Putnam
Massachusetts
Tax Exempt
Income Fund
SEMIANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[Putnam Massachusetts Tax Exempt Income Fund] has always been a
strong credit player. It has long used Putnam's home-state advantage by
delving heavily into local health-care and education bonds, many of which
have been in lower-quality tiers or haven't carried ratings from outside
agencies."
-- Morningstar Mutual Funds Analysis,
August 1, 1997
* "The commonwealth of Massachusetts expects to record its sixth
consecutive budgetary surplus in fiscal 1997 -- in large part due to
institutionalized conservative budgeting practices and
stronger-than-projected tax collections."
-- Standard & Poor's CreditWeek Municipal,
November 3, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
15 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The global flight to the relative safety of bonds in the aftermath of the
Southeast Asian currency crisis in late October provided a dramatic and
positive finale to the first half of Putnam Massachusetts Tax Exempt Income
Fund's fiscal year. In the five months prior to that flare-up, the U.S.
municipal bond market had demonstrated solid, albeit tenuous, strength as
many investors cautiously set aside their lingering concerns about the
economy, interest rates, and renewed inflation.
Recognizing the fragility of the generally positive environment both prior
to and following the disruption in global markets, Fund Manager Leslie Burke
had pursued a slightly defensive policy in managing the fund. As the year
unfolded, however, she concluded that a somewhat more dynamic strategy was
in order and began adjusting the portfolio accordingly.
In the report that follows, Leslie provides the specifics of her strategic
shift as well as details about the fiscal year's first half. Then she offers
some insights into what she believes is in store for the rest of the period.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Leslie J. Burke
A successful emphasis on quality and value -- combined with our ability to
capitalize on the commonwealth's thriving economic environment -- generated
solid returns for Putnam Massachusetts Tax Exempt Income Fund in the first
half of its 1998 fiscal year. For the six months ended November 30, 1997, your
fund's class A shares produced a return of 5.27% at net asset value (0.31% at
public offering price), just a few basis points behind the results for the
Lehman Brothers Municipal Bond Index (5.40%), our competitive benchmark. For
complete performance information, including results for class B and class M
shares, please turn to page 8.
* MASSACHUSETTS DEBT RATING RESTORED TO AA -
The rating on the Commonwealth of Massachusetts general obligation bonds has
come nearly full circle to where it stood during its "Miracle" days. Standard
& Poor's recently raised the rating on the state's debt to AA - from A in
recognition of its sound economic and fiscal health. The rating for these
bonds had sunk to BBB in 1989, when overspending, followed by a severe
economic downturn, put considerable financial pressures on the state. At the
time, Massachusetts's bond rating was the second lowest of any state in the
nation.
Massachusetts's economic strength over the period reflected that of the
nation. Steady economic growth and continued low inflation in the United
States created an atmosphere conducive to fixed-income investing with the
demand for U.S. bonds increasing even further when quality-seeking investors
sought refuge from the turmoil in the foreign equity and currency markets. The
combination of these factors drove the yield on the benchmark 30-year U.S.
Treasury bond to just over 6.00%, a level of historical significance. In the
tax-exempt market, economic strength translated into higher tax revenues and
improved municipal balance sheets, strengthening state and local governments
from a credit standpoint. As cash flows increased, the need to issue bonds
declined. The lower supply of municipal bonds also helped to support
attractive price levels for tax-exempt debt.
* PERFORMANCE REALIZED THROUGH QUALITY AND UNDERVALUED OPPORTUNITY
In this environment, we emphasized quality, seeking bonds with strong
performance characteristics and issues we considered undervalued. We increased
the fund's holdings in transportation and higher education bonds and continued
to maximize its position in the Commonwealth of Massachusetts general
obligation bonds. We also maintained our focus on health care and utilized a
hedging strategy to take advantage of anticipated seasonal supply and demand
patterns within the municipal market. Recognizing the economy's strength and
the historically significant levels we have reached in interest rates, we
considered it important to minimize the fund's sensitivity with regard to
interest-rate changes because of the possibility of eventual increases.
We constantly monitor yield relationships to determine which securities offer
the best relative value. Toward the end of the reporting period, municipal
bonds became very cheap relative to U.S. Treasuries. Historically providing
approximately 84% of the yield of U.S. Treasuries, Aaa-rated municipal bond
yields climbed to 87% of that of U.S. Treasuries. We took that opportunity to
maximize the fund's investment in tax-exempt bonds by employing a hedging
technique involving futures contracts. This enabled the fund to take full
advantage of these unusually attractive bond prices and positioned it to
benefit from what we expect to be favorable seasonal patterns as we approach
the end of the calendar year.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 27.9%
Transportation 12.2%
Education 10.1%
Water and sewerage 8.8%
Waste management 4.3%
Footnote reads:
*Based on net assets as of 11/30/97. Holdings will vary over time.
Among the bonds added as a result of this strategy were Massachusetts Turnpike
Authority bonds. The extraordinarily large size of this issue -- $1.4 billion
- -- combined with additional supply temporarily put downward price pressure on
the Massachusetts municipal bond market, forcing the yield of these bonds
higher. In addition to price level, several other qualities attracted us to
the bonds; they were insured, which gave them an AAA - rating and they
enhanced the portfolio's liquidity because of their quality and size.
Over the last 12 months, we increased the fund's position in the higher
education sector, adding some Harvard University bonds, which are non callable
and have an AAA rating from Standard and Poor's. In the Commonwealth of
Massachusetts, Harvard University is a name that is highly valued by many
investors -- a quality that we believe will help deliver solid investment
results.
Based on the ongoing strength of the state's economy and its improving fiscal
conditions, we continued to hold a large position in the commonwealth's
general obligation bonds. The rating upgrade on these bonds enhanced the
fund's total return during the period. While we are pleased about the upgrade,
we are monitoring several situations that could adversely affect the state's
financial condition in the future: the funding needs of the Central Artery
project, the preliminary talk regarding tax cuts, and the elimination of
tolls. We believe these financial issues are longer term, however, and
continue to be optimistic about the state's outlook.
* SEASONAL DYNAMICS FAVORABLE FOR MUNICIPALS
As we headed into the final weeks of 1997, we expected seasonal supply/demand
factors to propel total returns in the municipal bond market. In mid December,
supply typically begins to diminish as issuers and investors close their books
for year-end. Supply usually begins to pick up again in mid January. Also
during this period, however, issuers are scheduled to make heavy coupon
payments, leaving cash-ladened investors fewer bonds for reinvestment. We
expect this combination of limited bonds and strong demand to force the prices
of outstanding bonds higher.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa 50.6%
Aa 2.4%
A 16.8%
Baa 19.6%
Ba 8.9%
B 1.7%
Footnote reads:
Based on percentage of market value as of 11/30/97. 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.
Looking further ahead, we are cautiously optimistic toward the municipal bond
market. We expect a continuation of many of the same patterns we experienced
in 1997. At the national level, we look for solid economic growth to generate
strong tax receipts and contribute favorably to municipal balance sheets. We
are cautious regarding interest rates, remaining mindful of the significant
levels to which rates have dropped as well as the robust wage growth and
increases in average hourly earnings that could eventually put upward pressure
on inflation.
We believe the portfolio is positioned to perform well in this environment.
The hedging strategy put in place when municipal bonds represented exceptional
relative value has enhanced your fund's ability to benefit from advantageous
year-end supply/demand factors. Also, while the fund's defensive structure
should help to reduce its sensitivity to future interest-rate changes, its
holdings in the commonwealth's general obligation bonds and other quality,
high-performance bonds should prove beneficial in a climate of steady economic
growth.
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 11/30/97, 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 11/30/97
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 5.27% 0.31% 4.92% - 0.08% 5.11% 1.72%
- ------------------------------------------------------------------------------
1 year 7.11 2.02 6.42 1.42 6.91 3.39
- ------------------------------------------------------------------------------
5 years 40.95 34.25 35.81 33.81 38.58 34.10
Annual average 7.11 6.07 6.31 6.00 6.74 6.04
- ------------------------------------------------------------------------------
Life of fund 91.06 82.05 79.40 79.40 85.12 79.16
Annual average 8.32 7.68 7.48 7.48 7.90 7.46
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 5.40% 0.87%
- ------------------------------------------------------------------------------
1 year 7.18 1.83
- ------------------------------------------------------------------------------
5 years 42.06 13.73
Annual average 7.27 2.61
- ------------------------------------------------------------------------------
Life of fund 88.86 28.58
Annual average 8.18 3.16
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines 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 expenses 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.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 5.25% 0.23% 5.05% 0.05% 5.22% 1.85%
- ------------------------------------------------------------------------------
1 year 8.68 3.47 8.11 3.11 8.49 5.00
- ------------------------------------------------------------------------------
5 years 40.69 34.07 35.83 33.83 38.32 33.88
Annual average 7.07 6.04 6.32 6.00 6.70 6.01
- ------------------------------------------------------------------------------
Life of class 93.33 84.21 81.67 81.67 87.29 81.26
Annual average 8.38 7.74 7.56 7.56 7.96 7.53
- ------------------------------------------------------------------------------
All returns assume reinvestment of distributions at NAV and represent past
performance. 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.256309 $0.224994 $0.241995
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.256309 $0.224994 $0.241995
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/97 $9.31 $9.77 $9.30 $9.31 $9.62
- ------------------------------------------------------------------------------
11/30/97 9.54 10.02 9.53 9.54 9.86
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.32% 5.06% 4.66% 5.01% 4.85%
- ------------------------------------------------------------------------------
Taxable equivalent3 10.01 9.52 8.77 9.43 9.13
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 5.01 4.76 4.45 4.78 4.62
- ------------------------------------------------------------------------------
Taxable equivalent3 9.43 8.96 8.37 8.99 8.69
- ------------------------------------------------------------------------------
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.
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 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.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Portfolio of investments owned
November 30, 1997 (Unaudited)
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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (97.3%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Massachusetts (90.5%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 5,220,000 Agawam, Res. Recvy. Rev. Bonds
(Springfield Res. Recvy.), 8 1/2s, 12/1/08 BBB- $ 5,413,610
1,285,000 Boston, Nursing Home Rev. Bonds
(St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB-/P 1,399,044
7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co.), 7 3/8s, 5/15/15 Baa1 7,612,500
7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds, Ser. A,
5 3/4s, 11/1/13 A 8,599,556
5,000,000 City of Quincy, IFB (Quincy Hosp.), FSA,
6.42s, 1/15/11 Aaa 5,175,000
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 Baa2 1,417,188
2,455,000 8.3s, 2/15/05 Aaa 2,817,113
MA Bay Trans. Auth. Rev. Bonds
3,550,000 Ser. B, 6.2s, 3/1/16 A1 3,984,875
4,800,000 Ser. C, 6.1s, 3/1/23 A1 5,202,000
7,500,000 (Gen. Trans. Syst.), Ser. B, 5.9s, 6/1/24 A1 8,175,000
4,000,000 Ser. A, 5 1/2s, 3/1/12 A1 4,190,000
5,000,000 (Gen. Trans. Syst.), Ser. C, 5s, 3/1/24 AA- 4,781,250
1,000,000 MA Collg. Bldg. Auth. Project Rev. Bonds, Ser. A,
7.8s, 5/1/16 Aaa 1,035,980
10,910,000 MA State G.O. Bonds, Ser. A, AMBAC,
5 3/4s, 8/1/10 # Aaa 11,905,538
8,500,000 MA State Tpk. Auth. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 1/1/23 Aaa 8,351,250
1,000,000 MA State Cons. Loan G.O. Bonds, Ser. A,
7 5/8s, 6/1/08 Aaa 1,127,500
MA State G.O. Bonds
10,150,000 Ser. A, AMBAC, 6 1/2s, 11/1/14 Aaa 11,837,438
5,000,000 Ser. B, AMBAC, 6 1/4s, 7/1/20 Aaa 5,287,500
3,870,000 Ser. A, 6s, 11/1/11 A1 4,261,838
4,500,000 MA State Wtr. Poll. Abatement Rev. Bonds
(MWRA Loan Program), Ser. A, 5s, 8/1/15 Aa2 4,415,625
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s, 8/15/21 Aaa 2,355,000
6,000,000 (Beth Israel Hosp.), AMBAC, 9.289s, 7/1/25 Aaa 6,600,000
7,500,000 (Boston U.), Ser. L, MBIA, 8.46s, 10/1/31 Aaa 8,906,250
7,900,000 (New England Medical Ctr.), MBIA, 7.08s, 7/1/18 Aaa 7,900,000
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds
2,000,000 (1st Mtge. Fairview Extended Care), Ser. A,
10 1/4s, 1/1/21 AAA/P 2,390,000
5,465,000 (Goddard Memorial Hos.), Ser. B, 9s, 7/1/15 Baa3 6,127,631
2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BBB- 2,272,500
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 Baa2 4,706,875
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,389,188
3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba2 3,410,583
6,010,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 6,611,000
3,000,000 (Stonehill College Issue), Ser. D, AMBAC,
7.7s, 7/1/20 Aaa 3,311,250
2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 2,333,775
8,805,000 (Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 10,092,731
1,900,000 (Sisters Providence Hlth. Syst), Ser. A,
6 5/8s, 11/15/22 Baa2 2,023,500
1,550,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 Aaa 1,728,250
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6 1/2s, 11/15/18 Aaa 4,321,350
5,000,000 (Harvard U.), Ser. N, 6 1/4s, 4/1/20 Aaa 5,787,500
9,850,000 (MA General Hosp.), Ser. F, AMBAC,
6 1/4s, 7/1/12 Aaa 11,068,938
7,250,000 (Newton-Wellesley Hosp.), Ser. E, MBIA,
6s, 7/1/25 Aaa 7,612,500
4,250,000 (Boston College), Ser. K, 5 3/8s, 6/1/14 A1 4,366,875
6,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds
(Residential Dev.), FNMA Coll., 6.9s, 11/15/21 Aaa 6,375,000
MA State Indl. Fin. Agcy. Resource Recvy.
Rev. Bonds (Southeastern MA)
6,500,000 Ser. B, 9 1/4s, 7/1/15 BB-/P 7,385,625
3,410,000 Ser. A, 9s, 7/1/15 BB-/P 3,861,825
MA State Indl. Fin. Agcy. Rev. Bonds
2,775,000 (1st Mtge. Brookhaven-Lexington),
10 1/4s, 1/1/18 BBB-/P 2,871,515
2,000,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB-/P 2,132,500
6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 AAA/P 7,230,000
3,815,000 (Mass Tpk.), 9s, 10/1/20 AAA/P 4,353,869
1,835,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 Aaa 1,990,975
2,500,000 (Leominster Hosp.), Ser. A, 8 5/8s, 8/1/09 AAA/P 2,728,125
3,600,000 (Cape Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 4,095,000
3,000,000 (1st Mtge. Stone Institution & Newton),
7.9s, 1/1/24 B/P 3,240,000
5,140,000 (1st Mtge. Loomis & Village Projects),
7 5/8s, 7/1/25 BBB- 5,801,775
7,650,000 (Merrimack College), 7 1/8s, 7/1/12 AAA 8,663,625
3,000,000 (1st Mtge. Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 3,013,620
3,500,000 (1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB-/P 3,758,125
1,165,000 (Clark U.), Ser. E, 7s, 7/1/12 A3 1,262,569
2,605,000 (Clark U.), Ser. F, 7s, 7/1/11 A3 2,836,193
3,000,000 (1st. mtge. Brookhaven), Ser. A, 7s, 1/1/09 BBB-/P 3,236,250
5,875,000 (American Hingham, Wtr. Treatment),
6 3/4s, 12/1/25 BBB/P 6,256,874
6,000,000 (1st Mtge. Berkshire Retirement Home), Ser. A,
6 5/8s, 7/1/16 BBB 6,277,500
2,000,000 (1st Mtge. Brookhaven), Ser. B, 6.6s, 1/1/17 BBB-/P 2,062,500
1,350,000 (Worcester Visiting Nurse Assoc.), 6.4s, 9/15/10 A-/P 1,434,374
3,385,000 (Pk. School), 5.9s, 9/1/26 A3 3,507,706
2,000,000 (Babson College), Ser. A, 5 1/4s, 10/1/27 A3 1,955,000
3,000,000 (Worcester Polytechnical Institute), MBIA,
5 1/8s, 9/1/17 Aaa 2,962,500
1,985,677 (1st Mtge. Pioneer Valley Living Ctr.),
zero %, 10/1/20 B/P 2,482
MA State Wtr. Resources Auth. Rev. Bonds
7,500,000 Ser. A, 7s, 4/1/18 Aaa 8,118,750
10,000,000 Ser. A, 6 1/2s, 7/15/19 A 11,825,000
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 Aaa 2,958,000
Somerville, Hsg. Auth. Rev. Bonds
(Clarendon-Hill Mtge.)
2,000,000 GNMA Coll., 7.95s, 11/20/30 AAA 2,132,500
1,425,000 GNMA Coll., 7.85s, 11/20/10 AAA 1,521,187
1,600,000 U. Mass. Bldg. Auth. Rev. Bonds, Ser. A, 7 1/2s, 5/1/14 A1 1,655,631
3,050,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB-/P 3,370,250
Worcester Rev. Bonds (St. Francis Home)
2,000,000 9 3/4s, 7/1/19 BB/P 2,025,060
1,000,000 9.4s, 7/1/08 BB/P 1,000,560
--------------
349,920,466
Puerto Rico (6.8%)
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1,700,000 Cmnwlth. of PR, G.O. Bonds, 6 1/2s, 7/1/13 Baa1 1,989,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Y, 6 1/4s, 7/1/14 Baa1 1,131,250
2,925,000 Ser. Z, MBIA, 6 1/4s, 7/1/13 Aaa 3,363,750
5,000,000 Ser. W, 5 1/2s, 7/1/15 Baa1 5,200,000
5,000,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. BB, MBIA,
6 1/4s, 7/1/10 Aaa 5,693,750
2,600,000 PR Indl. Med. & Env. Poll. Control Fac. Fin. Auth.
Rev. Bonds (Special Facilities-American Airlines),
Ser. A, 6.45s, 12/1/25 Baa2 2,817,750
1,000,000 PR Pub. Bldg. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 1,122,500
5,000,000 PR Pub. Bldg. Auth. Rev. Gtd. (Govt. Fac.), Ser. B,
AMBAC, 5s, 7/1/27 Aaa 4,837,500
--------------
26,155,500
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Total Investments (cost $351,252,717) *** $376,075,966
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $386,528,168.
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at November 30, 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 November 30, 1997. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $351,252,814,
resulting in gross unrealized appreciation and depreciation of
$26,216,569 and $1,393,417, respectively, or net unrealized
appreciation of $24,823,152.
# A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at
November 30, 1997.
The rates shown on IFB, are securities paying interest rates
that vary inversely to changes in the market interest rates, at
November 30, 1997.
The fund had the following industry group concentrations greater
than 10% at November 30, 1997 (as a percentage of net assets):
Healthcare 27.9%
Transportation 12.2
Education 10.1
The fund had the following insurance concentrations greater
than 10% at November 30, 1997 (as a percentage of net assets):
AMBAC 14.2%
MBIA 12.4
</TABLE>
<TABLE>
<CAPTION>
Futures Contracts Outstanding at November 30, 1997 (Unaudited)
Unrealized
Market Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Bonds
20 Yr. (Short) $20,261,875 $19,804,813 Dec-97 $(457,062)
Municipal Bonds
Index (Long) 7,948,281 7,872,094 Dec-97 76,187
- ----------------------------------------------------------------------------------------
$(380,875)
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $351,252,717) (Note 1) $376,075,966
- ---------------------------------------------------------------------------------------------------
Cash 890,779
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 7,214,149
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 555,737
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 3,505,503
- ---------------------------------------------------------------------------------------------------
Total assets 388,242,134
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 13,906
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 701,468
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 153,644
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 571,122
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 60,122
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 7,867
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,120
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 164,728
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 39,989
- ---------------------------------------------------------------------------------------------------
Total liabilities 1,713,966
- ---------------------------------------------------------------------------------------------------
Net assets $386,528,168
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 368,308,973
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 63,022
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,286,201)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 24,442,374
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $386,528,168
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($286,339,064 divided by 30,005,496 shares) $9.54
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.54)* $10.02
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($97,847,174 divided by 10,262,346 shares)+ $9.53
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,341,930 divided by 245,579 shares) $9.54
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.54)** $9.86
- ---------------------------------------------------------------------------------------------------
* 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 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, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $11,967,698
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,138,612
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 196,695
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,582
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,312
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 285,291
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 389,717
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 6,481
- --------------------------------------------------------------------------------------------------
Reports to shareholders 11,685
- --------------------------------------------------------------------------------------------------
Registration fees 2,762
- --------------------------------------------------------------------------------------------------
Auditing 18,383
- --------------------------------------------------------------------------------------------------
Legal 12,894
- --------------------------------------------------------------------------------------------------
Postage 8,196
- --------------------------------------------------------------------------------------------------
Other 7,003
- --------------------------------------------------------------------------------------------------
Total expenses 2,086,613
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (49,516)
- --------------------------------------------------------------------------------------------------
Net expenses 2,037,097
- --------------------------------------------------------------------------------------------------
Net investment income 9,930,601
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,618,772
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Notes 1) (1,250,619)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures during the period 8,755,030
- --------------------------------------------------------------------------------------------------
Net gain on investments 9,123,183
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,053,784
- --------------------------------------------------------------------------------------------------
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
1997* 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- --------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------
Net investment income $ 9,930,601 $ 19,183,131
- --------------------------------------------------------------------------------------------------
Net realized gain on investments 368,153 874,982
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,755,030 6,717,772
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,053,784 26,775,885
- --------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------
From net investment income
- --------------------------------------------------------------------------------------------------
Class A (7,674,562) (15,338,843)
- --------------------------------------------------------------------------------------------------
Class B (2,155,402) (3,806,282)
- --------------------------------------------------------------------------------------------------
Class M (66,111) (145,040)
- --------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 8,937,293 34,185,964
- --------------------------------------------------------------------------------------------------
Total increase in net assets 18,095,002 41,671,684
Net assets
- --------------------------------------------------------------------------------------------------
Beginning of period 368,433,166 326,761,482
- --------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $63,022 and $28,496, respectively) 386,528,168 368,433,166
- --------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.31 $9.11 $9.21 $9.05 $9.55 $9.02
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .26 .52 .54 .55 .55 .59
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 .21 (.10) .18 (.35) .54
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .49 .73 .44 .73 .20 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.53) (.54) (.55) (.55) (.59)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.15) (.01)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.53) (.54) (.57) (.70) (.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.54 $9.31 $9.11 $9.21 $9.05 $9.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.27 * 8.17 4.81 8.45 1.92 12.80
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $286,339 $280,402 $259,934 $251,232 $244,519 $215,611
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47 * .96 .95 .89 .96 .97
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.71 * 5.67 5.80 6.11 5.69 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.61 * 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 July 15, 1993+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.30 $9.10 $9.20 $9.05 $9.71
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .46 .48 .49 .41
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .22 .21 (.11) .17 (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .45 .67 .37 .66 (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.47) (.47) (.49) (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- (.15)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.47) (.47) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.53 $9.30 $9.10 $9.20 $9.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.92 * 7.47 4.12 7.64 (1.15)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $97,847 $85,192 $65,538 $47,573 $23,017
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80 * 1.61 1.60 1.53 1.41 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.37 * 4.99 5.13 5.46 4.32 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.61 * 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 May 12, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $9.31 $9.10 $9.21 $9.10
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .50 .51 .02 (c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .23 .21 (.11) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .47 .71 .40 .14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.50) (.51) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.50) (.51) (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.54 $9.31 $9.10 $9.21
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 5.11 * 7.96 4.37 1.53 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,342 $2,839 $1,290 $22
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .62 * 1.26 1.24 .06 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.56 * 5.30 5.58 .30 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.61 * 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
November 30, 1997 (Unaudited)
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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the six months ended November 30, 1997, the
fund had no borrowings against the line of credit.
E) 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
F) 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. 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.
G) 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 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.
The fund reimburses Putnam Management an allocated amount 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 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, 1997, fund expenses were reduced by
$49,516 under expense offset arrangements with PFTC and brokerage service
arrangements. 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.
Each Trustee of the fund receives an annual Trustee fee, of which $470 has
been allocated to the fund, 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 has adopted a Trustee Fee Deferral Plan (the "Deferral 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
Deferral 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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $47,588 and $221 from the sale of
class A and class M shares, respectively and $109,176 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $5,308 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1997, purchases and sales of
investment securities other than short-term investments aggregated $65,454,550
and $59,148,121, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 2,510,191 $23,757,501
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 446,408 4,238,036
- ------------------------------------------------------------
2,956,599 27,995,537
Shares
repurchased (3,058,122) (28,981,425)
- ------------------------------------------------------------
Net decrease (101,523) $(985,888)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,577,224 $14,940,640
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 139,449 1,323,055
- ------------------------------------------------------------
1,716,673 16,263,695
Shares
repurchased (610,520) (5,776,880)
- ------------------------------------------------------------
Net increase 1,106,153 $10,486,815
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 58,670 $552,337
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,036 47,752
- ------------------------------------------------------------
63,706 600,089
Shares
repurchased (123,203) (1,163,723)
- ------------------------------------------------------------
Net decrease (59,497) $(563,634)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities 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
Global Growth and Income Fund
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 Total Return Fund
High Yield Trust +
Income Fund
Money Market 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 Exempt Money Market 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
State tax-free money market funds [SECTION MARK]
California, New York
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
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** 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.
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
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 the principal amount
invested.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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36884/SA047 1/98
