-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gSdAtv2g07h0x5p6ARmfxjoBCfCJUZnn7/1lDO/YPJi0bLwjDP4yAQwQQYm55XXY Cm3PaKPqFX0FuWYo2MeRFw== 0000950146-94-000143.txt : 19940803 0000950146-94-000143.hdr.sgml : 19940803 ACCESSION NUMBER: 0000950146-94-000143 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940531 FILED AS OF DATE: 19940802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II CENTRAL INDEX KEY: 0000792288 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 046626127 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04518 FILM NUMBER: 94541321 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 617-292-14 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND /MA/ DATE OF NAME CHANGE: 19920609 N-30D 1 MA TAX EXEMPT INCOME FUND II Putnam Massachusetts Tax Exempt Income Fund II ANNUAL REPORT May 31, 1994 (Artwork of Balance Scales) B O S T O N * L O N D O N * T O K Y O Performance highlights Putnam Massachusetts Tax Exempt Income Fund II has earned Morningstar's highest ranking of five stars, based on risk-adjusted performance as of May 31, 1994.* CDA/Wiesenberger ranked your fund among the top 10% (or # 26) of all 338 single-state municipal bond funds tracked for the three years ended May 31, 1994.+ Performance should always be considered in light of a fund's investment strategy. Putnam Massachusetts Tax Exempt Income Fund II is designed for investors seeking a high level of current income free from federal and state income tax consistent with preservation of capital. FISCAL 1994 RESULTS AT A GLANCE
12 months ended 5/31/94 Class A Class B Total return: NAV POP NAV CDSC ............................................................................................ (change in value during period plus reinvested earnings) 1.92% -2.97% -- -- Current return: NAV POP NAV ............................................................................................ (end of period:) Current dividend rate(1) 6.00% 5.72% 5.36% Taxable equivalent(2) 11.29 10.76 10.08 Current 30-day SEC yield(3) 5.65 5.38 4.96 Taxable equivalent(2) 10.63 10.12 9.33 Share value: NAV POP NAV ............................................................................................ 5/31/93 $ 9.55 $10.03 -- 7/15/93 (inception of class B shares) -- -- $ 9.71 5/31/94 9.05 9.50 9.05 Capital gains Distributions:(4) No. Income Short-term Long-term Total ............................................................................................ Class A 12 $0.548515 $0.113 $0.038 $0.699515 Class B 11 0.414906 0.113 0.038 0.565906
Performance data represent past results and will differ for each share class. For performance over longer periods, see pages 8 and 9. POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge. (1)Income portion of most recent distribution, divided by NAV or POP at end of period. (2)Assumes maximum combined 46.85% federal and state tax rate. Results for investors subject to lower tax rates would not be as advantageous. For some investors, investment income may also be subject to the federal Alternative Minimum Tax. (3)Based only on investment income, calculated using SEC guidelines. (4)Capital gains are taxable for federal and, in most cases, state purposes. Investment income may be subject to state and local taxes. *Morningstar, Inc., a mutual fund research firm, rates a fund in relation to similar funds. A rating is based on risk-adjusted 3-, 5-, and 10-year total return, as applicable, adjusted for sales charges. The ratings are updated biweekly. (+)CDA/Wiesenberger is an independent mutual fund research firm whose rankings vary over time and do not include the effect of sales charges. For the 1-year period ended 5/31/94, the fund was # 265 of all 574 funds tracked. From the Chairman (George Putnam Photo) Karsh, Ottawa Dear Shareholder: The Federal Reserve Board's primary concern remains fighting not only inflation but the fear of inflation. It is pursuing this goal by gradually raising the short-term interest rates under its control to slow the economy's growth to what it regards as a sustainable pace. The policy continues as the effects of last year's tax increase are being keenly felt by individuals and businesses. This confluence could result in a greater slowing of business than many observers now expect. As this slowing becomes more obvious, the Fed will come under growing pressure from politicians to ease up. The Fed is not likely to yield. But the very fact that investors think it might could cause some more volatility in the bond markets in the months ahead. Meanwhile, you can take comfort in the tax shelter provided for the income generated by your Putnam tax-exempt fund shares. In the following report, Fund Manager Triet Nguyen explains how he is positioning your fund's portfolio to respond to 1994's unfolding events. Respectfully yours, (Signature of George Putnam) George Putnam Chairman of the Trustees July 20, 1994 Report from the fund manager Triet Nguyen During the first half of fiscal 1994, Putnam Massachusetts Tax Exempt Income Fund II took advantage of several positive trends in the Massachusetts bond market. Nevertheless, your fund's performance -- like that of all municipal bond funds and most fixed-income investments -- was affected by spring's market turbulence to some degree. Beginning in February, the Federal Reserve Board took an increasingly aggressive stance with regard to inflation. By boosting the federal funds rate, which determines what banks charge each other for overnight loans, the board ensured higher interest rates in virtually every sector of the fixed-income market. Since bond prices fall as interest rates rise, the result was a market-wide sell-off. While our strategies could not offset the impact of three short-term interest rate increases in approximately three months, we believe that the fund's positioning was invaluable in reducing the magnitude of the decline. HOW HIGHER-RISK INVESTMENTS HELPED REDUCE VOLATILITY Lower-rated, higher-yielding municipal bonds tend to perform well during periods of economic strength. It should be no surprise, then, that high-yielding Massachusetts bonds have made an important contribution to the fund's performance over this period. High-yield bonds carry higher coupon rates than investment-grade bonds in order to compensate investors for the increased risk inherent in a lower-rated investment. Thus, the traditional reason for including them in a fund's portfolio is to increase current income. However, as the state economy has strengthened, a significant number of lower-rated Massachusetts bonds have been upgraded. Consequently, they have appreciated in value at a time when most other income investments were declining. Because lower ratings can make an investment less liquid, high-yield bonds were less affected by the recent sell-off in the municipal bond market. Many investors, anticipating ongoing rate increases, liquidated large holdings of investment-grade tax-exempt bonds. Since there were more sellers than buyers, higher-quality bonds declined in value to a greater extent than higher-yielding bonds. The average AAA-rated, insured Massachusetts bond fell 10% or more in value while the average BB-rated bond fell 6%. Your fund's high-yield bond holdings, therefore, helped cushion the value of the portfolio. In other words, our focus on what is traditionally considered a higher-risk investment actually helped reduce volatility. It is important to note that Putnam's in-depth credit research has been instrumental in enabling the fund to maximize benefits from its high-yield bond investments. It is no coincidence that many of the bonds we purchased experienced credit upgrades; while no assurances can ever be made, our research typically allows us to identify those bonds with the greatest potential for upgrades -- which often translate into price increases. TOP HOLDINGS (5/31/94) MA Indl. Fin. Agcy. Revenue bonds MA Health & Educational Facility Authority Revenue bonds MA Hsg. Fin. Agcy. Revenue bonds MA Muni. Wholesale Electric Co. Power Supply System Revenue bonds MA Water Resource Authority Revenue bonds MA G.O. Cons. Loan Bonds General obligation bonds Agawam Resource Recovery Revenue bonds Boston, Ind. Dev. Fin. Auth. Swr. Fac. Revenue bonds These holdings represent 70.2% of the fund's net assets. Portfolio holdings are subject to change. THE SUPPLY STORY: SHORTAGES SEEM LIKELY The lower interest rates of the past two years have contributed to a municipal bond supply surge. Just as mortgage holders rushed to refinance home mortgages to seize the opportunity presented by lower rates, municipalities have refinanced older, higher-yielding debt, increasing the number of new-issue bonds available. Now that interest rates have changed direction, the refinancing stampede has slowed to a crawl. Furthermore, we are approaching a time when many Massachusetts bonds will mature or be called, reducing the supply even more. In reviewing bond supply trends throughout the country, Merrill Lynch analysts recently noted that Massachusetts was one of the states most likely to undergo a shortage. Last year, refundings represented over 80% of new-issue Massachusetts bonds. For the first 4 months of calendar 1994, new issuance was down over 70%. For some time, we have anticipated a significant increase in demand for tax-free investments. While this demand did not materialize during this period, we believe the recent market volatility kept people from focusing on fixed-income investments. Going forward, a supply decline of the magnitude we expect could help increase the value of existing bonds even without any increase in demand. And, if we should experience a renewal of interest in tax-free investments, the benefits to the fund could be even greater. PORTFOLIO POSITIONS: SECTOR AND DURATION SHIFTS Our discussion of high-yield bonds should not obscure the fact that over one third of the portfolio is invested in AAA-rated bonds. As of the end of the period, average portfolio quality was A, just as it has been over the last year. We have, however, made some modest changes in the portfolio's sector allocations. Health care continues to be a focal point, but we are being especially selective and somewhat more conservative than in the past. Many of our health care holdings have recently experienced upgrades and most of these are also insured. (Bar Chart) HOLDINGS BY INDUSTRY SECTORS* Health care and hospitals 34.3% Utilities 18.3% Education 17.0% Transportation 9.3% Housing 7.2% *Based on net assets on 5/31/94 Although we have followed the environmental sector for some time, it has not yet become a significant factor in our investments. This could change in the future, as we are now considering purchasing bonds issued to support a number of recycling projects. The fund's fairly conservative duration proved beneficial during the recent interest rate increases. Duration is a mathematical formula indicating how much bond prices will move up or down with each percentage-point shift in interest rates. Like maturity, duration is measured in years. The shorter the duration, the less volatility you can expect from the portfolio. In anticipation of an eventual rise in rates, we reduced the portfolio's duration from 7-1/2 to 7 years at the beginning of calendar 1994 -- a move which helped protect the fund this spring. Looking ahead, we are aware that Massachusetts is continuing to grapple with a level of unemployment well ahead of the national average, as well as a proposed graduated income tax to replace the current flat-tax structure. Both issues may well affect your fund's performance and are likely to influence our investment decisions over the rest of 1994 and beyond. Performance summary This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions back into the fund. We show total return in two ways: on a cumulative long-term basis (see the chart on the facing page) and how the fund might have grown each year, on average, over varying periods (see the tables below). For comparative purposes, we show how the fund performed relative to appropriate indexes and benchmarks. TOTAL RETURN FOR PERIODS ENDING 5/31/94
Lehman Bros. Class A Class B Municipal Bond NAV POP NAV CDSC Index CPI 1 year 1.92% -2.97% -- -- 2.47% 2.29% 3 years 28.72 22.64 -- -- 25.99 8.78 Annual average 8.78 7.04 -- -- 8.01 2.84 Life of class A (since 10/23/89) 47.62 40.66 -- -- 44.97 17.44 Annual average 8.82 7.68 -- -- 8.39 3.55 Life of class B (since 7/15/93) -- -- -1.15% -5.81% 0.78 2.15
TOTAL RETURN FOR PERIODS ENDING 6/30/94 (most recent calendar quarter)
Class A Class B NAV POP NAV CDSC 1 year -0.49% -5.20% -- -- 3 years 27.42 21.41 -- -- Annual average 8.41 6.68 -- -- Life of class A (since 10/23/89) 46.67 39.75 -- -- Annual average 8.51 7.40 -- -- Life of class B (since 7/15/93) -- -- Annual average -- -- -1.81% -6.43%
Performance data represent past results. Investment returns and principal value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost. Fund performance data do not take into account any adjustment for taxes payable on reinvested distributions or, for class A shares, distribution fees prior to implementation of the class A distribution plan in 1990. Effective July 15, 1993, the fund began offering class B shares. Performance for each share class will differ. Lehman Brothers Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. Consumer Price Index is a commonly used measure of inflation. It does not represent an investment return. (Graphic line chart showing growth of a $10,000 investment) Plot points Fund Lehman Bros. Class A Municipal Consumer shares at Bond Price POP Index Index 10000 10000 10000 9525 9740 9857 9926 10453 10287 10929 11506 10796 12236 12636 11123 13803 14148 11481 14067 14497 11744 Past performance is no assurance of future results. A $10,000 investment in the fund's class B shares at inception (7/15/93) would have been valued at $9,885 by 5/31/94 ($9,419 with a redemption at the end of the period). TERMS AND DEFINITIONS Class A fund shares are generally subject to an initial sales charge. Class B fund shares may be subject to a sales charge on redemption. Net asset value (NAV) is the value of all fund assets, minus liabilities, divided by the number of outstanding shares. It does not include any initial or contingent deferred sales charges. Public offering price (POP) is the price of a fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 4.75% sales charge. Contingent deferred sales charge (CDSC) is applied on redemption of fund shares. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The Putnam Fund Selector(TM) The Putnam Fund Selector shows the many opportunities for investors within every investment strategy. All investors should first accumulate a base of conservative, cash-equivalent investments. Then, with the help of your investment advisor, diversify your portfolio by investing in the Putnam Family of Funds. (Graphic) PUTNAM GROWTH FUNDS Asia Pacific Growth Fund Diversified Equity Trust Natural-Resources Fund Europe Growth Fund Global Growth Fund Health Sciences Trust Investors Fund New Opportunities Fund OTC Emerging Growth Fund Overseas Growth Fund Vista Fund Voyager Fund PUTNAM GROWTH AND INCOME FUNDS Convertible Income-Growth Trust Dividend Growth Fund Equity Income Fund The George Putnam Fund of Boston The Putnam Fund for Growth and Income Managed Income Trust Utilities Growth and Income Fund PUTNAM INCOME FUNDS Adjustable Rate U.S. Government Fund American Government Income Fund Balanced Government Fund Corporate Asset Trust Diversified Income Trust Federal Income Trust Global Governmental Income Trust High Yield Advantage Fund High Yield Trust Income Fund U.S. Government Income Trust PUTNAM TAX-FREE INCOME FUNDS Intermediate Tax Exempt Fund Municipal Income Fund Tax Exempt Income Fund Tax-Free High Yield Fund Tax-Free Insured Fund *State tax-free income funds *Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania Report of Independent Accountants For the Fiscal Year Ended May 31, 1994 To the Trustees and Shareholders of Putnam Massachusetts Tax Exempt Income Fund II In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments owned (except for bond ratings), 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 II (the fund) at May 31, 1994, and the results of its operations, the changes in its net assets and the financial highlights for the periods indicated, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards, which 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, 1994, by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. Price Waterhouse, LLP Boston, Massachusetts July 18, 1994 Portfolio of investments owned May 31, 1994 MUNICIPAL BONDS AND NOTES (97.4%)(a) PRINCIPAL AMOUNT RATINGS(b)VALUE
Massachusetts (89.2%) $5,500,000 Agawam, Resource Recvy. Rev. Bonds (Springfield Resources Recvy. Project), 8-1/2s, 12/1/08 BBB $5,933,125 2,135,000 Boston, Indl. Fing. Auth. Ser. A. (Mass College of Pharmacy, Project Connie Lee), 5-1/4s, 10/1/26 AAA 1,796,069 5,000,000 Boston, Ind. Dev. Fin. Auth. Swr. Fac. Rev. Bonds (Harbor Elec. Energy Co. Project), 7-3/8s, 5/15/15 Baa 5,287,500 1,315,000 Boston, Nursing Home Rev. Bonds (St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,408,694 5,000,000 Boston, Rev. Rfdg. Ser. B (City Hospital), 5-3/4s, 2/15/23(c) AA 4,618,750 1,500,000 Boston, Wtr. & Swr. Rev. Bonds Ser. A, 5-3/4s, 11/1/13 A 1,426,875 1,000,000 Haverhill, General Obligation (G.O.) Bonds Ser. A, Financial Guaranty Insurance Corp. (FGIC) 7s, 6/15/12 AAA 1,075,000 Holyoke, G.O. Bonds 1,870,000 9.85s, 11/1/08 AAA 2,138,813 2,000,000 (School Project Loan Act), 7.65s, 8/1/09 Baa 2,172,500 Lowell G.O. Bonds 1,250,000 8.4s, 1/15/09 AAA 1,439,063 2,455,000 8.3s, 2/15/05 AAA 2,921,450 545,000 8.3s, 2/15/05 Baa 627,431 MA Bay Trans. Auth. Rev. Bonds 1,250,000 Ser. B, 6.2s, 3/1/16 A 1,264,063 4,000,000 (General Trans. Syst.), Ser. A, 5-1/2s, 3/1/12 A 3,780,000 1,625,000 MA Convention Ctr. Auth. Rfdg. Rev. Bonds (Hynes Convention Ctr.) zero%, 9/1/04 A 912,031 MA G.O. Cons. Loan Bonds 1,000,000 Ser. A, 7-5/8s, 6/1/08 AAA 1,155,000 1,600,000 Ser. A, 7-1/2s, 6/1/04 A 1,842,000 2,520,000 Ser. B, 5.4s, 11/1/06 A 2,475,900 7,500,000 Ser. B, FGIC, zero%, 6/1/07 AAA 3,478,125 MA Hlth. & Edl. Fac. Auth. Rev. Bonds 3,000,000 (Tufts) Inverse Floating Rate, Financial Guaranty Insurance Corp. FGIC, 9.074s, 8/15/18 AAA 2,685,000 2,000,000 (Fairview Extended Care), Ser. A, 10-1/4s, 1/1/21 BB/P 2,155,000 2,000,000 RIBS (St. Elizabeth Hosp.), Ser. E, 9.97s, 8/15/21 AAA 2,122,500 865,000 (Summerfield Nursing Home), Ser. A, 9-1/2s, 7/1/14 BB/P 942,850 2,000,000 (Nichols College), Ser. B, 8-1/2s, 10/1/16 BBB 2,285,000 1,500,000 (Holy Cross College), Ser E, 8.4s, 11/1/15 AAA 1,586,250 2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 2,681,250 4,250,000 (Suffolk U.), Ser. A, 8-1/8s, 7/1/20 Baa 4,940,625 2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Baa 2,281,688 1,125,000 (Norwood Hosp.), Ser. E, 7-3/4s, 7/1/07 Baa 1,143,281 3,000,000 (Stonehill College), AMBAC, 7.7s, 7/1/20 AAA 3,446,250 5,000,000 (Med. Ctr. of Central MA), Ser. A, 7.1s, 7/1/21 A 5,225,000 1,550,000 (Worcester Polytechnic Inst.), Ser. E, 6-5/8s, 9/1/17 A 1,596,500 1,000,000 (Wheaton College) 5-1/4s, 7/1/19 A 868,750 6,500,000 RIBS (Boston U.), Ser. L, Municipal Bond Insurance Association (MBIA), 10.564s, 10/1/31 AAA 6,768,125 3,300,000 (Norwood Hosp.), Ser. E 8s, 7/1/12 Baa 3,378,375 3,250,000 (Cooley Dickinson Hosp.), Ser. A, 7-1/8s, 11/15/18 BBB/P 3,323,125 3,880,000 (Metro West Hlth. Inc.), Ser. C, 6-1/2s, 11/15/18 A 3,875,150 2,000,000 (Harvard U.), Ser. N, 6-1/4s, 4/1/20 AAA 2,070,000 Massachusetts (continued) $3,000,000 (MA General Hosp.), Ser. F, AMBAC, 6-1/4s, 7/1/12 AAA $3,060,000 2,000,000 (Williams College), Ser. D, 5-1/2s, 7/1/12 AA 1,857,500 5,500,000 (Boston College), Ser. K, 5-3/8s, 6/1/14 A 5,025,625 2,500,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 Aaa 2,118,750 3,400,000 (Cape Cod Health Svs.), Ser. A-2, Inverse Floating Rate, 8.32s, 11/15/09 AAA 2,919,750 2,000,000 (Winchester Hospital) Ser D. 5-3/4s, 7/1/24 AAA 1,822,500 MA Hsg. Fin. Agcy. Multi-Fam Res. Dev. Rev. Bonds 2,000,000 Ser. A, Government National Mtge. Assn. (GNMA) Coll., 9-1/8s, 12/1/20 AAA 2,142,500 2,000,000 Ser. I, Federal National Mortgage Association (FNMA), 6.9s, 11/15/25 AAA 2,060,000 6,000,000 Ser. C, 6.9s, 11/15/21 AAA 6,247,500 4,845,000 Ser. I, FNMA, 6.85s, 11/15/12 Aaa 5,032,744 MA Indl. Fin. Agcy. Poll. Control Rev. Bonds 4,000,000 (Eastern Edison Co. Project), 5-7/8s, 8/1/08 Baa 3,780,000 4,000,000 (Boston Edison Co.) Ser A. 5-3/4s, 2/1/14 Baa 3,625,000 MA Indl. Fin. Agcy. 1st. Mtge. Rev. Bonds 2,775,000 (Brookhaven-Lexington Project), 10-1/4s, 1/1/18 AAA 3,305,719 240,000 (Brookhaven-Lexington Retirement Community), 10s, 1/1/05 AAA 252,600 1,900,000 (Berkshire Retirement Home), 9-7/8s, 7/1/18 AAA 2,168,375 3,000,000 (Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,790,000 2,000,000 (Brookhaven Project), Ser B. 6.6s, 1/1/17 BBB/P 2,002,500 1,985,677 (Pioneer Valley Living Ctr.), zero%, 10/1/20 B/P 2,482 2,400,000 MA Indl. Fin. Agcy. Hlth. Care Fac. Rev. Bonds (Evanswood Bethzatha Corp.), Ser. A 9s, 5/1/20 A 2,712,000 MA Indl. Fin. Agcy. Rev. Bonds 3,100,000 (Alpha Inds.-Methuen), 10-1/4s, 8/1/04 BB/P 3,100,000 2,100,000 (Oddfellows Home), 9.6s, 1/1/15 BB/P 2,189,250 5,000,000 (Southeastern MA Project), Ser. B, 9-1/4s, 7/1/15 BB/P 5,556,250 2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,237,500 2,065,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8-3/4s, 7/1/11 Aaa 2,434,119 2,500,000 (Leominster Hosp.), Ser. A, 8-5/8s, 8/1/09 BB/P 2,753,125 3,600,000 (Cape Cod Hlth. Syst.), 8-1/2s, 11/15/20 Aaa 4,311,000 1,165,000 (Clark U.) Ser E, 7s, 7/1/12 A 1,243,638 2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A/P 2,780,838 3,500,000 (Brookhaven Project) Ser A, 7s, 1/1/15 BBB/P 3,412,500 6,000,000 (Berkshire Retirement Home) Ser. A, 6-5/8s, 7/1/16 BB/P 5,602,500 2,000,000 (Brooks School), 5.95s, 7/1/23 A 1,940,000 5,000,000 (Whitehead Inst. Biomedical Res.), 5-1/8s, 7/1/26 Aa 4,150,000 1,460,000 MA Indl. Fin. Agcy. Tunnel Rev. Bonds (MA Tpk.), 9s, 10/1/20 BAA/P 1,545,775 MA Muni. Wholesale Elec. Co. Pwr. Supply Syst. Rev. Rev. Bonds 2,000,000 Residual Interest Bonds (RIBS) American Municipal Bond Assurance Corp. (AMBAC) 6.895s, 9/15/00 (acquired 7/9/93, cost $2,000,000)(d) AAA/P 1,802,500 2,240,000 Ser. D, 6s, 7/1/11 A 2,167,200 1,000,000 Ser. A, AMBAC, 5.1s, 7/1/08 AAA 920,000 3,000,000 Ser. A, AMBAC, 5s, 7/1/10 AAA 2,662,500 2,000,000 Ser. B, MBIA, 4-3/4s, 7/1/11 AAA 1,707,500 3,000,000 MA Port Auth. Rev. Bonds Ser. B, 5s, 7/1/13 AA 2,643,750 1,000,000 MA State Coll. Project Rev. Bonds Ser. A, 7.8s, 5/1/16 A 1,103,750 Massachusetts (continued) $2,000,000 MA Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA Project), Ser. A , 9s, 7/1/15 BB/P $2,215,000 5,000,000 MA Turnpike Auth. Rev. Bonds Ser. A, 5s, 1/1/13 A 4,368,750 4,400,000 MA Water. Pollution. Abatement. Ser. B, 5-1/4s, 8/1/14 AA 3,899,500 MA Wtr. Resource Auth. Rev. Bonds 2,900,000 Ser. C, 5-1/4s, 12/1/15 A 2,552,000 3,950,000 Ser. C, 4-3/4s, 12/1/23 A 3,071,125 1,000,000 6-1/2s, 7/15/19 A 1,016,250 Somerville, MA Hsg. Auth. Rev. Bonds (Clarendon Hill), GNMA Coll. 2,000,000 7.95s, 11/20/30 AAA 2,165,000 1,500,000 7.85s, 11/20/10 AAA 1,627,500 1,600,000 U. Mass. Bldg. Auth. Rev. Bonds Ser. A, 7-1/2s, 5/1/14 A 1,752,000 Worcester, Mtge. Rev. Bonds (Briarwood Issue) 3,100,000 9-1/4s, 12/1/22 BB/P 3,204,625 1,350,000 6.4s, 9/15/10 BB/P 1,370,250 Worcester, Rev. Bonds (St. Francis Home) 2,000,000 9-3/4s, 7/1/19 BB/P 2,127,500 1,000,000 9.4s, 7/1/08 BB/P 1,041,250 Total Massachusetts 238,727,098 Puerto Rico (6.6%) 3,000,000 Cmnwlth of Puerto Rico, Elec. Power Auth. Ser S, 6-1/8s, 7/1/09 A 3,033,750 Cmnwlth of Puerto Rico, Tel. Auth. RIBS 1,000,000 MBIA, 6.772s, 1/1/05 (acquired 4/23/93, cost $1,043,660)(d) AAA 971,250 3,000,000 Inverse Floating Rate, AMBAC, 6.742s, 1/1/03 AAA 2,658,750 4,000,000 Cmnwlth. of Puerto Rico, G.O. Bonds zero%, Stepped Coupon, (8.00s, 7/1/96) 7/1/02(e) A 4,020,000 2,100,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. Rev. Bonds Ser X, 5s, 7/1/22 A 1,729,875 2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds (American Airlines), Ser. A, 8-3/4s, 12/1/25 Baa 2,785,250 1,500,000 Puerto Rico, Port Auth. Special Fac. Rev. Bonds (American Airlines), Ser. A, 6.3s, 6/1/23 Baa 1,366,872 1,000,000 Puerto Rico, Pub. Bldgs. Auth. Rev. Bonds Ser. K, 6-7/8s, 7/1/21 AAA 1,122,500 Total Puerto Rico 17,688,247 Virgin Islands (1.6%) 4,000,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds Ser. A, 7-1/4s, 10/1/18 BBB/P 4,205,000 Total Investments (cost $260,408,520)(f) $260,620,345
(a) Percentages indicated are based on total net assets of $267,536,064, which correspond to a net asset value per class A and class B shares of $9.05. (b) The Moody's or Standard & Poor's Ratings indicated are believed to be the most recent ratings available at May 31, 1994, 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, 1994. Securities rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of Independent Accountants. (c) This security having a total value of $4,618,750 or 1.7% of net assets has been purchased on a "forward commitment" basis, that is, the fund has agreed to take delivery of and make payment for this security beyond the settlement time of five business days after the trade date and subsequent to the date of this report. The purchase price and interest rate of the security is fixed at the trade date although the fund does not earn any interest on such security until settlement date. (d) Restricted as to public resale. At the date of acquisition, these securities were valued at cost. There were no outstanding unrestricted securities of the same class as those held. Total market value of restricted securities held at May 31, 1994, was $2,773,750 or 1.0% of net assets. (e) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the fund will begin receiving interest at this rate. (f) The aggregate identified cost for federal income tax purposes is $260,408,626, resulting in gross unrealized appreciation and depreciation of $8,701,490 and $8,489,771 respectively, or net unrealized appreciation of $211,719. The rates shown on Residual Interest Bonds (RIBS) and Inverse Floating Rate Notes are the current interest rates at May 31, 1994, which are subject to change based on the terms of the security. The Fund had the following industry group concentrations greater than 10% on May 31, 1994 (as a percentage of net assets):
Health Care/Hospitals 34.3% Utilities/Water & Sewer 18.3 Education 17.0
The accompanying notes are an integral part of these financial statements. Statement of assets and liabilities May 31, 1994
Assets Investments in securities at value (identified cost $260,408,520) (Note 1) $260,620,345 Cash 270,740 Receivable for securities sold 6,527,648 Interest receivable 5,488,777 Receivable for shares of the fund sold 1,196,246 Unamortized organization expenses (Note 1) 2,751 Other assets 30,310 Total assets 274,136,817 Liabilities Payable for shares of the fund repurchased $ 396,101 Payable for securities purchased 4,974,919 Distributions payable to shareholders 603,714 Payable for compensation of Manager (Note 2) 404,283 Payable for administrative services (Note 2) 1,502 Payable for compensation of Trustees (Note 2) 186 Payable for investor servicing and custodian fees (Note 2) 65,866 Payable for distribution fees (Note 2) 96,776 Other accrued expenses 57,406 Total liabilities 6,600,753 Net assets $267,536,064 Represented by Paid-in capital (Notes 4 and 5) $267,590,185 Distributions in excess of net investment income (Note 5) (118,519) Accumulated net realized loss on investments and futures contracts (Note 5) (147,427) Net unrealized appreciation of investments 211,825 Total--Representing net assets applicable to capital shares outstanding $267,536,064 Computation of net asset value and offering price Net asset value and redemption price of class A shares ($244,519,478 divided by 27,006,382 shares) $9.05 Offering price per share (100/95.25 of $9.05) * $9.50 Net asset value and offering price of class B shares ($23,016,586 divided by 2,542,905 shares)+ $9.05
*On single retail sales of less than $25,000. On sales of $25,000 or more and on group sales the offering price is reduced. +Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. The accompanying notes are an integral part of these financial statements. Statement of operations Year ended May 31, 1994
Tax exempt interest income $ 17,128,279 Expenses: Compensation of Manager (Note 2) $1,549,215 Investor servicing and custodian fees (Note 2) 268,424 Compensation of Trustees (Note 2) 12,987 Reports to shareholders 23,040 Auditing 26,377 Legal 14,752 Postage 15,602 Administrative services (Note 2) 6,747 Distribution fees--class A (Note 2) 490,082 Distribution fees--class B (Note 2) 103,211 Registration fees 23,812 Amortization of organization expenses (Note 1) 4,516 Other expenses 7,902 Total expenses 2,546,667 Net investment income 14,581,612 Net realized gain on investments (Notes 1 and 3) 1,425,049 Net realized gain on futures contracts (Notes 1 and 3) 198,560 Net unrealized depreciation of investments during the year (13,149,699) Net loss on investment transactions (11,526,090) Net increase in net assets resulting from operations $ 3,055,522
The accompanying notes are an integral part of these financial statements. Statement of changes in net assets
Year ended May 31 1994 1993 Increase in net assets Operations: Net investment income $ 14,581,612 $ 11,308,425 Net realized gain on investments 1,425,049 2,895,798 Net realized gain (loss) on futures contracts 198,560 (107,959) Net unrealized (depreciation) appreciation of investments and futures contracts (13,149,699) 7,314,508 Net increase in net assets resulting from operations 3,055,522 21,410,772 Distributions to shareholders from: Net investment income from: Class A (13,985,915) (11,346,766) Class B (595,696) -- In excess of Net investment income from: Class A (62,493) -- Class B (6,844) -- Net realized gains on investments Class A (3,941,191) (135,247) Class B (229,597) -- Increase from capital share transactions (Note 4) 67,691,698 56,671,246 Total increase in net assets 51,925,484 66,600,005 Net Assets Beginning of year 215,610,580 149,010,575 End of year (including distributions in excess of net investment income of $118,519 and $67,554 respectively) $267,536,064 $215,610,580
The accompanying notes are an integral part of these financial statements. Financial Highlights* (For a share outstanding throughout the period)
For the period For the period July 15, 1993 October 23 (commencement (commencement of operations) to Year ended of operations) to May 31 May 31 May 31 1994 1994 1993 1992 1991 1990 Class B Class A Net asset value, beginning of period $9.71 $9.55 $9.02 $8.70 $8.50 $8.50 Investment operations Net investment income .41 .55 .59 .61(a) .62(a) .35(a) Net realized and unrealized gain (loss) on investments (.51) (.35) .54 .39 .20 -- Total from Investment Operations (.10) 0.20 1.13 1.00 .82 .35 Less Distributions from: Net investment income (.41) (.55) (.59) (.61) (.62) (.35) Net realized gain on investments (.15) (.15) (.01) (.07) -- -- Total distributions (.56) (.70) (.60) (.68) (.62) (.35) Net asset value, end of period $9.05 $9.05 $9.55 $9.02 $8.70 $8.50 Total investment return at net asset value (%) (b) (1.31)(c) 1.92 12.80 11.96 10.10 6.84(c) Net assets, end of period (in thousands) $23,017 $244,519 $215,611 $149,011 $38,526 $18,249 Ratio of expenses to average net assets (%) 1.60(c) .96 .97 .88(a) .86(a) .80(a)(c) Ratio of net investment income to average net assets (%) 4.91(c) 5.69 6.24 6.82(a) 7.27(a) 6.97(a)(c) Portfolio turnover (%) 36.20 36.20 53.18 94.95(e) 123.29 83.26(d)
* Financial highlights for periods ended through May 31, 1992 have been restated to conform with requirements issued by the SEC in April 1993. (a) Reflects a voluntary expense limitation, and, during the period ended May 31, 1990, a voluntary absorption of expenses incurred by the fund. As a result, net investment income of the fund for the years ended May 31, 1992, 1991 and the period ended May 31, 1990, reflect expense reductions of approximately $0.01, $0.02 and $0.04 per share, respectively. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Annualized (d) Not annualized. (e) Portfolio turnover excludes the impact from the acquisition of Putnam Massachusetts Tax Exempt Income Fund. Notes to financial statements May 31, 1994 Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks as high a level of current income exempt from federal income tax and Massachusetts personal income tax as Putnam Management believes is consistent with preservation of capital by investing primarily in a portfolio of Massachusetts tax-exempt securities. The fund offers both class A and class B shares. The fund commenced its public offering of class B shares on July 15, 1993. Class A shares are sold with a maximum front-end sales charge of 4.75%. Class B shares do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and may be subject to a contingent deferred sales charge if those shares are redeemed within six years of purchase. Expenses of the fund are borne pro-rata by the holders of both classes of shares, except that each class bears expenses unique to that class, including the distribution fees applicable to such class. Each votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A) Security valuation Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. B) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. C) Futures A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a contract the fund is required to pledge to the broker an amount of cash or tax-exempt securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the fund as unrealized gains or losses. 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. The potential risk to the fund is that the change in value of the underlying securities may not correspond to the change in value of the futures contracts. D) Federal taxes It is the policy of the fund to distribute all of its income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provi- sion has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. E) Distributions to shareholders Income dividends are recorded daily by the fund and are distributed monthly. Capital gains distributions, if any, are recorded on the ex-dividend date and paid annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences include treatment of losses on wash sales transactions, realized and unrealized gains and losses on futures contracts and organization expenses. Reclassifications are made to the fund's capital accounts in order that they reflect income and gains available for distribution under income tax regulations. During the year ended May 31, 1994 the fund reclassified $4,517 to decrease accumulated distributions in excess of net investment income with a decrease of $4,517 to paid in capital. F) Amortization of bond premium and discount Any premium resulting from the purchase of securities in excess of maturity value is amortized on a yield-to-maturity basis. Discount on zero-coupon bonds, original issue discount bonds and stepped-coupon bonds is accreted according to the effective yield method. G) Unamortized organization expenses Expenses incurred by the fund in connection with its organization, its registration with the Securities and Exchange Commission and with various states, and the initial public offering of its shares aggregated $13,072. These expenses are being amortized over a five-year period based on current and projected net asset levels. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.6% of the first $500 million of average net assets, 0.5% of the next $500 million, 0.45% of the next $500 million, and 0.4% of any amount over $1.5 billion, subject to reduction in any year by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of the Manager on the fund's portfolio transactions. The fund also reimburses the Manager 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. For the year ended May 31, 1994, the fund paid $6,747 for these services. Trustees of the fund receive an annual Trustee' fee of $780 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. For the year ended May 31, 1994 the fund paid $12,987 for these services. Custodial functions for the fund are provided by Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. Fees paid for these investor servicing and custodial functions for the year ended May 31, 1994 amounted to $268,424. Investor servicing and custodian fees reported in the Statement of operations for the year ended May 31, 1994 have been reduced by credits allowed by PFTC. The fund has adopted a distribution plan with respect to its class A shares (the "class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the class A Plan is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services provided and expenses incurred by it in distributing class A shares. The Trustees have approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of 0.20% of the fund's average net assets attributable to class A shares. For the year ended May 31, 1994, the fund paid Putnam Mutual Funds Corp. distribution fees of $490,082 for class A shares. During the year ended May 31, 1994, Putnam Mutual funds Corp., acting as an underwriter, received net commissions of $140,316 from the sale of class A shares of the fund. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class A shares purchased as part of an investment of $1 million or more. For the year ended May 31, 1994 Putnam Mutual Funds Corp., acting as underwriter received $10,092 on such redemptions. The fund has adopted a separate distribution plan with respect to its class B shares (the "class B Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the class B Plan is to compensate Putnam Mutual Funds Corp. for services provided and expenses incurred by it in distributing class B shares. The class B Plan provides for payments by the fund to Putnam Mutual Funds Corp. at an annual rate of 1.00% of the funds average net assets attributable to class B shares. Currently, the Trustees have limited payments by the fund to .85% of such net assets. For the year ended May 31, 1994, the fund incurred fees of $103,211 for class B shares. Putnam Mutual Funds Corp. also receives the proceeds of contingent deferred sales charges levied on class B share redemptions within six years of purchase. The charge is based on declining rates, which begin at 5.0% of the net asset value of the redeemed shares. Putnam Mutual Funds Corp. received contingent deferred sales charges of $34,720 from such redemptions for the year ended May 31, 1994. Note 3 Purchases and sales of securities During the year ended May 31, 1994, purchases and sales of investment securities other than short-term municipal obligations aggregated $152,959,736 and $91,328,460, respectively. Purchases and sales of short-term municipal obligations aggregated $4,900,000 and $6,000,000, respectively. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. The following is a summary of futures contracts activity during the year ended May 31, 1994:
Sales of Future Contracts Aggregate Number of Face Contracts Value Outstanding at beginning of year -- -- Contracts opened 580 $ 61,971,620 Contracts closed (580) $(61,971,620) Open at end of period -- --
Note 4 Capital shares At May 31, 1994, there was an unlimited number of shares of beneficial interest authorized, divided into two classes, class A and class B capital stock. Transactions in capital shares were as follows:
Year ended May 31 1994 1993 Class A Shares Amount Shares Amount Shares sold 6,728,726 $ 64,885,880 7,076,324 $ 66,143,504 Shares issued in connection with reinvestment of distributions 1,149,973 11,043,802 739,282 6,913,053 7,878,699 75,929,682 7,815,606 73,056,557 Shares repurchased (3,455,423) (32,760,636) (1,752,801) (16,385,311) Net increase 4,423,276 $ 43,169,046 6,062,805 $ 56,671,246
For the period July 15, 1993 (commencement of operations) to May 31, 1994 Class B Shares Amount Shares sold 2,685,178 $25,835,499 Shares issued in connection with reinvestment of distributions 54,232 515,350 2,739,410 26,350,849 Shares repurchased (196,505) (1,828,197) Net increase 2,542,905 $24,522,652
Note 5 Reclassification of Capital Account Effective June 1, 1993, Putnam Massachusetts Tax Exempt Income Fund II has adopted the provisions of Statement of Position 93-2 "Determination, Disclosure and Financial Statement Presentation of Income, Capital Gain and Return of Capital Distributions by Investment Companies (SOP)." The purpose of this SOP is to report the accumulated net investment income (loss) and accumulated net realized gain (loss) accounts in such a manner as to approximate amounts available for future distributions (or to offset future realized capital gains) and to achieve uniformity in the presentation of distributions by investment companies. As a result of the SOP, the fund has reclassified $450,460 to decrease accumulated net realized gain, $13,854 to decrease distributions in excess of net investment income, with an increase of $436,606 to additional paid-in capital. These adjustments represent the cumulative amounts necessary to report these balances through May 31, 1993, the close of the fund's last fiscal year-end, for financial reporting and tax purposes. These reclassifications which have no impact on the total net asset value of the fund are primarily attributable to organization expenses and utilization of capital loss carryovers from an acquired fund which are treated differently in the computation of distributable income and capital gains under federal income tax rules and regulations versus generally accepted accounting principles. Tax Infomation The fund has designated all dividends from net investment income during the fiscal year as exempt-interest dividends. Thus, 100% of these distributions are exempt from federal income tax, and for residents of Massachusetts, 100% of these distributions are also exempt from Massachusetts personal income tax. The fund also paid the following short-term and long term capital gains:
Short-term capital gain dividends. Class A $0.113 Class B $0.113 Long-term capital gain dividends. Class A $0.038 Class B $0.038
These amounts were reported to you on Form 1099 in January 1994. The Form 1099 you will receive in January 1995 will show the tax status of any capital gain distributions paid to your account in calendar 1994. Our commitment to quality service CHOOSE AWARD-WINNING SERVICE. Putnam Investor Services has won the DALBAR Quality Tested Service Seal every year since the award's 1990 inception. DALBAR, an independent research firm, ran more than 10,000 tests of 38 shareholder service components. In every category, Putnam outperformed the industry standard. HELP YOUR INVESTMENT GROW. Set up a systematic program for investing with as little as $25 a month from a Putnam fund or from your own checking or savings account.* SWITCH FUNDS EASILY. You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or termination.) ACCESS YOUR MONEY QUICKLY. You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than their original cost. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800-225-1581. *Regular investing, of course, does not guarantee a profit or protect against a loss in a declining market. Investors should consider their ability to continue purchasing shares during periods of low price levels. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS Price Waterhouse TRUSTEES George Putnam, Chairman William Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Donald S. Perkins Robert E. Patterson George Putnam, III A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Gary N. Coburn Vice President James E. Erickson Vice President Triet Nguyen Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President John D. Hughes Vice President and Treasurer Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Massachusetts Tax Exempt Income Fund II. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives and operating policies of the fund. 845/236-12983 PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - ---------------- Bulk Rate U.S. Postage Paid Boston, MA Permit No. 53749 - ---------------- 845/236-12993 APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND EDGAR-FILED TEXTS: (1) Bold and italic typefaces are displayed in normal type. (2) Headers (e.g., the name of the fund) are omitted. (3) Certain tabular and columnar headings and symbols are displayed differently in this filing. (4) Bullet points and similar graphic signals are omitted. (5) Page numbering is different. (6) Trademark symbol replaced with (TM) -----END PRIVACY-ENHANCED MESSAGE-----