-----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, fceL8pXE/j2MXuiF4e+ZXEv6H2PsWDYy6CUEZVkT53+9PAqzsCit+WAMzbd+BVXX mz4lYh712kuVIe1gZUMX3Q== 0000950146-95-000039.txt : 19950207 0000950146-95-000039.hdr.sgml : 19950207 ACCESSION NUMBER: 0000950146-95-000039 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941130 FILED AS OF DATE: 19950206 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II CENTRAL INDEX KEY: 0000792288 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046626127 STATE OF INCORPORATION: MA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-04518 FILM NUMBER: 95505684 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 617-292-14 MAIL ADDRESS: ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND /MA/ DATE OF NAME CHANGE: 19920609 N-30D 1 PUTNAM MASSACHUSETTS TAX EXEMPT INCOME FUND II Putnam Massachusetts Tax Exempt Income Fund II SEMIANNUAL REPORT November 30, 1994 (Art--balance Scales) B O S T O N * L O N D O N * T O K Y O Performance highlights > "On a trailing five-year basis, the portfolio has one of the most attractive risk/reward profiles in its peer group."* --Morningstar Mutual Funds analysis, November 25, 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 income tax consistent with preservation of capital. FISCAL 1995 RESULTS AT A GLANCE
Class A Class B Total return NAV POP NAV CDSC - --------------------------------------------------------------------------- 6 months ended 11/30/94 (change in value during period plus reinvested distributions) -4.14% -8.69% -4.57% -9.21% Share value NAV POP NAV - --------------------------------------------------------------------------- 5/31/94 $9.05 $ 9.50 $ 9.05 11/30/94 8.41 8.83 8.40 Distributions: Capital No. Income gains(1) Total - --------------------------------------------------------------------------- Class A 6 $0.273817 -- $0.273817 Class B 6 0.245112 -- 0.245112 Current return: NAV POP NAV - --------------------------------------------------------------------------- End of period Current dividend rate(2) 6.54% 6.22% 5.89% Taxable equivalent(3) 12.30 11.70 11.08 Current 30-day SEC yield(4) 6.48 6.17 5.82 Taxable equivalent(3) 12.19 11.61 10.95 Performance data represent past results. For performance over longer periods, see page 8. POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge. (1)Capital gains, if any, are taxable for federal and, in most cases, state tax purposes. For some investors, investment income may also be subject to the federal Alternative Minimum Tax. Investment income may be subject to state and local taxes. (2)Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. (3)Assumes maximum combined state and federal tax rates of 46.85%. Results for investors subject to lower tax rates would not be as advantageous. (4)Based only on investment income, calculated using SEC guidelines. *Morningstar is an independent research firm that rates funds relative to funds with similar objectives, based on risk-adjusted three-, five- and ten-year average annual returns, as applicable, and adjusted for sales charges.
FROM THE CHAIRMAN (Photo George Putnam) (c) Karsh, Ottawa Dear Shareholder: As we begin a new year, most investors won't regret the passing of the old. Since last February, when the Federal Reserve Board began a series of increases in interest rates, the 1994 bond market has experienced one decline after another, adding up to one of the worst selloffs since 1967. Well in advance of the Fed's first increase, Fund Manager Triet Nguyen had adopted defensive strategies designed to reduce the impact of rising rates on Putnam Massachusetts Tax Exempt Income Fund II's portfolio. While defensive strategies proved relatively successful, fund performance still edged into the negative numbers. Among fixed-income investments, tax-free municipals incurred the steepest decline. Although shifts in the market as a whole inevitably affect your fund, we believe Putnam Management's philosophy of selecting securities on an issue-by-issue basis with a thorough examination of each issuer's credit quality should continue to help protect your fund's portfolio. Furthermore, current conditions have a silver lining of sorts; tax-exempt yields are now at their most attractive levels in two years. In the accompanying report, Triet discusses the first half of fiscal 1995 and prospects for the challenging months ahead. Respectfully yours, (Signature George Putnam) George Putnam Chairman of the Trustees January 18, 1995 REPORT FROM THE FUND MANAGER TRIET NGUYEN November 30, 1994, found Putnam Massachusetts Tax Exempt Income Fund II at what may well turn out to be the nadir of fiscal 1995. During the six-month period ended on this date, virtually all fixed-income markets declined as they adjusted to changes brought about by ongoing interest rate increases by the Federal Reserve Board. Market volatility, investor uncertainty about additional interest rate increases, and a tide of no-load fund redemptions further affected bond prices and, inevitably, your fund's performance. While the fund outperformed the majority of funds in its Lipper category, total returns for the period were somewhat disappointing: -4.14% and -4.57% at net asset value for class A and class B shares, respectively. Over the longer term, results remain impressive. For the three- and five-year periods ended November 30, the fund's class A shares were ranked #4 of 20 funds and #1 of 17 funds, respectively. Additional performance details can be found on page 8.* We believe the psychological impact of rising interest rates, rather than any indication of poor market fundamentals, was the main cause of the recent declines. However, we also believe the municipal bond market is close to reaching bottom -- perhaps even past this point -- and thus, the potential for more attractive performance over the near term is extremely strong. There can be no guarantees, of course, but your fund's long-term record speaks well for its ability to take full advantage of market opportunities. > INVESTMENT-GRADE HOLDINGS ON THE INCREASE Our emphasis on higher-yielding lower-quality bonds helped cushion the portfolio against the market's initial declines this past spring. Because of their higher initial coupons, these bonds were less affected by early selloffs. At the same time, the strengthening state economy contributed to credit upgrades for a * For the 12 months ended November 30, 1994, the fund's class A and class B shares ranked 15th and 20th, respectively, of 31 Massachusetts bond funds tracked. Past performance is no assurance of future results. number of lower-rated holdings. These upgrades, in turn, led to higher prices. Investment-grade bond prices, on the other hand, have declined dramatically over the past eight months, reflecting liquidations by large numbers of nervous investors. Now, however, the pendulum is beginning to swing the other way. The spread between high-yield and investment-grade bonds has narrowed to the point where values in the higher-quality sectors are too compelling to resist. So, we have gradually sold off some of the lower-rated bonds and redeployed the assets into investment-grade bonds. At the end of the period, 78.68% of the portfolio was invested in bonds rated BBB or above, up from just over a third at the end of fiscal 1994. As we built up investment-grade holdings, we have used what is known as a barbell approach to restructure the portfolio. Portfolio holdings are currently anchored at the highest level, AAA, and the lowest level, BBB, of the investment grade spectrum, resulting in an average quality rating of A. This represents our effort to tap the price appreciation potential of certain issues while, at the same time, taking advantage of the volatility-dampening effects of others. (Pie Chart) PORTFOLIO QUALITY OVERVIEW 35.95% AAA 5.55% AA 16.02% A* 21.52% BBB/Baa 18.60% BB/Ba 1.42% below BB and unrated (End of pie chart) *Based on net assets on 11/30/94 *Includes bonds rated VMIGI, a rating which is equivelant to A. > SECTOR AND DURATION SHIFTS SHOULD HELP MAXIMIZE AFTER-TAX RETURNS The fund's fairly conservative average duration (6 to 8 years) proved beneficial during 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. Shorter durations generally go hand in hand with lower levels of volatility. We have shortened the portfolio's duration slightly over the period -- bringing it to 7.42 years as of November 30, 1994. While further shortening might have provided greater protection for the fund's net asset value, the resulting tradeoff in terms of current income would not have been in keeping with the fund's objective. Maximizing after-tax returns is, after all, our primary goal, and our tendency has been to preserve the fund's tax-free income stream through differing market conditions. While we certainly target sectors with potential for appreciation, our allocation decisions generally reflect a current-income bias. Health care remains a dominant theme in your portfolio's composition. While this sector remains out of favor on a national level, the large number of reputable teaching hospitals in Massachusetts helps outweigh risks on a local level. In addition, most of the fund's health care holdings are insured or prerefunded bonds, which further reduces their risk. College and university bonds are also a substantial part of the portfolio. Their relative scarcity helps keep their prices relatively stable. The environmental sector, which we have been monitoring for some time, has become more attractive, and we have begun to position a portion of assets there, particularly in alternative waste-disposal facilities and companies. The SEMASS corporation, which serves the Cape Cod area, is one example of such an environmental player. > SUPPLY SHORTAGES CONTINUE AS FUTURE PROSPECTS STRENGTHEN The lower interest rates of the past two years contributed to a surge in the municipal bond supply. Now that interest rates have changed direction, the refinancing stampede has slowed to a crawl. Year-to-date new issuance of municipal bonds, at both the national and state levels, has dropped by more than 40%. TOP 10 MUNICIPAL ISSUERS (11/30/94) MA Hlth. & Edl. Fac Auth. ................................... MA Indl. Fin. Agcy. ................................... MA State Indl. Fin. Agcy. ................................... MA Bay Trans. Auth. ................................... MA Hsg. Fin. Agcy. ................................... MA Wtr. Resource Auth. ................................... Worcester Rev. Bonds ................................... Agawam, Resource Recvy. Rev. Bond ................................... Boston, Indl. Dev. Fin. Auth. ................................... MA State Special Obligation Bonds These holdings represent 81.2% of the fund's net assets. Portfolio holdings are subject to change. Furthermore, this coming July, many older municipal bonds will mature or reach their call dates. In our opinion, investors holding these bonds are likely to seek other tax-free investments to reinvest their assets -- which could significantly boost demand for an already limited supply. We believe that in 1995, for the first time in decades, the municipal sector may experience a net shrinkage. Massachusetts' state economy continues to strengthen, and the recent defeat of the graduated income tax proposal -- which, if approved, could have negatively affected bond prices -- bodes well for the future health of Massachusetts municipal bonds. As experienced bond fund investors have learned, time generally favors those with patience and vision. Corrections are not only a natural part of any business cycle, but frequently bring about rewarding opportunities. We will do our best to take advantage of them over the rest of fiscal 1995. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 11/30/94, there is no guarantee the fund will continue to hold these securities in the future. 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 and on average how the fund might have grown each year over varying periods. For comparative purposes, we show how the fund performed relative to appropriate indexes and benchmarks. TOTAL RETURN FOR PERIODS ENDED 11/30/94
Lehman Bros. Class A Class B Municipal NAV POP NAV CDSC Bond Index CPI 6 months -4.14% -8.69% -4.57% -9.21% -3.48% 1.49% 1 year -6.53 -10.94 -7.24 -11.57 -5.25 2.68 5 years 39.84 33.14 -- -- 37.52 18.90 Annual average 6.94 5.89 -- -- 6.58 3.52 Life of class A 41.50 34.82 -- -- 39.92 19.19 Annual Average 7.03 6.02 -- -- 6.79 3.49 Life of class B -- -- -5.66 -9.12 -2.73 3.67 Annual average -- -- -4.14 -6.70 -1.99 2.65
TOTAL RETURN FOR PERIODS ENDED 12/31/94 (most recent calendar quarter)
Class A Class B NAV POP NAV CDSC 6 months -1.69% -6.39% -2.10% -6.86% 1 year -6.33 -10.75 -6.92 -11.33 5 years 41.79 34.99 -- -- Annual average 7.23 6.18 -- -- Life of class A 44.54 37.72 -- -- Annual average 7.36 6.36 -- -- Life of class B -- -- -3.66 -7.18 Annual average -- -- -2.52 -4.97 POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum contingent deferred sales charge. Fund performance data do not take into account any adjustment for taxes payable on reinvested distributions. The fund began operations on October 23, 1989, offering shares now known as class A. Effective July 15, 1993, the fund began offering class B shares. Performance data represent past results and will differ for each share class. Investment returns and net asset value will fluctuate so an investor's shares, when sold, may be worth more or less than their original cost.
TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Net asset value (NAV) is the value of all your fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 4.75% sales charge. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Lehman Brothers Municipal Bond Index is an unmanaged list of long-term fixed-rate investment-grade tax-exempt bonds representative of the municipal bond market. The index does not take into account brokerage commissions or other costs, may include bonds different from those in the fund, and may pose different risks than the fund. Consumer Price Index (CPI) is a commonly used measure of inflation; it does not represent an investment return. PORTFOLIO OF INVESTMENTS OWNED November 30, 1994 (Unaudited)
MUNICIPAL BONDS AND NOTES (98.7%)(a) PRINCIPAL AMOUNT RATINGS(b) VALUE Massachusetts (94.0%) $5,500,000 Agawam, Resource Recvy. Rev. Bonds (Springfield Resources Recvy. Project), 8-1/2s, 12/1/08 BBB $5,788,750 5,000,000 Boston, Ind. Dev. Fin. Auth. Swr. Fac. Rev. Bonds (Harbor Elec. Energy Co. Project), 7-3/8s, 5/15/15 Baa 4,937,500 2,135,000 Boston Indl. Fing. Auth. Rev. Bonds (MA College of Pharmacy Project), Connie Lee, Ser. A, 5-1/4s, 10/1/26 AAA 1,561,219 1,315,000 Boston, Nursing Home Rev. Bonds (St. Joseph Nursing Care Ctr. Inc.), 10s, 1/1/20 BB/P 1,410,338 5,000,000 Boston, Rev. Rfdg. Bonds (City Hosp.), Ser. B, 5-3/4s, 2/15/23 AA 4,093,750 3,500,000 Boston, Wtr. & Swr. Rev. Bonds, Ser. A, 5-3/4s, 11/1/13 A 3,066,875 1,760,000 Holyoke, General Obligation (G.O.) Bonds, 9.85s, 11/1/08 Aaa 1,960,200 Lowell G.O. Bonds 1,250,000 8.4s, 1/15/09 Aaa 1,373,438 2,455,000 8.3s, 2/15/05 Aaa 2,789,494 MA Bay Trans. Auth. Rev. Bonds 1,250,000 Ser. B, 6.2s, 3/1/16 A 1,146,875 4,750,000 (Gen. Trans. Syst.), Ser. B, 5-7/8s, 3/1/19 A 4,079,063 2,000,000 5-7/8s, 9/15/00 AAA/P 1,652,500 4,000,000 (General Trans. Syst.), Ser. A, 5-1/2s, 3/1/12 A 3,405,000 MA G.O. Cons. Loan Bonds 1,000,000 Ser. A, 7-5/8s, 6/1/08 Aaa 1,105,000 7,500,000 Ser. B, Financial Guaranty Insurance Corp. (FGIC), zero %, 6/1/07 AAA 3,393,750 MA Hlth. & Edl. Fac. Auth. Rev. Bonds 2,000,000 (Fairview Extended Care), Ser. A, 10-1/4s, 1/1/21 BB/P 2,157,500 865,000 (Summerfield Nursing Home), Ser. A, 9-1/2s, 7/1/14 B/P 921,225 2,000,000 (Nichols College), Ser. B, 8-1/2s, 10/1/16 BBB 2,187,500 6,000,000 (Beth Israel), American Municipal Bond Assurance Corp., (AMBAC) 8.472s, 7/1/25 AAA 4,297,500 1,500,000 (Holy Cross College), Ser E, 8.4s, 11/1/15 AAA 1,555,313 2,500,000 (Waltham-Weston Hosp. & Med. Ctr.), Ser. B, 8-3/8s, 7/1/15 Baa 2,540,625 4,250,000 (Suffolk U.), Ser. A, 8-1/8s, 7/1/20 Baa 4,733,438 2,150,000 (Valley Regl. Hlth. Syst.), Ser. B, 8s, 7/1/18 Aaa 2,389,188 3,300,000 (Norwood Hosp.), Ser. E, 8s, 7/1/12 Ba 3,064,875 4,010,000 (Rehab. Hosp. Cape & Islands), Ser. A, 7-7/8s, 8/15/24 BB/P 3,719,275 1,125,000 (Norwood Hosp.), Ser. E, 7-3/4s, 7/1/07 Baa 1,036,406 3,000,000 (Stonehill College), Ser. D, AMBAC, 7.7s, 7/1/20 AAA 3,311,250 2,820,000 (MA Eye & Ear Infirmary), Ser. A, 7-3/8s, 7/1/11 Baa 2,548,575 2,670,000 (MA Eye & Ear Infirmary), Ser. A, 7-1/4s, 7/1/03 BB 2,479,763 6,380,000 (Cooley Dickinson Hosp.), Ser. A, 7-1/8s, 11/15/18 BBB/P 5,558,575 5,000,000 (Med. Ctrs.-Central MA), Ser. A, AMBAC, 7.1s, 7/1/21 AAA 5,018,750 2,900,000 (N.E. Med. Ctr. Hosps.), Municipal Bond Insurance Assn., (MBIA), 7.08s, 7/1/18 AAA 1,711,000 1,000,000 (Valley Regl. Hlth. Syst.), Ser. C, Connie Lee, 7s, 7/1/10 AAA 986,250 1,705,000 (Valley Regl. Hlth. Syst.), Ser. C, Connie Lee, 7s, 7/1/09 AAA 1,705,000 1,550,000 (Worcester Polytech Inst.), Ser. E, 6-5/8s, 9/1/17 A 1,460,875 3,880,000 (Metro West Hlth. Inc.), Ser. C, 6-1/2s, 11/15/18 A 3,254,350 Massachusetts (continued) $2,000,000 (Harvard U.), Ser. N, 6-1/4s, 4/1/20 AAA $1,880,000 4,850,000 (MA General Hosp.), Ser. F, AMBAC, 6-1/4s, 7/1/12 AAA 4,528,688 1,480,000 (Smith College), Ser. D, 5-3/4s, 7/1/24 AA 1,235,800 2,000,000 (Winchester Hosp.), Ser D, 5-3/4s, 7/1/24 AAA 1,592,500 5,000,000 (Beth Israel Hosp.), Ser. G, AMBAC, 5-3/4s, 7/1/12 AAA 4,362,500 2,100,000 (Harvard U.), 5-1/2s, 12/1/15 AAA 1,819,125 2,000,000 (Williams College), Ser. D, 5-1/2s, 7/1/12 AA 1,740,000 5,500,000 (Boston College), Ser. K, 5-3/8s, 6/1/14 A 4,626,875 1,000,000 (Wheaton College), 5-1/4s, 7/1/19 A 782,500 3,365,000 (MA Inst. of Techn.), Ser. H, 5s, 7/1/23 Aaa 2,527,956 6,500,000 MA Hlth. & Edl. Facs. Auth. Inverse Floating Bonds (IFB) (Boston U.), Ser. L, MBIA, 9.507s, 10/1/31 AAA 5,825,625 2,000,000 MA Hlth. & Edl. Fac. Auth. Residual Interest Bonds (RIBS), (St. Elizabeth Hosp.), Ser. E, Financial Security Assurance (FSA), 9.77s, 8/15/21 AAA 1,805,000 MA Hsg. Fin. Agcy. Multi-Fam. Hsg. Rev. Bonds 2,000,000 Ser. A, Government National Mtge. Assn. (GNMA) Coll, 9-1/8s, 12/1/20 AAA 2,100,000 6,000,000 Ser. C, 6.9s, 11/15/21 AAA 5,752,500 MA Indl. Fin Agcy. Rev. Bonds 3,500,000 (Brookhaven Project) Ser A, 7s, 1/1/15 BBB/P 3,241,875 2,000,000 (Brookhaven Project), 1st Mtge. Ser B, 6.6s, 1/1/17 BBB/P 1,892,500 MA Indl. Fin. Agcy. Hlth. Care Fac. Rev. Bonds 2,775,000 (Brookhaven-Lexington Project), 1st Mtge., 10-1/4s, 1/1/18 AAA 3,201,655 3,100,000 (Alpha Inds.-Methuen), 10-1/4s, 8/1/04 BB/P 3,003,125 240,000 (Brookhaven-Lexington Retirement Community), 1st Mtge., 10s, 1/1/05 AAA 245,700 1,900,000 (Berkshire Retirement Home), 1st Mtge., 9-7/8s, 7/1/18 AAA 2,109,000 2,400,000 (Evanswood Bethzatha Corp.), Ser. A, 9s, 5/1/20 A 2,358,000 2,015,000 (Morton Hosp. & Med. Ctr.), Ser. A, 8-3/4s, 7/1/11 Aaa 2,261,838 2,500,000 (Leominster Hosp.), Ser. A, 8-5/8s, 8/1/09 BBB/P 2,825,000 1,165,000 (Clark U.), Ser E, 7s, 7/1/12 A 1,183,930 2,605,000 (Clark U.), Ser F, 7s, 7/1/11 A 2,647,330 2,000,000 (Brooks School), 5.95s, 7/1/23 A 1,727,500 MA Indl. Fin. Acgy. Poll. Control Rev. Bonds 6,000,000 (Berkshire Retirement Home), Ser A, 6-5/8s, 7/1/16 BB/P 5,310,000 4,000,000 (Eastern Edison Co. Project), 5-7/8s, 8/1/08 Baa 3,520,000 4,000,000 Ser A, (Boston Edison Co.) 5-3/4s, 2/1/14 Baa 3,315,000 MA Indl. Fin. Agcy. 1st Mtg. Rev. Bonds 3,000,000 (Evanswood Bethzatha), Ser. A, 7-7/8s, 1/15/20 BB/P 2,786,250 3,000,000 (Pioneer Valley Living Ctr.), 7s, 10/1/20 B/P 2,681,250 1,985,677 (Pioneer Valley Living Ctr.) zero %, 10/1/20 B/P 2,482 3,000,000 MA Port Auth. Rev. Bonds, Ser. B, 5s, 7/1/13 AA 2,347,500 1,000,000 MA State College Project Rev. Bonds, Ser. A, 7.8s, 5/1/16 A 1,080,000 3,000,000 MA State Indl. Fin. Agcy. Rev. Bonds (Stone Institute), 7.9s, 1/1/24 BB/P 2,910,000 MA State Indl. Fin. Agcy. Resource Recvy. Rev. Bonds (Southeastern MA Project) 5,000,000 Ser. B, 9-1/4s, 7/1/15 BB/P 5,412,500 3,000,000 Ser. A, 9s, 7/1/15 BB/P 3,236,250 MA State Indl. Fin. Agcy. Rev. Bonds 2,100,000 (Oddfellows Home of MA), 9.6s, 1/1/15 BB 2,163,000 2,000,000 (Orchard Cove Inc.), 9s, 5/1/22 BB/P 2,125,000 3,600,000 (Cape Cod Hlth. Syst.), 8-1/2s, 11/15/20 Aaa 4,126,500 3,950,000 MA State Indl. Fin. Agcy. Tunnel Rev. Bonds (MA Tpk.), 9s, 10/1/20 Baa/P 4,098,125 Massachusetts (continued) $5,500,000 MA State Special Obligation Bonds, Ser. A, 5-3/4s, 6/1/12 AA $ 4,716,250 2,900,000 MA State, VRDN, Ser. D, 1.8s, 6/1/95 VMIG1 2,900,000 MA Wtr. Resource Auth. Rev. Bonds, Ser. A 1,000,000 6-1/2s, 7/15/19 A 937,500 2,100,000 5-1/2s, 3/1/17 AAA 1,729,875 2,900,000 5-1/4s, 12/1/15 AAA 2,327,250 3,950,000 4-3/4s, 12/1/23 AAA 2,784,750 Somerville, Hsg. Auth. Rev. Bonds (Clarendon Hill), GNMA Coll. 2,000,000 7.95s, 11/20/30 AAA 2,112,500 1,500,000 7.85s, 11/20/10 AAA 1,588,125 1,600,000 U. Mass., Bldg. Auth. Rev. Bonds, Ser. A, 7-1/2s, 5/1/14 A 1,636,000 Worcester, Mtge. Rev. Bonds (Briarwood Issue) 3,100,000 9-1/4s, 12/1/22 BB/P 3,119,375 1,350,000 6.4s, 9/15/10 BB/P 1,324,687 Worcester, Rev. Bonds (St. Francis Home) 2,000,000 9-3/4s, 7/1/19 BB/P 2,092,500 1,000,000 9.4s, 7/1/08 BB/P 1,028,750 239,088,926 Puerto Rico (3.2%) Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. Rev. Bonds, Ser. X 2,100,000 5s, 7/1/22 A 1,540,875 2,900,000 2.2s, 7/1/99 VMIG1 2,900,000 2,600,000 Puerto Rico, Indl. Med. & Env. Poll. Control Fac. Fin. Auth. Rev. Bonds (American Airlines, Inc.), Ser. A, 8-3/4s, 12/1/25 Baa 2,720,250 1,000,000 Puerto Rico, Pub. Bldgs. Auth. Rev. Bonds, Ser. K, 6-7/8s, 7/1/21 AAA 1,065,000 8,226,125 Virgin Islands (1.5%) 4,000,000 Virgin Islands, Pub. Fin. Auth. Rev. Bonds (Matching Funds Loan Notes), Ser. A, 7-1/4s, 10/1/18 BBB/P 3,790,000 Total Investments (cost $263,679,104)(c) $251,105,051 (a) Percentages indicated are based on net assets of $254,434,731, which correspond to a net asset value per class A and class B share of $8.41 and $8.40, respectively. (b) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at November 30, 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 November 30, 1994. Securities rated by Putnam are indicated by "/P" and are not publicly rated. (c) The aggregate identified cost on a tax basis is $263,679,203, resulting in gross unrealized appreciation and depreciation of $4,535,951 and $17,110,103, respectively, or net unrealized depreciation of $12,574,152. The rates shown on Variable Rate Demand Notes (VRDN) and Residual Interest Bonds (RIBS) are the current interest rates at November 30, 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 November 30, 1994 (as a percentage of net assets): Health Care 40.8% Education 19.1 Utilities 13.3
The accompanying notes are an integral part of these financial statements. STATEMENT OF ASSETS AND LIABILITIES November 30, 1994 (Unaudited) Assets Investments in securities, at value (identified cost $263,679,104) (Note 1) $251,105,051 Cash 88,335 Receivable for securities sold 3,160,785 Interest receivable 5,748,909 Receivable for shares of the fund sold 512,589 Total assets 260,615,669 Liabilities Payable for shares of the fund repurchased 855,546 Payable for securities purchased 4,101,120 Distributions payable to shareholders 623,319 Payable for compensation of Manager (Note 2) 397,408 Payable for administrative services (Note 2) 3,286 Payable for compensation of Trustees (Note 2) 352 Payable for investor servicing and custodian fees (Note 2) 78,828 Payable for distribution fees (Note 2) 97,526 Other accrued expenses 23,553 Total liabilities 6,180,938 Net assets $254,434,731 Represented by Paid-in capital (Note 4) $274,325,259 Distributions in excess of net investment income (130,859) Accumulated net realized loss on investments and future contracts (7,185,616) Net unrealized depreciation of investments (12,574,053) Total--Representing net assets applicable to capital shares outstanding $254,434,731 Computation of net asset value and offering price Net asset value and redemption price of class A shares ($223,106,095 divided by 26,542,380 shares) $8.41 Offering price per share (100/95.25 of $8.41) * $8.83 Net asset value and offering price of class B shares ($31,328,636 divided by 3,729,643 shares)+ $8.40 * 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 Six months ended November 30, 1994 (Unaudited)
Investment income: Total exempt interest income $ 9,509,687 Expenses: Compensation of Manager (Note 2) 807,701 Investor servicing and custodian fees (Note 2) 109,043 Compensation of Trustees (Note 2) 5,984 Reports to shareholders 13,734 Auditing 12,669 Legal 7,979 Postage 9,337 Administrative services (Note 2) 3,989 Distribution fees--Class A (Note 2) 241,307 Distribution fees--Class B (Note 2) 118,687 Registration fees 693 Amortization of organization expenses (Note 1) 2,751 Other expenses 4,702 Total expenses 1,338,576 Net investment income 8,171,111 Net realized loss on investments (Notes 1 and 3) (7,131,007) Net realized gain on futures contracts (Notes 1 and 3) 92,818 Net unrealized depreciation of investments during the period (12,785,878) Net loss on investment transactions (19,824,067) Net decrease in net assets resulting from operations $ (11,652,956)
The accompanying notes are an integral part of these financial statements. STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended November 30 May 31 1994* 1994 Increase (decrease) in net assets Operations: Net investment income $ 8,171,111 $ 14,581,612 Net realized gain (loss) on investments (7,131,007) 1,425,049 Net realized gain on futures contracts 92,818 198,560 Net unrealized depreciation of investments and futures contracts (12,785,878) (13,149,699) Net increase (decrease) in net assets resulting from operations (11,652,956) 3,055,522 Distributions to shareholders from: Net investment income from: Class A (7,414,705) (13,985,915) Class B (768,746) (595,696) In excess of net investment income: Class A -- (62,493) Class B -- (6,844) Net realized gains on investments: Class A -- (3,941,191) Class B -- (229,597) Increase from capital share transactions (Note 4) 6,735,074 67,691,698 Total increase (decrease) in net assets (13,101,333) 51,925,484 Net assets Beginning of period 267,536,064 215,610,580 End of period (including distributions in excess of net investment income of $130,859 and $118,519, respectively) $254,434,731 $267,536,064
*Unaudited The accompanying notes are an integral part of these financial statements. FINANCIAL HIGHLIGHTS (For a share outstanding throughout the period)
For the period July 15, 1993 Six months (commencement of ended operations) to November 30 May 31 1994* 1994 Class B Net asset value, beginning of period $ 9.05 $ 9.71 Investment operations Net investment income .25 .41 Net realized and unrealized gain (loss) on investments (.65) (.51) Total from investment activities (.40) (.10) Less distributions from: Net investment income (.25) (.41) Net realized gain on investments -- (.15) Total distributions (.25) (.56) Net asset value, end of period $ 8.40 $ 9.05 Total investment return at net asset value (%) (b) -4.57(c) -1.15(c) Net assets, end of period (in thousands) $31,329 $23,017 Ratio of expenses to average net assets (%) .79(c) 1.41(c) Ratio of net investment income to average net assets (%) 2.73(c) 4.32(c) Portfolio turnover (%) 25.18(c) 36.20
For the period October 23, 1989 For six months (commencement of ended operations) to November 30 Year ended May 31 May 31 1994* 1994 1993 1992 1991 1990 Class A $9.05 $ 9.55 $ 9.02 $ 8.70 $ 8.50 8.50 .27 .55 .59 .61(a) .62(a) .35(a) (.64) (.35) .54 .39 .20 -- (.37) 0.20 1.13 1.00 .82 .35 (.27) (.55) (.59) (.61) (.62) (.35) -- (.15) (.01) (.07) -- -- (.27) (.70) (.60) (.68) (.62) (.35) $8.41 $ 9.05 $ 9.55 $ 9.02 $ 8.70 $ 8.50 -4.14(c) 1.92 12.80 11.96 10.10 4.17(c) $223,106 $244,519 $215,611 $149,011 $38,526 $18,249 .46(c) .96 .97 .88(a) .86(a) .48(a)(c) 3.02(c) 5.69 6.24 6.82(a) 7.27(a) 4.22(a)(c) 25.18(c) 36.20 53.18 94.95(d) 123.29 83.26(c) * Unaudited (a) Reflects an expense limitation, and, during the period ended May 31, 1990, an 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, respectively. (b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Not annualized. (d) Portfolio turnover excludes the impact from the acquisition of Putnam Massachusetts Tax Exempt Income Fund
NOTES TO FINANCIAL STATEMENTS November 30, 1994 (Unaudited) 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 Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes is consistent with preservation of capital by investing primarily in a portfolio of Massachusetts tax-exempt securities. The fund offers both class A and class B shares. 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 to be necessary by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A Security valuation Tax-exempt bonds and notes are stated on the basis of valuations provided by a pricing service, approved by the Trustees, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. Short-term tax-exempt investments having remaining maturities of 60 days or less are stated at amortized cost. B Security transactions and related investment income Security 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 provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held and excise tax on income and capital gains. E Distributions to shareholders Income dividends are recorded daily by the fund and are distributed monthly. Capital 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. The differences include treatment of gains and losses realized on paydowns for mortgage-backed securities and amortization of market discount. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. F Amortization of bond premium and 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 were being amortized over a five-year period based on current and projected net asset levels which concluded during the period ended November 30, 1994. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.6% 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, under current law, 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. Trustees of the fund receive an annual Trustee's fee of $780 and an additional fee for each Trustees' meeting attended. Trustees who are not interested persons of the Manager and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. 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 byPutnam Investor Services, a division of PFTC. Investor servicing and custodian fees reported in the Statement of operations for the six months ended November 30, 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 .20% of the fund's average net assets attributable to class A shares. During the six months ended November 30, 1994, Putnam Mutual Funds Corp., acting as the underwriter, received net commissions of $30,769 from the sale of class A shares of the fund. 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. 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 $31,104 from such redemptions for the six months ended November 30, 1994. Note 3 Purchases and sales of securities During the six months ended November 30, 1994, purchases and sales of investment securities other than short-term municipal obligations aggregated $70,707,244 and $66,249,266, respectively. Purchases of short-term municipal obligations aggregated $5,800,000 and during the period there were no sales of short term municipal obligations. 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 six months ended November 30, 1994:
Sales of Future Contracts Number of Aggregate Contracts Face Value Contracts opened 1,095 $ 109,355,938 Contracts closed (1,095) (109,355,938) Contracts open at end of period -- $ --
Note 4 Capital shares At November 30, 1994 there was an unlimited number of shares of beneficial interest authorized, divided into two classes, class A and class B capital shares. Transactions in capital shares were as follows:
Six months ended Year ended November 30 May 31 1994 1994 Class A Shares Amount Shares Amount Shares sold 2,169,964 $ 19,139,940 6,728,726 $ 64,885,880 Shares issued in connection with reinvestment of distributions 483,176 4,286,280 1,149,973 11,043,802 2,653,140 23,426,220 7,878,699 75,929,682 Shares repurchased (3,117,142) (27,231,755) (3,455,423) (32,760,636) Net increase (decrease) (464,002) $ (3,805,535) 4,423,276 $ 43,169,046
For the period July 15, 1993 (commencement Six months ended of operations) November 30 to May 31 1994 1994 Class B Shares Amount Shares Amount Shares sold 1,352,089 $11,998,596 2,685,178 $25,835,499 Shares issued in connection with reinvestment of distributions 54,453 481,492 54,232 515,350 1,406,542 12,480,088 2,739,410 26,350,849 Shares repurchased (219,804) (1,939,479) (196,505) (1,828,197) Net increase 1,186,738 $10,540,609 2,542,905 $24,522,652
OUR COMMITMENT TO QUALITY SERVICE > CHOOSE AWARD-WINNING SERVICE. Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the past five years, through 1994. 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 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 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 TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John R. Verani 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 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, and the most recent copy of Putnam's Quarterly Performance Summary. For more information or to request a prospectus, call toll-free: 1-800-225-1581. Bulk Rate U.S. Postage PAID Putnam Investments 845/236-15820 Putnam Investments The Putnam Funds One Post Office Square Boston, Massachusetts 02109 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 omitted. (6) Trademark symbol replaced with (TM) -----END PRIVACY-ENHANCED MESSAGE-----