.6%)
- -----------------------------------------------------------------------------------------------------
$1,700,000 Cmnwlth. of PR, G.O. Bonds, 6 1/2s, 7/1/13 A $ 1,914,625
Cmnwlth. of PR, Hwy. & Trans. Auth. Hwy. Rev. Bonds
1,000,000 Ser. Y 6 1/4s, 7/1/14 A 1,097,500
2,925,000 Ser. Z, MBIA, 6 1/4s, 7/1/13 Aaa 3,268,688
4,500,000 Ser. Y 5 1/2s, 7/1/18 A 4,471,875
5,000,000 Ser. W, 5 1/2s, 7/1/15 A 5,037,500
2,100,000 Ser. X, 5s, 7/1/22 A 1,911,000
5,200,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. Z, 5 1/2s, 7/1/16 Baa 5,141,500
2,600,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth.
Rev. Bonds (Special Facilities-American Airlines),
Ser. A, 8 3/4s, 12/1/25 Baa 2,749,500
1,000,000 PR Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 1,138,750
------------
26,730,938
- -----------------------------------------------------------------------------------------------------
Total Investments (cost $328,524,220) *** $348,356,551
- -----------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $353,838,589.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at November 30, 1996 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, 1996. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $328,524,220 resulting in gross unrealized
appreciation and depreciation of $21,255,757 and $1,423,426 respectively, or net unrealized
appreciation of $19,832,331.
+ Non-income-producing security.
# A portion of this security was pledged and segregated with the custodian to cover margin requirements
for futures contracts at November 30, 1996.
The rates shown on IFB's 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 November 30, 1996.
The fund had the following industry group concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
Hospitals/Healthcare 35.9%
Education 14.6
Transportation 13.8
Water & Sewer 10.5
The fund had the following insurance concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
MBIA 15.1%
AMBAC 12.2
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1996 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds
Futures (Short) $2,091,938 $2,073,375 Dec 96 $(18,563)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- ------------------------------------------------------------------------
Investments in securities, at value
(identified cost $328,524,220) (Note 1) $348,356,551
- ------------------------------------------------------------------------
Cash 693,024
- ------------------------------------------------------------------------
Interest and other receivables 7,020,740
- ------------------------------------------------------------------------
Receivable for shares of the fund sold 532,028
- ------------------------------------------------------------------------
Receivable for securities sold 25,000
- ------------------------------------------------------------------------
Total assets 356,627,343
Liabilities
- ------------------------------------------------------------------------
Payable for variation margin 16,312
- ------------------------------------------------------------------------
Distributions payable to shareholders 736,043
- ------------------------------------------------------------------------
Payable for securities purchased 1,121,875
- ------------------------------------------------------------------------
Payable for shares of the fund repurchased 155,826
- ------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 512,076
- ------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 19,534
- ------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 316
- ------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,227
- ------------------------------------------------------------------------
Payable for distribution fees (Note 2) 144,872
- ------------------------------------------------------------------------
Other accrued expenses 80,673
- ------------------------------------------------------------------------
Total liabilities 2,788,754
- ------------------------------------------------------------------------
Net assets $353,838,589
Represented by
- ------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $341,331,782
- ------------------------------------------------------------------------
Undistributed net investment income (Note 1) 176,907
- ------------------------------------------------------------------------
Accumulated net realized loss on investment (Note 1) (7,483,868)
- ------------------------------------------------------------------------
Net unrealized appreciation of investments 19,813,768
- ------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $353,838,589
Computation of net asset value and offering price
- ------------------------------------------------------------------------
Net asset value and redemption price per class A share
($273,535,952 divided by 29,079,049 shares) $9.41
- ------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.41)* $9.88
- ------------------------------------------------------------------------
Net asset value and offering price per class B share
($77,065,266 divided by 8,199,615 shares)+ $9.40
- ------------------------------------------------------------------------
Net asset value and redemption price per class M share
($3,237,371 divided by 344,455 shares) $9.40
- ------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.40)** $9.72
- ------------------------------------------------------------------------
* 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
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $11,399,796
- ------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,013,802
- ------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 163,305
- ------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,501
- ------------------------------------------------------------------------
Administrative services (Note 2) 3,652
- ------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 264,471
- ------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 299,277
- ------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 6,274
- ------------------------------------------------------------------------
Reports to shareholders 17,190
- ------------------------------------------------------------------------
Registration fees 1,152
- ------------------------------------------------------------------------
Auditing 12,686
- ------------------------------------------------------------------------
Legal 8,326
- ------------------------------------------------------------------------
Postage 60,163
- ------------------------------------------------------------------------
Other 18,094
- ------------------------------------------------------------------------
Total expenses 1,874,893
- ------------------------------------------------------------------------
Expense reduction (Note 2) (96,467)
- ------------------------------------------------------------------------
Net expenses 1,778,426
- ------------------------------------------------------------------------
Net investment income 9,621,370
- ------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (293,248)
- ------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 323,966
- ------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 10,844,196
- ------------------------------------------------------------------------
Net gain on investments 10,874,914
- ------------------------------------------------------------------------
Net increase in net assets resulting from operations $20,496,284
- ------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- -----------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------
Net investment income $ 9,621,370 $ 17,846,366
- -----------------------------------------------------------------------------------------------
Net realized gain on investments 30,718 873,800
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 10,844,196 (4,662,141)
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 20,496,284 14,058,025
- -----------------------------------------------------------------------------------------------
Distributions to shareholders:
- -----------------------------------------------------------------------------------------------
From net investment income
Class A (7,665,198) (14,858,958)
- -----------------------------------------------------------------------------------------------
Class B (1,804,956) (2,875,759)
- -----------------------------------------------------------------------------------------------
Class M (68,059) (32,748)
- -----------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 16,119,036 31,644,533
- -----------------------------------------------------------------------------------------------
Total increase in net assets 27,077,107 27,935,093
- -----------------------------------------------------------------------------------------------
Net assets
- -----------------------------------------------------------------------------------------------
Beginning of period 326,761,482 298,826,389
- -----------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $176,907 and $93,750, respectively) $353,838,589 $326,761,482
- -----------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months May 12, 1995
ended (commencement
November 30 Year ended of operations)
(unaudited) May 31 to May 31
- --------------------------------------------------------------------------------------------------
1996 1996 1995
- --------------------------------------------------------------------------------------------------
Class M
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 9.10 $ 9.21 $9.10
- --------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------
Net investment income .25 .51 .02(c)
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.11) .12
- --------------------------------------------------------------------------------------------------
Total from investment
operations .55 .40 .14
- --------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------
From net investment income (.25) (.51) (.03)
- --------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- --------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- --
- --------------------------------------------------------------------------------------------------
Total distributions (.25) (.51) (.03)
- --------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.40 $ 9.10 $9.21
- --------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 6.14* 4.37 1.53*
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,237 $1,290 $ 22
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .63* 1.24 .06*
- --------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 2.70 * 5.58 .30*
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.24* 34.57 47.53
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Six months
ended
November 30 Year ended
(unaudited) May 31
- --------------------------------------------------------------------------------------------------
1996 1996 1995
- --------------------------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $ 9.10 $ 9.20 $ 9.05
- --------------------------------------------------------------------------------------------------
Investment operations
- --------------------------------------------------------------------------------------------------
Net investment income .24 .48 .49
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .29 (.11) .17
- --------------------------------------------------------------------------------------------------
Total from investment
operations .53 .37 .66
- --------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------
From net investment income (.23) (.47) (.49 )
- --------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- --
- --------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- (.02 )
- --------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.51 )
- --------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.40 $ 9.10 $ 9.20
- --------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.96* 4.12 7.64
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $77,065 $65,538 $47,573
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* 1.60 1.53
- --------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 2.59* 5.13 5.46
- ----------------------------------------------------------------------------------------------
Portfolio turnover (%) 10.24* 34.57 47.53
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period Six months
July 15, 1993 ended
(commencement of November 30
operations) to May 31 (unaudited) Year ended May 31
- ---------------------------------------------------------------------------------------------------------------------
1994 1996 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
Class B Class A
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.71 $ 9.11 $ 9.21 $ 9.05 $ 9.55 $ 9.02 $ 8.70
- ---------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------
Net investment income .41 .27 .54 .55 .55 .59 .61 (d)
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.51) .30 (.10) .18 (.35) .54 .39
- ---------------------------------------------------------------------------------------------------------------------
Total from investment
operations (.10) .57 .44 .73 .20 1.13 1.00
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------
From net investment income (.41) (.27) (.54) (.55) (.55) (.59) (.61)
- ---------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.15) -- -- -- (.15) (.01) (.07)
- ---------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- (.02) -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (.56) (.27) (.54) (.57) (.70) (.60) (.68)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.05 $ 9.41 $ 9.11 $ 9.21 $ 9.05 $ 9.55 $ 9.02
- ---------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) (1.15)* 6.30* 4.81 8.45 1.92 12.80 11.96
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,017 $273,536 $259,934 $251,232 $244,519 $215,611 $149,011
- ---------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.41* .49* .95 .89 .96 .97 .88(d)
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 4.32* 2.92* 5.80 6.11 5.69 6.24 6.82(d)
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 36.20 10.24* 34.57 47.53 36.20 53.18 94.95(e)
- ---------------------------------------------------------------------------------------------------------------------
* 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 includes amounts paid through expense
offset arrangements. Prior period ratios exclude these amounts. (See 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.
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the year
ended May 31, 1992 reflect a per share reduction of $0.01.
(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>
Notes to financial statements
November 30, 1996 (Unaudited)
Note 1
Significant accounting policies
Putnam Massachusetts Tax Exempt Income 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.
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.
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, 1996, the fund had a capital loss carryover of
approximately $6,327,000 available to offset future capital gains,
if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ------------------------------------------
$3,880,000 May 31, 2003
2,447,000 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 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 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. The
premium in excess of the call price, if any, is amortized to the
call date; thereafter, the remaining excess premium is amortized to
maturity. Discounts on zero coupon 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, 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, 0.340% of the next
$500 billion and .0330% 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 six months ended November 30, 1996, fund expenses were
reduced by $96,467 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 $760 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 six months ended November 30, 1996, Putnam Mutual Funds
Corp., acting as underwriter received net commissions of $27,763 and
$1,326 from the sale of class A and class M shares, respectively and
$103,745 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 six months ended
November 30, 1996, Putnam Mutual Funds Corp., acting as underwriter
received $4,595 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1996, purchases and sales
of investment securities other than short-term investments
aggregated $51,992,000 and $33,492,809, 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 November 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were
as follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 3,811,157 $35,035,537
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 467,165 4,303,875
- ----------------------------------------------------
4,278,322 39,339,412
Shares
repurchased (3,730,715) (34,282,568)
- ----------------------------------------------------
Net increase 547,607 $5,056,844
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,437,230 $13,230,301
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 120,657 1,110,816
- ----------------------------------------------------
1,557,887 14,341,117
Shares
repurchased (558,230) (5,133,100)
- ----------------------------------------------------
Net increase 999,657 $9,208,017
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 211,342 $1,932,719
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,939 45,623
- ----------------------------------------------------
216,281 1,978,342
Shares
repurchased (13,509) (124,167)
- ----------------------------------------------------
Net increase 202,772 $1,854,175
- ----------------------------------------------------
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
- ----------------------------------------------------
Results of December 5, 1996 shareholder meeting
A meeting of shareholders of the fund was held on December 5, 1996.
At the meeting, each of the nominees for Trustees was elected, as
follows:
Votes
Votes for withheld
Jameson Adkins Baxter 20,739,108 185,147
Hans H. Estin 20,719,118 205,137
John A. Hill 20,742,119 182,136
Ronald J. Jackson 20,736,843 187,412
Elizabeth T. Kennan 20,732,460 191,795
Lawrence J. Lasser 20,740,485 183,769
Robert E. Patterson 20,739,873 184,381
Donald S. Perkins 20,735,422 188,832
William F. Pounds 20,729,712 194,543
George Putnam 20,717,286 206,969
George Putnam, III 20,722,917 201,338
Eli Shapiro 20,718,568 205,686
A.J.C. Smith 20,741,901 182,354
W. Nicholas Thorndike 20,738,596 185,658
A proposal to ratify the selection of Price Waterhouse LLP as
auditors for the fund was approved as follows: 20,327,327 votes for,
and 118,324 votes against, with 478,604 abstentions and broker non-
votes.
A proposal to amend the fund's fundamental investment restriction
with respect to diversification of investments was approved as
follows: 18,499,314 votes for, and 606,172 votes against, with
1,818,769 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to investments in the securities of a single issuer was
approved as follows: 18,337,480 votes for, and 638,602 votes
against, with 1,948,172 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
17,855,922 votes for, and 1,148,775 votes against, with 1,919,557
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to investment in real estate was approved as follows:
18,040,197 votes for, and 1,018,863 votes against, with 1,865,195
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to concentration of its assets was approved as follows:
18,472,578 votes for, and 602,520 votes against, with 1,849,156
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to senior securities was approved as follows:
18,424,628 votes for, and 612,961 votes against, with 1,886,666
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction
with respect to investments in commodities or commodity contracts
was approved as follows: 17,895,829 votes for, and 1,139,796 votes
against, with 1,888,630 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in securities of issuers in
which management of the fund or Putnam Investment Management, Inc.
owns securities was approved as follows: 17,897,303 votes for, and
1,033,507 votes against, with 1,993,444 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to margin transactions was approved as
follows: 17,619,727 votes for, and 1,285,210 votes against, with
2,019,318 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to short sales was approved as follows:
17,711,873 votes for, and 1,145,138 votes against, with 2,067,244
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction which limits the fund's ability to pledge assets was
approved as follows: 17,498,091 votes for, and 1,275,019 votes
against, with 2,151,145 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in restricted securities was
approved as follows: 17,851,380 votes for, and 1,031,881 votes
against, with 2,040,993 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investments in certain oil, gas an
mineral interests was approved as follows: 17,926,774 votes for, and
1,080,965 votes against, with 1,916,515 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment
restriction with respect to investing to gain control of a company's
management was approved as follows: 17,750,141 votes for, and
1,118,176 votes against, with 2,0585,938 abstentions and broker non-
votes.
All tabulations are rounded to nearest whole number.
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
Ronald J. Jackson
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
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
Blake E. Anderson
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
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Massachusetts Tax Exempt Income Fund. It may also be used as sales
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** Relative to above.
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[2 DBL DAGGERS] Not offered by Putnam Investments. Certificates of
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*HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a
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