-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cle5U3N7SfPJMGK4uun1CUUyFgGrnVfCJmj1QJoIaVSCpowFbiheGXbaZpP1R66+ ytoLZO5OTYdFc/R0vF1gdg== 0000915707-96-000028.txt : 19960129 0000915707-96-000028.hdr.sgml : 19960129 ACCESSION NUMBER: 0000915707-96-000028 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960126 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II CENTRAL INDEX KEY: 0000792288 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046626127 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04518 FILM NUMBER: 96507573 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 617-292-14 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND /MA/ DATE OF NAME CHANGE: 19920609 N-30D 1 PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND SEMIANNUAL REPORT November 30, 1995 [LOGO] BOSTON * LONDON * TOKYO FUND HIGHLIGHTS "The fund's income emphasis and strong credit research capabilities continue to reward shareholders, even in this period of declining interest rates. In fact, credit upgrades on some of our high-yield hospital bond holdings added price appreciation to current income for a significant performance boost to the fund during the recent semiannual period." -- Triet M. Nguyen, manager, Putnam Massachusetts Tax Exempt Income Fund "[T]he upheaval in the muni market has created some great deals for investors who know where to look." -- Money, November 1995 CONTENTS 4 Report from Putnam Management 8 Fund performance summary 11 Portfolio holdings 17 Financial statements FROM THE CHAIRMAN DEAR SHAREHOLDER: [PHOTO OF GEORGE PUTNAM] (C) KARSH, OTTAWA TAX-EXEMPT BOND INVESTORS WILL LONG REMEMBER 1995 AS A YEAR OF HIGHS AND LOWS, EMOTIONALLY AS WELL AS IN THE MARKET. THE YEAR BEGAN AS THE BOND MARKET WAS COMING OFF ONE OF ITS WORST PERIODS IN RECENT MEMORY. JUST AS THINGS BEGAN TO LOOK BRIGHTER FOR TAX-EXEMPT BONDS, TALK IN WASHINGTON ABOUT TAX REFORM THREW A FRIGHT INTO INVESTORS. BY THE TIME PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND ENTERED ITS NEW FISCAL YEAR IN JUNE, INVESTORS HAD BEGUN TO REGAIN THEIR COMPOSURE, REALIZING THAT THE ENACTMENT OF ANY TAX-REFORM LEGISLATION WAS UNLIKELY TO OCCUR DURING AN ELECTION YEAR. AS THE FUND REACHED THE FISCAL YEAR'S MIDPOINT ON NOVEMBER 30, 1995, SHAREHOLDERS COULD LOOK BACK ON A PERIOD OF IMPRESSIVE RECOVERY. FURTHERMORE, BECAUSE OF THE EARLIER INTERRUPTION OVER TAX- REFORM PROPOSALS, FUND MANAGER TRIET M. NGUYEN BELIEVES THE RALLY WILL BE SUSTAINED DURING THE SECOND HALF OF FISCAL 1996 AS THE TAX-EXEMPT BOND MARKET CONTINUES TO MAKE UP LOST GROUND. HIS REPORT, WHICH FOLLOWS, PROVIDES MORE DETAILS. RESPECTFULLY YOURS, [SIGNATURE] GEORGE PUTNAM CHAIRMAN OF THE TRUSTEES JANUARY 17, 1996 REPORT FROM THE FUND MANAGER TRIET M. NGUYEN Putnam Massachusetts Tax Exempt Income Fund rewarded shareholders well during the recent semiannual period, as astute strategic moves and a rising municipal bond market contributed to strong returns. For the six months ended November 30, 1995, the fund provided shareholders with a total return of 5.65% for class A shares and 5.30% for class B shares, both at net asset value. STRONG RELATIVE PERFORMANCE: A MATTER OF PERSPECTIVE After overcoming a brief stall in midsummer, the broad fixed-income market continued its impressive run throughout the six months ended November 30, 1995. Increased investor confidence in the Federal Reserve Board's ability to thwart inflation and effectively manage economic growth over the long term fueled the gains of most fixed- income investments. Indeed, the rally had gained such momentum by period's end that the current yield on the benchmark 30-year Treasury bond seems to be fast approaching the historically low level of 5.79% reached in October 1993. On an absolute basis, municipal bonds participated in the rally's strength in a highly respectable fashion. However, their performance relative to taxable investments may appear somewhat lackluster. This is due to the fact that investors' lingering concerns about the perceived effects of the flat-tax proposal introduced in April -- which, in its purest form, would deprive municipal bonds of their beneficial tax treatment -- prevented your fund's investments from attaining the full price appreciation potential presented by the favorable investment environment. We prefer to note that in any good year, your fund's performance would have been quite satisfactory -- and even more so during 1994's bear market. Furthermore, on a tax-equivalent basis, a Massachusetts investor in the combined maximum federal and state income tax bracket of 46.85% would have had to earn 10.58%, 9.36%, and 10.03%, respectively, to match the 5.62%, 4.97%, and 5.33% current dividend rates your fund's class A, class B, and class M shares produced. EARLY CHANGES PAY OFF While a long-term commitment is essential to investment success, there is no question that making the right move at the right time can often produce exceptional short-term results. This was certainly the case with two timely portfolio shifts we made during the semiannual period. The first and most important shift was our decision to begin extending the portfolio's duration in the summer. Duration is a mathematical formula used to assess a portfolio's price volatility; the longer the duration, the greater the price appreciation when interest rates decline as they did over the past several months. When interest rates increase, prices decline. In July, the Federal Reserve Board cut short-term interest rates for the first time in nearly three years, and although the Fed took no additional action during the period, rates continued to trend lower in subsequent months. With a longer duration, the fund was well positioned to provide shareholders with solid income despite the decline in interest rates. At the same time, fund holdings appreciated handsomely, especially in the closing three months of the period when rates continued to fall and longer-term securities gained even more in value. PORTFOLIO QUALITY OVERVIEW 11/30/95 [PIE CHART] AAA AA A BBB BB B VMIG1 - --------------------------------------------------------------- 43.04% 0.91% 17.11% 20.43% 16.45% 1.23% 0.83% Based on portfolio market value as of 11/30/95 and will vary over time. Based on Standard and Poors rating terminology. While the fund has the flexibility to invest in higher-yielding lower-rated bonds, generally at least 75% of the portfolio will be investment grade. Investment-grade securities are those rated BBB or higher by Standard & Poors or Moodys Investors Service, Inc. Holdings will vary over time. Another timely strategy was the decision to liquidate some of our utility holdings at a profit for the fund. With Massachusetts legislators and utility commissioners now discussing industry deregulation, the market has been gripped by uncertainty. Although no laws have been enacted, some utility investments have been adversely affected. We will be watching this industry carefully, however, since utility securities are traditionally a very good source of income and change in any market sector often produces opportunities for astute investors. THE BENEFITS OF STRONG CREDIT RESEARCH In seeking to maximize the fund's after-tax returns, we rely heavily on Putnam's extensive credit research capabilities. Recently, numerous fund holdings have enjoyed credit upgrades that translated into price increases. One such holding, Cooley Dickinson Hospital, gained 22.72% in total return in just two months (September 29, 1995 - November 30, 1995). In the wave of mergers and acquisitions sweeping the health-care industry, Cooley Dickinson Hospital was purchased by the A-rated Mary Hitchcock System earlier this year. Shortly thereafter, the fund's high-yield Cooley Dickinson bonds were prerefunded as the hospital's new owners took advantage of lower interest rates to reduce their borrowing costs. In prerefunding, the issuer floats a second bond to raise funds to pay off an older issue -- in which your fund had invested -- at its first call date. Proceeds from the new bond are invested in top-quality instruments such as U.S. Treasury securities. Because of the safety of principal represented by these securities, the older prerefunded bond is generally considered to have a credit rating of AAA. Thus, your fund's holdings gained significant value in this transaction. FUNDAMENTALS SOUND, VALUATIONS APPEALING As we enter the second half of fiscal 1996, we expect conditions for investing in municipal securities to remain hospitable. Subsiding inflation, a benign interest rate environment, and decelerating economic growth seem likely to continue. While the debate over tax reform is probably the most critical factor that could influence tax- exempt bond performance over the next 12 months, most investors seem to have realized that changes are not likely to occur until after the 1996 presidential election. Even then, any revisions TOP INDUSTRY SECTORS* [BAR CHART] - ------------------------------------------------------ Hospitals and health care 38.0% Education 19.2% Transportation 12.1% Utilities/Water & Sewerage 7.3% Resource recovery 5.3% - ------------------------------------------------------ * Based on net assets as of 11/30/95. Holdings will vary over time. would most likely involve simplifications rather than a major overhaul of the entire system. In Massachusetts, low supply continues to boost the value of existing municipal securities, including those in your fund's portfolio. At the same time, investor demand has picked up with the easing of flat-tax concerns and should continue to do so as part of the reinvestment surge that usually occurs in December and January each year. With municipal bonds underperforming Treasuries during the recent semiannual period, we believe that buying opportunities exist and that there is good potential for further price appreciation. We intend to continue upgrading the portfolio's quality and will also be watching federal budget negotiations carefully, since changes in funding for research, Medicare, and Medicaid could be a concern for the Massachusetts economy. On balance, we remain cautiously optimistic, based on strong market fundamentals and favorable securities valuations. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 11/30/95, there is no guarantee the fund will continue to hold these securities in the future. PERFORMANCE SUMMARY PERFORMANCE SHOULD ALWAYS BE CONSIDERED IN LIGHT OF A FUND'S INVESTMENT STRATEGY. PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND IS DESIGNED FOR INVESTORS SEEKING A HIGH LEVEL OF CURRENT INCOME FREE FROM FEDERAL AND STATE INCOME TAX CONSISTENT WITH PRESERVATION OF CAPITAL. This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. TOTAL RETURN FOR PERIODS ENDED 11/30/95
CLASS A CLASS B CLASS M (10/23/89) (7/15/93) (5/12/95) NAV POP NAV CDSC NAV POP - ---------------------------------------------------------------------- 6 months 5.65% 0.63% 5.30% 0.30% 5.48% 1.95% - ---------------------------------------------------------------------- 1 year 19.53 13.85 18.78 13.78 -- -- - ---------------------------------------------------------------------- 5 years 55.93 48.42 -- -- -- -- Annual average 9.29 8.22 -- -- -- -- - ---------------------------------------------------------------------- Life of class 69.14 61.15 12.05 9.13 7.09 3.46 Annual average 8.98 8.12 4.90 3.74 -- -- - ---------------------------------------------------------------------- COMPARATIVE RETURNS FOR PERIODS ENDED 11/30/95 LEHMAN BROS. MUNICIPAL CONSUMER BOND INDEX PRICE INDEX - ---------------------------------------------------------------------- 6 months 5.18% 0.92% - ---------------------------------------------------------------------- 1 year 18.90 2.61 - ---------------------------------------------------------------------- 5 years 51.82 14.80 Annual average 8.71 2.80 - ---------------------------------------------------------------------- Life of class A 66.37 22.29 Annual average 8.69 3.35 - ---------------------------------------------------------------------- Life of class B 15.66 6.37 Annual average 6.30 2.63 - ---------------------------------------------------------------------- Life of class M 8.53 1.12 - ---------------------------------------------------------------------- Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions or for distribution fees prior to implementation of the class A distribution plan in 1990. Investment returns and principal value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 4.75% maximum sales charge for class A shares and 3.25% for class M shares. CDSC for class B shares assumes 5% maximum contingent deferred sales charge, declining to 1% in the sixth year. TOTAL RETURN FOR PERIODS ENDED 12/31/95 (most recent calendar quarter) CLASS A CLASS B CLASS M NAV POP NAV CDSC NAV POP - ---------------------------------------------------------------------- 1 year 17.86% 12.22% 17.14% 12.14% -- -- - ---------------------------------------------------------------------- 5 years 56.49 48.99 -- -- -- -- Annual average 9.37 8.30 -- -- -- -- - ---------------------------------------------------------------------- Life of class 70.83 62.77 13.14 10.20 8.15 4.47 Annual average 9.04 8.19 5.15 4.03 -- -- - ---------------------------------------------------------------------- Performance data represent past results, do not reflect future performance, and will differ for each share class. They do not take into account any adjustment for taxes payable on reinvested distributions. Investment returns and principal value fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 6 months ended 11/30/95 CLASS A CLASS B CLASS M - ---------------------------------------------------------------------- DISTRIBUTIONS (NO.) 6 6 6 - ---------------------------------------------------------------------- Income $0.269198 $0.238393 $0.253922 - ---------------------------------------------------------------------- Capital gains(1) -- -- -- TOTAL $0.269198 $0.238393 $0.253922 - ---------------------------------------------------------------------- SHARE VALUE: NAV POP NAV NAV POP - ---------------------------------------------------------------------- 5/31/95 $9.21 $9.67 $9.20 $9.21 $9.52 - ---------------------------------------------------------------------- 11/30/95 9.45 9.92 9.44 9.45 9.77 - ---------------------------------------------------------------------- CURRENT RETURN End of period - ---------------------------------------------------------------------- Current dividend rate(2) 5.62% 5.35% 4.97% 5.33% 5.16% Taxable equivalent(3) 10.58 10.07 9.36 10.03 9.70 - ---------------------------------------------------------------------- Current 30-day SEC yield(4) 5.27% 5.02% 4.64% 4.97% 4.80% Taxable equivalent(3) 9.92 9.44 8.73 9.35 9.03 - ---------------------------------------------------------------------- (1)Capital gains, if any, are taxable for federal and, in most cases, state tax purposes. For some investors, investment income may also be subject to the federal alternative minimum tax. Investment income may be Ssubject to state and local taxes. (2)Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. (3)Assumes maximum combined state and federal tax rates of 46.85%. Results for investors subject to lower tax rates would not be as advantageous. (4)Based on investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS CLASS A SHARES are generally subject to an initial sales charge. CLASS B SHARES may be subject to a sales charge upon redemption. CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. NET ASSET VALUE (NAV) is the value of the fund's assets, minus any liabilities, the liquidation preference and cumulative undeclared dividends paid on the remarketed preferred shares, divided by the number of outstanding common shares. PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 4.75% sales charge for class A shares and 3.25% for class M shares. CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. It is not possible to invest directly in an index. CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not represent an investment return. PORTFOLIO OF INVESTMENTS OWNED November 30, 1995 (Unaudited) KEY TO ABBREVIATIONS AMBAC -AMBAC Indemnity Corporation Connie-Lee -College Construction Loan Insurance Association FGIC -Financial Guaranty Insurance Company FNMA -Federal National Mortgage Association FSA -Financial Security Assurance GNMA -Government National Mortgage Association GO Bonds -General Obligation Bonds IFB -Inverse Floating Rate Bonds MBIA -Municipal Bond Investors Assurance Corporation VRDN -Variable Rate Demand Notes MUNICIPAL BONDS AND NOTES (97.5%)*
PRINCIPAL AMOUNT RATINGS** VALUE MASSACHUSETTS (86.2%) - ---------------------------------------------------------------------- $5,500,000 Agawam, Resource Recvy. Rev. Bonds (Springfield Resources Recvy. Project), 8 1/2s, 12/1/08 BBB$5,831,705 5,350,000 Boston, Hsg. Dev. Corp. Rev. Bonds, Ser. A, MBIA, 5 1/2s, 7/1/24 AAA 5,202,875 7,000,000 Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds (Harbor Elec. Energy Co. Project), 7 3/8s, 5/15/15 BBB 7,673,750 2,805,000 Boston, Indl. Dev. Fin. Auth. Indl. Rev. Bonds (Mass. College of Pharmacy), Ser. A, Connie-Lee, 5 1/4s, 10/1/26 AAA 2,647,219 1,305,000 Boston, Nursing Home Rev. Bonds (St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,450,181 7,935,000 Boston, Wtr. & Swr. Commn. Rev. Bonds, Ser. A, 5 3/4s, 11/1/13 A 8,182,969 5,000,000 City of Quincy IFB (Quincy Hosp.), FSA, 6.420s, 1/15/11 AAA 4,843,750 1,675,000 Holyoke, G.O. Bonds 9.85s, 11/1/08 Aaa 1,886,469 Lowell, G.O. Bonds 1,250,000 8.4s, 1/15/09 Baa 1,462,500 2,455,000 8.3s, 2/15/05 Aaa2,955,206 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS** VALUE MASSACHUSETTS (continued) - ---------------------------------------------------------------------- MA Bay Trans. Auth. Rev. Bonds $3,550,000 Ser. B, 6.2s, 3/1/16 A$3,878,375 3,400,000 (Gen. Trans. Syst.), Ser. B, AMBAC, 5 3/8s, 3/1/25 AAA 3,306,500 4,000,000 (Gen. Trans. Syst.), Ser. A, 5 1/2s, 3/1/12 A 4,070,000 1,000,000 MA College. Bldg. Auth. Project Rev. Bonds, Ser. A, 7.8s, 5/1/16 AAA 1,100,000 1,000,000 MA G.O. Cons. Loan Bonds, Ser. A, 7 5/8s, 6/1/08 AAA 1,173,750 1,665,000 MA State G.O. Bonds, Ser. D, FGIC, 5 1/8s, 11/1/10 AAA 1,650,431 MA State Hlth. & Edl. Fac. Auth. IFB 2,000,000 (St. Elizabeth's Hosp.), Ser. E, FSA, 9.380s, 8/15/21 AAA 2,305,000 6,500,000 (Boston U.), Ser. L, MBIA, 9.092s, 10/1/31 AAA 7,548,125 6,000,000 (Beth Israel Hosp.), AMBAC, 8.320s, 7/1/25 AAA 6,375,000 2,900,000 (New England Medical Ctr.), MBIA, 6.310s, 7/1/18 AAA 2,780,375 MA State Hlth. & Edl. Fac. Auth. Rev. Bonds 2,000,000 (1st Mtge. Fairview Extended Care), Ser. A, 10 1/4s, 1/1/21 BB/P 2,277,500 855,000 (Summerfield Nursing Home), Ser. A, 9 1/2s, 7/1/14 B/P 884,925 2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8 3/8s, 7/1/15 Baa 2,668,750 2,000,000 (Nichols College), Ser. B, 8 1/2s, 10/1/16 BBB 2,340,000 4,250,000 (Suffolk U.), Ser. A, 8 1/8s, 7/1/20 AAA 4,967,188 2,150,000 (Valley Regl. Hlth. Syst. Issue), Ser. B, 8s, 7/1/18 Aaa 2,515,500 3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,324,750 3,510,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7 7/8s, 8/15/24 BB/P 3,619,688 1,125,000 (Norwood Hosp.), Ser. E, 7 3/4s, 7/1/07 BB 1,127,813 3,000,000 (Stonehill College Issue), Ser. D, AMBAC 7.7s, 7/1/20 AAA 3,476,250 2,220,000 (MA Eye & Ear Infirmary), Ser. A, 7 3/8s, 7/1/11 Baa 2,225,550 1,155,000 (Cooley Dickinson Hosp. Issue), Ser. A, 7 1/8s, 11/15/18 AAA10,722,794 1,550,000 (Worcester Polytech Inst.) 6 5/8s, 9/1/17 A 1,666,250 3,880,000 (Metro. West Hlth. Inc.), Ser. C, 6 1/2s, 11/15/18 Baa 3,928,500 2,000,000 (Harvard U.), Ser. N, 6 1/4s, 4/1/20 AAA2,255,000 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS** VALUE MASSACHUSETTS (CONTINUED) - ---------------------------------------------------------------------- $4,850,000 (MA General Hosp.), Ser. F, AMBAC, 6 1/4s, 7/1/12 AAA$5,389,563 6,580,000 (Cooley Dickinson Hosp.), Ser. B, AMBAC, 5 1/2s, 11/15/25 AAA 6,456,625 5,500,000 (Boston College), Ser. K, 5 3/8s, 6/1/14 A 5,520,625 3,475,000 (Boston College), 5 1/4s, 6/1/23 A 3,331,656 1,000,000 (Wheaton College), Ser. C, 5 1/4s, 7/1/19 A 960,000 3,365,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 AAA 3,188,338 2,245,000 (Cooley Dickinson Hosp.), Ser. B, AMBAC, 5 1/2s, 11/15/18 AAA 2,222,550 6,000,000 MA State Hsg. Fin. Agcy. Rev. Bonds (Res. Dev.) FNMA Coll., 6.9s, 11/15/21 AAA 6,397,500 MA State Indl. Fin. Agcy. Res. Recvy. Rev. Bonds 6,500,000 (Southeastern MA Project), Ser. B, 9 1/4s, 7/1/15 BB/P 7,304,375 3,410,000 (Southeastern MA Project), Ser. A, 9s, 7/1/15 BB/P 3,819,200 MA State Indl. Fin. Agcy. Rev. Bonds 2,775,000 (1st Mtge. Brookhaven-Lexington), 10 1/4s, 1/1/18 AAA/P 3,191,250 1,900,000 (1st Mtge. Berkshire Retirement Home), 9 7/8s, 7/1/18 AAA/P 2,040,371 2,100,000 (Odd Fellows Home of MA), 9.6s, 1/1/15 BB/P 2,281,125 6,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 6,847,500 1,960,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8 3/4s, 7/1/11 AAA 2,258,900 2,500,000 (Leominster Hosp.), Ser. A, 8 5/8s, 8/1/09 AAA/P 2,912,500 3,600,000 (Cape Cod Hlth. Syst. Issue), 8 1/2s, 11/15/20 Aaa 4,329,000 3,000,000 (1st. Mtge. Stone Institution & Newton), 7.9s, 1/1/24 BB/P 3,195,000 3,500,000 (1st. Mtge. Evanswood Bethzatha), 7 7/8s, 1/15/20 BB/P 3,705,625 5,140,000 (1st. Mtge Loomis & Village Projects), 7 5/8s, 7/1/25 BBB 5,467,675 8,105,000 (Merrimack College), 7 1/8s, 7/1/12 BBB 8,733,138 3,000,000 (1st. Mtge. Pioneer), 7s, 10/1/20 B/P 2,955,000 3,500,000 (1st. Mtge. Brookhaven), Ser A, 7s, 1/1/15 BBB/P 3,591,875 1,165,000 (Clark U.), Ser E, 7s, 7/1/12 A/P 1,284,412 2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A/P2,891,550 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS** VALUE MASSACHUSETTS (continued) - ---------------------------------------------------------------------- $3,000,000 (Brookhaven 1st. mtge.), Ser. A, 7s, 1/1/09 BBB$3,101,250 5,875,000 (American Hingham, Water Treatment), 6 3/4s, 12/1/25 BBB 6,146,718 6,000,000 (1st Mtge. Berkshire Retirement Home), 6 5/8s, 7/1/16 BB 5,955,000 2,000,000 (1st Mtge. Brookhaven Project), Ser. B, 6.6s, 1/1/17 BBB/P 2,062,500 1,000,000 (Combined Jewish Philanthropies), AMBAC, 6 3/8s, 2/1/15 AAA 1,080,000 2,000,000 (Brooks School), 5.95s, 7/1/23 A 2,065,000 1,985,677 (1st. Mtge. Pioneer Valley Living Ctr.), zero %, 10/1/20+ B/P 2,482 3,905,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds (Mass Tpk.), 9s, 10/1/20 BBB/P 4,500,512 2,600,000 MA State VRDN Ser. B, 3 3/4s, 12/1/97 VMIGI 2,600,000 3,000,000 MA State Wtr. Poll. Abatement Rev. Bonds (MWRA Loan Program), Ser. A, 5s, 8/1/15 AA 2,850,000 MA State Wtr. Resources Auth. Rev. Bonds 1,000,000 Ser. A, 6 1/2s, 7/15/19 A 1,133,750 2,100,000 Ser. B, MBIA, 5 1/2s, 3/1/17 AAA 2,086,875 2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 AAA 2,845,625 Somerville, Hsg. Auth. Rev. Bonds (Clarendon-Hill Mtge.), GNMA Coll. 2,000,000 7.95s, 11/20/30 AAA 2,167,500 1,500,000 7.85s, 11/20/10 AAA 1,627,500 1,600,000 U. Mass. Bldg. Auth. Rev. Bonds, Ser. A, 7 1/2s, 5/1/14 A 1,754,000 1,755,000 Worcester City, Municipal Purpose G.O. Bonds, Ser. G, MBIA, 5.3s, 7/1/15 AAA 1,704,543 Worcester, Mtge. Rev. Bonds 3,100,000 (Briarwood Issue), 9 1/4s, 12/1/22 BB/P 3,406,125 1,350,000 (Shawmut Bank Letter Of Credit), 6.4s, 9/15/10 BBB/P 1,393,875 Worcester, Rev. Bonds (St. Francis Home) 2,000,000 9 3/4s, 7/1/19 BB/P 2,070,180 1,000,000 9.4s, 7/1/08 BB/P 1,019,910 ---------------- 276,173,336 MUNICIPAL BONDS AND NOTES PRINCIPAL AMOUNT RATINGS** VALUE PUERTO RICO (11.3%) - ---------------------------------------------------------------------- $6,040,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. Hwy. Rev. Bonds, Ser. X, FSA, 5 1/4s, 7/1/21 AAA$5,851,250 5,000,000 Puerto Rico Comnwlth. G.O Bonds, MBIA, 5 3/8s, 7/1/22 AAA 4,993,750 Puerto Rico Comnwlth. Hwy. & Trans. Auth. Hwy. Rev. Bonds 5,000,000 Ser. W, 5 1/2s, 7/1/15 A 4,968,750 2,100,000 Ser. X, 5s, 7/1/22 A 1,900,500 Puerto Rico Elec. Pwr. Auth. Rev. Bonds 5,000,000 Ser. Z, 5 1/4s, 7/1/21 A 4,756,250 5,200,000 Ser. Z, 5 1/2s, 7/1/16 A 5,102,500 2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds (Special Facilities- American Airlines), Ser. A, 8 3/4s, 12/1/25 Baa 2,707,562 1,000,000 Puerto Rico, Pub. Bldgs. Auth. Gtd. Rev. Bonds, Ser. K, 6 7/8s, 7/1/21 AAA 1,157,500 4,975,000 U. of Puerto Rico Rev. Bonds, Ser. M, MBIA, 5 1/4s, 6/1/25 AAA 4,863,063 - ---------------------------------------------------------------------- $36,301,125 - ---------------------------------------------------------------------- TOTAL INVESTMENTS (cost $291,289,860)*** $312,474,461 - ---------------------------------------------------------------------- NOTES * Percentages indicated are based on net assets of $320,570,386. *** The aggregate identified cost on a tax cost basis is $291,289,966, resulting in gross unrealized appreciation and depreciation of $22,281,210 and $1,096,715, respectively, or net unrealized appreciation of $21,184,495. ** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at November 30, 1995 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities at November 30, 1995. Securities rated by Putnam are indicated by "/P" and are not publicly rated. + Non-income-producing security. The rates shown on IFB's and VRDN's which are securities paying variable interest rates that vary inversely to changes in the market interest rates are the current interest rates at November 30, 1995, which are subject to change based on the terms of the security. The fund had the following industry group concentrations greater than 10% of net assets at November 30,1995: Hospitals/Health Care 38.0 Education 19.2 Transportation 12.1
STATEMENT OF ASSETS AND LIABILITIES November 30, 1995 (Unaudited) ASSETS - ---------------------------------------------------------------------- Investments in securities, at value (identified cost $291,289,860) (Note 1) $312,474,461 - ---------------------------------------------------------------------- Cash 462,871 - ---------------------------------------------------------------------- Receivable for securities sold 8,492,293 - ---------------------------------------------------------------------- Interest receivable 6,174,195 - ---------------------------------------------------------------------- Receivable for shares of the fund sold 582,102 - ---------------------------------------------------------------------- TOTAL ASSETS 328,185,922 LIABILITIES - ---------------------------------------------------------------------- Payable for shares of the fund repurchased 357,137 - ---------------------------------------------------------------------- Payable for securities purchased 5,899,766 - ---------------------------------------------------------------------- Distributions payable to shareholders 719,754 - ---------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 462,029 - ---------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 7,865 - ---------------------------------------------------------------------- Payable for administrative services (Note 2) 1,425 - ---------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 178 - ---------------------------------------------------------------------- Payable for distribution fees (Note 2) 125,133 - ---------------------------------------------------------------------- Other accrued expenses 42,249 - ---------------------------------------------------------------------- TOTAL LIABILITIES 7,615,536 - ---------------------------------------------------------------------- NET ASSETS $320,570,386 - ---------------------------------------------------------------------- REPRESENTED BY - ---------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $307,207,530 - ---------------------------------------------------------------------- Distributions in excess of net investment income (Note 1) (68,092) - ---------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (7,753,653) - ---------------------------------------------------------------------- Net unrealized appreciation of investments 21,184,601 - ---------------------------------------------------------------------- TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL SHARES OUTSTANDING $320,570,386 - ---------------------------------------------------------------------- COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE - ---------------------------------------------------------------------- Net asset value and redemption of class A shares ($262,796,545 divided by 27,807,464 shares) $9.45 - ---------------------------------------------------------------------- Offering price per share (100/95.25 of $9.45)* $9.92 - ---------------------------------------------------------------------- Net asset value and offering price of class B shares ($57,503,156 divided by 6,090,626 shares)+ $9.44 - ---------------------------------------------------------------------- Net asset value and offering price of class M shares ($270,685 divided by 28,654 shares) $9.45 - ---------------------------------------------------------------------- Offering price per share (100/96.75 of $9.45)** $9.77 - ---------------------------------------------------------------------- * 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.
STATEMENT OF OPERATIONS Six months ended November 30, 1995 (Unaudited) TAX EXEMPT INTEREST INCOME $10,232,147 - ---------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------- Compensation of Manager (Note 2) 909,927 - ---------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 163,653 - ---------------------------------------------------------------------- Compensation of Trustees (Note 2) 6,206 - ---------------------------------------------------------------------- Reports to shareholders 10,394 - ---------------------------------------------------------------------- Registration fees 12,671 - ---------------------------------------------------------------------- Auditing 13,981 - ---------------------------------------------------------------------- Legal 8,420 - ---------------------------------------------------------------------- Postage 16,963 - ---------------------------------------------------------------------- Administrative services (Note 2) 4,267 - ---------------------------------------------------------------------- Distribution fees--class A (Note 2) 252,450 - ---------------------------------------------------------------------- Distribution fees--class B (Note 2) 218,242 - ---------------------------------------------------------------------- Distribution fees--class M (Note 2) 301 - ---------------------------------------------------------------------- Other expenses 3,427 - ---------------------------------------------------------------------- TOTAL EXPENSES 1,620,902 - ---------------------------------------------------------------------- Expense reduction (Note 2) (132,928) - ---------------------------------------------------------------------- NET EXPENSES 1,487,974 - ---------------------------------------------------------------------- NET INVESTMENT INCOME 8,744,173 - ---------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 1,554,560 - ---------------------------------------------------------------------- Net realized loss on futures contracts (Notes 1 and 3) (960,035) - ---------------------------------------------------------------------- Net unrealized appreciation of investments during the period 7,552,888 - ---------------------------------------------------------------------- NET GAIN ON INVESTMENT TRANSACTIONS 8,147,413 - ---------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,891,586 - ----------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30 MAY 31 - ---------------------------------------------------------------------- 1995* 1995 - ---------------------------------------------------------------------- INCREASE IN NET ASSETS - ---------------------------------------------------------------------- Operations: - ---------------------------------------------------------------------- Net investment income $8,744,173 $16,618,595 - ---------------------------------------------------------------------- Net realized gain (loss) on investment transactions 594,525 (7,682,592) - ---------------------------------------------------------------------- Net unrealized appreciation of investments 7,552,888 13,419,888 - ---------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 16,891,586 22,355,891 - ---------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS - ---------------------------------------------------------------------- From net investment income: - ---------------------------------------------------------------------- class A (7,382,946) (14,766,465) - ---------------------------------------------------------------------- class B (1,327,810) (1,834,523) - ---------------------------------------------------------------------- class M (3,275) (73) - ---------------------------------------------------------------------- From net realized gains on investments: class A (57) -- - ---------------------------------------------------------------------- In excess of realized gain on investments - ---------------------------------------------------------------------- class A -- (449,070) - ---------------------------------------------------------------------- class B -- (65,122) - ---------------------------------------------------------------------- Increase from capital share transactions (Note 4) 13,566,499 26,049,687 - ---------------------------------------------------------------------- TOTAL INCREASE IN NET ASSETS 21,743,997 31,290,325 - ---------------------------------------------------------------------- NET ASSETS - ---------------------------------------------------------------------- Beginning of period 298,826,389 267,536,064 - ---------------------------------------------------------------------- END OF PERIOD (including distributions in excess of net investment income of $68,092 and $98,234, respectively) $320,570,386 $298,826,389 - ---------------------------------------------------------------------- * Unaudited
FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
FOR THE PERIOD MAY 12, 1995 SIX MONTHS (COMMENCEMENT SIX MONTHS YEAR ENDED OF OPERATIONS) ENDED ENDED NOVEMBER 30 TO MAY 31 NOVEMBER 30 MAY 31 - ---------------------------------------------------------------------- 1995* 1995** 1995* 1995 - ---------------------------------------------------------------------- CLASS M CLASS B - ---------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $9.21 $9.10 $9.20 $9.05 - ---------------------------------------------------------------------- INVESTMENT OPERATIONS Net investment income .26 .02 .24 .49 Net realized and unrealized gain (loss) on investments .23 .12 .24 .17 - ---------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS.49 .14 .48 .66 - ---------------------------------------------------------------------- LESS DISTRIBUTIONS: From net investment income (.25) (.03) (.24) (.49) From net realized gain on investments -- -- -- -- - ---------------------------------------------------------------------- In excess of net realized gain -- -- -- (.02) - ---------------------------------------------------------------------- TOTAL DISTRIBUTIONS (.25) (.03) (.24) (.51) - ---------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD$9.45 $9.21 $9.44 $9.20 - ---------------------------------------------------------------------- TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%)(b) 5.48(c) 1.53(c) 5.30(c) 7.64 NET ASSETS, end of period (in thousands) $271 $22 $57,503 $47,573 - ---------------------------------------------------------------------- Ratio of expenses to average net assets (%)(d) .62(c) .06(c) 0.80(c) 1.53 - ---------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 2.69(c) .30(c) 2.60(c) 5.46 - ---------------------------------------------------------------------- Portfolio turnover (%) 23.08(c) 47.53 23.08(c) 47.53 - ---------------------------------------------------------------------- FINANCIAL HIGHLIGHTS (continued) FOR THE PERIOD JULY 15, 1993 (COMMENCEMENT SIX MONTHS OF OPERATIONS) TO ENDED MAY 31 NOVEMBER 30 YEAR ENDED MAY 31 - -------------------------------------------------------------------------------- - -------------- 1994 1995* 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------- - -------------- CLASS A - -------------------------------------------------------------------------------- - -------------- $9.71 $9.21 $9.05 $9.55 $9.02 $8.70 $8.50 - -------------------------------------------------------------------------------- - -------------- .41 .27 .55 .55 .59 .61(a) .62(a) (.51) .24 .18 (.35) .54 .39 .20 - -------------------------------------------------------------------------------- - -------------- (.10) .51 .73 .20 1.13 1.00 .82 - -------------------------------------------------------------------------------- - -------------- (.41) (.27) (.55) (.55) (.59) (.61) (.62) (.15) -- -- (.15) (.01) (.07) -- - -------------------------------------------------------------------------------- - -------------- -- -- (.02) -- -- -- -- - -------------------------------------------------------------------------------- - -------------- (.56) (.27) (.57) (.70) (.60) (.68) (.62) - -------------------------------------------------------------------------------- - -------------- $9.05 $9.45 $9.21 $9.05 $9.55 $9.02 $8.70 - -------------------------------------------------------------------------------- - -------------- (1.15)(c) 5.65(c) 8.45 1.92 12.80 11.96 10.10 - -------------------------------------------------------------------------------- - -------------- $23,017 $262,797 $251,232 $244,519 $215,611 $149,011 $38,526 - -------------------------------------------------------------------------------- - -------------- 1.41(c) 0.48(c) .89 .96 .97 .88(a) .86(a) - -------------------------------------------------------------------------------- - -------------- 4.32(c) 2.94(c) 6.11 5.69 6.24 6.82(a) 7.27(a) - -------------------------------------------------------------------------------- - -------------- 36.20 23.08(c) 47.53 36.20 53.18 94.95(e) 123.29 - -------------------------------------------------------------------------------- - -------------- * Unaudited ** Per share net investment income for the period ended May 31, 1995 has been determined on the basis of the weighted average number of shares outstanding during the period. (a) Reflects an expense limitation. As a result, net investment income of the fund for the years ended May 31, 1992 and 1991 reflects per share expense reductions of approximately $0.01 and $0.02 respectively. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized (d) The ratio of expenses to average net assets for the period ended November 30, 1995 included amounts paid through expense offset arrangments. Prior period ratios exclude these amounts (See Note 2). (e) Portfolio turnover excludes the impact of assets received by the fund, then known as Putnam Massachusetts Tax Exempt Income Fund II, from the acquisition of Putnam Massachusetts Tax Exempt Income Fund.
NOTES TO FINANCIAL STATEMENTS November 30, 1995 (Unaudited) NOTE 1 SIGNIFICANT ACCOUNTING POLICIES Putnam Tax Exempt Income Fund, formerly Putnam Tax Exempt Income Fnd II (the "fund"), is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks as high a level of current income exempt from federal income tax and Massachusetts personal income tax as Putnam Management believes is consistent with preservation of capital by investing primarily in a portfolio of Massachusetts tax-exempt securities. The fund offers class A, class B and class M shares. The fund commenced its public offering of class M shares on May 12, 1995. Class A shares are sold with a maximum front-end sales charge of 4.75%. Class B shares, which convert to class A shares after 8 years do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class, including the distribution fees applicable to such class. Each votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Short-term tax-exempt investments having remaining maturities of 60 days or less are stated at amortized cost. B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security trans- actions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. C FUTURES AND OPTIONS CONTRACTS The fund may use futures and options contracts to hedge against changes in the values of securities the fund owns or expects to purchase. The fund may also write options on securities it owns or which it invests to increase its current returns. The potential risk to the fund is that the change in value of futures and options contracts may not correspond to the change in value of the hedged instruments. In addition, losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts, or if the counterparty to the contract is unable to perform. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. Exchange traded options are valued at the last sale price, or if no sales are reported, the last bid price for purchased options and the last ask price for written options. Options traded over-the-counter are valued using prices supplied by dealers. D FEDERAL TAXES It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. E DISTRIBUTIONS TO SHAREHOLDERS Income dividends are recorded daily by the fund and are distributed monthly. Capital gain distributions if any, are recorded on the ex-dividend date and paid annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discount on zero coupon and original issue discount bonds are accreted according to the effective yield-method. NOTE 2 MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS Compensation of Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.6% of the first $500 million of average net assets, 0.5% of the next $500 million, 0.45% of the next $500 million, and 0.4% of any amount over $1.5 billion, subject to reduction in any year by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of the Manager on the fund's portfolio transactions. The fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Trustees of the fund receive an annual Trustee's fee of $780 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. During the period ended November 30, 1995, the fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in the fund or in other Putnam funds until distribution in accordance with the Plan. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the period ended November 30, 1995, fund expenses were reduced by $132,928 under expense offset arrangements with PFTC. Investor servicing and custodian fees reported in the Statement of operations exclude these credits. The fund could have invested the assets utilized in connection with the expense offset arrangements in an income-producing asset if it had not entered into such arrangements. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.20%, 0.85% and 0.50% of the average net assets attributable to class A, class B and class M shares respectively. For the period ended November 30, 1995 , Putnam Mutual Funds Corp., acting as underwriter, received net commissions of $33,088 and $324 from the sale of class A shares and M shares, respectively, and received $80,424 in contingent deferred sales charges from redemption of class B shares. A deferred sales charge of up to 1% is assessed on certain redemption of class A shares. For the period ended November 30, 1995, Putnam Mutual Funds Cop., acting as an underwriter, received $1,421 on class A redemptions. NOTE 3 PURCHASES AND SALES OF SECURITIES During the period ended November 30, 1995, purchases and sales of investment securities other than short- term municipal obligations aggregated $85,036,652 and $68,919,432, respectively. Purchases and sales of short-term municipal obligations aggregated $16,100,000 and $20,000,000, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. NOTE 4 CAPITAL SHARES At November 30, 1995, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:
SIX MONTHS ENDED NOVEMBER 30 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS A SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 3,038,145 $27,918,904 Shares issued in connection with reinvestment of distributions 454,190 4,165,699 - ---------------------------------------------------------------------- 3,492,335 32,084,603 - ---------------------------------------------------------------------- Shares repurchased (2,959,468) (27,240,148) - ---------------------------------------------------------------------- NET INCREASE 532,867 $4,844,455 - ---------------------------------------------------------------------- YEAR ENDED MAY 31 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS A SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 5,201,533 $45,927,477 - ---------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 995,911 8,827,656 - ---------------------------------------------------------------------- 6,197,444 54,755,133 - ---------------------------------------------------------------------- Shares repurchased (5,929,229) (52,081,162) - ---------------------------------------------------------------------- NET INCREASE 268,215 $2,673,971 - ---------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS B SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 1,361,646 $12,518,877 - ---------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 87,253 799,884 - ---------------------------------------------------------------------- 1,448,899 13,318,761 - ---------------------------------------------------------------------- Shares repurchased (527,798) (4,837,585) - ---------------------------------------------------------------------- NET INCREASE 921,101 $8,481,176 - ---------------------------------------------------------------------- YEAR ENDED MAY 31 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS B SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 3,031,023 $26,913,769 Shares issued in connection with reinvestment of distributions 131,326 1,163,043 - ---------------------------------------------------------------------- 3,162,349 28,076,812 - ---------------------------------------------------------------------- Shares repurchased (535,729) (4,722,431) - ---------------------------------------------------------------------- NET INCREASE 2,626,620 $23,354,381 - ---------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS M SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 25,950 $237,556 - ---------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 359 3,312 - ---------------------------------------------------------------------- 26,309 240,868 - ---------------------------------------------------------------------- Shares repurchased -- -- - ---------------------------------------------------------------------- NET INCREASE 26,309 $240,868 - ---------------------------------------------------------------------- FOR THE PERIOD MAY 12, 1995 (COMMENCEMENT OF OPERATIONS) TO MAY 31 - ---------------------------------------------------------------------- 1995 - ---------------------------------------------------------------------- CLASS M SHARES AMOUNT - ---------------------------------------------------------------------- Shares sold 2,342 $21,309 Shares issued in connection with reinvestment of distributions 3 26 - ---------------------------------------------------------------------- 2,345 21,335 - ---------------------------------------------------------------------- Shares repurchased -- -- - ---------------------------------------------------------------------- NET INCREASE 2,345 $21,335 - ----------------------------------------------------------------------
OUR COMMITMENT TO QUALITY SERVICE CHOOSE AWARD-WINNING SERVICE Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the past five years. In 1994, over 80,000 tests of 55 shareholder service components demonstrated that Putnam outperformed the industry standard in every category. HELP YOUR INVESTMENT GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.* SWITCH FUNDS EASILY You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or terminations.) ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800-225- 1581. * Regular investing, of course, does not guarantee a profit or protect against a loss in a declining market. FUND INFORMATION INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Gary N. Coburn Vice President James E. Erickson Vice President Triet M. Nguyen Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President John D. Hughes Vice President and Treasurer Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Massachusetts Tax Exempt Income Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 Bulk Rate U.S. Postage PAID Putnam Investments 22194-845/236/258 1/96 APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND EDGAR-FILED TEXTS. (1) Rule lines for tables are omitted. (2) Italic typefaces is displayed in normal type. (3) Boldface type is displayed in capital letters. (4) Headers (e.g. the names of the fund) and footers (e.g. page numbers and OThe accompanying notes are an integral part of these financial statementsO) are omitted. (5) Because the printed page breaks are not reflected, certain tabular and columnar headings and symbols are displayed differently in this filing. (6) Bullet points and similar graphic symbols are omitted. (7) Page numbering is different. -----END PRIVACY-ENHANCED MESSAGE-----