Putnam
Massachusetts
Tax Exempt
Income Fund
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-03
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
Looking back on an eventful year, we consider it important to take note of
the increasingly positive trends that have become apparent in the U.S.
economy and financial markets. The stimulus provided by fiscal and monetary
policies has drawn the economy out of the slump of early 2003 and rising
profits prompted a broad rally for stocks. The bond market steadied while
offering pockets of opportunity. We see indications that these trends can
continue into 2004 and know that Putnam management teams will seek to
position the funds to benefit from them. However, not every fund was able to
take full advantage of 2003's positive market trends.
During the semiannual period ended November 30, 2003, Putnam Massachusetts
Tax Exempt Income Fund delivered slightly negative results at net asset
value. The returns also lagged the fund's benchmark but were in line with
its Lipper category average. Details may be found on the facing page.
In the following report from your fund's management team, you will also see
a detailed discussion of the strategies the managers employed in the
challenging market environment that prevailed during the period. Results
were helped not only by the conservative duration strategy the managers
maintained, but also by a cross-market arbitrage position and the strong
performance of certain lower-rated higher-yielding securities in the
portfolio. The team concludes its report by offering its views on prospects
for the fiscal year's second half.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
January 21, 2004
Report from Fund Management
Fund highlights
* For the six months ended November 30, 2003, Putnam Massachusetts Tax
Exempt Income Fund's class A shares returned -0.14% at net asset value
(NAV) and -4.90% at public offering price (POP).
* Differences in portfolio composition caused the fund to underperform
its benchmark, the Lehman Municipal Bond Index, which gained 0.18%
during the same six-month period.
* The fund's results at NAV were in line with the average return of
funds in its Lipper category, Massachusetts Municipal Debt Funds, which
was -0.17%.
* See the Performance Summary on Page 7 for complete fund performance,
comparative performance, and Lipper data.
Performance commentary
While your fund's investment mix and the adjustments we made to its
portfolio helped keep its investment results in line with the average for
its Lipper peer group over the first half of fiscal 2004, performance did
lag the fund's benchmark. This underperformance can be attributed to the
fact that the Lehman Municipal Bond Index is nationally diversified, while
the fund focuses on the Massachusetts market. Positive contributions to
performance came from the fund's positions in airline-related industrial
development bonds (IDBs) and tobacco settlement bonds. Although the fund's
weighting in higher-yielding bonds was comparable to others in its Lipper
category, we had placed a higher weighting on bonds from the lower tiers of
the investment-grade sector. Bonds rated below investment grade (below
Baa/BBB) delivered stronger performance over the period. Furthermore, the
portfolio was slightly barbelled, meaning it included a combination of very
short-maturity bonds and very long-maturity bonds. The very long bonds that
it owned performed particularly poorly when rates rose in the summer. With
this combination of positive and negative contributors, the fund's results
were in line with the average for its Lipper category.
FUND PROFILE
Putnam Massachusetts Tax Exempt Income Fund seeks to provide as high a
level of current income free from federal and state of Massachusetts
personal income taxes, as is believed to be consistent with the
preservation of capital. It may be suitable for investors seeking
tax-free income through a diversified portfolio of municipal bonds
issued primarily in Massachusetts.
Market overview
Municipal bond yields -- which move in the opposite direction of their
prices -- were unusually volatile between June 1 and November 30, 2003.
Concern about deflation led to falling yields and correspondingly higher
bond prices through mid June. After rising through August, yields receded
again in late September on unfavorable housing and unemployment data.
October's positive economic surprises sent yields back up in November.
Overall, yields ended the semiannual period higher. The spread, or
difference between yields of 10-year municipal bonds and 10-year Treasuries,
widened, with municipals yielding close to their long-term average of 85% of
comparable Treasury yields at the end of November, after yielding nearly
100% of Treasury yields earlier in the year.
As the economy improved, investor demand for higher-yielding municipals
increased. In particular, airline-related industrial development bonds
outperformed other municipal bonds. Tobacco settlement bonds
underperformed in the late spring following unfavorable rulings in some
of the industry's ongoing litigation matters. However, these bonds began
to outperform during the six-month period as prospects for the industry
became more favorable.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 11/30/03
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Bonds
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Lehman Municipal Bond Index (tax-exempt bonds) 0.18%
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Lehman Aggregate Bond Index (broad bond market) -1.04%
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Lehman Intermediate Government Bond Index
(intermediate-maturity U.S. government bonds) -1.27%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 9.63%
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Equities
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S&P 500 Index (broad stock market) 10.80%
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Russell 2000 Index (stocks of small and midsize companies) 24.65%
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MSCI EAFE Index (international stocks) 20.26%
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These indexes provide an overview of performance in different market
sectors for the six months ended 11/30/03.
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Strategy overview
We shortened duration (a measure of a fund's sensitivity to changes in
interest rates) in May and June because interest rates were at historically
low levels and were more likely, in our opinion, to rise than to fall. This
defensive strategy helped protect portfolio assets when rates rose sharply
between mid June and the end of July. We resumed a neutral duration in
August and September, as we believed rates were unlikely to rise further. In
September, rates fell again, so we shortened duration somewhat. This was
beneficial when rates rose in October. At the end of the period, the
portfolio's duration remained slightly defensive.
In late July, we closed out the cross-market arbitrage position we had
established in an earlier period. You may recall that we sought to take
advantage of a market anomaly in which municipal bond yields, which are
generally tax exempt, were nearly as high as comparable taxable Treasury
yields. We bought intermediate-term municipal bonds and sold 10-year U.S.
Treasury futures contracts, anticipating that the muni/Treasury yield ratio
would revert to its long-term average and create an opportunity for gain. In
fact, the yield ratio did fall, and a loss in value of the muni bonds was
more than offset by a gain in the value of the Treasury futures position. We
sold the muni bonds and bought back the Treasury futures contracts, thereby
ending the trade and locking in a profit for the fund.
We took the opportunity afforded by strong demand for higher-yielding
municipal bonds to take profits where appropriate. We continued to diversify
the portfolio by adding selectively to the fund's lower-quality holdings.
Overall, however, we were not particularly active buyers or sellers. We
tended to hold on to existing positions throughout the period. That approach
resulted in part from the fact that there were limited opportunities for
initiating new investments in the Massachusetts market.
[GRAPHIC OMITTED: horizontal bar chart THE FUND'S MATURITY AND DURATION
COMPARED]
THE FUND'S MATURITY AND DURATION COMPARED
5/31/03 11/30/03
Average effective
maturity in years 9.1 8.7
Duration in years 6.0 5.9
Footnotes read:
This chart compares changes in the fund's duration (a measure of its
sensitivity to interest-rate changes) and its average effective maturity
(a weighted average of the holdings' maturities).
Average effective maturity also takes into account put and call
features, where applicable, and reflects prepayments for mortgage-backed
securities.
How fund holdings affected performance
The fund's top performer during the period was an airline-related industrial
development bond (IDB). This type of municipal bond is usually issued to
finance local expansion by various businesses, and is backed by the credit
of the company benefiting from the financing. As a result, IDB prices are
affected by investor perceptions of the health of the backing company or of
the industry group. Especially since the terrorist attacks of September 11,
2001, airline-backed IDBs (generally issued to finance airport facility
expansion) have been severely affected by declining air traffic, high fixed
costs, and high-profile bankruptcies. As the prospects for economic recovery
improved, the airline companies strengthened and concerns about bankruptcies
diminished. This led to a sharp price recovery for these bonds and we used
this opportunity to trim the fund's position in an airport facility
improvement bond issued by the Puerto Rico Industrial, Medical and
Environmental Facilities Financing Authority for American Airlines, with a
6.45% coupon and a 2025 maturity date. Since this bond had been in the
portfolio for some time, the sale did not result in a profit based on its
acquisition cost, but the fund was able to sell on strength rather than in
distress. We believe the airline industry will continue to recover with the
economy, but we also see potentially greater opportunities in other market
areas.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa/AAA -- (59.5%)
Aa/AA -- (18.2%)
A -- (4.4%)
Baa/BBB -- (10.7%)
Ba/BB -- (2.9%)
B and lower -- (0.4%)
Footnote reads:
As a percentage of market value as of 11/30/03. A bond rated Baa/BBB or
higher is considered investment grade. The chart reflects Moody's and
Standard & Poor's ratings; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Other bonds that performed well were tobacco settlement bonds, primarily due
to a series of more positive legal judgments. These investments included a
bond issued by Children's Trust Fund of Puerto Rico, which has a 5.375%
coupon and matures in 2033. Until recently, our view on the sector had been
less favorable because of the multibillion-dollar litigation pending against
the tobacco companies. This litigation, if success ful, could have affected
the ability of tobacco companies to meet their settlement payment
obligations to the states and in turn, have a negative effect on tobacco
settlement bonds, which are secured by this promised income stream. During
the reporting period, the litigation environment shifted in favor of tobacco
companies, and in several cases, higher courts reversed severe lower court
judgments and outlined higher hurdles and stricter rules for litigants
against tobacco companies. This change prompted our reversion to a more
positive stance on the sector.
Relative detractors from the fund's performance during the period came from
higher-grade, longer-maturity bonds. There were no particular bonds that
stood out as especially poor performers; rather, the fund's holdings in
these types of bonds simply did not perform as well as other sectors of the
market. These bonds suffered from weak demand, as investors became more
attracted to higher-yielding, lower-quality issues. In addition, the longer
maturity of these bonds made them particularly susceptible to price declines
amid an environment of generally rising interest rates.
We were able to initiate a new position in an education bond during the
period. It was issued by the Massachusetts State Development Finance
Agency for Middlesex School. The bonds carry a 5.125% coupon and mature
in 2023. The bond proceeds were used to refinance some outstanding debt
and to help finance the replacement of a wastewater treatment plant.
Middlesex is a private boarding and day school located in Concord,
Massachusetts. We liked these bonds because the school has strong
student demand, a solid cash position, and impressive fundraising
ability.
We also sold and then bought back some bonds. To explain, the fund owned
some bonds issued by the Massachusetts Health and Educational Facilities
Authority for Caritas Christi Health Care System. Moody's downgraded the
bonds' rating in April. Our analyst became concerned about the possibility
of additional credit deterioration. The health system was experiencing high
labor costs and investment losses. We sold some of the bonds in June in
order to moderate the risk of this holding. During the summer, the bonds
declined in value. In September, our analyst believed that financially, the
system was beginning to show signs of longer-term stabilization. Inpatient
volume was up, the new state budget was beneficial, and nursing costs were
starting to come down. We decided to increase the position size. These moves
were an example of our strategy of working tactically in the credit markets
to take advantage of our analysts' recommendations.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary
in the future.
The fund's management team
The fund is managed by the Putnam Tax Exempt Fixed-Income Team. The
members of the team are David Hamlin (Portfolio Leader), Paul Drury
(Portfolio Member), Susan McCormack (Portfolio Member), James St. John
(Portfolio Member), Richard Wyke (Portfolio Member), and Kevin Cronin.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
We anticipate continued volatility in the coming six months and believe the
Federal Reserve Board will hold the federal funds rate steady at 1%. Our 12-
to 18-month outlook is less certain. If economic policy succeeds, we may
experience a classic bear market for bonds that may push yields higher.
However, it is also possible that the economy may not respond satisfactorily
to fiscal and monetary policy, and the yield on 10-year Treasuries could
fall. Given this degree of uncertainty, we have, at this time, positioned
the fund's duration somewhat defensively, and we believe rates may rise in
the short term. Currently, we no longer see much opportunity to capitalize
on yield spreads between municipal bonds and Treasuries, as the relationship
between them is now near the long-term average. We believe that the credit
quality of general obligation municipal bonds will remain under pressure,
because tax revenues cannot be expected to grow significantly until
taxpayers begin to report improved earnings. Although yield spreads between
high- and low-quality municipal bonds have narrowed somewhat, we believe
they could narrow further. As a result, we may see more opportunity for
potential gain in this area. In keeping with the fund's objective, we will
continue to monitor market conditions as we pursue a high level of tax-free
income and manage the fund's risk exposures.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund
concentrates its investments in one state and involves more risk than a
fund that invests more broadly.
Performance summary
This section provides information about your fund's performance during
the first half of its fiscal year, which ended November 30, 2003. In
accordance with regulatory requirements, we also include performance for
the most current calendar quarter-end. Performance should always be
considered in light of a fund's investment strategy. Past performance
does not indicate future results. More recent returns may be less or
more than those shown. Investment return and principal value will
fluctuate and you may have a gain or a loss when you sell your shares. A
profile of your fund's strategy appears on the first page of this
report. See page 9 for definitions of some terms used in this section.
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TOTAL RETURN FOR PERIODS ENDED 11/30/03
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Class A Class B Class C Class M
(inception dates) (10/23/89) (7/15/93) (8/19/03) (5/12/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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6 months -0.14% -4.90% -0.36% -5.25% -0.43% -1.41% -0.28% -3.56%
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1 year 6.12 1.09 5.55 0.55 5.42 4.42 5.92 2.44
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5 years 27.30 21.23 23.33 21.33 22.43 22.43 25.52 21.48
Annual average 4.95 3.93 4.28 3.94 4.13 4.13 4.65 3.97
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10 years 70.79 62.71 60.02 60.02 57.78 57.78 65.48 60.05
Annual average 5.50 4.99 4.81 4.81 4.67 4.67 5.17 4.82
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Annual average
(life of fund) 6.97 6.60 6.20 6.20 6.12 6.12 6.59 6.34
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Performance assumes reinvestment of distributions and does not account for
taxes. Returns at public offering price (POP) for class A and M shares
reflect a sales charge of 4.75% and 3.25%, respectively. Class B share
returns reflect the applicable contingent deferred sales charge (CDSC),
which is 5% in the first year, declining to 1% in the sixth year, and is
eliminated thereafter. Class C shares reflect a 1% CDSC the first year that
is eliminated thereafter. Performance for class B, C, and M shares before
their inception is derived from the historical performance of class A
shares, adjusted for the applicable sales charge (or CDSC) and higher
operating expenses for such shares.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/03
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Lipper
Massachusetts
Lehman Municipal
Municipal Debt Funds
Bond Index category average*
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6 months 0.18% -0.17%
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1 year 6.66 6.20
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5 years 31.98 25.20
Annual average 5.71 4.59
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10 years 81.80 67.09
Annual average 6.16 5.26
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Annual average
(life of fund) 7.26 6.70
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 11/30/03, there
were 53, 52, 44, and 23 funds, respectively, in this Lipper category.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 11/30/03
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Class A Class B Class C Class M
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Distributions (number) 6 6 3 6
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Income 1 $0.193405 $0.162106 $0.089295 $0.179001
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Capital gains 1 -- -- -- --
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Total $0.193405 $0.162106 $0.089295 $0.179001
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Share value: NAV POP NAV NAV NAV POP
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5/31/03 $9.79 $10.28 $9.78 -- $9.79 $10.12
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8/19/03+ -- -- -- $9.35 -- --
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11/30/03 9.58 10.06 9.58 9.59 9.58 9.90
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Current return (end of period)
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Current dividend rate 2 4.04% 3.85% 3.39% 3.22% 3.74% 3.62%
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Taxable equivalent 3 6.56 6.26 5.51 5.23 6.08 5.88
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Current 30-day SEC yield 4 3.24 3.08 2.59 2.44 2.94 2.85
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Taxable equivalent 3 5.26 5.00 4.21 3.96 4.78 4.63
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1 Capital gains, if any, are taxable for federal and, in most cases,
state purposes. For some investors, investment income may be subject to
the federal alternative minimum tax. Income from federally exempt funds
may be subject to state and local taxes.
2 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
3 Assumes maximum 38.45% federal and state combined tax rate for 2003.
Results for investors subject to lower tax rates would not be
advantageous.
4 Based only on investment income, calculated using SEC guidelines.
+ Inception date of class C shares.
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TOTAL RETURN FOR PERIODS ENDED 12/31/03 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M
(inception dates) (10/23/89) (7/15/93) (8/19/03) (5/12/95)
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NAV POP NAV CDSC NAV CDSC NAV POP
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6 months 0.95% -3.89% 0.62% -4.32% 0.54% -0.45% 0.80% -2.53%
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1 year 4.92 -0.11 4.13 -0.87 4.02 3.02 4.60 1.21
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5 years 27.73 21.66 23.63 21.63 22.77 22.77 25.95 21.91
Annual average 5.02 4.00 4.33 3.99 4.19 4.19 4.72 4.04
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10 years 68.88 60.89 58.23 58.23 55.84 55.84 63.58 58.20
Annual average 5.38 4.87 4.70 4.70 4.54 4.54 5.04 4.69
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Annual average
(life of fund) 6.98 6.62 6.21 6.21 6.13 6.13 6.61 6.36
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Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 4.75% maximum sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Comparative indexes
JP Morgan (formerly Chase) Global High Yield Index is an unmanaged index
that is designed to mirror the investable universe of the U.S. dollar
global high-yield corporate debt market, including domestic and
international issues.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed-income securities.
Lehman Intermediate Government Bond Index is an unmanaged index of
government bonds with maturities between 1 and 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) EAFE Index is an unmanaged
index of international stocks from Europe, Australasia, and the Far
East.
Russell 2000 Index is an unmanaged index of common stocks that generally
measure performance of small to midsize companies within the Russell
3000 Index.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing regulations
for proxy statements, semiannual and annual reports, and prospectuses.
Putnam is now able to send a single copy of these materials to customers who
share the same address. This change will automatically apply to all
shareholders except those who notify us. If you would prefer to receive your
own copy, please call Putnam at 1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests of
our shareholders. Our proxy voting guidelines and policies are available on
the Putnam Individual Investor Web site, www.putnaminvestments.com, by
calling Putnam's shareholder services line at 1-800-225-1581, or on the
SEC's Web site, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to determine
the net asset value per share, which is calculated separately for each class
of shares. (For funds with preferred shares, the amount subtracted from
total assets includes the net assets allocated to remarketed preferred
shares.)
Statement of operations shows the fund's net investment gain or loss. This
is done by first adding up all the fund's earnings -- from dividends and
interest income -- and subtracting its operating expenses to determine net
investment income (or loss). Then, any net gain or loss the fund realized on
the sales of its holdings -- as well as any unrealized gains or losses over
the period -- is added to or subtracted from the net investment result to
determine the fund's net gain or loss for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
The fund's portfolio
November 30, 2003 (Unaudited)
Key to Abbreviations
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AMBAC AMBAC Indemnity Corporation
FGIC Financial Guaranty Insurance Company
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
G.O. Bonds General Obligation Bonds
IFB Inverse Floating Rate Bonds
MBIA MBIA Insurance Company
VRDN Variable Rate Demand Notes
XLCA XL Capital Assurance
Municipal bonds and notes (99.3%) (a)
Principal amount Rating (RAT) Value
Massachusetts (92.3%)
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Boston, G.O. Bonds, Ser. A
$2,815,000 4s, 2/1/08 Aa2 $3,008,531
1,100,000 4s, 2/1/07 Aa2 1,167,375
2,750,000 Boston, Indl. Dev. Fin. Auth.
Rev. Bonds (Springhouse, Inc.), 6s,
7/1/28 BB-/P 2,512,813
6,525,000 Boston, Indl. Dev. Fin. Auth. Swr.
Fac. Rev. Bonds (Harbor Elec. Energy
Co.), 7 3/8s, 5/15/15 Aa3 6,549,469
7,935,000 Boston, Wtr. & Swr. Comm.
Rev. Bonds, Ser. A, 5 3/4s, 11/1/13 Aa3 9,145,088
Fall River, G.O. Bonds, FSA
1,990,000 5s, 2/1/13 Aaa 2,206,413
1,950,000 5s, 2/1/12 Aaa 2,159,625
2,100,000 Framingham, Hsg. Auth. Rev. Bonds,
GNMA Coll., 6.35s, 2/20/32 AAA 2,307,375
5,185,000 Holden, G.O. Bonds, FGIC, 5 1/2s,
3/1/20 Aaa 5,709,981
MA Bay Trans. Auth. Rev. Bonds (Gen.
Trans. Syst.)
3,500,000 Ser. B, 5.9s, 3/1/24 Aa2 3,611,965
4,000,000 Ser. A, 5 1/2s, 3/1/12 Aa2 4,520,000
6,420,000 MA Bay Trans. Auth. Sales Tax
Rev. Bonds, Ser. A, 5 1/4s, 7/1/21 AAA 7,102,125
3,055,000 MA Muni. Whsl. Elec. Co. Pwr. Supply
Syst. Rev. Bonds (Project 6-A),
MBIA, 5s, 7/1/06 Aaa 3,291,763
4,000,000 MA State College Bldg. Auth.
Rev. Bonds, Ser. B, XLCA, 5 1/2s,
5/1/28 Aaa 4,430,000
MA State Dev. Fin. Agcy. Rev. Bonds
1,450,000 (Beverly Enterprises, Inc.), 7 3/8s,
4/1/09 B+/P 1,477,188
3,415,000 (Lasell College), 6 3/4s, 7/1/31 BB+/P 3,410,731
1,965,000 (Lasell Village), Ser. A, 6 3/8s,
12/1/25 BB/P 1,967,456
1,950,000 (MA Biomedical Research), Ser. C,
6 1/8s, 8/1/12 A1 2,208,375
1,300,000 (Worcester Redev. Auth. Issue), 6s,
6/1/24 AA 1,434,875
1,830,000 (MA Biomedical Research), Ser. C,
5 7/8s, 8/1/10 A1 2,083,913
MA State Dev. Fin. Agcy. Rev. Bonds
10,200,000 (WGBH Edl. Foundation), Ser. A,
AMBAC, 5 3/4s, 1/1/42 Aaa 11,870,250
1,750,000 (Boston Biomedical Research),
5 3/4s, 2/1/29 Baa3 1,697,500
1,000,000 (Middlesex School), 5 1/8s, 9/1/23 A1 1,043,750
7,500,000 MA State Dev. Fin. Agcy. Res. Recvy.
Rev. Bonds (Semass Syst.), Ser. A,
MBIA, 5 1/2s, 1/1/10 Aaa 8,446,875
5,000,000 MA State Edl. Fin. Auth. Rev. Bonds,
Ser. E, AMBAC, 5s, 1/1/13 AAA 5,275,000
MA State G.O. Bonds
5,500,000 Ser. D, 5 1/2s, 11/1/19 Aa2 6,194,375
7,500,000 Ser. C, FSA, 5 1/2s, 11/1/10 Aaa 8,625,000
3,750,000 Ser. C, 5 1/4s, 8/1/15 AAA 4,275,000
9,100,000 Ser. B, 5s, 5/1/12 AAA 10,169,250
MA State Hlth. & Edl. Fac. Auth. IFB
7,900,000 MBIA, 9.48s, 7/1/18 Aaa 8,498,188
12,000,000 AMBAC, 6s, 7/1/25 Aaa 12,155,400
MA State Hlth. & Edl. Fac. Auth.
Rev. Bonds
5,360,000 (Rehab. Hosp. Cape & Islands),
Ser. A, 7 7/8s, 8/15/24 AAA/P 5,712,849
3,000,000 (Winchester Hosp.), Ser. E, 6 3/4s,
7/1/30 BBB 3,191,250
3,125,000 (UMass Memorial), Ser. C, 6 1/2s,
7/1/21 Baa2 3,238,281
2,000,000 (Milford-Whitinsville Hosp.),
Ser. D, 6.35s, 7/15/32 Baa2 2,010,000
1,300,000 (Berkshire Hlth. Syst.), Ser. E,
6 1/4s, 10/1/31 BBB+ 1,334,125
5,000,000 (Harvard U.), Ser. N, 6 1/4s, 4/1/20 Aaa 6,212,500
1,000,000 (Learning Ctr. for Deaf Children),
Ser. C, 6 1/8s, 7/1/29 Ba2 957,500
3,000,000 (Hlth. Care Syst. Covenant Hlth.),
Ser. E, 6s, 7/1/31 A- 3,101,250
2,100,000 (Partners Hlth. Care Syst.), Ser. C,
6s, 7/1/15 Aa3 2,341,500
1,460,000 (Partners Hlth. Care Syst.), Ser. C,
6s, 7/1/14 Aa3 1,646,150
3,015,000 (Newton-Wellesley Hosp.), Ser. E,
MBIA, 5.9s, 7/1/11 Aaa 3,252,431
4,000,000 (Partners Hlth. Care Syst.), Ser. C,
5 3/4s, 7/1/32 Aa3 4,225,000
1,000,000 (Baystate Med. Ctr.), Ser. F, 5.7s,
7/1/27 A1 1,032,500
1,955,000 (Caritas Christi Hlth. Care Syst.
Oblig. Group), Ser. A, 5 5/8s,
7/1/20 BBB 1,774,163
800,000 (Milton Hosp.), Ser. C, 5 1/2s,
7/1/16 BBB+ 816,000
3,665,000 (Williams College), Ser. G, 5 1/2s,
7/1/14 Aa1 4,141,450
1,265,000 (Milton Hosp.), Ser. C, 5 1/2s,
7/1/11 BBB+ 1,344,063
2,250,000 (Cape Cod Hlth. Care), Ser. B,
5.45s, 11/15/23 BBB+ 2,168,438
3,000,000 (Jordan Hosp.), Ser. D, 5 3/8s,
10/1/28 BBB- 2,501,250
4,250,000 (Boston College), Ser. K, 5 3/8s,
6/1/14 Aa3 4,860,938
3,000,000 (Partners Hlth. Care Syst.), Ser. B,
5 1/4s, 7/1/11 Aa3 3,292,500
10,000,000 (MA Inst. of Tech.), Ser. I-1, 5.2s,
1/1/28 Aaa 10,862,500
1,000,000 (Wellesley College), 5s, 7/1/17 Aa1 1,071,250
2,000,000 (New England Med. Ctr. Hosp.),
Ser. H, FGIC, 5s, 5/15/11 Aaa 2,212,500
3,840,000 (New England Med. Ctr. Hosp.),
Ser. H, FGIC, 5s, 5/15/10 Aaa 4,276,800
3,660,000 (New England Med. Ctr. Hosp.),
Ser. H, FGIC, 5s, 5/15/09 Aaa 4,071,750
2,105,000 (Caregroup Issue), Ser. A, MBIA, 5s,
7/1/06 Aaa 2,270,769
15,500,000 MA State Hlth. & Edl. Fac. Auth.
VRDN, Ser. D, MBIA, 1.05s, 1/1/35 VMIG1 15,500,000
MA State Hsg. Fin. Agcy. Rev. Bonds
2,000,000 (Rental Mtge.), Ser. E, AMBAC, 5.9s,
7/1/25 Aaa 2,080,000
5,000,000 (Rental Mtge.), Ser. C, AMBAC,
5 5/8s, 7/1/40 Aaa 5,112,500
3,780,000 (Single Fam.), Ser. 86, 5.1s,
12/1/21 Aa2 3,808,350
1,590,000 (Rental Mtge.), Ser. E, FSA, 4.1s,
7/1/06 Aaa 1,637,700
1,520,000 (Rental Mtge.), Ser. E, FSA, 3.95s,
7/1/05 Aaa 1,563,700
1,650,000 (Rental Mtge.), Ser. E, FSA, 3.8s,
7/1/04 Aaa 1,666,665
MA State Hsg. Fin. Auth. Agcy.
Single Fam. Rev. Bonds, Ser. 84
850,000 4 1/4s, 12/1/07 Aa2 884,000
700,000 4.05s, 12/1/06 Aa2 724,500
790,000 3.9s, 12/1/05 Aa2 817,650
MA State Indl. Fin. Agcy. Rev. Bonds
3,000,000 (1st Mtge. Stone Inst. & Newton),
7.9s, 1/1/24 BB-/P 3,091,830
5,140,000 (1st Mtge. Loomis House & Village),
7 5/8s, 7/1/25 AAA 5,743,950
2,000,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/15 BBB/P 2,061,260
2,750,000 (1st Mtge. Brookhaven), Ser. A, 7s,
1/1/09 BBB/P 2,835,058
5,875,000 (American Hinghan, Wtr. Treatment),
6 3/4s, 12/1/25 BBB/P 6,139,375
6,000,000 (1st Mtge. Berkshire Retirement),
Ser. A, 6 5/8s, 7/1/16 BBB- 6,105,000
3,385,000 (Park School), 5.9s, 9/1/26 A3 3,638,875
4,250,000 (MA Eastern Edison Co.), 5 7/8s,
8/1/08 A2 4,362,668
1,650,000 (Wentworth Inst. of Tech.), 5 3/4s,
10/1/28 Baa1 1,728,375
2,000,000 (1st Mtge. Brookhaven), Ser. B,
5 1/4s, 1/1/17 BBB/P 1,970,000
MA State Port Auth. Rev. Bonds,
Ser. C, MBIA
2,000,000 5s, 7/1/08 Aaa 2,222,500
5,330,000 5s, 7/1/07 Aaa 5,863,000
5,685,000 5s, 7/1/06 Aaa 6,139,800
MA State Wtr. Poll. Abatement
Rev. Bonds (Pool Program)
7,000,000 Ser. 5, 5 3/8s, 8/1/27 Aaa 7,367,500
1,340,000 Ser. 7, 5s, 8/1/06 Aaa 1,452,225
MA State Wtr. Res. Auth. Rev. Bonds
7,500,000 Ser. A, 6 1/2s, 7/15/19 AA 9,178,125
10,000,000 Ser. A, FGIC, 5 3/4s, 8/1/39 Aaa 11,075,000
2,900,000 Ser. C, MBIA, 5 1/4s, 12/1/15 Aaa 3,262,500
Maynard, G.O. Bonds, MBIA
1,065,000 5s, 2/1/13 Aaa 1,180,819
565,000 5s, 2/1/12 Aaa 625,731
1,760,000 Norwell, G.O. Bonds, FGIC, 5s,
11/15/18 AAA 1,938,200
10,000,000 Quincy, Rev. Bonds, FSA, 5.3s,
1/15/11 Aaa 10,229,000
1,000,000 Springfield, G.O. Bonds, MBIA, 5s,
1/15/13 Aaa 1,103,750
Westfield, G.O. Bonds, MBIA
2,190,000 5s, 9/1/11 Aaa 2,452,800
2,190,000 5s, 9/1/10 Aaa 2,461,013
1,000,000 Westford, G.O. Bonds, FGIC, 5 1/4s,
4/1/20 Aaa 1,075,000
--------------
371,573,775
Puerto Rico (7.0%)
- -------------------------------------------------------------------------------
1,870,000 Children's Trust Fund Tobacco
Settlement Rev. Bonds, 5 3/8s,
5/15/33 Baa2 1,778,838
2,000,000 Cmnwlth. of PR, G.O. Bonds (Pub.
Impt.), FSA, 5 1/2s, 7/1/18 Aaa 2,320,000
Cmnwlth. of PR, Hwy. & Trans. Auth.
Rev. Bonds, MBIA
2,925,000 Ser. Z, 6 1/4s, 7/1/13 Aaa 3,568,500
3,000,000 Ser. AA, 5 1/2s, 7/1/19 Aaa 3,487,500
10,685,000 Cmnwlth. of PR, Muni. Fin. Agcy.
Rev. Bonds, Ser. A, FSA, 4 1/2s,
8/1/11 Aaa 11,633,294
4,500,000 PR Elec. Pwr. Auth. Rev. Bonds,
Ser. NN, MBIA, 5 1/4s, 7/1/22 Aaa 5,056,875
600,000 PR Indl. Med. & Env. Poll. Control
Fac. Fin. Auth. Rev. Bonds (Special
Fac. - American Airlines, Inc.),
Ser. A, 6.45s, 12/1/25 Caa2 387,000
--------------
28,232,007
- -------------------------------------------------------------------------------
Total Investments
(cost $378,538,996) $399,805,782
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $402,472,623.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at November 30, 2003 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, 2003. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
The rates shown on VRDN are the current interest rates shown at November
30, 2003.
The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, are the current
interest rates at November 30, 2003.
The fund had the following industry group concentrations greater than
10% at November 30, 2003 (as a percentage of net assets):
Health care 27.3%
Education 15.3
Water & sewer 11.8
The fund had the following insurance concentrations greater than 10% at
November 30, 2003 (as a percentage of net assets):
MBIA 19.6%
FSA 10.4
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
November 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$378,538,996) (Note 1) $399,805,782
- -------------------------------------------------------------------------------
Cash 82,701
- -------------------------------------------------------------------------------
Interest and other receivables 6,399,791
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 68,907
- -------------------------------------------------------------------------------
Receivable for securities sold 55,000
- -------------------------------------------------------------------------------
Total assets 406,412,181
Liabilities
- -------------------------------------------------------------------------------
Distributions payable to shareholders 533,853
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 2,531,227
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 537,790
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 78,662
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 26,805
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 526
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 179,660
- -------------------------------------------------------------------------------
Other accrued expenses 51,035
- -------------------------------------------------------------------------------
Total liabilities 3,939,558
- -------------------------------------------------------------------------------
Net assets $402,472,623
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $383,564,046
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 670,411
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,028,620)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 21,266,786
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $402,472,623
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($295,431,272 divided by 30,825,850 shares) $9.58
- -------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.58)* $10.06
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($100,829,269 divided by 10,528,755 shares)** $9.58
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($961,580 divided by 100,306 shares)** $9.59
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($5,250,502 divided by 547,916 shares) $9.58
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.58)*** $9.90
- -------------------------------------------------------------------------------
* 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.
*** On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Six months ended November 30, 2003 (Unaudited)
Interest income: $10,798,391
- -------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 1,113,678
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 223,746
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 7,612
- -------------------------------------------------------------------------------
Administrative services (Note 2) 2,960
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 325,465
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 487,646
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,364
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 13,640
- -------------------------------------------------------------------------------
Other 97,914
- -------------------------------------------------------------------------------
Total expenses 2,274,025
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (17,979)
- -------------------------------------------------------------------------------
Net expenses 2,256,046
- -------------------------------------------------------------------------------
Net investment income 8,542,345
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,644,812
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,278,800
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures
contracts during the period (14,209,736)
- -------------------------------------------------------------------------------
Net loss on investments (10,286,124)
- -------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(1,743,779)
- -------------------------------------------------------------------------------
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
Increase (decrease) in net assets 2003* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $8,542,345 $19,806,433
- -------------------------------------------------------------------------------
Net realized gain on investments 3,923,612 1,527,930
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments (14,209,736) 19,771,856
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (1,743,779) 41,106,219
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From tax-exempt income
Class A (6,568,660) (14,483,206)
- -------------------------------------------------------------------------------
Class B (1,944,864) (4,390,318)
- -------------------------------------------------------------------------------
Class C (4,210) --
- -------------------------------------------------------------------------------
Class M (101,946) (246,950)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (59,648,387) (12,175,578)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (70,011,846) 9,810,167
Net assets
- -------------------------------------------------------------------------------
Beginning of period 472,484,469 462,674,302
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $670,411 and $747,746,
respectively) $402,472,623 $472,484,469
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.79 $9.34 $9.20 $8.74 $9.45 $9.61
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income .19 .42 .46 .48 .50 .49
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) .44 .14 .46 (.71) (.15)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02) .86 .60 .94 (.21) .34
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.41) (.46) (.48) (.50) (.50)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.41) (.46) (.48) (.50) (.50)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.79 $9.34 $9.20 $8.74 $9.45
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.14)* 9.39 6.61 10.95 (2.20) 3.60
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $295,431 $344,042 $337,865 $285,452 $259,479 $298,243
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .42* .84 .83 .82 .84 .97
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.01* 4.42 4.89 5.28 5.55 5.11
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.75* 29.10 24.33 6.91 15.17 9.42
- -------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.78 $9.33 $9.19 $8.73 $9.44 $9.61
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income .16 .36 .40 .42 .44 .43
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.20) .44 .14 .46 (.71) (.16)
- -------------------------------------------------------------------------------------------------------------
Total from
investment operations (.04) .80 .54 .88 (.27) .27
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.35) (.40) (.42) (.44) (.44)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.35) (.40) (.42) (.44) (.44)
- -------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.78 $9.33 $9.19 $8.73 $9.44
- -------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.36)* 8.69 5.91 10.24 (2.85) 2.81
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $100,829 $122,436 $118,486 $121,881 $109,426 $122,654
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .75* 1.49 1.48 1.47 1.49 1.62
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.68* 3.77 4.25 4.63 4.90 4.47
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.75* 29.10 24.33 6.91 15.17 9.42
- -------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- ---------------------------------------------------------------
For the
period
August 19,
2003+ to
November 30
Per-share (Unaudited)
operating performance 2003
- ---------------------------------------------------------------
Net asset value,
beginning of period $9.35
- ---------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------
Net investment income .09
- ---------------------------------------------------------------
Net realized and unrealized
gain on investments .24
- ---------------------------------------------------------------
Total from
investment operations .33
- ---------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------
From net
investment income (.09)
- ---------------------------------------------------------------
Total distributions (.09)
- ---------------------------------------------------------------
Net asset value,
end of period $9.59
- ---------------------------------------------------------------
Total return at
net asset value (%)(a) 3.53*
- ---------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------
Net assets, end of period
(in thousands) $962
- ---------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .47*
- ---------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .91*
- ---------------------------------------------------------------
Portfolio turnover (%) 4.75*
- ---------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements
(Note 2).
The accompanying notes are an integral part of these
financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- --------------------------------------------------------------------------------------------------
Six months
ended
November 30
Per-share (Unaudited) Year ended May 31
operating performance 2003 2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $9.79 $9.33 $9.20 $8.74 $9.45 $9.61
- --------------------------------------------------------------------------------------------------
Investment operations:
- --------------------------------------------------------------------------------------------------
Net investment income .18 .39 .43 .45 .47 .46
- --------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.21) .45 .13 .46 (.71) (.15)
- --------------------------------------------------------------------------------------------------
Total from
investment operations (.03) .84 .56 .91 (.24) .31
- --------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------
From net
investment income (.18) (.38) (.43) (.45) (.47) (.47)
- --------------------------------------------------------------------------------------------------
Total distributions (.18) (.38) (.43) (.45) (.47) (.47)
- --------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.58 $9.79 $9.33 $9.20 $8.74 $9.45
- --------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (.28)* 9.18 6.17 10.61 (2.50) 3.29
- --------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $5,251 $6,007 $6,324 $5,855 $4,174 $5,349
- --------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .57* 1.14 1.13 1.12 1.14 1.27
- --------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.86* 4.12 4.60 4.98 5.25 4.81
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 4.75* 29.10 24.33 6.91 15.17 9.42
- --------------------------------------------------------------------------------------------------
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(b) Includes amounts paid through expense offset arrangements (Note 2).
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
November 30, 2003 (Unaudited)
Note 1
Significant accounting policies
Putnam Massachusetts Tax Exempt Income Fund (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax and Massachusetts personal income tax
as Putnam Investment Management, LLC ("Putnam Management"), the fund's
manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is
consistent with preservation of capital by investing primarily in a
portfolio of investment-grade Massachusetts tax-exempt securities with
intermediate- to long-term maturities. The fund may be affected by economic
and political developments in the state of Massachusetts.
The fund offers class A, class B, class C and class M shares. The fund began
offering class C shares on August 19, 2003. Class A shares are sold with a
maximum front-end sales charge of 4.75%. Class B shares, which convert to
class A shares after approximately eight years, do not pay a front-end sales
charge, but pay a higher ongoing distribution fee than class A and class M
shares, and are subject to a contingent deferred sales charge, if those
shares are redeemed within six years of purchase. Class C shares have a
higher ongoing distribution fee than class B shares and have a one-year
1.00% contingent deferred sales change and do not convert to class A shares.
Class M shares are sold with a maximum front-end sales charge of 3.25% and
pay an ongoing distribution fee that is higher than class A but lower than
class B and C shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are valued on the basis
of valuations provided by an independent pricing service, approved by
the Trustees. Such services use information with respect to transactions
in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Restricted securities are valued at fair value
following procedures approved by the Trustees. Such valuations and
procedures are reviewed periodically by the Trustees.
B) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. All premiums/discounts
are amortized/accreted on a yield-to-maturity basis. The premium in
excess of the call price, if any, is amortized to the call date;
thereafter, any remaining premium is amortized to maturity.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Futures and written option contracts outstanding at period end are
listed after The fund's portfolio.
D) Line of credit During the period, the fund was entered into a committed
line of credit with certain banks. The line of credit agreement included
restrictions that the fund maintain an asset coverage ratio of at least 300%
and borrowings must not exceed prospectus limitations. For the period ended
August 6, 2003, the fund had no borrowings against the line of credit.
Effective August 6, 2003, the fund no longer participated in a committed
line of credit.
E) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
It is also the intention of the fund to distribute an amount sufficient to
avoid imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has been made for
federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
At May 31, 2003, the fund had a capital loss carryover of $3,611,962
available to the extent allowed by tax law to offset future net capital
gain, if any. The amount of the carryover and the expiration dates are:
Loss Carryover Expiration
- ----------------------------------
$357,797 May 31, 2007
2,162,311 May 31, 2008
1,091,854 May 31, 2009
The aggregate identified cost on a tax basis is $378,538,996, resulting
in gross unrealized appreciation and depreciation of $23,113,039 and
$1,846,253, respectively, or net unrealized appreciation of
$21,266,786.
F) Distributions to shareholders Income dividends are recorded daily by the
fund and are paid monthly. Distributions from capital gains, if any, are
recorded on the ex-dividend date and paid at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. 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.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory services
quarterly based on the average net assets of the fund. Such fee is based on
the lesser of (i) an annual rate of 0.50% of the average net assets of the
fund or (ii) the following annual rates expressed as a percentage of the
fund's average net assets: 0.60% of the first $500 million, 0.50% of the
next $500 million, 0.45% of the next $500 million, 0.40% of the next $5
billion, 0.375% of the next $5 billion, 0.355% of then next $5 billion,
0.34% of the next $5 billion and 0.33% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The aggregate amount
of all such reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam, LLC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. For the six months ended November 30,
2003, the fund's expenses were reduced by $17,979 under these
arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $705 has been allocated to the fund, and an additional fee for
each Trustees meeting attended. Trustees receive additional fees for
attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees
remain invested in certain Putnam funds until distribution in accordance
with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee compensation and expenses in the
Statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the Statement of assets
and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C and class M shares pursuant to rule 12b-1
under the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Retail Management, a wholly-owned subsidiary of
Putnam, LLC and Putnam Retail Management GP, Inc., for services provided
and expenses incurred by it in distributing shares of the fund. The
Plans provide for payments by the fund to Putnam Retail Management at an
annual rate of up to 0.35%, 1.00%, 1.00% and 1.00% of the average net
assets attributable to class A, class B, class C and class M shares,
respectively. The Trustees have approved payment by the fund at the
annual rates of 0.20%, 0.85%, 1.00% and 0.50% of the average net assets
attributable to class A, class B, class C and class M shares,
respectively.
For the six months ended November 30, 2003, Putnam Retail Management,
acting as underwriter, received net commissions of $16,216 and $206 from
the sale of class A and class M shares, respectively, and received
$232,994 and no monies in contingent deferred sales charges from
redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% is assessed on certain
redemptions of class A shares that were purchased without an initial
sales charge as part of an investment of $1 million or more. For the six
months ended November 30, 2003, Putnam Retail Management, acting as
underwriter, received $21,800 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $20,520,617 and $79,228,325, respectively. There
were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 2003, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 1,731,559 $16,536,514
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 433,688 4,145,557
- ----------------------------------------------------------------
2,165,247 20,682,071
Shares repurchased (6,487,248) (61,772,238)
- ----------------------------------------------------------------
Net decrease (4,322,001) $(41,090,167)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 7,002,210 $66,566,076
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 936,413 9,077,022
- ----------------------------------------------------------------
7,938,623 75,643,098
Shares repurchased (8,981,312) (85,431,581)
- ----------------------------------------------------------------
Net decrease (1,042,689) $(9,788,483)
- ----------------------------------------------------------------
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 447,533 $4,294,199
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 134,161 1,281,196
- ----------------------------------------------------------------
581,694 5,575,395
Shares repurchased (2,570,332) (24,463,326)
- ----------------------------------------------------------------
Net decrease (1,988,638) $(18,887,931)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 2,022,693 $19,260,439
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 300,936 2,867,042
- ----------------------------------------------------------------
2,323,629 22,127,481
Shares repurchased (2,507,296) (23,907,957)
- ----------------------------------------------------------------
Net decrease (183,667) $(1,780,476)
- ----------------------------------------------------------------
For the period August 19, 2003
(commencement of operations)
to November 30, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 100,281 $955,313
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 341 3,254
- ----------------------------------------------------------------
100,622 958,567
Shares repurchased (316) (3,006)
- ----------------------------------------------------------------
Net increase 100,306 $955,561
- ----------------------------------------------------------------
Six months ended November 30, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 16,776 $161,513
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,471 51,387
- ----------------------------------------------------------------
22,247 212,900
Shares repurchased (88,111) (838,750)
- ----------------------------------------------------------------
Net decrease (65,864) $(625,850)
- ----------------------------------------------------------------
Year ended May 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 80,814 $766,755
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 11,963 113,997
- ----------------------------------------------------------------
92,777 880,752
Shares repurchased (156,490) (1,487,371)
- ----------------------------------------------------------------
Net decrease (63,713) $(606,619)
- ----------------------------------------------------------------
At November 30, 2003, Putnam, LLC owned 107 class C shares of
the fund (0.11% of class C shares outstanding), valued at
$1,026.
Note 5
Regulatory matters and litigation
On November 13, 2003, Putnam Management agreed to entry of an order by the
Securities and Exchange Commission (SEC) in partial resolution of
administrative and cease-and-desist proceedings initiated by the SEC on
October 28, 2003 in connection with alleged excessive short-term trading by
at least six Putnam Management investment professionals. The SEC's findings
reflect that four of those employees engaged in such trading in funds over
which they had investment decision-making responsibility and had access to
non-public information regarding, among other things, current portfolio
holdings, and valuations. The six individuals are no longer employed by
Putnam Management. Under the order, Putnam Management will make restitution
for losses attributable to excessive short-term trading by Putnam employees,
institute new employee trading restrictions and enhanced employee trading
compliance, retain an independent compliance consultant, and take other
remedial actions. Putnam Management neither admitted nor denied the order's
findings, which included findings that Putnam Management willfully violated
provisions of the federal securities laws. A civil monetary penalty and
other monetary relief, if any, will be determined at a later date. If a
hearing is necessary to determine the amounts of such penalty or other
relief, Putnam Management will be precluded from arguing that it did not
violate the federal securities laws in the manner described in the SEC
order, the findings set forth in the SEC order will be accepted as true by
the hearing officer and additional evidence may be presented. Putnam
Management, and not the investors in any Putnam fund, will bear all costs,
including restitution, civil penalties and associated legal fees.
Administrative proceedings instituted by the Commonwealth of Massachusetts
on October 28, 2003 against Putnam Management in connection with alleged
market timing activities by Putnam employees and by participants in some
Putnam-administered 401(k) plans are pending. Putnam Management has
committed to make complete restitution for any losses suffered by Putnam
shareholders as a result of any improper market-timing activities by Putnam
employees or within Putnam-administered 401(k) plans.
The SEC's and Commonwealth's allegations and related matters also serve
as the general basis for numerous lawsuits, including purported class
action lawsuits filed against Putnam Management and certain related
parties, including certain Putnam funds. Putnam Management has agreed to
bear any costs incurred by Putnam funds in connection with these
lawsuits. Based on currently available information, Putnam Management
believes that the likelihood that the pending private lawsuits and
purported class action lawsuits will have a material adverse financial
impact on the fund is remote, and the pending actions are not likely to
materially affect its ability to provide investment management services
to its clients, including the Putnam funds.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees is
continuing. In addition, Marsh & McLennan Companies, Inc., Putnam
Management's parent company, has engaged counsel to conduct a separate
review of Putnam Management's policies and controls related to short-term
trading. The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Treasurer and Principal
Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal
Accounting Officer
Beth S. Mazor
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President and
BSA Compliance Officer
William H. Woolverton
Vice President and
Chief Legal Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
Massachusetts Tax Exempt Income Fund. It may also be used as sales
literature when preceded or accompanied by the current prospectus, which
gives details of sales charges, investment objectives, and operating
policies of the fund, and the most recent copy of Putnam's Quarterly
Performance Summary and Putnam's Quarterly Ranking Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
The fund's Statement of Additional Information contains additional
information about the fund's Trustees and is available without charge
upon request by calling 1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
SA047-203437 845/236/25T/258 1/04
Not FDIC Insured May Lose Value No Bank Guarantee
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal financial
officers have concluded, based on their evaluation of the effectiveness
of the design and operation of the registrant's disclosure controls and
procedures as of a date within 90 days of the filing date of this report
on Form N-CSR, that the design and operation of such procedures are
effective to provide reasonable assurance that information required to
be disclosed by the investment company in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized, and reported within the time periods specified in
the Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: January 23, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: January 23, 2004
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: January 23, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: January 23, 2004