N-CSR 1 a_mataxexempt.htm PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND a_mataxexempt.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: (811- 04518)

Exact name of registrant as specified in charter: Putnam Massachusetts Tax Exempt Income Fund

Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109

Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
 
Copy to:  John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  One International Place 
  Boston, Massachusetts 02110 
 
Registrant’s telephone number, including area code:  (617) 292-1000 

Date of fiscal year end: May 31, 2007

Date of reporting period: June 1, 2006— May 31, 2007

Item 1. Report to Stockholders:

The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Investment Company Act of 1940:


What makes Putnam different?

A time-honored tradition in money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meet its objectives.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their financial representatives can build diversified portfolios.

A commitment to doing what’s right for investors

We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.

Industry-leading service

We help investors, along with their financial representatives, make informed investment decisions with confidence.


In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible money management.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.

Putnam
Massachusetts
Tax Exempt
Income Fund

5| 31| 07

Annual Report

Message from the Trustees  1 
About the fund  2 
Performance and portfolio snapshots  4 
Report from the fund managers  5 
Performance in depth  9 
Expenses  12 
Portfolio turnover  14 
Risk  14 
Your fund’s management  15 
Terms and definitions  17 
Trustee approval of management contract  18 
Other information for shareholders  22 
Financial statements  23 
Federal tax information  38 
Shareholder meeting results  39 
About the Trustees  40 
Officers  44 

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder:

Reflecting investor uncertainty about the outlook for the U.S. economy, volatility in the financial markets has been on the rise. After a downturn in March, the Dow Jones Industrial Average recently reached new record-high levels. The upward climb in the stock market has been largely unaffected by higher-trending interest rates since mid-May, though it remains to be seen whether current stock market levels are sustainable. From our perspective, we are encouraged by recent indications of moderate inflation, a low unemployment rate, and a rebound in manufacturing. We consequently believe the U.S. economy will weather this period of uncertainty.

As we communicated in proxy materials recently mailed to all Putnam fund shareholders, on February 1, 2007, Marsh & McLennan Companies, Inc. announced that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc. Great-West Lifeco is a financial services holding company with operations in Canada, the United States, and Europe and is a member of the Power Financial Corporation group of companies. We are pleased to announce that in mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While it is still subject to regulatory approvals and other conditions, we currently expect the transaction to be completed this summer.

We would also like to take this opportunity to announce that Putnam President and Chief Executive Officer Ed Haldeman, one of your fund’s Trustees since 2004, has been named President of the Funds, assuming this role from George Putnam, III. This change will enable George Putnam to become an independent Trustee of the funds upon completion of the transaction with Great-West Lifeco. Both George and Ed will continue serving on the Board of Trustees in our collective role of overseeing the Putnam funds on your behalf.

In the following pages, members of your fund’s management team discuss the fund’s performance and strategies for the fiscal year ended May 31, 2007, and provide their outlook for the months ahead. As always, we thank you for your support of the Putnam funds.


Putnam Massachusetts Tax Exempt Income Fund:
potential for tax-advantaged income

Municipal bonds finance important public projects such as schools, roads, and hospitals, and they can help investors keep more of their investment income. Municipal bonds are typically issued by states and local municipalities to raise funds for building and maintaining public facilities, and they offer income that is generally exempt from federal income tax.

For residents of the state where the bond is issued, income is typically exempt from state and any local income taxes as well. While the stated yields on municipal bonds are usually lower than those on taxable bonds, state tax exemption is a powerful advantage because state income tax can erode investment income significantly. And the sheer size of the Massachusetts municipal bond market provides a wide array of investment opportunities.

Putnam Massachusetts Tax Exempt Income Fund seeks to capitalize on investment opportunities in Massachusetts by investing in bonds across a range of market sectors. The fund also combines bonds of differing credit quality to increase income potential. In addition to investing in high-quality bonds, the fund’s management team allocates a smaller portion of the portfolio to lower-rated bonds, which may offer higher income in return for more risk.

When deciding whether to invest in a bond, the fund’s management team considers the risks involved —including credit risk, interest-rate risk, and the risk that the bond will be prepaid. The management team is backed by the resources of Putnam’s fixed-income organization, one of the largest in the investment industry, in which municipal bond analysts are grouped into sector teams and conduct ongoing, rigorous research. Once a bond has been purchased, the team continues to monitor developments that affect the bond market, the sector, and the issuer of the bond.

The goal of the fund’s in-depth research and active management is to stay a step ahead of the industry and pinpoint opportunities to adjust the fund’s holdings for the benefit of the fund and its shareholders.

The fund concentrates its investments by region and involves more risk than a fund that invests more broadly. Capital gains, if any, are taxable for federal and, in most cases, state purposes. For some investors, investment income may be subject to the federal alternative minimum tax. Tax-free funds may not be suitable for IRAs and other non-taxable accounts. Please consult with your tax advisor for more information. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.

Understanding tax-equivalent yield

To understand the value of tax-free income, it is helpful to compare a municipal bond’s yield with the “tax-equivalent yield” — the before-tax yield that must be offered by a taxable bond in order to equal the municipal bond’s yield after taxes.

How to calculate tax-equivalent yield: The tax-equivalent yield equals the municipal bond’s yield divided by “one minus the tax rate.” For example, if a municipal bond’s yield is 5%, then its tax-equivalent yield is 7.7%, assuming the maximum 35% federal tax rate for 2007.


Results for investors subject to lower tax rates would not be as advantageous.

Municipal bonds may finance a range of projects in your
community and thus play a key role in its development.


Performance and portfolio snapshots

Putnam Massachusetts
Tax Exempt Income Fund

Average annual return (%) comparison as of 5/31/07

The fund – class A shares before sales charge

Putnam Massachusetts Tax Exempt Income Fund

Fund’s benchmark

Lehman Municipal Bond Index

Fund’s Lipper peer group average

Lipper Massachusetts Municipal Debt Funds


Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will fluctuate, and you may have a gain or a loss when you sell your shares. Performance of class A shares assumes reinvestment of distributions and does not account for taxes. Fund returns in bar chart do not reflect a sales charge. See page 9 for additional performance information. A 1% short-term trading fee may apply. To obtain the most recent month-end performance, visit www.putnam.com.

“We believe that amid current market
conditions, high-quality bonds have more
attractive prospects than high-yield bonds,
which have had a strong run in recent years.”

Thalia Meehan, Portfolio Leader, Putnam Massachusetts Tax Exempt Income Fund


Credit qualities shown as a percentage of portfolio value as of 5/31/07. A bond rated Baa or higher (MIG3/VMIG3 or higher, for short-term debt) is considered investment grade. The chart reflects Moody’s ratings; percentages may include bonds not rated by Moody’s but considered by Putnam Management to be of comparable quality. Ratings will vary over time.

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Report from the fund managers

The year in review

We are pleased to report that your fund posted competitive returns for its 2007 fiscal year, which ended May 31, 2007. Based on results before sales charges, the fund outperformed the average return for its Lipper peer group, Massachusetts Municipal Debt Funds. The fund benefited substantially from a strategy of favoring “new money” bonds — bonds that are newly issued and that have the ability to be pre-refunded, which can enhance their appreciation potential. During the period, several major pre-refundings of portfolio holdings resulted in credit upgrades and price appreciation. Other contributors to performance included the fund’s holdings in Puerto Rico bonds, which had declined in price but subsequently recovered, and an overweight position (relative to the peer group average) in tobacco settlement bonds, which gained value during the period. However, your fund’s performance lagged that of its benchmark, the Lehman Municipal Bond Index. While the benchmark is nationally diversified and thus has exposure to the strongest-performing municipal bond markets in the country, this underperformance also reflects our defensive stance regarding portfolio duration, which limited the fund’s ability to benefit from the decline in long-term interest rates during the period. During the fund’s fiscal year, the economy slowed, which eased inflationary pressures and allowed long-term bonds to rise in price.

Market overview

Since August 2006, the Federal Reserve (the Fed) has held the federal funds rate — the benchmark rate for overnight loans between banks — steady at 5.25%, while indicating that future rate decisions will depend on whether it considers inflation or slower growth a greater risk to the economy.

For the period as a whole, yields on shorter-term bonds rose slightly, while yields on longer-term bonds declined. The yield curve — a graphical representation of differences in yield for bonds of comparable quality and different maturities — flattened modestly to reflect this shift, showing that the yield advantage of longer-term bonds, intended to compensate investors for the greater risk of a long-term investment, had also declined. However, tax-exempt bonds with maturities greater than five years generally performed better than comparable Treasury bonds, while shorter-maturity municipals typically underperformed comparable Treasuries.

Lower-rated bonds declined in March but rallied in April, ending the period with generally stronger performance than higher-quality bonds. However, as the prices of lower-rated bonds rose, their yields declined.

Market sector and fund performance

This comparison shows your fund’s performance in the context of different market sectors for the 12 months ended 5/31/07. See the previous page and page 9 for additional fund performance information. Index definitions can be found on page 17.


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Consequently, the yield advantages that had initially drawn investor attention became less pronounced.

Non-rated bonds also gained value, and airline-related industrial development bonds (IDBs) were especially strong performers. Securities issued by long-term care facilities and toll roads also delivered solid results, as did tobacco settlement bonds.

Strategy overview

Given our expectation for rising interest rates, we maintained a short (defensive) portfolio duration relative to the fund’s Lipper peer group. This strategy had a neutral impact on relative results. Municipal bonds with the longest maturities saw yields decline, while shorter-maturity municipals generally saw yields increase. Duration is a measure of a fund’s sensitivity to changes in interest rates. Having a shorter-duration portfolio may help protect principal when interest rates rise, but it can reduce the potential for appreciation when rates fall. By the end of the period, the fund’s duration remained modestly short, compared to the peer group average.

At various points throughout the year we increased our use of derivative instruments, such as interest-rate swap contracts, to execute several of the fund’s investment strategies. By enabling two parties to exchange, or swap, interest-rate payments at a future date, these contracts give us more control over the fund’s exposure to the upward and downward movement of interest rates without requiring an exchange of principal. The use of these types of derivatives lets us take positions that reflect our views on yield curve trends without needing to sell bonds we would like to retain, and can also reduce the fund’s transaction costs. During the period, our interest-rate swap positions added moderately to performance. We believe that the flexibility offered by such arrangements makes derivatives a valuable tool in our overall management strategy.

The fund’s position in tobacco settlement bonds added to relative performance. Limited issuance of these securities, coupled with strong investor demand, provided solid supply-and-demand support for the sector, boosting results.

Your fund’s holdings

The fund’s relative performance benefited significantly from the pre-refunding of several holdings during the fiscal year. Pre-refunding occurs when an issuer raises money to refinance an older, higher-coupon bond by issuing new bonds at current, lower interest rates. The proceeds are then invested in a secure investment, usually U.S. Treasury securities, that matures at the older bond’s first call date. The secure backing has the effect of raising

Comparison of the fund’s maturity and duration

This chart compares changes in the fund’s average effective
maturity (a weighted average of the holdings’ maturities) and
its average effective duration (a measure of its sensitivity to
interest-rate changes).


Average effective duration and average effective maturity take into account put and call features, where applicable, and reflect prepayments for mortgage-backed securities. Duration is usually shorter than maturity because it reflects interest payments on a bond prior to its maturity.

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the bond’s perceived credit rating while the shorter effective maturity lowers its interest-rate risk. Since both developments are favorable for investors, bond prices often rise after pre-refunding.

Over the past few years, we have favored “new money” bonds — bonds that are issued to pay for the cost of projects rather than to pay for the refinancing of older bonds. We pursued this strategy because we anticipated that if and when interest rates fell, these bonds were more likely to be pre-refunded. This strategy continued to pay off for the fund throughout the fiscal year. In October, an insured Massachusetts General Obligation (GO) construction-related bond (rated Aaa), scheduled to mature in 2024, was pre-refunded, with a new maturity of 2015. A second GO bond with an original maturity of 2024 was pre-refunded in May and will now mature in 2016. GOs are typically backed by the full taxing power of a state or local government and are used to finance public programs and services. In addition, a bond issued by the Massachusetts State Health and Education Facilities Authority for Simmons College (original maturity date: 2033; pre-refunded in January 2007 with a new maturity of 2013) subsequently increased in value, as did the Massachusetts GO construction-related bond discussed previously.

While most pre-refunded bonds are backed by an escrow account of Treasury securities, mixed-collateral pre-refunded bonds use other securities for this purpose, such as U.S. government agency debt (e.g., Fannie Mae and Freddie Mac certificates). Because of the slightly higher risk of their collateral, such bonds trade at higher yields than their Treasury-backed counterparts. The spread, or difference between the yields for these two types of bonds, depends primarily on supply and demand. We have taken advantage of these yield fluctuations by actively trading mixed-collateral pre-refunded bonds in the fund. An example is a block of Massachusetts GO bonds that we bought in 2006 when spreads were wide; we sold them in March 2007, taking profits, when pre-refunded bonds from the state were in demand and spreads had narrowed.

Puerto Rico municipal bonds offer tax-exempt income to investors in all 50 states and have, over time, proven useful in diversifying the fund’s portfolio. However, Puerto Rico GO bonds were downgraded in the middle of the fiscal year due to financial turmoil that led to a partial government shutdown. Prices of uninsured Puerto Rico bonds declined, and we took this opportunity to add to the fund’s position. The second half of the period saw a substantial rally in the bonds and we sold off a portion of our holdings, taking profits that we used for other opportunities. Thus, despite a downgrade of their credit rating, the fund’s position in Puerto Rico bonds contributed positively to returns.

The fund’s position in tobacco settlement bonds also contributed positively to results, as these bonds continued to strengthen during the period. Issuance of these securities, coupled with strong investor demand, provided solid supply-and-demand support for the sector, boosting results. We believe that tobacco bonds provide valuable diversification since their performance is not as closely tied to the direction of economic growth as other, more economically sensitive holdings.

The fund’s underweight position in single-family housing bonds, relative to its peer group, detracted from performance, as declining mortgage prepayments continued to benefit bonds in this sector. Although we still favor the sector, provisions in some single-family housing issues that favor the issuer over the investor caused us to become more selective during the period.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

7

The outlook for your fund

The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your management team’s plans for responding to them.

Recent comments from Federal Reserve Chairman Ben Bernanke indicate that central bank policy-makers anticipate continuing moderate economic growth over the next several months, despite an ongoing drag from the lagging housing sector. At the same time, members of the Fed generally believe that inflation likely will continue to slow. It is always possible that unforeseen factors will cause inflation to rise; therefore, we will continue to monitor inflation closely. Given this economic outlook, we believe the Fed is comfortable with its current interest-rate policy and, as a result, may keep the federal funds rate at 5.25% during the coming months. Against this backdrop, we plan to move toward a neutral duration strategy in the portfolio.

In our view, the rally among lower-rated, higher-yielding bonds, which has persisted over the past couple of years, may finally be winding down. We base this view, in part, on the fact that the difference in yield between Aaa-rated bonds and Baa-rated bonds — the highest and lowest investment-grade ratings, respectively — remains near an all-time low. In fact, the higher-income advantage available to those willing to assume additional credit risk by investing in lower-rated bonds has diminished to the lowest level in over seven years. It has been our experience that when investor demand is this elevated, many high-yielding securities can become overpriced. We continue to believe that this is not the most opportune time to reach too far out in terms of bond maturity (i.e., extend duration by investing in securities with later final maturity dates) or too far down in quality in pursuit of higher income. Over the near term, we will focus on certain market sectors — notably, single-family housing and power company IDBs — where we believe the fund may benefit in an environment of moderate economic growth without being exposed to undue risk.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

This fund concentrates its investments by region and involves more risk than a fund that invests more broadly. Capital gains, if any, are taxable for federal and, in most cases, state purposes. For some investors, investment income may be subject to the federal alternative minimum tax. Tax-free funds may not be suitable for IRAs and other non-taxable accounts. Please consult with your tax advisor for more information. Mutual funds that invest in bonds are subject to certain risks, including interest-rate risk, credit risk, and inflation risk. As interest rates rise, the prices of bonds fall. Long-term bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond funds have ongoing fees and expenses.

8

Your fund’s performance

This section shows your fund’s performance for periods ended May 31, 2007, the end of its fiscal year. In accordance with regulatory requirements for mutual funds, we also include performance as of the most recent calendar quarter-end and expense information taken from the fund’s current prospectus. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com or call Putnam at 1-800-225-1581.

Fund performance Total return for periods ended 5/31/07

  Class A      Class B      Class C      Class M     
(inception dates)  (10/23/89)    (7/15/93)    (8/19/03)    (5/12/95)   
  NAV  POP  NAV  CDSC  NAV  CDSC  NAV  POP 
Annual average                 
(life of fund)  6.32%  6.09%  5.58%  5.58%  5.48%  5.48%  5.96%  5.76% 
10 years  62.11  56.09  52.10  52.10  49.71  49.71  57.32  52.29 
Annual average  4.95  4.55  4.28  4.28  4.12  4.12  4.64  4.30 
5 years  24.35  19.71  20.44  18.44  19.57  19.57  22.64  18.66 
Annual average  4.45  3.66  3.79  3.44  3.64  3.64  4.17  3.48 
3 years  14.29  10.01  12.04  9.04  11.55  11.55  13.27  9.56 
Annual average  4.55  3.23  3.86  2.93  3.71  3.71  4.24  3.09 
1 year  4.29  0.43  3.64  –1.36  3.47  2.47  4.00  0.67 

Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. After sales charge returns (public offering price, or POP) for class A and M shares reflect a maximum 3.75% and 3.25% load, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year and is eliminated thereafter. Performance for class B, C, and M shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable sales charge (or CDSC) and the higher operating expenses for such shares.

A 1% short-term trading fee may be applied to shares exchanged or sold within 7 days of purchase.

Change in the value of a $10,000 investment ($9,625 after sales charge)


Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund’s class B and class C shares would have been valued at $15,210 and $14,971, respectively, and no contingent deferred sales charges would apply. A $10,000 investment in the fund’s class M shares ($9,675 after sales charge) would have been valued at $15,229 at public offering price.

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Comparative index returns For periods ended 5/31/07

    Lipper Massachusetts 
  Lehman Municipal  Municipal Debt Funds 
  Bond Index  category average* 
Annual average     
(life of fund)  6.63%  6.10% 
10 years  72.51  57.70 
Annual average  5.60  4.65 
5 years  27.24  22.59 
Annual average  4.94  4.15 
3 years  15.33  12.73 
Annual average  4.87  4.07 
1 year  4.84  3.94 

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 1-year, 3-year, 5-year, 10-year, and life-of-fund periods ended 5/31/07, there were 52, 50, 49, 41, and 15 funds, respectively, in this Lipper category.

Fund price and distribution information For the 12-month period ended 5/31/07

Distributions  Class A    Class B  Class C    Class M 
Number*    13  13  13    13 
Income1  $0.373823    $0.312926  $0.298953   $0.346199 
Capital gains2             
Long-term  0.003300    0.003300  0.003300  0.003300   
Short-term    —  —  —    — 
Total  $0.377123    $0.316226  $0.302253   $0.349499 
Share value:  NAV  POP  NAV  NAV  NAV  POP 
5/31/06  $9.34  $9.70  $9.34  $9.35  $9.34  $9.65 
5/31/07  9.36  9.72  9.36  9.37  9.36  9.67 
Current yield (end of period)             
Current dividend rate3  4.03%  3.88%  3.38%  3.24%  3.74%  3.62% 
Taxable equivalent4  6.55  6.30  5.49  5.26  6.08  5.88 
Current 30-day SEC yield5  3.44  3.31  2.79  2.65  3.15  3.04 
Taxable equivalent4  5.59  5.38  4.53  4.31  5.12  4.94 

* Distributions are paid monthly. In December 2006, the fund made an additional distribution to adjust its distribution date to the last business day of the month.

1 For some investors, investment income may be subject to the federal alternative minimum tax.

2 Capital gains, if any, are taxable for federal and, in most cases, state purposes.

3 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period.

4 Assumes maximum 38.45% federal and state combined tax rate for 2007. Results for investors subject to lower tax rates would not be as advantageous.

5 Based only on investment income, calculated using SEC guidelines.

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Fund performance as of most recent calendar quarter Total return for periods ended 6/30/07

  Class A    Class B    Class C    Class M   
(inception dates)  (10/23/89)    (7/15/93)    (8/19/03)    (5/12/95)   
  NAV  POP  NAV  CDSC  NAV  CDSC  NAV  POP 
Annual average                 
(life of fund)  6.27%  6.04%  5.52%  5.52%  5.43%  5.43%  5.91%  5.71% 
10 years  59.56  53.46  49.67  49.67  47.46  47.46  55.00  50.03 
Annual average  4.78  4.38  4.12  4.12  3.96  3.96  4.48  4.14 
5 years  22.58  17.96  18.79  16.81  17.92  17.92  20.73  16.80 
Annual average  4.16  3.36  3.50  3.16  3.35  3.35  3.84  3.15 
3 years  13.28  9.06  11.20  8.22  10.72  10.72  12.41  8.74 
Annual average  4.24  2.93  3.60  2.67  3.45  3.45  3.98  2.83 
1 year  4.09  0.20  3.54  -1.46  3.38  2.38  3.79  0.45 

Fund’s annual operating expenses For the fiscal year ended 5/31/06

  Class A  Class B  Class C  Class M 
Total annual fund operating expenses  0.84%  1.48%  1.63%  1.13% 

Expense information in this table is taken from the most recent prospectus, is subject to change, and may differ from that shown in the next section and in the financial highlights of this report. Expenses are shown as a percentage of average net assets.

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Putnam Massachusetts Tax Exempt Income Fund from December 1, 2006, to May 31, 2007. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class A  Class B  Class C  Class M 
Expenses paid per $1,000*  $ 4.24  $ 7.43  $ 8.17  $ 5.68 
Ending value (after expenses)  $1,001.50  $999.30  $998.30  $1,000.10 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 5/31/07. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended May 31, 2007, use the calculation method below. To find the value of your investment on December 1, 2006, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 12/01/2006 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.

Compare expenses using the SEC’s method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table below shows your fund’s expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of other funds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during the period.

  Class A  Class B  Class C  Class M 
Expenses paid per $1,000*  $ 4.28  $ 7.49  $ 8.25  $ 5.74 
Ending value (after expenses)  $1,020.69  $1,017.50  $1,016.75  $1,019.25 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of average net assets for the six months ended 5/31/07. The expense ratio may differ for each share class (see the last table in this section). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

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Compare expenses using industry averages

You can also compare your fund’s expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranks funds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your fund’s average net assets have been used to pay ongoing expenses during the period.

  Class A  Class B  Class C  Class M 
Your fund’s annualized expense ratio*  0.85%  1.49%  1.64%  1.14% 
Average annualized expense ratio for Lipper peer group†  0.88%  1.52%  1.67%  1.17% 

* For the fund’s most recent fiscal half year; may differ from expense ratios based on one-year data in the financial highlights.

† Putnam is committed to keeping fund expenses below the Lipper peer group average expense ratio and will limit our fund expenses if they exceed the Lipper average. The Lipper average is a simple average of front-end load funds in the peer group that excludes 12b-1 fees as well as any expense offset and brokerage service arrangements that may reduce fund expenses. To facilitate the comparison in this presentation, Putnam has adjusted the Lipper average to reflect the 12b-1 fees carried by each class of shares. Investors should note that the other funds in the peer group may be significantly smaller or larger than the fund, and that an asset-weighted average would likely be lower than the simple average. Also, the fund and Lipper report expense data at different times and for different periods. The fund’s expense ratio shown here is annualized data for the most recent six-month period, while the quarterly updated Lipper average is based on the most recent fiscal year-end data available for the peer group funds as of 3/31/07.

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Your fund’s portfolio turnover and Morningstar® Risk

Putnam funds are actively managed by teams of experts who buy and sell securities based on intensive analysis of companies, industries, economies, and markets. Portfolio turnover is a measure of how often a fund’s managers buy and sell securities for your fund. A portfolio turnover of 100%, for example, means that the managers sold and replaced securities valued at 100% of a fund’s assets within a one-year period. Funds with high turnover may be more likely to generate capital gains and dividends that must be distributed to shareholders as taxable income. High turnover may also cause a fund to pay more brokerage commissions and other transaction costs, which may detract from performance.

Funds that invest in bonds or other fixed-income instruments may have higher turnover than funds that invest only in stocks. Short-term bond funds tend to have higher turnover than longer-term bond funds, because shorter-term bonds will mature or be sold more frequently than longer-term bonds. You can use the table below to compare your fund’s turnover with the average turnover for funds in its Lipper category.

Turnover comparisons

Percentage of holdings that change every year

  2007  2006  2005  2004  2003 
Putnam Massachusetts Tax Exempt Income Fund  15%  7%  18%  7%  29% 
Lipper Massachusetts Municipal Debt Funds category average  16%  17%  18%  21%  32% 

Turnover data for the fund is calculated based on the fund’s fiscal-year period, which ends on May 31. Turnover data for the fund’s Lipper category is calculated based on the average of the turnover of each fund in the category for its fiscal year ended during the indicated year. Fiscal years vary across funds in the Lipper category, which may limit the comparability of the fund’s portfolio turnover rate to the Lipper average. Comparative data for 2007 is based on information available as of 5/31/07.

Your fund’s Morningstar® Risk

This risk comparison is designed to help you understand how your fund compares with other funds. The comparison utilizes a risk measure developed by Morningstar, an independent fund-rating agency. This risk measure is referred to as the fund’s Morningstar Risk.


Your fund’s Morningstar Risk is shown alongside that of the average fund in its Morningstar category. The risk bar broadens the comparison by translating the fund’s Morningstar Risk into a percentile, which is based on the fund’s ranking among all funds rated by Morningstar as of June 30, 2007. A higher Morningstar Risk generally indicates that a fund’s monthly returns have varied more widely.

Morningstar determines a fund’s Morningstar Risk by assessing variations in the fund’s monthly returns — with an emphasis on downside variations — over a 3-year period, if available. Those measures are weighted and averaged to produce the fund’s Morningstar Risk. The information shown is provided for the fund’s class A shares only; information for other classes may vary. Morningstar Risk is based on historical data and does not indicate future results. Morningstar does not purport to measure the risk associated with a current investment in a fund, either on an absolute basis or on a relative basis. Low Morningstar Risk does not mean that you cannot lose money on an investment in a fund. Copyright 2007 Morningstar, Inc. All Rights Reserved. The information contained herein (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

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Your fund’s management

Your fund is managed by the members of the Putnam Tax Exempt
Fixed-Income Team. Thalia Meehan is the Portfolio Leader, and
Paul Drury, Brad Libby, and Susan McCormack are Portfolio
Members, of your fund. The Portfolio Leader and Portfolio
Members coordinate the team’s management of the fund.

For a complete listing of the members of the Putnam Tax
Exempt Fixed-Income Team, including those who are not
Portfolio Leaders or Portfolio Members of your fund, visit
Putnam’s Individual Investor Web site at www.putnam.com.

Investment team fund ownership

The table below shows how much the fund’s current Portfolio Leader and Portfolio Members have invested in the fund and in all Putnam mutual funds (in dollar ranges). Information shown is as of May 31, 2007, and May 31, 2006.


Trustee and Putnam employee fund ownership

As of May 31, 2007, all of the Trustees of the Putnam funds owned fund shares. The table below shows the approximate value of investments in the fund and all Putnam funds as of that date by the Trustees and Putnam employees. These amounts include investments by the Trustees’ and employees’ immediate family members and investments through retirement and deferred compensation plans.

    Total assets in 
  Assets in the fund  all Putnam funds 
Trustees  $ 200,000  $ 96,000,000 
Putnam employees  $2,480,000  $476,000,000 

Fund manager compensation

The total 2006 fund manager compensation that is attributable to your fund is approximately $70,000. This amount includes a portion of 2006 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compen sation amount also includes a portion of the 2006 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation attributable to research, trading, administration, executive oversight, systems, compliance, or fund operations functions; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2006, the calculation reflects annualized 2006 compensation or an estimate of 2007 compensation, as applicable.

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Other Putnam funds managed by the Portfolio Leader and Portfolio Members

Thalia Meehan is the Portfolio Leader, and Paul Drury, Brad Libby, and Susan McCormack are Portfolio Members, of Putnam’s open-end tax-exempt funds for the following states: Arizona, California, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania. The same group also manages Putnam AMT-Free Insured Municipal Fund, Putnam Investment Grade Municipal Trust, Putnam Municipal Bond Fund, Putnam Municipal Opportunities Trust, and Putnam Tax Exempt Income Fund.

Paul Drury is the Portfolio Leader, and Brad Libby, Susan McCormack, and Thalia Meehan are Portfolio Members, of Putnam High Yield Municipal Trust, Putnam Managed Municipal Income Trust, Putnam Tax-Free Health Care Fund, and Putnam Tax-Free High Yield Fund.

Thalia Meehan, Paul Drury, Brad Libby, and Susan McCormack may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your fund’s Portfolio Leader and Portfolio Members

During the year ended May 31, 2007, Brad Libby became a Portfolio Member, and Thalia Meehan became a Portfolio Member and then Portfolio Leader, of your fund. These changes followed the departure of Portfolio Leaders David Hamlin and James St. John from your fund’s management team.

Putnam fund ownership by Putnam’s Executive Board

The table below shows how much the members of Putnam’s Executive Board have invested in all Putnam mutual funds (in dollar ranges). Information shown is as of May 31, 2007, and May 31, 2006.

      $1 –  $10,001 –  $50,001 –  $100,001 –  $500,001 –  $1,000,001 
  Year  $0  $10,000  $50,000  $100,000  $500,000  $1,000,000  and over 
Philippe Bibi  2007              • 
Chief Technology Officer  2006              • 
Joshua Brooks  2007              • 
Deputy Head of Investments  2006              • 
William Connolly  2007              • 
Head of Retail Management  2006              • 
Kevin Cronin  2007              • 
Head of Investments  2006              • 
Charles Haldeman, Jr.  2007              • 
President and CEO  2006              • 
Amrit Kanwal  2007            •   
Chief Financial Officer  2006            •   
Steven Krichmar  2007              • 
Chief of Operations  2006            •   
Francis McNamara, III  2007              • 
General Counsel  2006              • 
Jeffrey Peters  2007              • 
Head of International Business  N/A               
Richard Robie, III  2007            •   
Chief Administrative Officer  2006            •   
Edward Shadek  2007              • 
Deputy Head of Investments  2006              • 
Sandra Whiston  2007              • 
Head of Institutional Management  2006            •   

N/A indicates the individual was not a member of Putnam’s Executive Board as of 5/31/06.

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Terms and definitions

Important terms

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.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

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 3.75% maximum sales charge for class A shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is generally a charge applied at the time of the redemption of class B or C 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. The CDSC for class C shares is 1% for one year after purchase.

Share classes

Class A shares are generally subject to an initial sales charge and no CDSC (except on certain redemptions of shares bought without an initial sales charge).

Class B shares are not subject to an initial sales charge. They may be subject to a CDSC.

Class C shares are not subject to an initial sales charge and are subject to a CDSC only if the shares are redeemed during the first year.

Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no CDSC.

Comparative indexes

Lehman Aggregate Bond Index is an unmanaged index of U.S. investment-grade fixed-income securities.

Lehman Municipal Bond Index is an unmanaged index of long-term fixed-rate investment-grade tax-exempt bonds.

Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

S&P 500 Index is an unmanaged index of common stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. You cannot invest directly in an index.

Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

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Trustee approval of management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract with Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months ending in June 2006, the Contract Committee met four times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended, and the Independent Trustees approved, the continuance of your fund’s management contract, effective July 1, 2006.

This approval was based on the following conclusions:

• That the fee schedule in effect for your fund represented reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

• That such fee schedule represented an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

Management fee schedules and categories; total expenses

The Trustees reviewed the management fee schedules in effect for all Putnam funds, including fee levels and breakpoints, and the assignment of funds to particular fee categories. In reviewing fees and expenses, the Trustees generally focused their attention on material changes in circumstances — for example, changes in a fund’s size or investment style, changes in Putnam Management’s operating costs, or changes in competitive practices in the mutual fund industry —that suggest that consideration of fee changes might be warranted. The Trustees concluded that the circumstances did not warrant changes to the management fee structure of your fund, which had been carefully developed over the years, re-examined on many occasions and adjusted where appropriate. The Trustees focused on two areas of particular interest, as discussed further below:

• Competitiveness. The Trustees reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 58th percentile in management fees and in the 42nd percentile in total expenses (less any applicable 12b-1 fees) as of December 31, 2005 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). (Because the fund’s custom peer group is smaller than the fund’s broad Lipper Inc. peer group, this expense information may differ from the Lipper peer expense information found elsewhere in this report.) The Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints.

The Trustees noted that the expense ratio increases described above were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2007. These expense limitations give effect to a commitment by Putnam Management that the expense ratio of each open-end fund would be no higher than the average expense ratio of the competitive funds included in the fund’s relevant Lipper universe (exclusive of any applicable 12b-1 charges in each case). The Trustees observed that this commitment to limit fund expenses has served shareholders

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well since its inception. In order to ensure that the expenses of the Putnam funds continue to meet evolving competitive standards, the Trustees requested, and Putnam Management agreed, to implement an additional expense limitation for certain funds for the twelve months beginning January 1, 2007 equal to the average expense ratio (exclusive of 12b-1 charges) of a custom peer group of competitive funds selected by Lipper based on the size of the fund. This additional expense limitation will be applied to those open-end funds that had above-average expense ratios (exclusive of 12b-1 charges) based on the Lipper custom peer group data for the period ended December 31, 2005. This additional expense limitation will not be applied to your fund.

• Economies of scale. Your fund currently has the benefit of breakpoints in its management fee that provide shareholders with significant economies of scale, which means that the effec tive management fee rate of a fund (as a percentage of fund assets) declines as a fund grows in size and crosses specified asset thresholds. Conversely, as a fund shrinks in size — as has been the case for many Putnam funds in recent years — these breakpoints result in increasing fee levels. In recent years, the Trustees have examined the operation of the existing breakpoint structure during periods of both growth and decline in asset levels. The Trustees concluded that the fee schedules in effect for the funds represented an appropriate sharing of economies of scale at current asset levels. In reaching this conclusion, the Trustees considered the Contract Committee’s stated intent to continue to work with Putnam Management to plan for an eventual resumption in the growth of assets, including a study of potential economies that might be produced under various growth assumptions.

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis. Because many of the costs incurred by Putnam Management in managing the funds are not readily identifiable to particular funds, the Trustees observed that the methodology for allocating costs is an important factor in evaluating Putnam Management’s costs and profitability, both as to the Putnam funds in the aggregate and as to individual funds. The Trustees reviewed Putnam Management’s cost allocation methodology with the assis tance of independent consultants and concluded that this methodology was reasonable and well-considered.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the Putnam funds’ investment process and performance by the work of the Investment Process Committee of the Trustees and the Investment Oversight Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing each fund’s performance with various benchmarks and with the performance of competitive funds.

The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and discussed with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. In particular, they noted the important contributions of Putnam Management’s leadership in attracting, retaining and supporting high-quality investment professionals and in systematically implementing an investment process that seeks to merge the best features of fundamental and quantitative analysis. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional changes to address areas of underperformance are warranted.

In the case of your fund, the Trustees considered that your fund’s class A share cumulative total return performance at net asset

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value was in the following percentiles of its Lipper Inc. peer group (Lipper Massachusetts Municipal Debt Funds) (compared using tax-adjusted performance to recognize the different federal income tax treatment for capital gains distributions and exempt interest distributions) for the one-, three- and five-year periods ended March 31, 2006 (the first percentile being the best performing funds and the 100th percentile being the worst performing funds):

One-year period  Three-year period  Five-year period 
33rd  30th  30th 

(Because of the passage of time, these performance results may differ from the performance results for more recent periods shown elsewhere in this report. Over the one-, three- and five-year periods ended March 31, 2006, there were 53, 51, and 48 funds, respectively, in your fund’s Lipper peer group.* Past performance is no guarantee of future performance.)

As a general matter, the Trustees concluded that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees noted that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees concluded that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment adviser for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage may be used to acquire research services that may be useful to Putnam Management in managing the assets of the fund and of other clients. The Trustees indicated their continued intent to monitor the potential benefits associated with the allocation of fund brokerage to ensure that the principle of seeking “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.

Comparison of retail and institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged by Putnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of the differences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the funds are by no means uniform when examined by individual asset sectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact that fee rates across all asset sectors are higher on average for funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutional clients of the firm, but did not rely on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

* The percentile rankings for your fund’s class A share annualized total return performance in the Lipper Massachusetts Municipal Debt Funds category for the one-, five- and ten-year periods ended June 30, 2007, were 33%, 33%, and 32%, respectively. Over the one-, five- and ten-year periods ended June 30, 2007, the fund ranked 17 out of 51, 16 out of 48, and 13 out of 40 funds, respectively. Unlike the information above, these rankings reflect performance before taxes. Note that this more recent information was not available when the Trustees approved the continuance of your fund’s management contract.

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Approval of new management contracts in connection with pending change in control

As discussed in the “Message from the Trustees” at the beginning of this shareholder report, Marsh & McLennan Companies, Inc. announced on February 1, 2007 that it had signed a definitive agreement to sell its ownership interest in Putnam Investments Trust, the parent company of Putnam Management and its affiliates, to Great-West Lifeco Inc., a member of the Power Financial Corporation group of companies. In mid-May, shareholders voted overwhelmingly in favor of the proposed transaction. While the transaction is still subject to regulatory approvals and other conditions, it is currently expected to be completed this summer.

At an in-person meeting on February 8–9, 2007, the Trustees considered the approval of new management contracts for each Putnam fund proposed to become effective upon the closing of the transaction, and the filing of a preliminary proxy statement. At an in-person meeting on March 8–9, 2007, the Trustees considered the approval of the final forms of the proposed new management contracts for each Putnam fund and the proxy statement. They reviewed the terms of the proposed new management contracts and the differences between the proposed new management contracts and the current management contracts. They noted that the terms of the proposed new management contracts were substantially identical to the current management contracts, except for certain changes developed at the initiative of the Trustees and designed largely to address inconsistencies among various of the existing contracts, which had been developed and implemented at different times in the past. In considering the approval of the proposed new management contracts, the Trustees also considered, as discussed further in the proxy statement, various matters relating to the transaction. Finally, in considering the proposed new management contracts, the Trustees also took into account their deliberations and conclusions (discussed above in the preceding paragraphs of the “Trustee Approval of Management Contract” section) in connection with the most recent annual approval of the continuance of the Putnam funds’ management contracts effective July 1, 2006, and the extensive materials that they had reviewed in connection with that approval process. Based upon the foregoing considerations, on March 9, 2007, the Trustees, including all of the Independent Trustees, unanimously approved the proposed new management contracts and determined to recommend their approval to the shareholders of the Putnam funds.

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Other information for shareholders

Putnam’s policy on confidentiality

In order to conduct business with our shareholders, we must obtain certain personal information such as account holders’ addresses, telephone numbers, Social Security numbers, and the names of their financial advisors. We use this information to assign an account number and to help us maintain accurate records of transactions and account balances. It is our policy to protect the confidentiality of your information, whether or not you currently own shares of our funds, and in particular, not to sell information about you or your accounts to outside marketing firms. We have safeguards in place designed to prevent unauthorized access to our computer systems and procedures to protect personal information from unauthorized use. Under certain circumstances, we share this information with outside vendors who provide services to us, such as mailing and proxy solicitation. In those cases, the service providers enter into confidentiality agreements with us, and we provide only the information necessary to process transactions and perform other services related to your account. We may also share this information with our Putnam affiliates to service your account or provide you with information about other Putnam products or services. It is also our policy to share account information with your financial advisor, if you’ve listed one on your Putnam account. If you would like clarification about our confidentiality policies or have any questions or concerns, please don’t hesitate to contact us at 1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available on the Putnam Individual Investor Web site, www.putnam.com/individual, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.

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Financial statements

These sections of the report, as well as the accompanying Notes, preceded by the Report of Independent Registered Public Accounting Firm, 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 non-investment 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 liquidation preference of preferred shares.)

Statement of operations shows the fund’s net investment gain or loss. This is done by first adding up all the fund’s earnings — from dividends and interest income — and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings — as well as any unrealized gains or losses over the period — is added to or subtracted from the net investment result to determine the fund’s net gain or loss for the fiscal year.

Statement of changes in net assets shows how the fund’s net assets were affected by the fund’s net investment gain or loss, 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.

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Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of
Putnam Massachusetts Tax Exempt Income Fund:

In our opinion, the accompanying statement of assets and liabilities, including the fund’s portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Massachusetts Tax Exempt Income Fund (the “fund”) at May 31, 2007, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments owned at May 31, 2007, by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
July 11, 2007

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The fund’s portfolio 5/31/07

Key to abbreviations

AMBAC AMBAC Indemnity Corporation

FGIC Financial Guaranty Insurance Company

FHLMC Coll. Federal Home Loan Mortgage Corporation Collateralized

FNMA Coll. Federal National Mortgage Association Collateralized

FSA Financial Security Assurance

GNMA Coll. Government National Mortgage Association Collateralized

G.O. Bonds General Obligation Bonds

MBIA MBIA Insurance Company

U.S. Govt. Coll. U.S. Government Collateralized

VRDN Variable Rate Demand Notes

XLCA XL Capital Assurance

MUNICIPAL BONDS AND NOTES (97.2%)*       
  Rating**  Principal amount  Value 
Massachusetts (93.2%)       
Boston, Indl. Dev. Fin. Auth. Rev. Bonds (Springhouse, Inc.), 6s, 7/1/28  BB–/P  $ 2,150,000  $ 2,195,109 
Boston, Indl. Dev. Fin. Auth. Swr. Fac. Rev. Bonds (Harbor Elec. Energy Co.),       
7 3/8s, 5/15/15  Aa3  4,645,000  4,658,145 
Boston, Wtr. & Swr. Comm. Rev. Bonds, Ser. A, 5 3/4s, 11/1/13  Aa2  7,435,000  7,850,096 
Framingham, Hsg. Auth. Rev. Bonds (Beaver Terrace), Ser. A, GNMA Coll.,       
6.35s, 2/20/32  AAA  2,100,000  2,308,404 
Holden, G.O. Bonds (Multi-Purpose), FGIC, U.S. Govt. Coll., 5 1/2s,       
3/1/20 (Prerefunded)  Aaa  5,185,000  5,458,664 
Lowell, G.O. Bonds, Ser. A, XLCA, 5s, 9/15/22  Aaa  1,750,000  1,846,915 
Lynn, Wtr. & Swr. Comm. Rev. Bonds, Ser. A, MBIA, 5s, 6/1/22  Aaa  3,010,000  3,155,323 
MA Bay Trans. Auth. Sales Tax Special Tax Bonds Ser. B, 5 1/4s, 7/1/30  AAA  1,350,000  1,525,770 
MA State G.O. Bonds       
(Construction Loan), Ser. E, AMBAC, 5s, 11/1/24 (Prerefunded)  Aaa  5,000,000  5,400,750 
(Construction Loan), Ser. A, FSA, 5s, 3/1/24 (Prerefunded)  Aaa  13,000,000  13,919,620 
Ser. D, FSA, 5s, 12/1/23 (Prerefunded)  Aaa  5,000,000  5,344,150 
(Construction Loan), Ser. D, 5s, 8/1/21 (Prerefunded)  Aa2  3,190,000  3,440,000 
MA State College Bldg. Auth. Rev. Bonds, Ser. B, XLCA, 5 1/2s, 5/1/28  Aaa  4,000,000  4,639,240 
MA State Dev. Fin. Agcy. Rev. Bonds       
(Lasell College), 6 3/4s, 7/1/31  BB+/P  135,000  141,689 
(Lasell College), 6 3/4s, 7/1/31 (Prerefunded)  BB+/P  1,305,000  1,466,572 
(Lasell Village), Ser. A, 6 3/8s, 12/1/25  BB/P  1,250,000  1,295,025 
(MA Biomedical Research), Ser. C, 6 1/8s, 8/1/12  Aa3  1,950,000  2,065,557 
(MA Biomedical Research), Ser. C, 5 7/8s, 8/1/10  Aa3  1,830,000  1,908,050 
(WGBH Edl. Foundation), Ser. A, AMBAC, 5 3/4s, 1/1/42  Aaa  5,000,000  6,090,500 
(Boston Biomedical Research), 5 3/4s, 2/1/29  Baa3  1,750,000  1,814,645 
(Hampshire College), 5.7s, 10/1/34  BBB  1,315,000  1,384,761 
(Middlesex School), 5 1/8s, 9/1/23  A1  1,000,000  1,051,920 
(First Mtge. — Orchard Cove), 5s, 10/1/19  BBB–  550,000  554,378 
MA State Dev. Fin. Agcy. VRDN (Boston U.)       
Ser. R-2, XLCA, 3.74s, 10/1/42  VMIG1  2,300,000  2,300,000 
Ser. R-4, XLCA, 3.74s, 10/1/42  VMIG1  1,025,000  1,025,000 
MA State Dev. Fin. Agcy. Higher Ed. Rev. Bonds (Emerson College), Ser. A       
5s, 1/1/19  A–  1,200,000  1,261,464 
5s, 1/1/18  A–  580,000  611,564 
MA State Edl. Fin. Auth. Rev. Bonds, Ser. E, AMBAC, 5s, 1/1/13  AAA  3,625,000  3,663,896 
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(Winchester Hosp.), Ser. E, 6 3/4s, 7/1/30 (Prerefunded)  BBB  3,000,000  3,238,770 
(UMass Memorial), Ser. C, 6 1/2s, 7/1/21  Baa2  3,125,000  3,358,656 
(Berkshire Hlth. Syst.), Ser. E, 6 1/4s, 10/1/31  BBB+  1,300,000  1,399,086 
(Harvard U.), Ser. N, 6 1/4s, 4/1/20  Aaa  5,000,000  6,057,800 
(Learning Ctr. for Deaf Children), Ser. C, 6 1/8s, 7/1/29  Ba2  1,000,000  1,013,030 
(Hlth. Care Syst. Covenant Hlth.), Ser. E, 6s, 7/1/31  A  3,000,000  3,220,020 
(Partners Hlth. Care Syst.), Ser. C, 6s, 7/1/15  Aa2  2,100,000  2,284,107 
(Partners Hlth. Care Syst.), Ser. C, 6s, 7/1/14  Aa2  1,460,000  1,591,444 
(Partners Hlth. Care Syst.), Ser. C, 5 3/4s, 7/1/32  Aa2  4,000,000  4,251,120 
(Baystate Med. Ctr.), Ser. F, 5.7s, 7/1/27  A1  1,000,000  1,046,920 

25

MUNICIPAL BONDS AND NOTES (97.2%)* continued       
  Rating**  Principal amount  Value 
Massachusetts continued       
MA State Hlth. & Edl. Fac. Auth. Rev. Bonds       
(Caritas Christian Oblig. Group), Ser. A, 5 5/8s, 7/1/20  BBB  $ 1,955,000  $ 2,010,991 
(Milton Hosp.), Ser. C, 5 1/2s, 7/1/16  BBB–  800,000  822,544 
(Williams College), Ser. G, 5 1/2s, 7/1/14 (Prerefunded)  Aa1  3,665,000  3,827,799 
(Milton Hosp.), Ser. C, 5 1/2s, 7/1/11  BBB–  1,265,000  1,303,949 
(Cape Cod Hlth. Care), Ser. B, 5.45s, 11/15/23  BBB  2,600,000  2,652,624 
MBIA, 5.38s, 7/1/18  Aaa  15,800,000  15,818,802 
(Jordan Hosp.), Ser. D, 5 3/8s, 10/1/28  BBB–  3,000,000  3,033,810 
(Boston College), Ser. K, 5 3/8s, 6/1/14  Aa3  4,250,000  4,579,035 
(Partners Hlth. Care Syst.), Ser. B, 5 1/4s, 7/1/11  Aa2  3,000,000  3,109,920 
(MA Inst. of Tech.), Ser. I-1, 5.2s, 1/1/28  Aaa  10,000,000  11,368,100 
(Simmons College), Ser. F, FGIC, 5s, 10/1/33 (Prerefunded)  Aaa  5,245,000  5,571,291 
(Worcester City Campus Corp.), Ser. E, FGIC, 5s, 10/1/26  Aaa  2,000,000  2,104,900 
(Fisher College), Ser. A, 5s, 4/1/22  BBB–  1,110,000  1,125,407 
(Wellesley College), 5s, 7/1/17  Aa1  1,000,000  1,051,760 
(Worcester City Campus Corp.), Ser. F, FGIC, 4 1/2s, 10/1/25  Aaa  2,735,000  2,717,961 
MA State Hsg. Fin. Agcy. Rev. Bonds (Single Fam. Mtge.)       
Ser. 86, 5.1s, 12/1/21  Aa2  325,000  328,721 
Ser. 84, 4 1/4s, 12/1/07  Aa2  435,000  435,270 
MA State Indl. Fin. Agcy. Rev. Bonds       
(1st Mtge. Stone Institution & Newton), 7.9s, 1/1/24  BB–/P  1,500,000  1,501,605 
(American Hingham, Wtr. Treatment), 6 3/4s, 12/1/25  BBB/P  4,520,000  4,560,725 
(1st Mtge. Berkshire Retirement), Ser. A, 6 5/8s, 7/1/16  BBB–  3,850,000  3,855,313 
(Wentworth Inst. of Tech.), 5 3/4s, 10/1/28 (Prerefunded)  Baa1  1,650,000  1,723,937 
MA State Port Auth. Rev. Bonds, Ser. A       
MBIA, 5s, 7/1/33  AAA  2,400,000  2,486,280 
AMBAC, 5s, 7/1/26  AAA  3,000,000  3,143,940 
MA State School Bldg. Auth. Dedicated Sales Tax Rev. Bonds, Ser. A       
FSA, 5s, 8/15/23  Aaa  5,000,000  5,246,300 
FSA, 5s, 8/15/20  Aaa  6,500,000  6,866,210 
AMBAC, 4 3/4s, 8/15/32  Aaa  4,000,000  4,093,960 
MA State Special Oblig. Dedicated Tax Rev. Bonds       
FGIC, FHLMC Coll., FNMA Coll., 5 1/4s, 1/1/22 (Prerefunded)  Aaa  2,000,000  2,151,540 
FGIC, 5 1/4s, 1/1/20 (Prerefunded)  Aaa  5,000,000  5,378,850 
MA State Wtr. Poll. Abatement Rev. Bonds       
Ser. 5, 5 3/8s, 8/1/27  Aaa  4,490,000  4,659,138 
Ser. 5, 5 3/8s, 8/1/27 (Prerefunded)  Aaa  2,510,000  2,618,332 
Ser. 12, 5s, 8/1/20  Aaa  2,645,000  2,812,587 
MA State Wtr. Resource Auth. Rev. Bonds       
Ser. A, 6 1/2s, 7/15/19 (Prerefunded)  Aa2  5,500,000  6,486,370 
Ser. A, FGIC, U.S. Govt. Coll., 5 3/4s, 8/1/39 (Prerefunded)  Aaa  10,000,000  10,656,800 
Ser. A, MBIA, 5s, 8/1/29  Aaa  3,225,000  3,406,277 
Ser. A, MBIA, 5s, 8/1/29  Aaa  4,000,000  4,175,680 
Ser. A, MBIA, 5s, 8/1/27  Aaa  1,500,000  1,583,055 
Milford, G.O. Bonds, FSA, 5 1/8s, 12/15/24  Aaa  2,475,000  2,655,081 
Norwell, G.O. Bonds, AMBAC, 5s, 2/15/25  Aaa  1,000,000  1,051,750 
Quincy, Rev. Bonds, FSA, 5.3s, 1/15/11  Aaa  7,200,000  7,205,256 
U. MA Bldg. Auth. Rev. Bonds, Ser. 04-1, AMBAC       
5 3/8s, 11/1/16  Aaa  210,000  228,482 
5 3/8s, 11/1/16 (Prerefunded)  Aaa  790,000  863,762 
Westford, G.O. Bonds, FGIC, 5 1/4s, 4/1/20  Aaa  1,000,000  1,040,840 
      268,153,114 
 
Puerto Rico (3.4%)       
Children’s Trust Fund Tobacco Settlement Rev. Bonds, 5 3/8s, 5/15/33  BBB  2,335,000  2,437,226 
Cmnwlth. of PR, Govt. Dev. Bank Rev. Bonds, Ser. B, 5s, 12/1/16  BBB  500,000  528,315 
Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds, Ser. K, 5s, 7/1/17  BBB+  1,500,000  1,576,155 

26

MUNICIPAL BONDS AND NOTES (97.2%)* continued       
  Rating**  Principal amount  Value 
Puerto Rico continued       
Cmnwlth. of PR, Pub. Bldg. Auth. Rev. Bonds (Govt. Fac.),Ser. I, 5 1/4s, 7/1/29  Baa3  $ 1,500,000  $ 1,581,375 
PR Elec. Pwr. Auth. Rev. Bonds, Ser. RR, FSA, 5s, 7/1/20  Aaa  3,500,000  3,712,065 
      9,835,136 
 
Virgin Islands (0.6%)       
VI Pub. Fin. Auth. Rev. Bonds, FGIC, 5s, 10/1/24  Aaa  1,500,000  1,595,265 

TOTAL INVESTMENTS   
Total investments (cost $268,972,557)  $ 279,583,515 

* Percentages indicated are based on net assets of $287,727,819.

** The Moody’s or Standard & Poor’s ratings indicated are believed to be the most recent ratings available at May 31, 2007 for the securities listed. Ratings are generally ascribed to securities at the time of issuance. While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings do not necessarily represent what the agencies would ascribe to these securities at May 31, 2007. Securities rated by Putnam are indicated by “/P.” Ratings are not covered by the Report of Independent Registered Public Accounting Firm. Security ratings are defined in the Statement of Additional Information.

The rates shown on VRDN are the current interest rates at May 31, 2007.

The dates shown on debt obligations are the original maturity dates.

The fund had the following sector concentrations greater than 10% at May 31, 2007 (as a percentage of net assets):

Health care  22.9% 
Utilities and power  20.0 
Education  19.5 
State government  11.3 

 

The fund had the following insurance concentrations greater than 10% at May 31, 2007 (as a percentage of net assets): 

FSA  15.6% 
FGIC  12.7 
MBIA  10.6 

  INTEREST RATE SWAP CONTRACTS OUTSTANDING at 5/31/07     
      Payments  Payments   
  Swap counterparty /  Termination  made by  received by  Unrealized 
  Notional amount  date  fund per annum  fund per annum  appreciation 
  UBS AG         
  $7,000,000 (E)  9/7/27  3.804%  USD-SIFMA-Municipal   
        Swap Index  $220,170 
 
(E)  See Note 1 to the financial statements regarding extended effective dates.     

The accompanying notes are an integral part of these financial statements.

27

Statement of assets and liabilities 5/31/07

ASSETS   
Investment in securities, at value (Note 1):   
Unaffiliated issuers (identified cost $268,972,557)  $279,583,515 
Cash  4,693,438 
Interest and other receivables  4,530,693 
Receivable for shares of the fund sold  164,694 
Unrealized appreciation on swap contracts (Note 1)  220,170 
Total assets  289,192,510 
 
LIABILITIES   
Distributions payable to shareholders  350,291 
Payable for variation margin (Note 1)  5,000 
Payable for shares of the fund repurchased  524,854 
Payable for compensation of Manager (Note 2)  365,548 
Payable for investor servicing and custodian fees (Note 2)  6,499 
Payable for Trustee compensation and expenses (Note 2)  69,810 
Payable for administrative services (Note 2)  1,257 
Payable for distribution fees (Note 2)  117,176 
Other accrued expenses  24,256 
Total liabilities  1,464,691 
Net assets  $287,727,819 
 
REPRESENTED BY   
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $276,665,866 
Undistributed net investment income (Note 1)  289,889 
Accumulated net realized loss on investments (Note 1)  (59,064) 
Net unrealized appreciation of investments  10,831,128 
Total — Representing net assets applicable to capital shares outstanding  $287,727,819 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE   
Net asset value and redemption price per class A share ($241,481,463 divided by 25,789,696 shares)  $9.36 
Offering price per class A share (100/96.25 of $9.36)*  $9.72 
Net asset value and offering price per class B share ($37,808,204 divided by 4,041,148 shares)**  $9.36 
Net asset value and offering price per class C share ($3,824,450 divided by 408,187 shares)**  $9.37 
Net asset value and redemption price per class M share ($4,613,702 divided by 492,732 shares)  $9.36 
Offering price per class M share (100/96.75 of $9.36)***  $9.67 

* On single retail sales of less than $100,000. On sales of $100,000 or more the offering price is reduced.

** Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.

*** On single retail sales of less than $50,000. On sales of $50,000 or more the offering price is reduced.

The accompanying notes are an integral part of these financial statements.

28

Statement of operations Year ended 5/31/07

INTEREST INCOME  $14,705,729 
 
EXPENSES   
Compensation of Manager (Note 2)  1,529,990 
Investor servicing fees (Note 2)  144,108 
Custodian fees (Note 2)  80,026 
Trustee compensation and expenses (Note 2)  40,961 
Administrative services (Note 2)  20,429 
Distribution fees — Class A (Note 2)  522,414 
Distribution fees — Class B (Note 2)  385,014 
Distribution fees — Class C (Note 2)  41,636 
Distribution fees — Class M (Note 2)  23,386 
Other  128,356 
Non-recurring costs (Notes 2 and 5)  230 
Costs assumed by Manager (Notes 2 and 5)  (230) 
Total expenses  2,916,320 
Expense reduction (Note 2)  (155,368) 
Net expenses  2,760,952 
Net investment income  11,944,777 
Net realized gain on investments (Notes 1 and 3)  1,135,112 
Net realized gain on futures contracts (Note 1)  206,872 
Net realized loss on swap contracts (Note 1)  (163,176) 
Net unrealized depreciation of investments, futures contracts and swap contracts during the year  (287,616) 
Net gain on investments  891,192 
Net increase in net assets resulting from operations  $12,835,969 

The accompanying notes are an integral part of these financial statements.

29

Statement of changes in net assets

DECREASE IN NET ASSETS     
  Year ended  Year ended 
  5/31/07  5/31/06 
Operations:     
Net investment income  $ 11,944,777  $ 12,552,708 
Net realized gain on investments  1,178,808  347,271 
Net unrealized depreciation of investments  (287,616)  (7,956,007) 
Net increase in net assets resulting from operations  12,835,969  4,943,972 
Distributions to shareholders (Note 1):     
From ordinary income     
Net realized short-term gain on investments     
Class A  —  (82,794) 
Class B  —  (19,023) 
Class C  —  (888) 
Class M  —  (1,532) 
From tax-exempt net investment income     
Class A  (9,982,943)  (10,312,358) 
Class B  (1,504,824)  (1,956,387) 
Class C  (132,028)  (85,737) 
Class M  (171,273)  (174,594) 
From net realized long-term gain on investments     
Class A  (89,378)  (2,042,249) 
Class B  (15,820)  (469,241) 
Class C  (1,537)  (21,901) 
Class M  (1,633)  (37,798) 
Redemption fees (Note 1)  1  29 
Decrease from capital share transactions (Note 4)  (31,135,657)  (15,678,260) 
Total decrease in net assets  (30,199,123)  (25,938,761) 
 
NET ASSETS     
Beginning of year  317,926,942  343,865,703 
End of year (including undistributed net investment income of $289,889 and $136,389, respectively)  $287,727,819  $317,926,942 

The accompanying notes are an integral part of these financial statements.

30

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31

Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS:          LESS DISTRIBUTIONS:          RATIOS AND SUPPLEMENTAL DATA:     
      Net              Total      Ratio of net   
  Net asset    realized and  Total  From  From      Net asset  return  Net  Ratio of  investment   
  value,  Net  unrealized  from  net  net realized      value,  at net  assets,  expenses to  income (loss)  Portfolio 
  beginning  investment  gain (loss) on  investment  investment  gain on  Total  Redemption  end  asset  end of period  average net  to average  turnover 
Period ended  of period  income (loss)  investments  operations  income  investments  distributions  fees  of period  value (%)(a)  (in thousands)  assets (%)(b)  net assets (%)  (%) 
CLASS A                             
May 31, 2007  $9.34  .38  .01  .39  (.37)  —(c)  (.37)  —(c)  $9.36  4.29  $241,481  .85  4.01  15.47 
May 31, 2006  9.63  .37  (.21)  .16  (.37)  (.08)  (.45)  —(c)  9.34  1.67  257,523  .83  3.88  7.07 
May 31, 2005  9.35  .38  .33  .71  (.37)  (.06)  (.43)  —(c)  9.63  7.78  267,460  .86  3.93  17.88 
May 31, 2004  9.79  .38  (.43)  (.05)  (.39)  —  (.39)  —  9.35  (.53)  270,640  .86  3.98  7.27 
May 31, 2003  9.34  .42  .44  .86  (.41)  —  (.41)  —  9.79  9.39  344,042  .84  4.42  29.10 
 
CLASS B                             
May 31, 2007  $9.34  .32  .01  .33  (.31)  —(c)  (.31)  —(c)  $9.36  3.64  $37,808  1.49  3.37  15.47 
May 31, 2006  9.63  .31  (.21)  .10  (.31)  (.08)  (.39)  —(c)  9.34  1.01  52,012  1.48  3.22  7.07 
May 31, 2005  9.35  .31  .34  .65  (.31)  (.06)  (.37)  —(c)  9.63  7.07  69,429  1.51  3.28  17.88 
May 31, 2004  9.78  .32  (.42)  (.10)  (.33)  —  (.33)  —  9.35  (1.08)  88,253  1.51  3.33  7.27 
May 31, 2003  9.33  .36  .44  .80  (.35)  —  (.35)  —  9.78  8.69  122,436  1.49  3.77  29.10 
 
CLASS C                             
May 31, 2007  $9.35  .30  .02  .32  (.30)  —(c)  (.30)  —(c)  $9.37  3.47  $3,824  1.64  3.23  15.47 
May 31, 2006  9.64  .29  (.21)  .08  (.29)  (.08)  (.37)  —(c)  9.35  .83  3,643  1.63  3.11  7.07 
May 31, 2005  9.36  .30  .34  .64  (.30)  (.06)  (.36)  —(c)  9.64  6.90  1,994  1.66  3.11  17.88 
May 31, 2004†  9.35  .24  .02  .26  (.25)  —  (.25)  —  9.36  2.71*  987  1.30*  2.52*  7.27 
 
CLASS M                             
May 31, 2007  $9.34  .35  .02  .37  (.35)  —(c)  (.35)  —(c)  $9.36  4.00  $4,614  1.14  3.72  15.47 
May 31, 2006  9.63  .34  (.21)  .13  (.34)  (.08)  (.42)  —(c)  9.34  1.37  4,748  1.13  3.58  7.07 
May 31, 2005  9.35  .35  .33  .68  (.34)  (.06)  (.40)  —(c)  9.63  7.45  4,983  1.16  3.63  17.88 
May 31, 2004  9.79  .36  (.44)  (.08)  (.36)  —  (.36)  —  9.35  (.83)  4,832  1.16  3.69  7.27 
May 31, 2003  9.33  .39  .45  .84  (.38)  —  (.38)  —  9.79  9.18  6,007  1.14  4.12  29.10 

* Not annualized.

† For the period August 19, 2003 (commencement of operations) to May 31, 2004.

(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.

(b) Includes amounts paid through expense offset arrangements (Note 2).

(c) Amount represents less than $0.01 per share.

The accompanying notes are an integral part of these financial statements.

32 33


Notes to financial statements 5/31/07

Note 1: Significant accounting policies

Putnam Massachusetts Tax Exempt Income Fund (the “fund”), a Massachusetts business trust, 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 Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is consistent with preservation of capital by investing in a portfolio primarily consisting of investment-grade tax-exempt securities issued in the state of Massachusetts with intermediate- to long-term maturities. The fund may be affected by economic and political developments in the state of Massachusetts.

The fund offers class A, class B, class C and class M shares. Class A and class M shares are sold with a maximum front-end sales charge of 3.75% and 3.25%, respectively, and generally do not pay contingent deferred sales charges. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. The expenses for class A, class B, class C and class M shares may differ based on the distribution fee of each class, which is identified in Note 2.

Effective October 2, 2006, a 1.00% redemption fee may apply on any shares purchased on or after such date that are redeemed (either by selling or exchanging into another fund) within 7 days of purchase. The redemption fee is accounted for as an addition to paid-in-capital. Prior to October 2, 2006, a 2.00% redemption fee applied to any shares that were redeemed (either by selling or exchanging into another fund) within 5 days of purchase.

Investment income, realized and unrealized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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. If the fund were liquidated, shares of each class would receive their pro-rata share of the net assets of the fund. In addition, the Trustees declare separate dividends on each class of shares.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 generally valued on the basis of valuations provided by an independent pricing service approved by the Trustees. Such services use information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Certain investments are also valued at fair value following procedures approved by the Trustees. Such valuations and procedures are reviewed periodically by the Trustees. The fair value of securities is generally determined as the amount that the fund could reasonably expect to realize from an orderly disposition of such securities over a reasonable period of time. By its nature, a fair value price is a good faith estimate of the value of a security at a given point in time and does not reflect an actual market price, which may be different by a material amount.

B) Security transactions and related investment income Security transactions are recorded on the trade date (the 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. All premiums/discounts are amortized/accreted on a yield-to-maturity basis. The premium in excess of the call price, if any, is amortized to the call date; thereafter, any remaining premium is amortized to maturity.

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, or for other investment purposes. The fund may also write options on swaps or 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. Risks may exceed amounts recognized on the Statement of assets and liabilities. 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. If a written call option is exercised, the premium originally received is recorded as an addition to sales proceeds. If a written put option is exercised, the premium originally received is recorded as a reduction to the cost of investments.

Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund and the broker agree to exchange an amount of cash equal to the daily fluctuation in the value of the futures contract. Such receipts or payments are known as “variation margin.” 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. Futures and written option contracts outstanding at period end, if any, are listed after the fund’s portfolio.

D) Interest rate swap contracts The fund may enter into interest rate swap contracts, which are arrangements between two parties to exchange cash flows based on a notional principal amount, to manage the

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fund’s exposure to interest rates. Interest rate swap contracts are marked to market daily based upon quotations from an independent pricing service or market makers and the change, if any, is recorded as unrealized gain or loss. Payments received or made are recorded as realized gains or loss. Certain interest rate swap contracts may include extended effective dates. Income related to these swap contracts is accrued based on the terms of the contract. The fund could be exposed to credit or market risk due to unfavorable changes in the fluctuation of interest rates or if the counterparty defaults on its obligation to perform. Risk of loss may exceed amounts recognized on the Statement of assets and liabilities. Interest rate swap contracts outstanding at period end, if any, are listed after the fund’s portfolio.

E) Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code of 1986 (the “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 Code, 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.

F) Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, if any, are recorded on the ex-dividend date and paid at least annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include temporary and/or permanent differences of dividends payable and straddle loss deferrals. Reclassifications are made to the fund’s capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended May 31, 2007, the fund reclassified $209 to decrease undistributed net investment income with a decrease to accumulated net realized losses of $209.

The tax basis components of distributable earnings and the federal tax cost as of May 31, 2007 were as follows:

Unrealized appreciation  $ 11,443,604 
Unrealized depreciation  (832,646) 
  ————————————— 
Net unrealized appreciation  10,610,958 
Undistributed tax-exempt income  459,546 
Undistributed ordinary income  78,563 
Undistributed short-term gain  114,988 
Undistributed long-term gain  998,078 
 
Cost for federal income tax purposes  $268,972,557 

Note 2: Management fee, administrative services
and other transactions

Putnam Management is paid for management and investment advisory services quarterly based on the average net assets of the fund. Such fee is based on the lesser of (i) an annual rate of 0.50% of the average net assets of the fund or (ii) the following annual rates expressed as a percentage of the fund’s average net assets: 0.60% of the first $500 million, 0.50% of the next $500 million, 0.45% of the next $500 million, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355% of the next $5 billion, 0.34% of the next $5 billion and 0.33% thereafter.

Putnam Management has agreed to waive fees and reimburse expenses of the fund through May 31, 2008 to the extent necessary to ensure that the fund’s expenses do not exceed the simple average of the expenses of all front-end load funds viewed by Lipper Inc. as having the same investment classification or objective as the fund. The expense reimbursement is based on a comparison of the fund’s expenses with the average annualized operating expenses of the funds in its Lipper peer group for each calendar quarter during the fund’s last fiscal year, excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses. For the year ended May 31, 2007, Putnam Management did not waive any of its management fee from the fund.

For the year ended May 31, 2007, Putnam Management has assumed $230 of legal, shareholder servicing and communication, audit and Trustee fees incurred by the fund in connection with certain legal and regulatory matters (including those described in Note 5).

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 were provided by Putnam Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC, and by State Street Bank and Trust Company. Custody fees are based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provided investor servicing agent functions to the fund. Putnam Investor Services received fees for investor servicing based on the number of shareholder accounts in the fund and the level of defined contribution plan assets in the fund. During the year ended May 31, 2007, the fund incurred $218,681 for custody and investor servicing agent functions provided by PFTC.

The fund has entered into arrangements with PFTC and State Street Bank and Trust Company whereby PFTC’s and State Street Bank and Trust Company’s fees are reduced by credits allowed on cash balances. For the year ended May 31, 2007, the fund’s expenses were reduced by $155,368 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $308, as a quarterly retainer, has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who was not an independent Trustee during the period, also receives the foregoing fees for his services as Trustee.

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 and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the

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Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. The retirement benefit is payable during a Trustee’s lifetime, beginning the year following retirement, for the number of years of service through December 31, 2006. Pension expense for the fund is included in Trustee compensation and expenses in the Statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the Statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the “Plans”) with respect to its class A, class B, class C 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 Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at the annual rate of 0.85%, 1.00% and 0.50% of the average net assets for class B, class C and class M shares, respectively. For class A shares, the annual payment rate will equal the weighted average of (i) 0.20% on the net assets of the fund attributable to class A shares purchased and paid for prior to April 1, 2005 and (ii) 0.25% on all other net assets of the fund attributable to class A shares.

For the year ended May 31, 2007, Putnam Retail Management, acting as underwriter, received net commissions of $11,114 and $24 from the sale of class A and class M shares, respectively, and received $48,805 and $1,078 in contingent deferred sales charges from redemptions of class B and class C shares, respectively.

A deferred sales charge of up to 1.00% is assessed on certain redemptions of class A shares that were purchased without an initial sales charge as part of an investment of $1 million or more. For the year ended May 31, 2007, Putnam Retail Management, acting as underwriter, received $14,201 on class A redemptions.

Note 3: Purchases and sales of securities

During the year ended May 31, 2007, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $45,897,574 and $73,996,425, respectively. There were no purchases or sales of U.S. government securities.

Note 4: Capital shares

At May 31, 2007, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows:

CLASS A  Shares  Amount 
Year ended 5/31/07:     
Shares sold  2,632,600  $ 24,759,902 
Shares issued in connection with     
reinvestment of distributions  694,293  6,569,158 
  3,326,893  31,329,060 
Shares repurchased  (5,098,540)  (48,102,765) 
Net decrease  (1,771,647)  $(16,773,705) 
 
Year ended 5/31/06:     
Shares sold  4,151,137  $ 39,507,116 
Shares issued in connection with     
reinvestment of distributions  855,414  8,103,544 
  5,006,551  47,610,660 
Shares repurchased  (5,207,992)  (49,363,452) 
Net decrease  (201,441)  $ (1,752,792) 
 
CLASS B  Shares  Amount 
Year ended 5/31/07:     
Shares sold  35,249  $ 332,306 
Shares issued in connection with     
reinvestment of distributions  101,992  959,968 
  137,241  1,292,274 
Shares repurchased  (1,667,316)  (15,687,034) 
Net decrease  (1,530,075)  $(14,394,760) 
 
Year ended 5/31/06:     
Shares sold  99,724  $ 946,198 
Shares issued in connection with     
reinvestment of distributions  165,881  1,571,047 
  265,605  2,517,245 
Shares repurchased  (1,907,096)  (18,094,906) 
Net decrease  (1,641,491)  $(15,577,661) 
 
CLASS C  Shares  Amount 
Year ended 5/31/07:     
Shares sold  166,792  $ 1,574,395 
Shares issued in connection with     
reinvestment of distributions  13,587  127,602 
  180,379  1,701,997 
Shares repurchased  (161,891)  (1,525,802) 
Net increase  18,488  $ 176,195 
 
Year ended 5/31/06:     
Shares sold  244,899  $ 2,326,525 
Shares issued in connection with     
reinvestment of distributions  9,840  93,126 
  254,739  2,419,651 
Shares repurchased  (71,961)  (681,455) 
Net increase  182,778  $ 1,738,196 

CLASS M  Shares  Amount 
Year ended 5/31/07:     
Shares sold  12,258  $ 115,956 
Shares issued in connection with     
reinvestment of distributions  7,451  70,208 
  19,709  186,164 
Shares repurchased  (35,133)  (329,551) 
Net decrease  (15,424)  $(143,387) 
 
Year ended 5/31/06:     
Shares sold  10,377  $ 98,176 
Shares issued in connection with     
reinvestment of distributions  9,410  89,190 
  19,787  187,366 
Shares repurchased  (28,876)  (273,369) 
Net decrease  (9,089)  $ (86,003) 

Note 5: Regulatory matters and litigation

In late 2003 and 2004, Putnam Management settled charges brought by the Securities and Exchange Commission (the “SEC”) and the Massachusetts Securities Division (“MSD”) in connection with excessive short-term trading by certain former Putnam employees and, in the case of charges brought by the MSD, excessive short-term trading by participants in some Putnam-administered 401(k) plans. Putnam Management agreed to pay $193.5 million in penalties and restitution, of which $153.5 million will be distributed to certain open-end Putnam funds and their shareholders after the SEC and MSD approve a distribution plan being developed by an independent consultant. The allegations of the SEC and MSD and related matters have served as the general basis for certain lawsuits, including purported class action lawsuits filed against Putnam Management and, in a limited number of cases, against some Putnam funds. Putnam Management believes that these lawsuits will have no material adverse effect on the funds or on Putnam Management’s ability to provide investment management services. In addition, Putnam Management has agreed to bear any costs incurred by the Putnam funds as a result of these matters.

Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.

Note 6: New accounting pronouncements

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”). The Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken by a filer in the filer’s tax return. The Interpretation is not expected to have a material effect on the fund's financial statements. However, the conclusions regarding the Interpretation may be subject to review and adjustment at a later date based on factors including, but not limited to, further implementation guidance expected from the FASB, and on-going analysis of tax laws, regulations and interpretations thereof.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (the “Standard”). The Standard defines fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. The Standard applies to fair value measurements already required or permitted by existing standards. The Standard is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Putnam Management is currently evaluating what impact the adoption of the Standard will have on the fund’s financial statements.

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Federal tax information
(Unaudited)

The fund has designated 100% of dividends paid from net investment income during the fiscal year as tax exempt for Federal income tax purposes.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the fund hereby designates $1,000,974 as long term capital gain, for its taxable year ended May 31, 2007.

The Form 1099 you receive in January 2008 will show the tax status of all distributions paid to your account in calendar 2007.

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Shareholder meeting
results (Unaudited)

May 15, 2007 meeting

A proposal to approve a new management contract between the fund and Putnam Investment Management, LLC was approved as follows:

Votes for  Votes against  Abstentions 
17,988,405  513,265  846,128 

All tabulations are rounded to the nearest whole number.

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About the Trustees

Jameson A. Baxter (Born 1943), Trustee since 1994, Vice Chairman since 2005

Ms. Baxter is the President of Baxter Associates, Inc., a private investment firm.

Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Ryerson, Inc. (a metals service corporation), the Mutual Fund Directors Forum, and Advocate Health Care. She is Chairman Emeritus of the Board of Trustees, Mount Holyoke College, having served as Chairman for five years. Until 2007, she was a Director of Banta Corporation (a printing and supply chain management company). Until 2004, she was a Director of BoardSource (formerly the National Center for Nonprofit Boards), and until 2002, she was a Director of Intermatic Corporation (a manufacturer of energy control products).

Ms. Baxter has held various positions in investment banking and corporate finance, including Vice President and Principal of the Regency Group, and Vice President of and Consultant to First Boston Corporation. She is a graduate of Mount Holyoke College.

Charles B. Curtis (Born 1940), Trustee since 2001

Mr. Curtis is President and Chief Operating Officer of the Nuclear Threat Initiative (a private foundation dealing with national security issues) and serves as Senior Advisor to the United Nations Foundation.

Mr. Curtis is a member of the Council on Foreign Relations and serves as a Director of Edison International and Southern California Edison. Until 2006, Mr. Curtis served as a member of the Trustee Advisory Council of the Applied Physics Laboratory, Johns Hopkins University. Until 2003, Mr. Curtis was a member of the Electric Power Research Institute Advisory Council and the University of Chicago Board of Governors for Argonne National Laboratory. Prior to 2002, Mr. Curtis was a Member of the Board of Directors of the Gas Technology Institute and the Board of Directors of the Environment and Natural Resources Program Steering Committee, John F. Kennedy School of Government, Harvard University. Until 2001, Mr. Curtis was a member of the Department of Defense Policy Board and Director of EG&G Technical Services, Inc. (a fossil energy research and development support company).

From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan & Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr. Curtis was Deputy Secretary of Energy and Under Secretary of the U.S. Department of Energy. He served as Chairman of the Federal Energy Regulatory Commission from 1977 to 1981 and has held positions on the staff of the U.S. House of Representatives, the U.S. Treasury Department, and the SEC.

Myra R. Drucker (Born 1948), Trustee since 2004

Ms. Drucker is Chair of the Board of Trustees of Commonfund (a not-for-profit firm specializing in asset management for educational endowments and foundations), Vice Chair of the Board of Trustees of Sarah Lawrence College, and a member of the Investment Committee of the Kresge Foundation (a charitable trust). She is also a director of New York Stock Exchange LLC, a wholly-owned subsidiary of the publicly-traded NYSE Group, Inc., a director of Interactive Data Corporation (a provider of financial market data, analytics, and related services to financial institutions and individual investors), and an advisor to RCM Capital Management (an investment management firm).

Ms. Drucker is an ex-officio member of the New York Stock Exchange (NYSE) Pension Managers Advisory Committee, having served as Chair for seven years.

Until August 31, 2004, Ms. Drucker was Managing Director and a member of the Board of Directors of General Motors Asset Management and Chief Investment Officer of General Motors Trust Bank. Ms. Drucker also served as a member of the NYSE Corporate Accountability and Listing Standards Committee and the NYSE/NASD IPO Advisory Committee.

Prior to joining General Motors Asset Management in 2001, Ms. Drucker held various executive positions in the investment management industry. Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a technology and service company in the document industry), where she was responsible for the investment of the company’s pension assets. Ms. Drucker was also Staff Vice President and Director of Trust Investments for International Paper (a paper products, paper distribution, packaging and forest products company) and previously served as Manager of Trust Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in Literature and Psychology from Sarah Lawrence College and pursued graduate studies in economics, statistics and portfolio theory at Temple University.

John A. Hill (Born 1942), Trustee since 1985 and Chairman since 2000

Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity buyout firm that specializes in energy investments in the diversified worldwide energy industry.

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Mr. Hill is a Director of Devon Energy Corporation and various private companies controlled by First Reserve Corporation, as well as Chairman of TH Lee, Putnam Investment Trust (a closed-end investment company advised by an affiliate of Putnam Management). He is also a Trustee of Sarah Lawrence College. Until 2005, he was a Director of Continuum Health Partners of New York.

Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held executive positions in investment banking and investment management with several firms and with the federal government, including Deputy Associate Director of the Office of Management and Budget and Deputy Director of the Federal Energy Administration. He is active in various business associations, including the Economic Club of New York, and lectures on energy issues in the United States and Europe. Mr. Hill holds a B.A. degree in Economics from Southern Methodist University and pursued graduate studies there as a Woodrow Wilson Fellow.

Paul L. Joskow (Born 1947), Trustee since 1997

Dr. Joskow is the Elizabeth and James Killian Professor of Economics and Management, and Director of the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology.

Dr. Joskow serves as a Director of National Grid (a UK-based holding company with interests in electric and gas transmission and distribution and telecommunications infrastructure), a Director of TransCanada Corporation (an energy company focused on natural gas transmission and power services), and a Member of the Board of Overseers of the Boston Symphony Orchestra. Prior to July 2006, he served as President of the Yale University Council and continues to serve as a Member of the Council. Prior to February 2005, he served on the board of the Whitehead Institute for Biomedical Research (a non-profit research institution). Prior to February 2002, he was a Director of State Farm Indemnity Company (an automobile insurance company), and prior to March 2000, he was a Director of New England Electric System (a public utility holding company).

Dr. Joskow has published six books and numerous articles on topics in industrial organization, government regulation of industry, and competition policy. He is active in industry restructuring, environmental, energy, competition and privatization policies — serving as an advisor to governments and corporations worldwide. Dr. Joskow holds a Ph.D. and M. Phil from Yale University and a B.A. from Cornell University.

Elizabeth T. Kennan (Born 1938), Trustee since 1992

Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and cattle breeding). She is President Emeritus of Mount Holyoke College.

Dr. Kennan served as Chairman and is now Lead Director of Northeast Utilities. She is a Trustee of the National Trust for Historic Preservation, of Centre College and of Midway College in Midway, Kentucky. Until 2006, she was a member of The Trustees of Reservations. Prior to 2001, Dr. Kennan served on the oversight committee of the Folger Shakespeare Library. Prior to June 2005, she was a Director of Talbots, Inc., and she has served as Director on a number of other boards, including Bell Atlantic, Chastain Real Estate, Shawmut Bank, Berkshire Life Insurance, and Kentucky Home Life Insurance. Dr. Kennan has also served as President of Five Colleges Incorporated, as a Trustee of Notre Dame University and is active in various educational and civic associations.

As a member of the faculty of Catholic University for twelve years, until 1978, Dr. Kennan directed the post-doctoral program in Patristic and Medieval Studies, taught history and published numerous articles. Dr. Kennan holds a Ph.D. from the University of Washington in Seattle, an M.S. from St. Hilda’s College at Oxford University and an A.B. from Mount Holyoke College. She holds several honorary doctorates.

Kenneth R. Leibler (Born 1949), Trustee since 2006

Mr. Leibler is a founding partner of and advisor to the Boston Options Exchange, the nation’s newest electronic marketplace for the trading of derivative securities.

Mr. Leibler currently serves as a Trustee of Beth Israel Deaconess Hospital in Boston. He is also lead director of Ruder Finn Group, a global communications and advertising firm; and a director of Northeast Utilities, which operates New England’s largest energy delivery system. Prior to December 2006, he served as a director of the Optimum Funds group. Prior to October 2006, he served as a director of ISO New England, the organization responsible for the operation of the electric generation system in the New England states. Prior to 2000, Mr. Leibler was a director of the Investment Company Institute in Washington, D.C.

Prior to January 2005, Mr. Leibler served as Chairman and Chief Executive Officer of the Boston Stock Exchange. Prior to January 2000, he served as President and Chief Executive Officer of Liberty Financial Companies, a publicly traded diversified asset management organization. Prior to June 1990, he served as President and Chief Operating Officer of the American Stock Exchange, and is the youngest person in Exchange history to hold

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the title of President. Prior to serving as Amex President, he held the position of Chief Financial Officer, and headed its management and marketing operations. Mr. Leibler graduated magna cum laude with a degree in economics from Syracuse University, where he was elected Phi Beta Kappa.

Robert E. Patterson (Born 1945), Trustee since 1984

Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman of Cabot Properties, Inc. (a private equity firm investing in commercial real estate).

Mr. Patterson serves as Chairman Emeritus and Trustee of the Joslin Diabetes Center. Prior to June 2003, he was a Trustee of Sea Education Association. Prior to December 2001, he was President and Trustee of Cabot Industrial Trust (a publicly traded real estate investment trust). Prior to February 1998, he was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership (a registered investment adviser involved in institutional real estate investments). Prior to 1990, he served as Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the predecessor company of Cabot Partners).

Mr. Patterson practiced law and held various positions in state government and was the founding Executive Director of the Massachusetts Industrial Finance Agency. Mr. Patterson is a graduate of Harvard College and Harvard Law School.

W. Thomas Stephens (Born 1942), Trustee since 1997

Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade, L.L.C. (a paper, forest products and timberland assets company).

Until 2005, Mr. Stephens was a director of TransCanadaPipelines, Ltd. Until 2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public utility company), Qwest Communications, and Norske Canada, Inc. (a paper manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well, Inc. (a diversified printing company). He served as Chairman of Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest products company) until 1999.

Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville Corporation. He holds B.S. and M.S. degrees from the University of Arkansas.

Richard B. Worley (Born 1945), Trustee since 2004

Mr. Worley is Managing Partner of Permit Capital LLC, an investment management firm.

Mr. Worley serves as a Trustee of the University of Pennsylvania Medical Center, The Robert Wood Johnson Foundation (a philanthropic organization devoted to health care issues), and the National Constitution Center. He is also a Director of The Colonial Williamsburg Foundation (a historical preservation organization) and the Philadelphia Orchestra Association. Mr. Worley also serves on the investment committees of Mount Holyoke College and World Wildlife Fund (a wildlife conservation organization).

Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief Strategic Officer of Morgan Stanley Investment Management. He previously served as President, Chief Executive Officer and Chief Investment Officer of Morgan Stanley Dean Witter Investment Management and as a Managing Director of Morgan Stanley, a financial services firm. Mr. Worley also was the Chairman of Miller Anderson & Sherrerd, an investment management firm.

Mr. Worley holds a B.S. degree from University of Tennessee and pursued graduate studies in economics at the University of Texas.

Charles E. Haldeman, Jr.* (Born 1948), Trustee since 2004 and President of the Funds since 2007

Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC (“Putnam Investments”) and President of the Putnam Funds. He is a member of Putnam Investments’ Executive Board of Directors and Advisory Council. Prior to November 2003, Mr. Haldeman served as Co-Head of Putnam Investments’ Investment Division.

Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive positions in the investment management industry. He previously served as Chief Executive Officer of Delaware Investments and President and Chief Operating Officer of United Asset Management. Mr. Haldeman was also a partner and director of Cooke & Bieler, Inc. (an investment management firm).

Mr. Haldeman currently serves on the Board of Governors of the Investment Company Institute and as Chair of the Board of Trustees of Dartmouth College. He also serves on the Partners HealthCare Investment Committee, the Tuck School of Business and Dartmouth College Board of Overseers, and the Harvard Business School Board of Dean’s Advisors. He is a graduate of Dartmouth College, Harvard Law School and Harvard Business School. Mr. Haldeman is also a Chartered Financial Analyst (CFA) charterholder.

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George Putnam, III* (Born 1951), Trustee since 1984

Mr. Putnam is Chairman of New Generation Research, Inc. (a publisher of financial advisory and other research services), and President of New Generation Advisers, Inc. (a registered investment advisor to private funds). Mr. Putnam founded the New Generation companies in 1986.

Mr. Putnam is a Director of The Boston Family Office, LLC (a registered investment adviser). He is a Trustee of St. Mark’s School. Until 2006, he was a Trustee of Shore Country Day School, and until 2002 was a Trustee of the Sea Education Association.

Mr. Putnam previously worked as an attorney with the law firm of Dechert LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a graduate of Harvard College, Harvard Business School and Harvard Law School.

The address of each Trustee is One Post Office Square, Boston, MA 02109.

As of May 31, 2007, there were 105 Putnam Funds. All Trustees serve as Trustees of all Putnam funds.

Each Trustee serves for an indefinite term, until his or her resignation, retirement at age 72, death, or removal.

* Trustees who are or may be deemed to be “interested persons” (as defined in the Investment Company Act of 1940) of the fund, Putnam Management, Putnam Retail Management, or Marsh & McLennan Companies, Inc., the parent company of Putnam, LLC and its affiliated companies. Messrs. Haldeman and Putnam, III are deemed “interested persons” by virtue of their positions as officers of the fund, Putnam Management or Putnam Retail Management and/or as shareholders of Marsh & McLennan Companies, Inc. Mr. Haldeman is the President of your fund and each of the other Putnam funds, and is President and Chief Executive Officer of Putnam Investments.

43

Officers

In addition to Charles E. Haldeman, Jr., the other officers of the fund are shown below:

Charles E. Porter (Born 1938)
Executive Vice President, Principal Executive Officer, Associate
Treasurer, and Compliance Liaison
Since 1989

Jonathan S. Horwitz (Born 1955)
Senior Vice President and Treasurer
Since 2004

Prior to 2004, Managing Director,
Putnam Investments

Steven D. Krichmar (Born 1958)
Vice President and Principal Financial Officer
Since 2002

Senior Managing Director, Putnam Investments

Janet C. Smith (Born 1965)
Vice President, Principal Accounting Officer and Assistant Treasurer
Since 2007

Managing Director, Putnam Investments and Putnam Management

Susan G. Malloy (Born 1957)
Vice President and Assistant Treasurer
Since 2007

Managing Director, Putnam Investments

Beth S. Mazor (Born 1958)
Vice President
Since 2002

Managing Director, Putnam Investments

James P. Pappas (Born 1953)
Vice President
Since 2004

Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation

Richard S. Robie, III (Born 1960)
Vice President
Since 2004

Senior Managing Director, Putnam Investments, Putnam Management
and Putnam Retail Management. Prior to 2003, Senior Vice President,
United Asset Management Corporation

Francis J. McNamara, III (Born 1955)
Vice President and Chief Legal Officer
Since 2004

Senior Managing Director, Putnam Investments, Putnam Management
and Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company

Robert R. Leveille (Born 1969)
Vice President and Chief Compliance Officer
Since 2007

Managing Director, Putnam Investments, Putnam Management,
and Putnam Retail Management. Prior to 2005, member of Bell
Boyd & Lloyd LLC. Prior to 2003, Vice President and Senior Counsel,
Liberty Funds Group LLC

Mark C. Trenchard (Born 1962)
Vice President and BSA Compliance Officer
Since 2002

Managing Director, Putnam Investments

Judith Cohen (Born 1945)
Vice President, Clerk and Assistant Treasurer
Since 1993

Wanda M. McManus (Born 1947)
Vice President, Senior Associate Treasurer and Assistant Clerk
Since 2005

Nancy E. Florek (Born 1957)
Vice President, Assistant Clerk, Assistant Treasurer
and Proxy Manager
Since 2005

The address of each Officer is One Post Office Square, Boston, MA 02109.

44

Fund information

Founded nearly 70 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager  Officers  Mark C. Trenchard 
Putnam Investment  Charles E. Haldeman, Jr.  Vice President and BSA Compliance Officer 
Management, LLC  President 
One Post Office Square  Judith Cohen 
Boston, MA 02109  Charles E. Porter    Vice President, Clerk and Assistant Treasurer   
  Executive Vice President, Principal 
Marketing Services  Executive Officer, Associate Treasurer  Wanda M. McManus 
Putnam Retail Management  and Compliance Liaison  Vice President, Senior Associate Treasurer 
One Post Office Square  and Assistant Clerk   
Boston, MA 02109  Jonathan S. Horwitz   
  Senior Vice President and Treasurer  Nancy E. Florek 
Vice President, Assistant Clerk, 
Custodian  Steven D. Krichmar  Assistant Treasurer and Proxy Manager 
State Street Bank and Trust Company  Vice President and Principal Financial Officer   

 

Legal Counsel 

 Janet C. Smith   
Ropes & Gray LLP  Vice President, Principal Accounting Officer   
and Assistant Treasurer 

 

Independent Registered Public 

  
Accounting Firm  Susan G. Malloy   
PricewaterhouseCoopers LLP  Vice President and Assistant Treasurer   

 

Trustees 

 Beth S. Mazor   
Jameson Adkins Baxter, Vice Chairman  Vice President   
Charles B. Curtis     
Myra R. Drucker  James P. Pappas 
Charles E. Haldeman, Jr.  Vice President   
Paul L. Joskow   
Elizabeth T. Kennan  Richard S. Robie, III   
Kenneth R. Leibler  Vice President   
Robert E. Patterson     
George Putnam, III  Francis J. McNamara, III   
W. Thomas Stephens  Vice President and Chief Legal Officer   
Richard B. Worley   
Robert R. Leveille   
Vice President and Chief Compliance Officer     

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, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.


Item 2. Code of Ethics:

(a) The fund’s principal executive, financial and accounting officers are employees of Putnam Investment Management, LLC, the Fund's investment manager. As such they are subject to a comprehensive Code of Ethics adopted and administered by Putnam Investments which is designed to protect the interests of the firm and its clients. The Fund has adopted a Code of Ethics which incorporates the Code of Ethics of Putnam Investments with respect to all of its officers and Trustees who are employees of Putnam Investment Management, LLC. For this reason, the Fund has not adopted a separate code of ethics governing its principal executive, financial and accounting officers.

Item 3. Audit Committee Financial Expert:

The Funds' Audit and Compliance Committee is comprised solely of Trustees who are "independent" (as such term has been defined by the Securities and Exchange Commission ("SEC") in regulations implementing Section 407 of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe that each of the members of the Audit and Compliance Committee also possess a combination of knowledge and experience with respect to financial accounting matters, as well as other attributes, that qualify them for service on the Committee. In addition, the Trustees have determined that each of Mr. Patterson, Mr. Stephens, Mr. Leibler, Mr. Hill and Mr. Darretta meets the financial literacy requirements of the New York Stock Exchange's rules and qualifies as an "audit committee financial expert" (as such term has been defined by the Regulations) based on their review of his pertinent experience and education. Certain other Trustees, although not on the Audit and Compliance Committee, would also qualify as "audit committee financial experts." The SEC has stated that the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the Audit and Compliance Committee and the Board of Trustees in the absence of such designation or identification.

Item 4. Principal Accountant Fees and Services:

The following table presents fees billed in each of the last two fiscal years for services rendered to the fund by the fund’s independent auditor:

Fiscal    Audit-     
year  Audit  Related  Tax  All Other 
ended  Fees  Fees  Fees  Fees 
 
May 31, 2007  $53,497  $94  $7,137  $152* 
May 31, 2006  $44,704*  $--  $6,798  $ - 

* Includes fees of $126 and $191 billed by the fund’s independent auditor to the fund for procedures necessitated by regulatory and litigation matters for the fiscal years ended May 31, 2007 and May 31, 2006, respectively. These fees were reimbursed to the fund by Putnam Investment Management, LLC (“Putnam Management”).

For the fiscal years ended May 31, 2007and May 31, 2006, the fund’s independent auditor billed aggregate non-audit fees in the amounts of $157,599 and $238,572 respectively, to the fund, Putnam Management and any entity controlling, controlled by or under common control with Putnam Management that provides ongoing services to the fund.

Audit Fees represent fees billed for the fund’s last two fiscal years.

Audit-Related Fees represent fees billed in the fund’s last two fiscal years for services traditionally performed by the fund’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

Tax Fees represent fees billed in the fund’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

All Other Fees represent fees billed for services relating to an analysis of recordkeeping fees.

Pre-Approval Policies of the Audit and Compliance Committee. The Audit and Compliance Committee of the Putnam funds has determined that, as a matter of policy, all work performed for the funds by the funds’ independent auditors will be pre-approved by the Committee itself and thus will generally not be subject to pre-approval procedures.

The Audit and Compliance Committee also has adopted a policy to pre-approve the engagement by Putnam Management and certain of its affiliates of the funds’ independent auditors, even in circumstances where pre-approval is not required by applicable law. Any such requests by Putnam Management or certain of its affiliates are typically submitted in writing to the Committee and explain, among other things, the nature of the proposed engagement, the estimated fees, and why this work should be performed by that particular audit firm as opposed to another one. In reviewing such requests, the Committee considers, among other things, whether the provision of such services by the audit firm are compatible with the independence of the audit firm.

The following table presents fees billed by the fund’s independent auditor for services required to be approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.

Fiscal  Audit-    All  Total 
year  Related  Tax  Other  Non-Audit 
ended  Fees  Fees  Fees  Fees 
 
May 31, 2007  $ -  $ 61,129  $ -  $ - 
     
May 31, 2006  $ -  $ 98,160  $ -  $ - 
       

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to
shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management
Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and
Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:

(a)(1) The Code of Ethics of The Putnam Funds, which incorporates the Code of Ethics of Putnam Investments, is filed herewith.

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Massachusetts Tax Exempt Income Fund

By (Signature and Title):

/s/Janet C. Smith
Janet C. Smith
Principal Accounting Officer

Date: July 26, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer

Date: July 26, 2007

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: July 26, 2007