[LOGO]
Putnam
Minnesota
Tax Exempt
Income Fund II
Semiannual
Report
November 30, 1993
[ARTWORK]
For investors seeking
high current income
free from federal and
Minnesota state income
taxes, consistent with
capital preservation
Contents
2 How your fund performed
3 From the Chairman
4 Report from Putnam Management
Semiannual Report
7 Portfolio of investments owned
12 Financial statements
22 Fund performance supplement
23 Your Trustees
A member
of the Putnam
Family of Funds
<PAGE>
How your
fund performed
For periods ended November 30, 1993
<TABLE>
<CAPTION>
Lehman
Total return* Fund Brothers
Class A Class B Municipal
NAV POP NAV CDSC Bond Index
<S> <C> <C> <C> <C> <C>
6 months 4.30% -0.64% -- -- 4.38%
1 year 10.65 5.38 -- -- 11.09
3 years 30.65 24.49 -- -- 34.77
annualized 9.32 7.58 -- -- 10.46
Life-of-class**
(class A shares) 40.66 34.04 -- -- 47.67
annualized 8.66 7.39 -- -- 9.95
(class B shares) -- -- 1.68% -3.31% 2.65
</TABLE>
<TABLE>
<CAPTION>
Share data Class A Class B
NAV POP NAV
<S> <C> <C> <C>
May 31, 1993 $9.06 $9.51 --
July 15, 1993
(inception of class B shares) -- -- $9.18
November 30, 1993 $9.19 $9.65 $9.17
</TABLE>
<TABLE>
<CAPTION>
Distributions(a) Investment Capital
Number income gains Total
<S> <C> <C> <C> <C>
Class A: (6/1/93-11/30/93) 6 $0.257384 $-- $0.257384
Class B: (7/15/93-11/30/93) 4 $0.164819 $-- $0.164819
</TABLE>
<TABLE>
<CAPTION>
Current returns Taxable Taxable
at the end of Class A equivalents+ Class B equivalent+
the period NAV POP NAV POP NAV NAV
<S> <C> <C> <C> <C> <C> <C>
Current dividend rate 5.55% 5.28% 10.04% 9.55% 4.94% 8.94%
Current 30-day yield 4.93 4.69 8.92 8.49 4.19 7.58
</TABLE>
*Performance data represent past results. Investment return and net asset
value will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
**The fund began operations on October 23, 1989 offering shares now known as
class A shares. Effective July 15, 1993, the fund began offering class B
shares. Performance for each share class will differ.
(a) Capital gains, if any, are taxable for federal tax purposes. For some
investors, investment income may be subject to the alternative minimum tax.
+Taxable equivalent rates cited assume the maximum combined state and federal
tax rate of 44.73%. Results for investors subject to lower tax rates would
not be as advantageous, although many such investors would still have the
opportunity to receive attractive tax benefits from a fund investment.
Consult your tax advisor for more guidance.
Terms you need to know
Total return is the change in value of an investment from the beginning to
the end of a period, assuming the reinvestment of all distributions. It may
be shown at net asset value or at public offering price.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not reflecting any
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.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of shares rather than the time of purchase. It generally
declines and eventually disappears over a stated period.
Class A shares are the shares of your fund offered subject to an initial
sales charge. Your fund's POP includes the maximum 4.75% sales charge.
Class B shares are the shares of your fund offered with no initial sales
charge. Within the first six years of purchase, they are subject to a CDSC
declining from 5% to 1%. After the sixth year, the CDSC no longer applies.
Current dividend rate is calculated by annualizing the net investment income
paid to shareholders in the fund's most recent distribution, then dividing by
the NAV or POP on the last day of the period.
Current 30-day yield, based only on the fund's net investment income
earnings, is calculated in accordance with Securities Exchange Commission
guidelines.
Taxable equivalent return is the rate at which a taxable investment would
have to generate income to equal the fund's current dividend rate or yield.
Please see the fund performance supplement on page 22 for total return at the
end of the most recent calendar quarter and additional information about
performance comparisons.
<PAGE>
From the
Chairman
[George Putnam photo]
George Putnam
Chairman of the Trustees
(C) Karsh, Ottawa
Dear Shareholder:
It gives me great pleasure to welcome Howard Manning as Fund Manager of
Putnam Minnesota Tax Exempt Income Fund II. Howard assumed management of the
fund in June of this year but is no newcomer to Putnam, having started as a
municipal bond credit analyst in 1986.
The outlook for municipal bonds in general, and Minnesota bonds in
particular, remains bright. As Howard explains in the following Report from
Putnam Management, a combination of diminished supply; low, relatively stable
interest rates; and heightened investor demand should provide competitive
returns to municipal bond investors in the coming months. Closer to home,
Money magazine recently listed Rochester, Minneapolis, and St. Paul among the
top ten places to live, with Rochester taking the number one slot. It is not
unreasonable to assume that the increasing popularity of these cities will be
reflected in the prices of their securities.
Across the country, state and local governments are continuing to take
advantage of record-low interest rates by refinancing existing, high-coupon
debt. A huge volume of issues is scheduled to be called in 1994, the result
of which will cut the existing bond supply by about one third and potentially
boost the value of the remaining bonds in the market. These changes will
affect mutual fund portfolios as bonds are redeemed and the proceeds
reinvested. However, your fund manager has implemented various investment
strategies designed to minimize disruptions in the fund's portfolio. Skillful
management, coupled with Minnesota's relatively limited supply of municipal
issues, should enable fund investors to benefit from trends shaping up for
1994.
Respectfully yours,
[George Putnam signature]
George Putnam
January 19, 1994
<PAGE>
Report from
Putnam Management
Putnam Minnesota Tax Exempt Income Fund II's returns for the six months ended
November 30, 1993, may appear lackluster at first glance. But appearances can
be deceiving. The fund's results of 4.30% at net asset value and -0.64% at
public offering price for class A shares are not adjusted to reflect their
tax advantages. Since the majority of your fund's total return is derived
from tax-exempt income, these advantages can be significant. For example, an
investor in the new top tax bracket would have had to earn 9.55% on a taxable
investment to match the fund's 5.28% yield, based on the public offering
price at the end of the period.
Sector shifts During the semiannual period, we shifted assets to emphasize
the market sectors we felt were most attractive, given the current and
anticipated economic and political environment. In Minnesota this is no easy
task, since the supply of available issues is relatively small. In
particular, we have sought to increase our holdings in the health care and
housing sectors, as well as in industrial development revenue bonds.
Health care At 34% of total net assets, health care remains the largest
single investment sector in your fund's portfolio. While this is a rather
large concentration of assets in one area, we should point out that nearly
25% of these securities are insured. With health care legislation looming,
this industry will undoubtedly undergo significant change in the direction of
managed care. But many health providers have already taken steps to cut costs
and increase coverage. It is our belief that these firms will soon be in a
position to make the most of the newly emerging health care landscape.
Minnesota has been a leader in the country's managed care movement and was
the first state to have a substantial HMO presence. Rochester's famed Mayo
Clinic and Minneapolis's Group Health, Inc., have consistently set the pace
in market-driven health-care reform. The fund now owns large holdings of
investment-grade bonds issued to help finance these facilities.
An economy on the rebound The Midwest, which was the first to feel the
effects of the recession, now appears to be leading the nation's slow but
steady recovery. While the revenue from southern Minnesota's corn and soybean
crops will undoubtedly be affected by last year's flood, local economies in
the northern part of the state appear to be on the move. Boosted in large
part by health care, computer and medical technology firms, cities like
Minneapolis and St. Paul are creating jobs and boasting expanded tax bases.
To make the most of these changes, we have focused our available assets on
issues supporting the construction of single family housing, and on
industrial development revenue bonds, which are used to fund a variety of
projects in the private sector.
Waste not, want not While not yet a substantial portion of your fund's
holdings, resource recovery, in our opinion, is an investment
sector with significant appreciation potential. In a nutshell, resource
recovery is the process by which energy is extracted from the incineration of
solid waste. With our nation's landfills at or near capacity and
environmentalism increasingly a political force, solid waste disposal has
become of paramount concern to state and local governments. While recycling
has become the most popular alternative to landfills, it is handicapped by
the lack of a substantial market for recycled products and the limit on what
and how much can be recycled.
Initially unpopular with voters, incineration has become more and more
prevalent as a means of disposing of solid waste, partly due to advances of
incineration technology allowing for cleaner, more efficiently run plants.
For state and local governments, the advantage of incineration is the
recovery of energy created during the burning process--energy that can be
used to light street lamps or sold to the local electric company. To date, we
have found only a handful of resource recovery issues that meet our
investment criteria, but we remain firmly committed to this area and believe
it will play a much bigger role in your fund's performance in the future.
[BARCHART]
Top industry sectors (based on net assets of 11/30/93)
Hospital/Health Care 34.0%
Utilities 17.2%
Housing 14.1%
A strong scenario for bond prices In the coming months, we believe the
municipal bond market is poised to benefit from a dramatic reduction in the
supply of municipal issues. State and local governments will be retiring
billions of dollars worth of high-coupon bonds issued before the passage of
the 1986 Tax Reform Act. Issuance surged before the enactment of the Act,
which placed several restrictions on the issuers of municipal debt. We expect
the supply of available municipal bonds to shrink next year by about $100
billion, with $36 billion redeemed in January alone. The resulting scarcity
of issues, coupled with the increasing attractiveness of the after-tax yields
offered by these securities, should boost the value of the municipal bonds
left in circulation. Given the already limited supply of municipal issues in
Minnesota, we believe that the prospects for appreciation are very good.
Stabilizing factors When an issue is called, principal is returned to
investors prematurely. For a mutual fund invested in hundreds of issues, an
active call schedule can be quite disruptive, as the principal from many
different investments has to be reinvested at new--and now generally
lower--coupon rates. With municipal bond redemptions on the rise, the coming
weeks and months will require careful management. To protect the fund's
portfolio from these potentially disruptive changes, we have, whenever
possible, extended the fund's average duration and call protection.
The duration of a bond relates to the time remaining before its call date or
maturity. Generally, the longer the time remaining, the more sensitive that
issue is to changes in interest rates, since the bond has a longer period of
time in which to either underperform or outperform the prevailing market. By
extending the average duration of your fund's portfolio with bonds purchased
at a discount, we hope to make the most of the decline in overall supply. We
believe that, as the supply of bonds shrinks and those remaining reflect the
current low interest rates, bonds purchased at a discount with higher
effective yields will become more valuable.
By extending your fund's call protection, we hope to reduce potential
instabilities in both income and price, which could result from the upcoming
surge in municipal redemptions. To this end, we have focused our purchases on
issues that have several years left before they are eligible to be called.
Currently, we have only two bonds in the portfolio callable before 1995, with
most not callable for another seven years or more.
Given these changes and the encouraging outlook for bond prices, we believe
investors in the fund will be well served in the coming months.
<PAGE>
Portfolio of
investments owned
November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
Municipal Bonds and Notes (98.8%)(a)
Principal Amount Ratings(b) Value
<S> <C> <C> <C>
Minnesota (98.8%)
$3,745,000 Bass Brook, Poll. Control Rev. Bonds (MN Pwr. & Lt. Co. Project), 6s, 7/1/22 A $3,871,395
Becker, Poll. Control Rev. Bonds (Northern States Pwr. Co.)
155,000 Ser. 83, 10-3/8 s, 12/1/13 AA 158,100
300,000 Ser. 89-A, 6.8s, 4/1/07 Aa 330,375
1,000,000 Bemidji, Hosp. Facs. Rev. Bonds (North Country Hlth.), Ser. A, 7s, 9/1/21 A 1,087,500
1,060,000 Brainerd, Hlth. Care Facs. Rev. Bonds (Benedictine Hlth. Syst.--St. Joseph),
Ser. F, 6s, 2/15/12 AAA 1,097,100
75,000 Brainerd, Hosp. Fac. Rev. Bonds (Benedictine Hlth. Syst.--St. Joseph),
Municipal Bond Insurance Assn. (MBIA), 9-5/8 s, 10/1/12 AAA 84,375
2,500,000 Breckenridge, Hlth. Facs. Rev. Bonds (Catholic Hlth. Corp.), 5-1/4 s,
11/15/13 A 2,378,125
700,000 Breckenridge, Hosp. Facs. Rev. Bonds (Franciscan Sisters Hlth. Care), Ser.
B-1, 9-3/8 s, 9/1/17 A/P 805,875
30,000 Buffalo, Hosp. Rev. Bonds (Hlth. Ctr. Syst. Project), Ser. B, 10s, 10/1/14 A 32,850
575,000 Burnsville, Hosp. Syst. Rev. Bonds (Fairview Cmnty. Hosp.), Ser. A, MBIA, 9s,
5/1/12 AAA 629,625
$ 500,000 Centennial Independent School Dist. No. 12 Rev. Bonds, Ser. A, 7.15s, 2/1/12 AAA $ 568,750
1,500,000 Detroit Lakes, Hlth. Care Facs. Rev. Bonds (Benedictine Hlth. Syst.-- St.
Mary), Ser. G, 6s, 2/15/12 AAA 1,552,500
1,000,000 Duluth, Econ. Dev. Auth. Hlth. Care Facs. Rev. Bonds (Benedictine Hlth.
Syst.-- St. Mary), Ser. B, 6s, 2/15/12 AAA 1,035,000
950,000 Duluth, Hosp. Rev. Bonds (St. Luke's Hosp. Project), 9s, 5/1/18 AAA 1,147,125
500,000 Eden Prairie, Multi-Fam. Hsg. Rev. Bonds (Windslope Apts. Project), 7.1s,
11/1/17 A 538,125
1,250,000 Edina, Hsg. Dev. Rev. Bonds (Edina Park Project), Ser. A, Federal Housing
Administration (FHA) Insd., 7.7s, 12/1/28 Aa 1,307,815
500,000 Fergus Falls, Cmnty. Dev. Rev. Bonds (Lincoln--St. Andrews Project), 8 3/4 s,
11/1/06 BBB/P 532,500
1,500,000 Hennepin Cnty., Lease Rev. Certif. of Participation, Ser. A, 6.8s, 5/15/17 AA 1,636,875
1,000,000 Hutchinson, Indl. Dev. Variable Rate Demand Notes (Hutchinson Tech. Inc.
Project), 2.4s, 6/1/04 VMIG1/P 1,000,000
$2,210,000 Jackson Cnty., Hsg. & Redev. Auth. Indl. Dev. Rev. Bonds (AG-Chemical Equip.
Project), 8 3/4 s, 12/1/09 BBB/P $2,298,400
MN Agricultural & Econ. Dev. Board Rev. Bonds (MN Small Bus. Dev. Loan
Program)
575,000 Ser. E-1, 8 1/2 s, 8/1/10 BB/P 615,250
465,000 Ser. E-2, 8 1/2 s, 8/1/10 BB/P 497,550
390,000 Ser. A-1, 8 1/4 s, 8/1/09 BB/P 412,425
400,000 Ser. A-2, 8.2s, 8/1/09 BB/P 427,000
500,000 MN Pub. Facs. Auth. Wtr. Poll. Control Rev. Bonds, Ser. A, 6.95s, 3/1/13 AA 570,625
MN State General Obligation (G.O.) Bonds
3,000,000 5.4s, 8/1/13 AA 2,958,750
2,000,000 4 7/8 s, 8/1/01 AA 2,047,500
2,700,000 MN State G.O. Residual Interest Bonds, 9.265s, 8/1/11 (acquired 6/30/92,
cost $2,735,100)(c) Aa 3,324,375
1,000,000 MN State Higher Ed. Facs. Auth. Mtge. Rev. Bonds (St. Thomas U.),
Ser. 3-C, 7-1/8 s, 9/1/14 Aaa/P 1,158,750
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds,
Ser. A, 6.95s, 2/1/14 A 1,610,625
MN State Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
750,000 Ser. C, 9s, 8/1/18 AA 784,685
190,000 Ser. C, 8 1/2 s, 7/1/19 AA 202,113
415,000 Ser. E, 7.7s, 7/1/16 AA 439,900
725,000 Ser. C, 7.7s, 7/1/14 AA 792,969
370,000 Ser. A, FHA Insd., 7.45s, 7/1/22 AA 400,985
$ 185,000 Ser. B, 7.3s, 1/1/17 AA $ 196,794
185,000 Ser. C, FHA Insd., 7.1s, 7/1/11 AA 200,494
2,000,000 Ser. B-1, 6 3/4 s, 1/1/26 AA 2,127,500
4,000,000 Ser. D-2, 5.95s, 1/1/17 AA 4,065,000
Minneapolis-St. Paul, Hsg. & Redev. Auth. Hlth. Care Syst. Rev. Bonds
3,000,000 (Group Hlth. Plan Inc. Project), 6.9s, 10/15/22 A 3,258,750
2,500,000 (Healthspan), Ser. A, American Municipal Bond Assurance Corp. (AMBAC),
4-3/4 s, 11/15/18 AAA 2,240,625
350,000 Minneapolis-St. Paul, Hsg. Fin. Board Multi-Fam. Rev. Bonds (Riverside
Plaza), Government National Mortgage Assn. (GNMA) Coll., 8.2s, 12/20/18 AAA 369,250
885,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam. Mtge. Rev. Bonds (Phase
VI), Ser. A, GNMA Coll., 8.3s, 8/1/21 AAA 935,890
700,000 Minneapolis-St. Paul, Metro. Arpts. Rev. Bonds, Ser. 8, 6.6s, 1/1/10 AAA 767,375
1,000,000 Minneapolis, Cmnty. Dev. Agcy. Hlth. Care Facs. Rev. Bonds (Walker Methodist
Hlth.), 9 1/2 s, 4/1/10 A 1,080,000
Minneapolis, Cmnty. Dev. Agcy. Rev. Bonds
600,000 Ser. 87-1, 8 5/8 s, 12/1/12 BBB 651,750
1,105,000 Ser. 91-3, 8 1/4 s, 12/1/11 BBB 1,219,645
Minneapolis, Cmnty. Dev. Agcy. Tax Increment Rev. Bonds
$ 215,000 MBIA, zero %, 9/1/08 AAA $ 97,288
5,000,000 MBIA, zero %, 9/1/06 AAA 2,587,500
400,000 Minneapolis, Cmnty. Econ. Dev. Agcy. Rev. Bonds (Shaw Acquisition), Ser.
85-1, 9-1/4 s, 6/1/05 AA 434,000
1,205,000 Minneapolis, Coml. Dev. Rev. Bonds (Mt. Sinai Hosp. Assn. Project), 9-1/2 s,
11/1/06 BB/P 1,415,875
350,000 Minneapolis, Convention Ctr. Sales Tax Rev. Bonds, AMBAC, 7-3/4 s, 4/1/11 AAA 387,625
Minneapolis, Hlth. Care Fac. Rev. Bonds
750,000 (Baptist Residence Project), 8.7s, 11/1/09 BB/P 859,688
1,500,000 (Fairview Hosp. & Hlth. Care), Ser. A, MBIA, 5-1/4 s, 11/15/19 (d) AAA 1,443,750
Minneapolis, Hosp. Rev. Bonds
20,000 (St. Mary's Hosp. & Rehab.), 10s, 6/1/13 AAA 30,575
810,000 (Lifespan Inc.), Ser. B, 9-1/8 s, 12/1/14 A 972,000
Minnetonka, Independent School Dist. No. 276 Rev. Bonds
1,000,000 Ser. B, zero %, 2/1/08 Aa 433,750
2,000,000 Ser. B, zero %, 2/1/07 Aa 932,500
Morris, Hosp. Facs. Rev. Bonds (Stevens Cmnty. Memorial Hosp.)
250,000 Ser. A, 8-1/4 s, 5/1/10 BBB/P 277,500
500,000 Ser. B, 8-1/4 s, 5/1/10 BBB/P 555,000
$ 915,000 New Ulm, Hosp. Facs. Rev. Bonds (Hlth. Ctr. Syst. Project), Ser. C, 10s,
10/1/14 A $1,043,100
250,000 New York Mills, Independent School Dist. No. 553 Rev. Bonds, Ser. A, 6.8s,
2/1/15 Baa 285,310
Northern Muni. Pwr. Agcy. Elec. Syst. Rev. Bonds
2,215,000 Ser. A, 7-1/4 s, 1/1/16 A 2,458,650
1,000,000 Ser. A, 6s, 1/1/20 A 1,013,750
500,000 Northfield, College Fac. Rev. Bonds (St. Olaf College Project), 6.4s, 10/1/21 A 544,375
1,800,000 Owatonna, Hosp. Rev. Bonds (Hlth. Ctr. Syst. Project), Ser. C, 10s, 10/1/14 A 2,004,750
360,000 Owatonna, Pub. Utils. Rev. Bonds, 6-3/4 s, 1/1/16 A 405,000
30,000 Pine River, Nursing Home Rev. Bonds (Lutheran Good Samaritan Society
Project), AMBAC, 9.2s, 1/1/00 AAA 35,735
500,000 Ramsey & Washington Cntys., Resource Recvy. Rev. Bonds (Northern States Pwr.
Co. Project), Ser. A, 6-3/4 s, 12/1/06 AA 552,500
3,000,000 Rochester, Hlth. Care Facs. Fixed Interest Rate Swaps (Mayo Foundation), Ser.
E, 9.07s, 11/15/12 AA 3,352,500
$1,000,000 Roseville, Independent School Dist. No. 623 Rev. Bonds, Ser. A, Financial
Guaranty Insurance Corp., 6s, 2/1/23 AAA $ 1,041,250
2,500,000 Sartell, Poll. Control Rev. Bonds (Champion Intl.), 6.95s, 10/1/12 Baa 2,690,625
Southern MN Muni. Pwr. Agcy. Supply Syst. Rev. Bonds
300,000 Ser. A, 8-1/8 s, 1/1/18 AAA 349,125
2,000,000 Ser. A, 5-3/4 s, 1/1/18 A 2,040,000
1,000,000 Ser. A, 5s, 1/1/12 A 947,500
2,000,000 Ser. B, 5s, 1/1/13 A 1,880,000
3,000,000 St. Louis Park, Hlth. Care Facs. Rev. Bonds, Ser. A, AMBAC, 5.2s, 7/1/23 AAA 2,842,500
100,000 St. Louis Park, Hosp. Facs. Rev. Bonds (Methodist Hosp. Project), Ser. A,
AMBAC, 9-1/2 s, 7/1/08 AAA 110,250
$2,000,000 St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds (Hlth. East Project), Ser. B,
9-3/4 s, 11/1/17 Baa $ 2,342,500
250,000 St. Paul, Swr. Rev. Bonds, Ser. A, AMBAC, 8s, 12/1/08 AAA 287,500
3,400,000 Stillwater, Indl. Dev. Rev. Bonds (SuperValu Stores Inc.), 10-3/4 s, 10/1/09 A 3,646,500
Western MN Muni. Pwr. Agcy. Supply Rev. Bonds
675,000 Ser. A, 9-1/4 s, 1/1/04 A 753,469
1,300,000 Ser. A, 7s, 1/1/13 A 1,408,875
Total Investments (cost $92,808,223)(e) $97,911,800
<FN>
Notes
(a) Percentages indicated are based on net assets of $99,116,811, which
correspond to a net asset value per class A share and class B share of $9.19
and $9.17, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be the
most recent ratings available at November 30, 1993 for the securities listed.
Ratings are generally ascribed to securities at the time of issuance. While
the rating agencies may from time to time revise such ratings, they undertake
no obligation to do so, and the ratings indicated do not necessarily
represent ratings which the agencies would ascribe to these securities at
November 30, 1993. Securities rated by Putnam are indicated by "/P" and are
not publicly rated.
(c) Restricted as to public resale. At the date of acquisition this security
was valued at cost. There were no outstanding unrestricted securities of the
same class as that held. Total market value of the restricted security owned
at November 30, 1993 was $3,324,375 or 3.4% of net assets.
(d) This security, valued at $1,443,750 or 1.5% of the Fund's net assets, has
been purchased on a "forward commitment" basis--that is, the Fund has agreed
to take delivery of and make payment for this security beyond the settlement
time of five business days after the trade date and subsequent to the date of
this report. The purchase price and interest rate of this security are fixed
at the trade date, although the Fund does not earn any interest on this
security until the settlement date.
(e) The aggregate identified cost on a tax basis is $92,813,400, resulting in
gross unrealized appreciation and depreciation of $5,669,381 and $570,981,
respectively, or net unrealized appreciation of $5,098,400.
The rates shown on Variable Rate Demand Notes, Residual Interest Bonds and
Fixed Interest Rate Swaps are the current interest rates at November 30,
1993, 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, 1993 (as a percentage of net assets):
Hospitals/Health Care 34.0%
Utilities 17.2
Housing 14.1
</TABLE>
<PAGE>
Statement of
assets and liabilities
November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
<S> <S> <C> <C>
Assets Investments in securities, at value (identified cost $92,808,223) (Note 1) $ 97,911,800
Cash 653,291
Interest receivable 1,854,792
Receivable for shares of the Fund sold 587,063
Unamortized organization expenses (Note 1) 5,160
Total assets 101,012,106
Liabilities Payable for shares of the Fund repurchased $ 8,990
Payable for securities purchased 1,451,003
Distributions payable to shareholders 190,715
Payable for compensation of Manager (Note 2) 146,130
Payable for compensation of Trustees (Note 2) 99
Payable for investor servicing and custodian fees (Note 2) 32,691
Payable for administrative services (Note 2) 894
Payable for distribution fees (Note 2) 33,711
Other accrued expenses 31,062
Total liabilities 1,895,295
Net assets $ 99,116,811
Represented by Paid-in capital (Note 4) $ 93,910,772
Distributions in excess of net investment income (61,695)
Accumulated net realized gain on investments 164,157
Net unrealized appreciation of investments 5,103,577
Total--Representing net assets applicable to capital shares outstanding $ 99,116,811
Computation of Net asset value and redemption price of class A shares
net asset value ($96,297,712 divided by 10,479,412 shares) $9.19
and offering price
Offering price per share (100/95.25 of $9.19)* $9.65
Net asset value and offering price of class B shares
($2,819,099 divided by 307,347 shares)** $9.17
<FN>
* 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.
</TABLE>
<PAGE>
Statement of
operations
Six months ended November 30, 1993 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Tax exempt interest income $3,111,741
Expenses:
Compensation of Manager (Note 2) $282,670
Investor servicing and custodian fees (Note 2) 63,926
Compensation of Trustees (Note 2) 3,635
Auditing 9,894
Legal 9,821
Postage 3,245
Reports to shareholders 6,708
Administrative services (Note 2) 1,686
Distribution fees--class A (Note 2) 92,943
Distribution fees--class B (Note 2) 4,198
Registration fees 3,259
Amortization of organization expenses (Note 1) 2,185
Other 2,283
Total expenses 486,453
Net investment income 2,625,288
Net realized gain on investments (Notes 1 and 3) 369,456
Net unrealized appreciation of investments during the period 852,974
Net gain on investments 1,222,430
Net increase in net assets resulting from operations $3,847,718
</TABLE>
<PAGE>
Statement of
changes in net assets
<TABLE>
<CAPTION>
Six months Year
ended ended
November 30 May 31
1993* 1993
<S> <S> <C> <C>
Increase in net Operations:
assets
Net investment income $ 2,625,288 $ 4,409,213
Net realized gain on investments 369,456 375,069
Net unrealized appreciation of investments 852,974 2,247,307
Net increase in net assets resulting from operations 3,847,718 7,031,589
Distributions to shareholders from net investment income:
class A (2,589,195) (4,467,859)
class B (22,160) --
Increase from capital share transactions (Note 4) 11,269,683 24,133,087
Total increase in net assets 12,506,046 26,696,817
Net assets Beginning of year 86,610,765 59,913,948
End of year (including distributions in excess of net investment
income of $61,695 and $76,001, respectively) $99,116,811 $86,610,765
<FN>
*Unaudited.
</TABLE>
<PAGE>
Financial highlights*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period For the period
July 15, 1993 For the October 23, 1989
(commencement six months (commencement
of operations) to ended of operations) to
November 30 November 30 Year ended May 31 May 31
1993** 1993** 1993 1992 1991 1990
class B class A
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.18 $9.06 $8.74 $8.56 $8.43 $8.50
Investment operations
Net Investment Income .16 .26 .55 .55(a) .59(a) .34(a)
Net Realized and Unrealized
Gain (Loss) on Investments (.01) .13 .33 .18 .13 (.07)
Total from investment operations .15 .39 .88 .73 .72 .27
Less Distributions from:
Net Investment Income (.16) (.26) (.56) (.55) (.59) (.34)
Net Realized Gain on Investments -- -- -- -- -- --
Total Distributions (.16) (.26) (.56) (.55) (.59) (.34)
Net Asset Value, End of Period $9.17 $9.19 $9.06 $8.74 $8.56 $8.43
Total Investment Return at
Net Asset Value (%) (b) 4.42(c) 8.60(c) 10.33 8.86 8.82 5.25(c)
Net Assets, End of Period (in
thousands) $2,819 $96,298 $86,611 $59,914 $16,615 $7,363
Ratio of Expenses to Average
Net Assets (%) 1.65(c) 1.02(c) 1.08 .91(a) .66(a) .45(a)(c)
Ratio of Net Investment Income
to Average Net Assets (%) 4.39(c) 5.58(c) 6.12 6.34(a) 6.84(a) 6.75(a)(c)
Portfolio Turnover (%) 4.64(d) 4.64(d) 37.69 38.79(e) 14.85 98.54(d)
<FN>
*Selected per share data and ratios for periods ended through May 31, 1992
have been restated to conform with requirements issued by the SEC in April,
1993.
** Unaudited.
(a)Reflects a voluntary expense limitation, and during the period ended May 31,
1990, a voluntary absorption of expenses incurred by the Fund. As a result,
net investment income of the Fund for the years ended May 31, 1992, 1991 and
the period ended May 31, 1990 reflect expense reductions of approximately
$0.02, $0.07 and $0.14 per share, respectively.
(b)Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c)Annualized.
(d)Not annualized.
(e)Portfolio turnover excludes the impact of assets received from the
acquisition of Putnam Minnesota Tax Exempt Income Fund. See Note 5.
</TABLE>
<PAGE>
Notes to
financial statements
November 30, 1993 (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 Minnesota
personal income tax as Putnam Management believes is consistent with
preservation of capital by investing primarily in a portfolio of Minnesota
tax-exempt securities.
The Fund offers both class A and class B shares. The Fund commenced its
public offering of class B shares on July 15, 1993. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and may be subject to a contingent deferred sales charge if those
shares are redeemed within six years of purchase. Expenses of the Fund are
borne pro-rata by the holders of both classes of shares, except that each
class bears expenses unique to that class (including the distribution fees
applicable to such class) and votes as a class only with respect to its own
distribution plan or other matters on which a class vote is required by law
or determined by the Trustees. Shares of each class would receive their
pro-rata share of the net assets of the Fund, if the Fund were liquidated. In
addition, the Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis.
C) 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.
At May 31, 1993, the Fund had a capital loss carryover of approximately
$636,763, which may be available to offset realized gains, if any. This
amount will expire May 31, 2000. To the extent that capital loss carryovers
are used to offset realized capital gains, it is unlikely that gains so
offset will be distributed to shareholders since any such distribution might
be taxable as ordinary income.
D) 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.
E) 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 is accreted according
to the effective yield method.
F) 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 $13,115. These expenses are being amortized over a
five-year period based on current and projected net asset levels.
Note 2
Management fee,
administrative
services, and
other transactions
Compensation of Putnam Investment Management, Inc. "Putnam Management"
(formerly known as The Putnam Management Company, Inc.), the Fund's Manager,
a wholly-owned subsidiary of Putnam Investments, Inc. (formerly known as The
Putnam Companies, Inc.), for management and investment advisory services is
paid quarterly based on the average net assets of the Fund. Such fee is based
on the following annual rates: 0.6% of the first $500 million of average net
assets, 0.5% of the next $500 million, 0.45% of the next $500 million, and
0.4% of any amount over $1.5 billion, subject to reduction in any year by the
amount of certain brokerage commissions and fees (less expenses) received by
affiliates of Putnam Management on the Fund's portfolio transactions.
The Fund also reimburses Putnam Management for the compensation and related
expenses of certain officers of the Fund and their staff who provide
administrative services to the Fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the six months
ended November 30, 1993, the Fund paid $1,686 for these services.
Trustees of the Fund receive an annual Trustee's fee of $500, and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of Putnam Management 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 by Putnam Investor Services, a division of PFTC.
Fees paid for these investor servicing and custodial functions for the six
months ended November 30, 1993 amounted to $63,926.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended November 30, 1993 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. (formerly known as Putnam Financial Services, Inc.), a wholly-owned
subsidiary of Putnam Investments, Inc., for services provided and expenses
incurred by it in distributing class A shares. The Trustees have approved
payment by the Fund to Putnam Mutual Funds Corp. at an annual rate of 0.2% of
the average net assets attributable to class A shares. For the six months
ended November 30, 1993, the Fund paid distribution fees of $92,943 for class
A shares.
The Fund has been informed that during the six months ended November 30,
1993, Putnam Mutual Funds Corp., acting as an underwriter, received net
commissions of $25,370 from the sale of class A shares of the Fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For
the six months ended November 30, 1993, Putnam Mutual Funds Corp., acting as
underwriter, did not receive any commissions on class A redemptions.
The Fund has adopted a separate distribution plan with respect to its class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940. The purpose of the Class B Plan is to compensate Putnam
Mutual Funds Corp. for services provided and expenses incurred by it in
distributing class B shares. The Class B Plan provides for payments by the
Fund to Putnam Mutual Funds Corp. at an annual rate of 0.85% of the Fund's
average net assets attributable to class B shares. For the period July 15,
1993 (commencement of class B operations) to November 30, 1993, the Fund paid
distribution fees of $4,198 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds of the 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 5.00% of
the net asset value of the redeemed shares. Putnam Mutual Funds Corp.
received contingent deferred sales charges of $1,274 from such redemptions
during the period July 15, 1993 (commencement of class B operations) to
November 30, 1993.
Note 3
Purchases
and sales of
securities
During the six months ended November 30, 1993, purchases and sales of
investment securities other than short-term municipal obligations aggregated
$14,995,060 and $4,249,360, respectively. Purchases and sales of short-term
municipal obligations aggregated $9,400,000 and $8,800,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Note 4
Capital shares
At November 30, 1993, there was an unlimited number of shares of beneficial
interest authorized, divided into two classes, class A and class B capital
stock. Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
November 30 May 31
1993 1993
class A Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,125,280 $10,354,715 3,081,342 $27,498,939
Shares issued in connection
with reinvestment of
distributions 193,094 1,783,108 332,440 2,966,991
1,318,374 12,137,823 3,413,782 30,465,930
Shares repurchased (401,235) (3,702,960) (707,434) (6,332,843)
Net increase 917,139 $ 8,434,863 2,706,348 $24,133,087
</TABLE>
<TABLE>
<CAPTION>
July 15, 1993
(commencement of operations)
to November 30
1993
class B Shares Amount
<S> <C> <C>
Shares sold 309,073 $2,850,581
Shares issued in connection
with reinvestment of
distributions 1,184 10,989
310,257 2,861,570
Shares repurchased (2,910) (26,750)
Net increase 307,347 $2,834,820
</TABLE>
Note 5
Acquisition of
Putnam
Minnesota Tax
Exempt Income
Fund
On March 9, 1992, the exchange date, the Fund acquired the net assets of
Putnam Minnesota Tax Exempt Income Fund (PMTEIF) by a tax-free exchange
approved by the shareholders.
The net assets of the Fund immediately following the acquisition on March 9,
1992, were $57,800,070.
<TABLE>
<CAPTION>
PMTEIF
<S> <C>
Net assets of PMTEIF on March 6, 1992, valuation date for the merger
(including net unrealized appreciation of $1,010,518) $32,334,749
Shares of the Fund issued in the acquisition 3,720,915
</TABLE>
Note 6
Reclassification
of Capital Account
Effective June 1, 1993, Putnam Minnesota Tax Exempt Income Fund II has
adopted the provisions of Statement of Position 93-2 "Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies (SOP)." The purpose
of this SOP is to report the accumulated net investment income (loss) and
accumulated net realized gain (loss) accounts in such a manner as to
approximate amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP, the Fund has reclassified $373 to increase
undistributed net investment income and decreased accumulated net realized
gain by $417,912 with an increase of $417,539 to additional paid-in capital.
These adjustments represent the cumulative amounts necessary to report these
balances through May 31, 1993, the close of the Fund's most recent fiscal
year-end, for financial reporting and tax purposes.
<PAGE>
Fund
performance
supplement
Putnam Minnesota Tax Exempt Income Fund II is a portfolio managed for high
current income free from federal and state income taxes and consistent with
capital preservation. This fund invests at least 75% of its portfolio in
investment-grade tax-exempt bonds. The balance may be invested in securities
rated below investment-grade.
The Lehman Brothers Municipal Bond Index is an unmanaged list of
approximately 8,000 investment-grade, fixed rate, long-term maturity
tax-exempt bonds, which are selected to be representative of the market in
terms of price movement and sector distribution. The average quality of bonds
held in the index may differ from the average quality of those bonds in which
the fund invests. The index does not include bonds in certain of the lower
rating classifications in which the fund may invest. The index does not take
into account brokerage commissions or other costs and may pose different
risks from the fund. Total return performance for the index reflects
mathematically derived changes of market price and reinvestment of interest
payments, as computed by Lehman Brothers. The fund's portfolio contains
securities that do not match those in the index.
This fund performance supplement has been prepared by Putnam Management to
provide further detail about the fund and the indexes used for performance
comparisons. It is not part of the portfolio of investments owned or the
financial statements and notes.
<TABLE>
<CAPTION>
Total return at end of most recent calendar quarter
Periods ended December 31, 1993
Class A Class B
NAV POP NAV CDSC
<S> <C> <C> <C> <C>
1 Year 11.36% 6.08% -- --
3 Years 32.36 26.11 -- --
Annualized 9.79 8.04 -- --
Life of class*
(since 10/23/89) 43.13 36.39 -- --
Annualized
Life of class* 8.93 7.69 -- --
(since 7/15/93) -- -- 3.44% -1.56%
<FN>
*The fund began operations on October 23, 1989 offering shares known as class
A shares. Effective July 15, 1993, the Fund began offering class B shares.
Performance for each share class will differ.
</TABLE>
<PAGE>
Your
Trustees
George Putnam
Chairman
Chairman and President,
The Putnam Funds
William F. Pounds
Vice Chairman
Professor of Management,
Alfred P. Sloan
School of Management,
Massachusetts Institute of
Technology
Hans H. Estin
Vice Chairman,
North American
Management Corporation
John A. Hill
Principal and
Managing Director,
First Reserve Corp.
Elizabeth T. Kennan
President,
Mount Holyoke College
Lawrence J. Lasser
President and
Chief Executive Officer,
Putnam Investments, Inc.
Robert E. Patterson
Executive Vice President,
Cabot Partners
Limited Partnership
Donald S. Perkins
Director of various
corporations
George Putnam, III
President, New Generation
Research, Inc.
A.J.C. Smith
Chairman of the Board
and Chief Executive Officer,
Marsh & McLennan
Companies, Inc.
W. Nicholas Thorndike
Director of various
corporations
<PAGE>
Putnam
Minnesota
Tax Exempt
Income Fund II
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
Investor servicing agent
Putnam Investor Services
Mailing address:
P.O. Box 41203
Providence, RI 02940-1203
1-800-225-1581
Custodian
Putnam Fiduciary
Trust Company
Legal counsel
Ropes & Gray
[DALBAR LOGO]
Putnam Investor Services has received the DALBAR award
each year since the award's
1990 inception.
In more than 10,000 tests
of 38 shareholder
service components,
Putnam outperformed
the industry standard
in every category.
<PAGE>
Officers
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
John R. Verani
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President
and Fund Manager
William N. Shiebler
Vice President
John D. Hughes
Vice President
and Treasurer
Paul O'Neil
Vice President
Beverly Marcus
Clerk and
Assistance Treasurer
This report is for the information of shareholders of Putnam Minnesota 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.
A40/B08-10019
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
Paid
Boston, MA
Permit No. 53749
<PAGE>
<PAGE>
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) and footers (e.g., page
numbers and "The accompanying notes are an integral part of these
financial statements") are omitted.
(3) Because the printed page breaks are not reflected, 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) Dagger footnote symbol replaced with plus sign (+).
