Putnam
Massachusetts
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
This is the last letter to you and the other shareholders of Putnam
Massachusetts Tax Exempt Income Fund that I will be signing. After more
than 30 years as Chairman of the Trustees and President of the Putnam
Funds, the time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
In one final piece of news, I am pleased to announce the appointment of
Richard P. Wyke as your fund's manager. Rick is a senior portfolio manager
in the Municipal Bond Group. He has been with Putnam since 1987 and has 17
years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Manager
Richard P. Wyke
"The only argument available with an east wind is to put on your
overcoat." This statement, made more than a century ago by James Russell
Lowell, could have served as an apt mantra for bond investors during the
six months ended November 30, 1999. Throughout this period, inflation
fears, rising interest rates, and poor investor sentiment created some of
the worst investment conditions for bonds since 1994. A steepening of the
municipal bond yield curve, slackened demand, and a seasonal influx of new
issue supply further added to the downdraft in the municipal bond market.
During the semiannual period, we sought the most effective overcoats
available for your fund in the form of strategies that we believe enabled
it to avoid the brunt of the market's decline. Nevertheless, your fund's
six-month performance reflects the inhospitable investment environment.
Total return for 6 months ended 11/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------
-2.87% -7.47% -3.20% -7.92% -3.13% -6.30%
- -------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
* EMPHASIS PLACED ON DURATION AND YIELD CURVE STRATEGIES
Our investment decisions throughout this difficult period reflected our
desire to construct a portfolio that offers not only the right mix of
credit quality and yield but also a balance of defensive and opportunistic
strategies. To weather the market's volatility and structure the portfolio
for the next turn in the road, we paid particular attention to your fund's
average duration and the way in which holdings were positioned along the
yield curve.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 43.5%
Transportation 12.3%
Water & sewer 10.9%
Housing 9.0%
Education 8.4%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
Duration is a mathematical formula that indicates the degree to which bond
prices will move up or down with each percentage-point shift in interest
rates. A shorter duration typically helps preserve portfolio value when
rates rise, while a longer duration tends to give a fund greater price
appreciation potential when rates decline. The yield curve is a structure
that plots the difference in yields between bonds of the same quality with
different maturities.
At the fiscal year's outset, we kept your fund's duration profile
relatively short when interest rates were rising in earnest. We also kept
the bulk of the fund's net assets invested in 10-year maturity bonds. As
yields rose at the longer end of the yield curve, 10-year bonds declined
less in price than longer-maturity bonds.
Near the period's end, it seemed the worst of investors' fears had been
priced into the market. Therefore, we began to extend the portfolio's
duration slightly to better participate in a market rally in case the
historic "January effect" should take place -- as we anticipate. The
January effect refers to the historic tendency of investors to renew their
interest in bonds once a new calendar year -- for many institutional
investors a new fiscal year as well -- begins.
We have also begun to barbell, or cluster, your fund's assets in bonds at
both the short- and long-end of the yield curve. We believe a market rally
could lead to a flattening of the yield curve in which case a barbelled
structure would perform better.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 6.9%
A -- 15.3%
Baa/BBB -- 16.0%
Ba/BB -- 8.4%
B -- 0.8%
Aaa/AAA -- 52.6%
Footnote reads:
*Based on percentage of market value as of 11/30/99. A bond rated Baa/BBB
or higher is considered investment grade. All ratings reflect Moody's and
Standard & Poors' descriptions unless noted otherwise; percentages may
include unrated bonds considered by Putnam Management to be of comparable
quality. Ratings will vary over time.
* COUPON STRUCTURE ALSO PLAYS ROLE IN MANAGING VOLATILITY
Throughout the semiannual period, we emphasized premium coupon bonds and
discount coupon bonds. Premium coupon bonds -- those selling at prices
above their par, or face, values -- offer coupons higher than current
rates and tend to be less seriously affected when prices decline. Discount
coupon bonds, those selling at prices below their par value, are more
likely to increase in value during a market recovery. Given the uncertain
direction of interest rates as we enter the second half of fiscal 2000,
this dual positioning should provide your fund with both upside potential
and downside protection. We limited your fund's exposure to par bonds --
bonds priced at or near face value -- as these historically offer
lackluster performance potential over a range of interest-rate changes.
"Corrections are not only a natural part of any business cycle but frequently
bring about rewarding opportunities. We believe perspective and vision will
pay off."
- -- Richard Wyke, manager, Putnam Massachusetts Tax Exempt Income Fund
In the past decade, bond investing has become increasingly complex. In all
sectors of the broad fixed-income market, including the municipal arena,
new and esoteric ways of issuing and investing in debt obligations have
emerged. In order to maximize performance potential, continual scrutiny of
these securities is a must to determine whether or not they are worthy of
investment.
Thousands of projects financed by just two types of bonds
Municipal bonds are the most important means of financing thousands of
different public projects, but surprisingly, there are only two basic types
of bonds. General obligation bonds (Gos), secured by the full faith and
credit of the city or town, are repaid by either a limited or an unlimited
tax on property. Cities and towns usually issue general obligation bonds for
school, park, or public building projects. The voters in a community must
approve each issue of general obligation bonds.
Revenue bonds, on the other hand, are secured by fees derived from tolls,
charges, or rents paid by the users of the facility. Highways, bridges, and
water and sewage treatment plants are typical projects financed or improved
by revenue bond proceeds. Industrial revenue bonds are issued through an
industrial development authority to finance projects for a private user
(usually a corporation) that also guarantees repayment of the principal and
interest. Hospital, dormitory, airport, and housing projects are commonly
financed with industrial revenue bonds.
For example, a large number of municipal bonds were issued around the low in
yields, near the end of 1998. Since then yields have risen over 100 basis
points and many of those bonds have severely underperformed and are now priced
at a deep discount to par. For a new purchaser, these deep discounts may
generate some small amounts of taxable income and so there was even greater
downward pricing pressure to compensate for the potential taxation. Our
avoidance of new issue bonds from this 1998 time period was a key contributor
to your fund's attractive relative performance.
* OPPORTUNITIES IDENTIFIED IN SEVERAL SECTORS
We continually work to spread your fund's assets across various regions of
the state and its industries. At period's end, your fund's top industry
sectors were health care and transportation. Housing issues were by far
the strongest performing sector over the period.
A good portion of the fund's holdings are rated A or above and are
insured. However, the volatility of the past six months has presented us
with some attractive opportunities among the lower-quality sectors,
particularly in the health-care and special needs arena. Putnam's
intensive research capabilities have enabled us to invest in select
lower-quality issues whose yields we believe compensate your fund for
their added credit risk. With stricter Medicare reimbursement formulas and
a reduction in funding at all levels, the bond prices of several
fundamentally sound facilities became too compelling to ignore.
The Learning Center for Deaf Children is one newly purchased holding that
holds promise because of its specialized market niche. It provides
education for deaf and hearing-impaired children and young adults between
the ages of 2 and 22. It is the only school in Massachusetts to use
American Sign Language as the primary language of instruction and English
as a secondary language. While this holding and others discussed in this
report were viewed favorably during the period, all holdings are subject
to review in accordance with the fund's investment strategy and may vary
in the future.
* CONTINUED UNCERTAINTY LIKELY
The sharp contrasts and conflicting signals that characterized the
fixed-income market in calendar 1999 may well continue into 2000. Although
we believe the worst of inflation fears have already been priced into the
market, further volatility cannot be ruled out. Having said that, we are
optimistic about the long-term potential of municipal bonds and Putnam
Massachusetts Tax Exempt Income Fund. The Massachusetts economy reflects
the strength of the national economy, both on a corporate and government
level. When the bond market settles down, which we believe it should at
some point, the strategies we have in place should serve your fund well.
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 11/30/99, 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 high current income
free from federal and state income taxes, consistent with capital
preservation.
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------
6 months -2.87% -7.47% -3.20% -7.92% -3.13% -6.30%
- -----------------------------------------------------------------------------
1 year -2.15 -6.80 -2.81 -7.44 -2.46 -5.60
- -----------------------------------------------------------------------------
5 years 40.46 33.77 35.94 33.94 37.96 33.52
Annual average 7.03 5.99 6.33 6.02 6.65 5.95
- -----------------------------------------------------------------------------
10 years 96.42 87.00 82.06 82.06 88.99 82.93
Annual average 6.98 6.46 6.17 6.17 6.57 6.23
- -----------------------------------------------------------------------------
Life of fund 98.74 89.37 84.19 84.19 91.19 85.04
Annual average 7.04 6.53 6.23 6.23 6.63 6.28
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Lehman Bros. Consumer
Municipal Bond Index price index
- ------------------------------------------------------------------------------
6 months -1.87% 1.32%
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1 year -1.08 2.68
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5 years 43.85 12.49
Annual average 7.54 2.38
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10 years 97.86 33.76
Annual average 7.06 2.95
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Life of fund 101.32 34.08
Annual average 7.19 2.95
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. 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 11/30/99
Class A Class B Class M
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Distributions (number) 6 6 6
- -------------------------------------------------------------------------
Income $0.249426 $0.219013 $0.235119
- -------------------------------------------------------------------------
Capital gains1 -- -- --
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Total $0.249426 $0.219013 $0.235119
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Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------
5/31/99 $9.45 $9.92 $9.44 $9.45 $9.77
- -------------------------------------------------------------------------
11/30/99 8.93 9.38 8.92 8.92 9.22
- -------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------
Current dividend rate2 5.50% 5.24% 4.85% 5.20% 5.03%
- -------------------------------------------------------------------------
Taxable equivalent3 9.68 9.22 8.54 9.16 8.86
- -------------------------------------------------------------------------
Current 30-day SEC yield4 5.05 4.80 4.40 4.75 4.59
- -------------------------------------------------------------------------
Taxable equivalent3 8.89 8.45 7.75 8.36 8.08
- -------------------------------------------------------------------------
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 43.19% 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 12/31/99 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (5/12/95)
NAV POP NAV CDSC NAV POP
- --------------------------------------------------------------------------
6 months -2.39% -7.00% -2.72% -7.47% -2.43% -5.60%
- --------------------------------------------------------------------------
1 year -3.55 -8.13 -4.20 -8.76 -3.74 -6.84
- --------------------------------------------------------------------------
5 years 35.77 29.27 31.41 29.41 33.51 29.12
Annual average 6.31 5.27 5.62 5.29 5.95 5.24
- --------------------------------------------------------------------------
10 years 93.05 83.79 79.04 79.04 85.90 79.95
Annual average 6.80 6.28 6.00 6.00 6.40 6.05
- --------------------------------------------------------------------------
Life of fund 96.79 87.51 82.27 82.27 89.48 83.38
Annual average 6.87 6.36 6.07 6.07 6.47 6.13
- --------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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. See first
page of performance section for performance calculation method.
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 4.75% maximum 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 class B 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-end funds, a separate
table is provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999 (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
U.S. Govt. Coll. -- U.S. Government Collateralized
MUNICIPAL BONDS AND NOTES (98.0%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Guam (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 2,500,000 Guam, Pwr. Auth. Rev. Bonds, Ser. A, MBIA,
5 1/8s, 10/1/29 AAA $ 2,225,000
Massachusetts (92.9%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Boston, Indl. Dev. Fin. Auth. Rev. Bonds
(Springhouse, Inc.), 6s, 7/1/28 BB-/P 3,470,000
7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds
(Harbor Elec. Energy Co.), 7 3/8s, 5/15/15 Baa1 7,297,500
1,255,000 Boston, Nursing Home Rev. Bonds (St. Joseph
Nursing Care Ctr. Inc.), 10s, 1/1/20 AAA/P 1,298,323
7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds,
Ser. A, 5 3/4s, 11/1/13 A2 8,113,538
5,000,000 City of Quincy, IFB (Quincy Hosp.), FSA, 6.42s,
1/15/11 Aaa 4,981,250
Lowell G.O. Bonds
1,250,000 8.4s, 1/15/09 Aaa 1,325,000
2,455,000 8.3s, 2/15/05 Aaa 2,642,194
MA Bay Trans. Auth. Rev. Bonds
3,550,000 Ser. B, 6.2s, 3/1/16 A1 3,733,500
4,800,000 Ser. C, 6.1s, 3/1/23 A1 5,064,000
7,500,000 (Gen. Trans. Syst.), Ser. B, 5.9s, 6/1/24 A1 8,006,250
4,000,000 Ser. A, 5 1/2s, 3/1/12 A1 4,068,200
1,000,000 MA State Cons. Loan G.O. Bonds, Ser. A,
7 5/8s, 6/1/08 Aaa 1,068,750
MA State G.O. Bonds
5,075,000 AMBAC, 8.85s, 11/1/14 (acquired 5/11/98,
cost $6,660,937) (RES) Aa3 6,166,125
1,935,000 Ser. 25, 8.22s, 11/1/11 (acquired 8/13/98,
cost $2,401,141) (RES) Aa3 2,179,294
5,000,000 Ser. B, AMBAC, 6 1/4s, 7/1/20 Aaa 5,375,000
5,000,000 Ser. C, 5 1/4s, 8/1/15 Aa3 4,787,500
MA State Dev. Fin. Agcy. Rev. Bonds
3,420,000 (Lasell Village PJ), Ser. A, 6 3/8s, 12/1/25 BB-/P 3,090,825
1,300,000 (Worcester Redev. Auth. Issue), 6s, 6/1/24 AA 1,303,250
1,750,000 (Boston Biomedical Research), 5 3/4s, 2/1/29 Baa3 1,546,563
2,000,000 (Eastern Nazarine College), 5 5/8s, 4/1/29 BBB- 1,782,500
MA State Hlth. & Edl. Fac. Auth. IFB
2,000,000 (St. Elizabeth Hosp.), Ser. E, FSA, 10.17s, 8/15/21 Aaa 2,155,000
6,000,000 (Boston U.), Ser. L, MBIA, 9.289s, 10/1/31 Aaa 5,887,500
7,500,000 (Beth Israel-Deaconess Hosp.), AMBAC, 8.46s,
7/1/25 Aaa 8,062,500
7,900,000 (New England Medical Ctr.), MBIA, 7.08s, 7/1/18 Aaa 7,011,250
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 2,183,220
5,030,000 (Goddard Memorial Hos.), Ser. B, 9s, 7/1/15 Baa3 5,227,075
2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BB-/P 2,185,000
2,500,000 (Waltham-Weston Hosp. & Med. Ctr.),
Ser. B, 8 3/8s, 7/1/15 Baa3 2,610,750
4,250,000 (Suffolk U.), Ser. A, 8 1/8s, 7/1/20 Baa2 4,411,500
2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,241,956
5,810,000 (Rehab. Hosp. Cape & Islands), Ser. A,
7 7/8s, 8/15/24 BB/P 6,623,400
3,000,000 (Stonehill College), Ser. D, AMBAC, 7.7s, 7/1/20 Aaa 3,123,210
2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Ba1 2,364,300
8,405,000 (Rev. Cooley Dickinson Hosp.), 7 1/8s, 11/15/18 AAA/P 9,234,994
1,900,000 (Sisters Providence Hlth. Syst), Ser. A, 6 5/8s,
11/15/22 Aaa 2,071,000
1,550,000 (Worcester Polytech Inst.), Ser. E, 6 5/8s, 9/1/17 A2 1,668,188
3,880,000 (Metro West Hlth. Inc.), Ser. C, 6 1/2s, 11/15/18 Aaa 4,175,850
5,000,000 (Harvard U.), Ser. N, 6 1/4s, 4/1/20 Aaa 5,318,750
9,850,000 (MA Gen. Hosp.), Ser. F, AMBAC, 6 1/4s, 7/1/12 Aaa 10,724,188
1,000,000 (Learning Ctr. For Deaf Children), Ser. C,
6 1/8s, 7/1/29 BB 937,500
7,250,000 (Newton-Wellesley Hosp.), Ser. E, MBIA,
6s, 7/1/25 Aaa 7,250,000
4,500,000 (Caritas Christian Oblig. Group), Ser. A,
5 5/8s, 7/1/20 Baa2 3,875,625
3,665,000 (Williams College Issue), Ser. G, 5 1/2s, 7/1/14 AA+ 3,637,513
2,250,000 (Cap Cod Hlthcare), Ser. B, 5.45s, 11/15/23 BBB+ 1,940,625
3,000,000 (Jordan Hosp.), Ser. D, 5 3/8s, 10/1/28 BBB+ 2,512,500
4,250,000 (Boston College), Ser. K, 5 3/8s, 6/1/14 A1 4,154,375
3,000,000 (Partners Hlthcare Sys.), Ser. B, 5 1/4s, 7/1/11 A1 2,842,500
10,000,000 (MA Inst. of Tech.), Ser. I-1, 5.2s, 1/1/28 (SEG) Aaa 9,025,000
10,915,000 (Boston College), Ser. L, 4 3/4s, 6/1/31 Aa3 8,677,425
MA State Hsg. Fin. Agcy. Rev. Bonds
6,000,000 (Residential Dev.), Ser. C, FNMA Coll.,
6.9s, 11/15/21 Aaa 6,352,500
2,000,000 (Residential Dev.), Ser. E, FNMA Coll.,
6 1/4s, 11/15/12 Aaa 2,095,000
5,000,000 Ser. C, AMBAC, 5 5/8s, 7/1/40 Baa2 4,581,250
MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds
(Southeastern MA)
6,500,000 Ser. B, 9 1/4s, 7/1/15 BB- 7,028,125
3,410,000 Ser. A, 9s, 7/1/15 BB-/P 3,678,538
MA State Indl. Fin. Agcy. Rev. Bonds
1,900,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 AAA/P 1,945,980
6,000,000 (Orchard Cove Inc.), U. S. Govt. Coll., 9s, 5/1/22 AAA/P 6,772,500
3,705,000 (MA Tpk.), 9s, 10/1/20 AAA/P 3,912,925
3,600,000 (Cape Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 3,822,588
3,000,000 (1st Mtge. Stone Institution & Newton),
7.9s, 1/1/24 B/P 3,108,750
5,140,000 (1st Mtge. Loomis & Village), 7 5/8s, 7/1/25 AAA 5,943,125
7,055,000 (Merrimack College), 7 1/8s, 7/1/12 AAA 7,654,675
3,500,000 (1st Mtge. Brookhaven), Ser. A, 7s, 1/1/15 BBB/P 3,653,125
1,165,000 (Clark U.), Ser. E, 7s, 7/1/12 A3 1,227,619
2,605,000 (Clark U.), Ser. F, 7s, 7/1/11 A3 2,758,044
3,000,000 (1st. mtge. Brookhaven), Ser. A, 7s, 1/1/09 BBB/P 3,168,750
5,875,000 (American Hingham, Wtr. Treatment),
6 3/4s, 12/1/25 BBB/P 6,080,625
6,000,000 (1st Mtge. Berkshire Retirement Home),
Ser. A, 6 5/8s, 7/1/16 BBB 6,120,000
2,000,000 (1st Mtge. Brookhaven), Ser. B, 6.6s, 1/1/17 BBB/P 2,002,080
1,650,000 (Wentworth Inst. of Tech.), 5 3/4s, 10/1/28 Baa1 1,536,563
1,255,000 (Worcester Visiting Nurse Assoc.), 6.4s, 9/15/10 A-/P 1,275,394
3,385,000 (Park. School), 5.9s, 9/1/26 A3 3,296,144
2,000,000 (Babson College), Ser. A, MBIA, 4 3/4s, 10/1/28 Aaa 1,635,000
12,250,000 (Tufts U.), Ser. H, MBIA, 4 3/4s, 2/15/28 Aaa 10,045,000
MA State Tpk. Auth. Rev. Bonds
5,000,000 (Metropolitan Hwy. Syst.), Ser. A, 5 1/4s, 1/1/29 Aaa 4,475,000
17,500,000 Ser. A, MBIA, 5s, 1/1/37 Aaa 14,721,875
7,000,000 MA State Wtr. Pollution Abatement Rev. Bonds
(Pool Program), Ser. 5, 5 3/8s, 8/1/27 AAA 6,492,500
MA State Wtr. Resources Auth. Rev. Bonds
7,500,000 Ser. A, 7s, 4/1/18 Aaa 7,725,000
10,000,000 Ser. A, 6 1/2s, 7/15/19 A2 10,748,400
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 A3 2,794,179
9,200,000 Ser. A, FSA, 4 3/4s, 8/1/37 Aaa 7,348,500
Somerville, Hsg. Auth. Rev. Bonds
(Clarendon-Hill Mtge.), GNMA Coll.
2,000,000 7.95s, 11/20/30 AAA 2,055,340
1,285,000 7.85s, 11/20/10 AAA 1,320,929
2,985,000 Worcester Mtge. Rev. Bonds (Briarwood Issue),
9 1/4s, 12/1/22 BB-/P 3,294,694
--------------
370,102,973
Puerto Rico (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
Cmnwlth. of PR, G.O. Bonds
1,700,000 FSA, 6 1/2s, 7/1/13 AAA 1,904,000
4,000,000 5 1/2s, 7/1/10 Baa1 4,095,000
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
2,925,000 Ser. Y, MBIA, 6 1/4s, 7/1/13 Aaa 3,180,938
5,000,000 Ser. W, MBIA, 5 1/2s, 7/1/15 Aaa 5,012,500
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 Aaa 2,655,250
1,000,000 PR Pub. Bldg. Auth. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 Aaa 1,078,742
--------------
17,926,430
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $392,416,304) (b) $ 390,254,403
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $398,282,329.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1999 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, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $392,416,240, resulting in gross unrealized appreciation and
depreciation of $13,796,644 and $15,958,481, respectively, or net unrealized depreciation of $2,161,837.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
November 30, 1999 was $8,345,419 or 2.1% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at November 30, 1999.
The rates shown on IFB, 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, 1999.
The fund had the following industry group concentrations greater than 10% at November 30, 1999 (as a percentage of
net assets):
Health care 43.5%
Transportation 12.3
Water and sewer 10.9
The fund had the following insurance concentrations greater than 10% at November 30, 1999 (as a percentage of net
assets):
MBIA 14.5%
AMBAC 10.1
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1999
Total Aggregate Face Expiration Unrealized
Market Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Index (long) $11,220,000 $11,412,239 Dec-99 $(192,239)
Municipal Index (long) 5,333,063 5,336,403 Mar-00 (3,340)
- -------------------------------------------------------------------------------
$(195,579)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $392,416,304) (Note 1) $390,254,403
- -----------------------------------------------------------------------------------------------
Cash 1,964,371
- -----------------------------------------------------------------------------------------------
Interest and other receivables 7,694,505
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 449,127
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 35,000
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 65,407
- -----------------------------------------------------------------------------------------------
Total assets 400,462,813
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 756,776
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 680,668
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 503,228
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 15,088
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 11,551
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,085
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 180,163
- -----------------------------------------------------------------------------------------------
Other accrued expenses 31,925
- -----------------------------------------------------------------------------------------------
Total liabilities 2,180,484
- -----------------------------------------------------------------------------------------------
Net assets $398,282,329
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $408,270,229
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (218,484)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (7,411,936)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,357,480)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $398,282,329
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($274,248,815 divided by 30,724,438 shares) $8.93
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.93)* $9.38
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($118,476,493 divided by 13,284,949 shares)+ $8.92
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($5,557,021 divided by 622,693 shares) $8.92
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.92)** $9.22
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 12,825,063
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,062,721
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 194,230
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,258
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,669
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 285,559
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 513,057
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 13,677
- -----------------------------------------------------------------------------------------------
Reports to shareholders 5,174
- -----------------------------------------------------------------------------------------------
Auditing 22,703
- -----------------------------------------------------------------------------------------------
Legal 2,919
- -----------------------------------------------------------------------------------------------
Postage 11,587
- -----------------------------------------------------------------------------------------------
Other 22,512
- -----------------------------------------------------------------------------------------------
Total expenses 2,143,066
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (102,825)
- -----------------------------------------------------------------------------------------------
Net expenses 2,040,241
- -----------------------------------------------------------------------------------------------
Net investment income 10,784,822
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (573,328)
- -----------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 13,460
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the period (23,020,385)
- -----------------------------------------------------------------------------------------------
Net loss on investments (23,580,253)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(12,795,431)
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 10,784,822 $ 20,666,067
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (559,868) (1,175,225)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (23,020,385) (5,834,626)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (12,795,431) 13,656,216
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (7,785,091) (15,623,127)
- ---------------------------------------------------------------------------------------------------------------
Class B (2,894,987) (5,275,795)
- ---------------------------------------------------------------------------------------------------------------
Class M (140,828) (164,850)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (4,346,705) 31,754,164
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (27,963,042) 24,346,608
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 426,245,371 401,898,763
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $218,484 and
$182,400, respectively) $398,282,329 $426,245,371
- ---------------------------------------------------------------------------------------------------------------
* 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
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.45 $9.61 $9.31 $9.11 $9.21 $9.05
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .25 .49 .51 .52 .54 .55
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.52) (.15) .30 .21 (.10) .18
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.27) .34 .81 .73 .44 .73
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.50) (.51) (.53) (.54) (.55)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- -- -- (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.50) (.51) (.53) (.54) (.57)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.93 $9.45 $9.61 $9.31 $9.11 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.87)* 3.60 8.86 8.17 4.81 8.45
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $274,249 $298,243 $293,978 $280,402 $259,934 $251,232
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .42* .97 .95 .96 .95 .89
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.72* 5.11 5.33 5.67 5.80 6.11
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.47* 9.42 31.13 19.12 34.57 47.53
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.44 $9.61 $9.30 $9.10 $9.20 $9.05
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .43 .45 .46 .48 .49
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.52) (.16) .30 .21 (.11) .17
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.30) .27 .75 .67 .37 .66
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.44) (.44) (.47) (.47) (.49)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- -- -- (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.44) (.47) (.47) (.51)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.92 $9.44 $9.61 $9.30 $9.10 $9.20
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.20)* 2.81 8.27 7.47 4.12 7.64
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $118,476 $122,654 $105,351 $85,192 $65,538 $47,573
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .75* 1.62 1.60 1.61 1.60 1.53
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.40* 4.47 4.67 4.99 5.13 5.46
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.47* 9.42 31.13 19.12 34.57 47.53
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.45 $9.61 $9.31 $9.10 $9.21 $9.10
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 .46 .48 .50 .51 .02(c)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.53) (.15) .30 .21 (.11) .12
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.29) .31 .78 .71 .40 .14
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.47) (.48) (.50) (.51) (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
In excess of net
realized gain -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.47) (.48) (.50) (.51) (.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.92 $9.45 $9.61 $9.31 $9.10 $9.21
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.13)* 3.29 8.55 7.96 4.37 1.53*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,557 $5,349 $2,570 $2,839 $1,290 $22
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .57* 1.27 1.25 1.26 1.24 .06*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.58* 4.81 5.05 5.30 5.58 .30*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 6.47* 9.42 31.13 19.12 34.57 47.53
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total 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, 1999 (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 ("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 higher than class A shares but lower than class B
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
of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period.
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. Restricted
securities are stated at fair value following procedures approved by the
Trustees. Such valuations and procedures are reviewed periodically by the
Trustees.
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). Gains or losses on securities sold are determined on
the identified cost basis. 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) 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,
1999, the fund had a capital loss carryover of approximately $3,728,000
available to offset future net capital gain, if any. The amount of the
carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- ------------
$1,126,000 May 31, 2003
2,014,000 May 31, 2004
588,000 May 31, 2007
E) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid 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.
F) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. Discounts on original issue
discount are accreted according to the yield-to-maturity basis.
G) 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, 1999, the fund had no borrowings against the line of
credit.
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% thereafter.
On June 4, 1999, the Trustees approved a management fee schedule which
became effective July 1, 1999, based upon the lesser of (i) an annual rate
of 0.50% of the average net asset value of the fund or (ii) the initial
tiers mentioned above.
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, 1999, fund expenses were reduced by
$102,825 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.
Each Trustee of the fund receives an annual Trustee fee, of which $579 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. 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
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 a 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 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, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $33,079 and $926 from
the sale of class A and class M shares, respectively and $153,796 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, 1999, Putnam Mutual
Funds Corp., acting as underwriter received $1,221 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $25,759,353 and $26,685,537, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,143,597 $ 19,490,908
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 479,439 4,360,166
- -----------------------------------------------------------------------------
2,623,036 23,851,074
Shares
repurchased (3,456,896) (31,435,622)
- -----------------------------------------------------------------------------
Net decrease (833,860) $ (7,584,548)
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 4,428,064 $ 42,583,002
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 897,278 8,622,349
- -----------------------------------------------------------------------------
5,325,342 51,205,351
Shares
repurchased (4,345,147) (41,754,222)
- -----------------------------------------------------------------------------
Net increase 980,195 $ 9,451,129
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,375,499 $12,547,834
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 187,504 1,704,197
- -----------------------------------------------------------------------------
1,563,003 14,252,031
Shares
repurchased (1,268,463) (11,520,794)
- -----------------------------------------------------------------------------
Net increase 294,540 $ 2,731,237
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 3,303,119 $ 31,731,900
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 330,361 3,172,011
- -----------------------------------------------------------------------------
3,633,480 34,903,911
Shares
repurchased (1,610,664) (15,460,661)
- -----------------------------------------------------------------------------
Net increase 2,022,816 $ 19,443,250
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 610,650 $ 5,651,688
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,778 61,686
- -----------------------------------------------------------------------------
617,428 5,713,374
Shares
repurchased (560,929) (5,206,768)
- -----------------------------------------------------------------------------
Net increase 56,499 $ 506,606
- -----------------------------------------------------------------------------
Year ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,188,317 $11,361,770
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 12,069 115,843
- -----------------------------------------------------------------------------
1,200,386 11,477,613
Shares
repurchased (901,684) (8,617,828)
- -----------------------------------------------------------------------------
Net increase 298,702 $ 2,859,785
- -----------------------------------------------------------------------------
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Richard P. Wyke
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA047-57657 845/236/258 1/00
