Putnam Minnesota Tax Exempt Income Fund II
Annual Report
May 31, 1994
[ARTWORK]
Boston * London * Tokyo
<PAGE>
Performance highlights
The fund ranked in the top 25% of all single-state municipal
bond funds for the 12 months ended May 31, 1994, according to
CDA/Wiesenberger.*
Performance should always be considered in light of a fund's
investment strategy. Putnam Minnesota Tax Exempt Income Fund II
is designed for investors seeking a high level of current
income free from federal and state income tax consistent with
preservation of capital.
FISCAL 1994 RESULTS AT A GLANCE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Class A Class B
Total return: NAV POP NAV CDSC
- ---------------------------------------------------------------
12 months ended 5/31/94
(change in value during
period plus reinvested
distributions) 2.57% -2.28%
- ---------------------------------------------------------------
Life of class B -0.32% -5.09%
- ---------------------------------------------------------------
Current return: NAV POP NAV
- ---------------------------------------------------------------
(end of period:)
- ---------------------------------------------------------------
Current dividend rate(1) 5.81% 5.53% 5.22%
- ---------------------------------------------------------------
Taxable equivalent(2) 10.51 10.01 9.44
- ---------------------------------------------------------------
Current 30-day SEC yield(3) 5.35 5.10 4.65
- ---------------------------------------------------------------
Taxable equivalent(2) 9.68 9.23 8.41
- ---------------------------------------------------------------
Share value: NAV POP NAV
- ---------------------------------------------------------------
5/31/93 $9.06 $9.51
- ---------------------------------------------------------------
7/15/93 -- -- $9.18
- ---------------------------------------------------------------
5/31/94 8.79 9.23 8.77
- ---------------------------------------------------------------
Distributions: No. Income Total
- ---------------------------------------------------------------
Class A 12 $0.508738 $0.508738
- ---------------------------------------------------------------
Class B 10 0.387969 0.387969
- ---------------------------------------------------------------
</TABLE>
Performance data represent past results. For performance over
longer periods, see pages 8 and 9. POP assumes 4.75% maximum
sales charge. CDSC assumes 5% maximum contingent deferred sales
charge. Inception date of Class B shares is 7/15/93.
(1) Income portion of most recent distribution, annualized and
divided by NAV or POP at end of period.
(2) Assumes maximum combined 44.73% federal and state tax
rate. Results for investors subject to lower tax rates
would not be as advantageous. For some investors,
investment income may also be subject to the federal
Alternative Minimum Tax.
(3) Based only on investment income, calculated using SEC
guidelines.
* CDA/Wiesenberger rankings are updated monthly, based
entirely on total return and do not take into account
sales charges or fees. The fund ranked 125 of 574
municipal single state funds.
<PAGE>
From the Chairman
[Photograph of George Putnam]
(c) Karsh, Ottawa
Dear Shareholder:
The Federal Reserve Board's primary concern remains fighting
not only inflation but the fear of inflation. It is addressing
this issue by gradually raising the short-term interest rates
under its control to slow the economy's growth to what it
regards as a sustainable pace.
The combination of the Fed's continuing policy and the response
by individuals and businesses to last year's tax increase could
produce more of a slowdown in business than many observers now
expect.
As this slowing becomes more obvious, the Fed will come under
growing pressure from politicians to ease up. The Fed is not
likely to yield. But the very fact that investors think it
might could cause some more volatility in the bond markets in
the months ahead.
Meanwhile, you can take comfort in the tax shelter provided for
the income generated by your Putnam tax-exempt fund shares.
In the following report, Fund Manager Howard Manning explains
how he is positioning your fund's portfolio to respond to
1994's unfolding events.
Respectfully yours,
George Putnam
Chairman of the Trustees
July 20, 1994
<PAGE>
Report from the fund manager,
Howard K. Manning
A familiar citation from Dickens -- being both the 'best' and
'the worst of times' -- is an apt description of the turbulent
atmosphere in the fixed-income markets over the past 12 months.
In the relative free fall that began on February 4, 1994,
precipitated by the first in a series of short-term interest
rate increases, Putnam Minnesota Tax Exempt Income Fund II
withstood the pressure comparatively well. While affected to
some degree by the declines, your fund finished its fiscal year
on May 31, 1994, with a total return of 2.57% at net asset
value for class A shares.
During a period that saw the bond market move from peak to
trough, this performance surpassed nearly 80% of the Minnesota
municipal bond funds tracked by Lipper. Moreover, with a
current dividend rate of 5.81% at NAV for class A shares, the
fund continues to offer tax-burdened Minnesota investors a
substantial tax-free income advantage.
MANAGING DURATION AND CALL EXPOSURE
One of the key tactics we employed in anticipation of the
market's downturn was to utilize various hedging strategies to
shorten the fund's duration. Duration is a mathematical formula
that indicates how much bond prices will move up or down with
each percentage-point shift in interest rates. Like maturity,
with which it is often confused, duration is measured in years.
The shorter the duration, the less volatility you can expect
from the portfolio. In a rising interest rate environment,
keeping the portfolio's average duration relatively short can
be instrumental in protecting its value.
Another significant part of our approach centered on in-depth
research and credit analysis of opportunities in the
marketplace. Intensive scrutiny of bond issuers' credit
quality, funding sources and future prospects guided the fund's
investment process.
A third factor contributing to the fund's strong relative
performance was the portfolio's high degree of call protection.
A bond's provisions may allow the issuer to call it in at or
after a specified date prior to maturity. Such a bond is often
called in before maturity when prevailing interest rates are
lower than they were when the bond was issued. Redemption can
force an investor to reinvest at the current lower rates.
Consequently, exposure to callable bonds always has some
potential to affect a fund's income stream.
We strive to reduce your fund's call risk as an ongoing part of
our strategy. We do this by purchasing both noncallable bonds
and bonds with first call dates that extend beyond the year
2000. Even with this year's rise in interest rates,
reinvestment risk remains substantial, since many of the bonds
now being called were issued in the far higher rate environment
of the 1980s. However, our strategy has been effective in
minimizing call risk thus far.
PORTFOLIO FOCUS REMAINS ON HEALTH CARE
The securities of hospitals and health maintenance
organizations (HMO) continue to be a dominant theme, making up
about 30% of the fund's assets. This is a dynamic investment
sector, given the progressive nature of the state's health care
market. Our specialized expertise in this area, combined with
rigorous credit research, resulted in several attractive
acquisitions during the year. Foremost among these was the
purchase of bonds issued by the City of Rochester on behalf of
the Olmstead Clinic.
[Bar Chart]
Top Five Industry Sectors*
Health care 30.86%
Education 14.11%
Utilities 11.54%
Houseing 8.72%
Pollution Control 7.17%
*Based on net assets on 5/31/94
The Olmstead Clinic is a group practice of primary care
physicians. With the goal of purchasing their own medical
building and thereby relieving the burden of double-digit lease
rates, they recently came to market with their first-ever bond
issue, totaling $5.7 million. Given the relative obscurity of
the issuer, these bonds were largely overlooked by the
institutional investor community. This led to attractive
pricing in a market that, statewide, does not generally lend
itself to significant price concessions. Our credit research
indicated the securities had the potential to be true 'diamonds
in the rough,' representing an approach to health care that is
on the leading edge in the current competitive environment.
Consequently, we were able to purchase the entire issue at an
extremely favorable price, with a yield to maturity of 7.75%.
Consistent with our view that the Twin Cities, as well as the
state overall, are notable for health care investment
opportunities, we continue to maintain significant holdings in
several other health care providers. The list includes Group
Health, the Health East system, and the Mayo Clinic.
Capitalizing on our extensive credit research capabilities, we
continue to evaluate new opportunities in the market as we
closely monitor our current holdings. Our goal is to ensure
that each position performs up to our expectations. Ongoing
monitoring enables us to keep abreast of developments. If the
news has negative implications, such as a possible rating
downgrade, we want to exit before a bond's price begins to
decline. Likewise, if the news is good, we want to increase our
position at the current price before broader investor interest
drives the price up. Active surveillance gives us these
options.
TOP 10 HOLDINGS (5/31/94)
- ---------------------------------------------------------------
Rochester, Hlth. Care Fac.
- ---------------------------------------------------------------
Minneapolis & St. Paul, Hsg. & Redev. Auth.
Hlth. Care Syst. Rev. Bonds
- ---------------------------------------------------------------
Southern MN Muni. Pwr. Agcy. Supply Syst. Rev. Bonds
- ---------------------------------------------------------------
MN General Obligation (G.O.) Bonds
- ---------------------------------------------------------------
Bass Brook, Poll. Control Rev. Bonds
- ---------------------------------------------------------------
Stillwater, Indl. Dev. Rev. Bonds
- ---------------------------------------------------------------
MN Higher Ed. Fac. Auth. Rev. Bonds
- ---------------------------------------------------------------
St. Paul Hsg. & Redev. Auth. Sales Tax Rev. Bonds
- ---------------------------------------------------------------
Northern MN Muni. Pwr. Agcy. Elec. Syst. Rev. Bonds
- ---------------------------------------------------------------
MN Hsg. Fin. Agcy Single Fam. Mtge Rev. Bonds
- ---------------------------------------------------------------
These holdings represent 45.26% of the fund's assets. Portfolio
holdings are subject to change.
MUNICIPAL MARKET COULD REMAIN CHOPPY
The municipal bond market is beginning to move independently
from the Treasury market, as evidenced by the performance of
municipal bonds year to date. We expect this to continue
through the balance of the year.
Market volatility could be an ongoing factor, thus vigilance
remains our watchword. Depending on the pace of economic
growth, further increases in short-term interest rates by the
Federal Reserve Board cannot be ruled out. We will continue to
manage the fund's duration to attempt to mitigate as much as
possible the effects of any storminess on the interest rate
front.
The supply of municipal securities is down dramatically from
1993, both within the state and across the country. If this
reduced supply is met with increasing demand, fiscal 1995's
performance could well prove more rewarding than that of fiscal
1994.
<PAGE>
Performance summary
This section provides, at a glance, information about your
fund's performance. Total return shows how the value of the
fund's shares changed over time, assuming you held the shares
through the entire period and reinvested all distributions back
into the fund. We show total return in two ways: on a
cumulative long-term basis (see the chart on the facing page)
and how the fund might have grown each year, on average, over
varying periods (see the tables below). For comparative
purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDING 5/31/94
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- ---------------------------------------------------------------
1 year 2.57% -2.28% -- -- 2.47% 2.29%
- ---------------------------------------------------------------
3 years 23.19 17.30 -- 25.99 8.78
Annual average 7.20 5.46 -- 8.01 2.84
- ---------------------------------------------------------------
Life of class A 38.34 31.82 -- 44.97 17.44
Annual average 7.29 6.18 -- 8.39 3.55
- ---------------------------------------------------------------
Life of class B
(since 7/15/93) -- -- -0.32%-5.09 0.78 2.15
- ---------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDING 6/30/94
(MOST RECENT CALENDAR QUARTER)
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Class A Class B
NAV POP NAV CDSC
- ---------------------------------------------------------------
1 YEAR 0.40% -4.40% -- --
- ---------------------------------------------------------------
3 years 22.68 16.91 -- --
Annual average 7.05 5.34 -- --
- ---------------------------------------------------------------
Life of class A 37.56 31.08 -- --
Annual average 7.04 5.94 -- --
- ---------------------------------------------------------------
Life of class B
(since 7/15/93) -- -- -0.79 5.53
- ---------------------------------------------------------------
</TABLE>
Performance data represent past results. Investment returns and
principal value will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost. Fund
performance data do not take into account any adjustment for
taxes payable on reinvested distributions or, for class A
shares, distribution fees prior to implementation of the class
A distribution plan in 1990. The fund began offering what are
now referred to as class A shares on 10/23/89. Effective
7/15/93, the fund began offering class B shares.
<PAGE>
[Moutain Chart]
Cumulative total return of a $10,000
investment since 10/23/89
Fund's Class A shares at POP $13,182
Lehman Bros. Municipal Bond Index $14,497
Consumer Price Index $11,744
Plot Points:
Lehman Bros.
date/year Fund at POP MuniBond Index CPI
10/23/89 9525 10000 10000
5/31/90 9834 10453 10287
5/31/91 10701 10506 10796
5/31/92 11650 12636 11123
5/31/93 12852 14148 11481
5/31/94 13182 14497 11744
Past performance is no assurance of future results. A $10,000
investment in the fund's class b shares at inception (July 15, 1993) w
TERMS AND DEFINITIONS
Class A fund shares may be subject to an initial sales charge.
Class B fund shares may be subject to a sales charge on
redemption.
Net asset value (NAV) is the value of all fund assets, minus
liabilities, divided by the number of outstanding shares. It
does not include any initial or contingent deferred sales
charges.
Public offering price (POP) is the price of a fund share plus
the maximum sales charge levied at the time of purchase. Data
assumes the maximum 4.75% sales charge.
Contingent deferred sales charge (CDSC) is applied on
redemption of fund shares. Your fund's CDSC declines from a 5%
maximum during the first year to 1% during the sixth year.
After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of
long-term fixed-rate investment-grade tax-exempt bonds
representative of the municipal bond market. The index does not
take into account brokerage commissions or other costs and may
include bonds different from those in the fund.
Consumer Price Index is a commonly used measure of inflation.
It does not represent an investment return.
<PAGE>
The Putnam Fund Selector(tm)
The Putnam Fund Selector shows the many opportunities
for investors within every investment strategy. All
investors should first accumulate a base of conservative, cash-
equivalent investments. Then, with the help of your
investment advisor, diversify your portfolio by investing in
the Putnam Family of Funds.
[Pyramid Graphic appears here]
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE INCOME FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-exempt income funds*
Arizona, California, Florida, Massachusetts, Michigan,
Minnesota, New Jersey, New York, Ohio and Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds -- three investment portfolios
that spread your money across a variety of stocks, bonds,
and money market investments to help maximize your return
and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS
Putnam money market funds:
Daily Dividend Trust
New York Tax Exempt Money Market Fund
CDs and savings accounts++
* Not available in all states
+ Relative to above
++ Not offered by Putnam Investments. Certificates of deposit offer a
fixed rate or turen and may be insured up to certain limites,
Please call your financial advisor or Putnam to obtain a prospectus
for any Putnam fund. It contains more complete information, incl
<PAGE>
Report of Independent Accountants
For the Fiscal Year Ended May 31, 1994
To the Trustees and Shareholders of
Putnam Minnesota Tax Exempt Income Fund II
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments owned
(except for bond ratings), and the related statements of
operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the
financial position of Putnam Minnesota Tax Exempt Income Fund
II (the 'fund') at May 31, 1994, and the results of its
operations, the changes in its net assets, and the financial
highlights for the periods indicated in conformity with
generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as
'financial statements') are the responsibility of the fund's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with
generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at
May 31, 1994 by correspondence with the custodian and brokers
and the application of alternative auditing procedures where
confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse
Boston, Massachusetts
July 19, 1994
<PAGE>
Portfolio of investments owned
May 31, 1994
<TABLE>
<S> <C> <C>
MUNICIPAL BONDS AND NOTES (99.4%)(a)
PRINCIPAL AMOUNT RATINGS (b) VALUE
- ---------------------------------------------------------------
Minnesota (97.4%)
- ---------------------------------------------------------------
$4,745,000 Bass Brook, Poll. Control Rev.
Bonds (Pwr. & Lt. Co. Project),
6s, 7/1/22 A $4,602,650
300,000 Becker, Poll. Control Rev. Bonds
(Northern States Pwr. Co. -
Sherburne Cnty. Generating
Station Unit) Project Nos. 1 & 2,
Ser. 89-A, 6.8s, 4/1/07 A 319,500
1,000,000 Bloomington, Independent School
Dist. No. 271 Rev. Bonds
5 1/4s, 2/1/14 AA 912,500
75,000 Brainerd, Hosp. Fac. Rev. Bonds
(Benedictine Hlth. Syst. -
St. Joseph), Municipal Bond
Insurance Assn. (MBIA),
9 5/8s, 10/1/12 AAA 81,562
700,000 Breckenridge, Hosp. Facs. Rev. Bonds
(Franciscan Sisters Hlth. Care),
Ser. B-1, 9 3/8s, 9/1/17 A 807,625
30,000 Buffalo, Hosp. Rev. Bonds
(Hlth. Ctr. Syst. Project),
Ser. B, 10s, 10/1/14 A 32,775
575,000 Burnsville, Hosp. Syst. Rev. Bonds
(Fairview Cmnty. Hosp.),
Ser. A, MBIA, 9s, 5/1/12 AAA 610,937
500,000 Centennial, Independent School
Dist. No. 12 Rev. Bonds
Ser. A, 7.15s, 2/1/12 AAA 550,000
2,200,000 Chaska, Independent School Dist.
No. 112 Rev. Bonds
5 7/8s, 2/1/12 AA 2,167,000
1,500,000 Detroit Lakes, Hlth. Care Facs.
Rev. Bonds (Benedictine Hlth.
Syst. - St. Mary),
Ser. G, 6s, 2/15/12 AAA 1,453,125
950,000 Duluth, Hosp. Rev. Bonds
(St. Luke's Hosp. Project),
9s, 5/1/18 AAA 1,103,187
1,500,000 Duluth, Tax Increment Variable
Rate Demand Notes
(Lake Superior Paper),
2.9s, 9/1/10 VMIG1 1,500,000
500,000 Eden Prairie, Multi-Fam.
Hsg. Rev. Bonds
(Windslope Apts. Project),
7.1s, 11/1/17 A 521,875
500,000 Fergus Falls, Cmnty. Dev.
Rev. Bonds (Lincoln -
St. Andrews Assn. Project),
8 3/4s, 11/1/06 BBB/P 522,500
1,500,000 Hennepin Cnty., Lease Rev.
Certif. of Participation
Ser. A, 6.8s, 5/15/17 AA 1,563,750
1,290,000 Hopkins, Independent School Dist.
No. 270 Rev. Bonds
Ser. A, 4.8s, 2/1/11 (c) AAA 1,140,037
2,210,000 Jackson Cnty., Hsg. & Redev.
Auth. Indl. Dev. Rev. Bonds
(Chemical Equip. Project),
8 3/4s, 12/1/09 BBB/P 2,240,388
MN Agricultural & Econ. Dev. Board Rev. Bonds
(Small Bus. Dev. Loan Program)
575,000 Ser. E-Lot 1, 8 1/2s, 8/1/10 BB/P 596,563
465,000 Ser. E-Lot 2, 8 1/2s, 8/1/10 BB/P 482,438
390,000 Ser. A-Lot 1, 8 1/4s, 8/1/09 BB/P 401,212
400,000 Ser. A-Lot 2, 8.2s, 8/1/09 BB/P 415,000
MN General Obligation (G.O.) Bonds
3,000,000 5.4s, 8/1/13 AA 2,827,500
2,000,000 4.9s, 8/1/11 AA 1,795,000
1,000,000 MN Higher Ed. Fac. Auth. Mtge.
Rev. Bonds (U. of St. Thomas),
Ser. 3-C, 7 1/8s, 9/1/14 A 1,113,750
1,500,000 MN Hsg. Fin. Agcy. Dev. Rev. Bonds
Ser. A, 6.95s, 2/1/14 A 1,539,375
MN Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
$190,000 Ser. C, 8 1/2s, 7/1/19 AA 200,213
365,000 Federal Housing Administration
Insd., Ser. A, 7.45s, 7/1/22 AA 392,375
1,930,000 Ser. B-1, 6 3/4s, 1/1/26 AA 1,985,488
500,000 MN Pub. Fac. Auth. Wtr. Poll.
Control Rev. Bonds
Ser. A, 6.95s, 3/1/13 AA 547,500
Minneapolis - St. Paul Hsg. Redev.
Auth. Hlth. Care Syst. Rev Bonds
3,000,000 (Hlth. One Obligated Group),
Ser. A, MBIA, 6 3/4s, 8/15/14 AAA 3,168,750
3,000,000 (Group Hlth. Plan Inc. Project),
6.9s, 10/15/22 A 3,112,500
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 368,813
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 924,825
700,000 Minneapolis - St. Paul, Metro.
Arpts. Rev. Bonds
Ser. 8, 6.6s, 1/1/10 AAA 735,875
1,000,000 Minneapolis, Cmnty. Dev. Agcy.
Hlth. Care Facs. Rev. Bonds
(Walker Methodist Hlth. Project),
9 1/2s, 4/1/10 A 1,052,500
Minneapolis, Cmnty. Dev. Agcy.
Supported Dev. Rev. Bonds
600,000 Ser. 87-1, 8 5/8s, 12/1/12 BBB 638,250
1,105,000 (Grace-Lee Products Inc.)
Ser. 91-3, 8 1/4s, 12/1/11 BBB 1,183,731
Minneapolis, Cmnty. Dev. Agcy.
Tax Increment Rev. Bonds
5,000,000 MBIA, zero %, 9/1/06 AAA 2,487,500
215,000 MBIA, zero %, 9/1/08 AAA 92,181
400,000 Minneapolis, Cmnty. Econ. Dev.
Agcy. Rev. Bonds
(Shaw Acquisition Project),
Ser. 85-1, 9 1/4s, 6/1/05 AA 422,000
1,205,000 Minneapolis, Coml. Dev. Rev. Bonds
(Mt. Sinai Hosp. Assn. Project),
9 1/2s, 11/1/06 BBB/P 1,360,144
350,000 Minneapolis, Convention Ctr.
Sales Tax Rev. Bonds
American Municipal Bond
Assurance Corp.
(AMBAC), 7 3/4s, 4/1/11 AAA 376,688
750,000 Minneapolis, Hlth. Care Fac. Rev. Bonds
(Baptist Residence Project),
8.7s, 11/1/09 BB/P 827,813
Minneapolis, Hosp. Rev. Bonds
810,000 (Lifespan Inc.), Ser. B,
9 1/8s, 12/1/14 A 933,525
20,000 (St. Mary's Hosp. & Rehabilitation),
10s, 6/1/13 AAA 28,500
Minnetonka, Independent School Dist.
No. 276 Rev. Bonds
1,000,000 Ser. B, zero %, 2/1/08 Aa 427,500
2,000,000 Ser. B, zero %, 2/1/07 Aa 917,500
3,000,000 MN Higher Ed. Fac. Auth. Rev. Bonds
(St. Benedict College), Ser. 3W,
6 3/8s, 3/1/20 Baa 2,895,000
Morris, Hosp. Facs. Rev. Bonds
(Stevens Cmnty. Memorial Hosp.),
250,000 Ser. A, 8 1/4s, 5/1/10 BBB/P 265,938
500,000 Ser. B, 8 1/4s, 5/1/10 BBB/P 531,875
915,000 New Ulm, Hosp. Facs. Rev. Bonds
(Hlth. Ctr. Syst. Project),
Ser. C, 10s, 10/1/14 A 1,007,644
250,000 New York Mills, Independent School Dist.
No. 553 Rev. Bonds,
Ser. A, 6.8s, 2/1/15 Baa 268,438
Northern MN Muni. Pwr. Agcy.
Elec. Syst. Rev. Bonds
$2,215,000 Ser. A, 7 1/4s, 1/1/16 A $002,372,819
1,000,000 Ser. A, 6s, 1/1/20 A ,960,000
1,600,000 Northfield, College Fac. Rev. Bonds
(St. Olaf College Project),
6.4s, 10/1/21 A 1,648,000
1,800,000 Owatonna, Hosp. Rev. Bonds
(Hlth. Ctr. Syst. Project),
Ser. C, 10s, 10/1/14 A 1,971,000
360,000 Owatonna, Pub. Utils. Rev. Bonds
6 3/4s, 1/1/16 A 389,700
30,000 Pine River, Nursing Home Rev. Bonds
(Lutheran Good Samaritan Society
Project), AMBAC, 9.2s, 1/1/00 AAA 31,425
1,000,000 Plymouth, Multi-Fam. Hsg. Dev. Rev. Bonds
(Harbor Lane Apt. Project)
5.95s, 9/1/18 AA 942,500
500,000 Ramsey & Washington Cntys.,
Res. Recvy. Rev. Bonds
(Northern State Pwr. Co. Project),
Ser. A, 6 3/4s, 12/1/06 AA 535,625
Rochester, Hlth. Care Fac. Rev. Bonds
3,300,000 Residual Interest Bonds (RIBS)
(Mayo Foundation)
Ser. H, 9.081s, 11/15/15 AA 3,180,374
3,000,000 (Olmsted Medical Group)
7 1/2s, 7/1/19 BB/P 2,917,500
3,000,000 RIBS (Mayo Foundation), Ser. E,
9.07s, 11/15/12 AA 3,075,000
1,750,000 Rosemount, School. Dist.
No. 196 Rev. Bonds
Ser. A, 5 7/8s, 6/1/14 (d) AA 1,712,812
1,000,000 Roseville, Independent School Dist.
No. 623 Rev. Bonds
Ser. A, Financial Guaranty
Insurance Corp., 6s, 2/1/23 AAA 991,250
2,500,000 Sartell, Poll. Control Rev. Bonds
(Champion Intl. Project),
6.95s, 10/1/12 Baa 2,565,625
Southern MN Muni. Pwr. Agcy.
Supply Syst. Rev. Bonds
300,000 Ser. A, 8 1/8s, 1/1/18 AAA 337,125
2,000,000 Ser. A, 5 3/4s, 1/1/18 A 1,890,000
1,000,000 Ser. A, 5s, 1/1/12 A 882,500
2,000,000 Ser. B, 5s, 1/1/13 A 1,757,500
1,000,000 St. Cloud, Multi-Fam. Rev. Bonds
(St. Cloud Hosp. Project),
Ser. B, 5.4s, 10/1/23 AAA 897,500
3,000,000 St. Louis Park, Hlth. Care Facs.
Rev. Bonds Ser. A, AMBAC,
5.2s, 7/1/23 AAA 2,587,500
100,000 St. Louis Park, Hosp. Facs. Rev. Bonds
(Methodist Hosp. Project), Ser. A, AMBAC,
9 1/2s, 7/1/08 AAA 107,375
4,000,000 St. Paul Hsg. & Redev. Auth.
Sales Tax Rev. Bonds
(Civic Center Project)
5.45s, 11/1/13 A 3,705,000
St. Paul, Hsg. & Redev. Auth.
Hosp. Rev. Bonds (Hlth. East Project),
2,000,000 Ser. B, 9 3/4s, 11/1/17 Baa 2,237,500
1,150,000 Ser. A, 6 5/8s, 11/1/17 Baa 1,086,750
250,000 St. Paul, Swr. Rev. Bonds
Ser. A, AMBAC, 8s, 12/1/08 AAA 281,875
3,900,000 Stillwater, Indl. Dev. Rev. Bonds
(SuperValu Stores Inc.),
10 3/4s, 10/1/09 A 4,109,625
Western MN Muni. Pwr. Agcy. Supply Rev. Bonds
675,000 Ser. A, 9 1/4s, 1/1/04 A 731,531
1,300,000 Ser. A, 7s, 1/1/13 A 1,368,250
- ---------------------------------------------------------------
$101,726,976
- ---------------------------------------------------------------
Puerto Rico (2.0%)
- ---------------------------------------------------------------
$2,425,000 PR Cmnwlth. Hwy. & Trans. Auth.
Hwy. Rev. Bonds Ser. W,
5 1/4s, 7/1/20 A $2,088,530
- ---------------------------------------------------------------
Total Investments
(cost $103,227,573)(e) $103,815,506
- ---------------------------------------------------------------
</TABLE>
(a) Percentages indicated are based on net assets of
$104,460,377, which correspond to a net asset value per
class A share and class B share of $8.79 and $8.77,
respectively.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at May
31, 1994 for the securities listed. Ratings are generally
ascribed to securities at the time of issuance. While the
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 May 31,
1994. Securities rated by Putnam are indicated by '/P' and
are not publicly rated. These ratings are not covered by
the Report of Independent Accountants.
(c) This security was pledged to cover margin requirements for
future contracts at May 31, 1994. The market value
segregated with the custodian for transactions in future
contracts was $1,140,037.
(d) This security, valued at $1,712,812 or 1.6% 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 customary
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
$103,232,750, resulting in gross unrealized appreciation
and depreciation of $2,639,981 and $2,057,225,
respectively, or net unrealized appreciation of $582,756.
The rates shown on Variable Rate Demand Notes (VRDN) and
Residual Interest Bonds (RIBS) are the current interest rates
at May 31, 1994, which are subject to change based on the terms
of the security.
The Fund had the following industry group concentrations
greater than 10% on May 31, 1994 (as a percentage of net
assets):
<TABLE>
<S> <C>
- ---------------------------------------------------------------
Hospitals/Health Care 30.9%
- ---------------------------------------------------------------
Education 14.1%
- ---------------------------------------------------------------
Utilities 11.5%
- ---------------------------------------------------------------
</TABLE>
U.S. Treasury Bond Futures Outstanding at May 31, 1994
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------
Aggregate Expiration Unrealized
Total Value Face Value Date Appreciation
- ---------------------------------------------------------------
U.S. Treasury
Bond Futures
(Sell) $5,131,250 $5,200,000 Sept/94 $68,750
- ---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Statement of assets and liabilities
May 31, 1994
<TABLE>
<S> <C> <C>
Assets
- ---------------------------------------------------------------
Investments in securities at value
(identified cost $103,227,573) (Note 1) $103,815,506
- ---------------------------------------------------------------
Cash 30,720
- ---------------------------------------------------------------
Receivable for variation margin on
futures contracts 25,000
- ---------------------------------------------------------------
Interest receivable 1,793,775
- ---------------------------------------------------------------
Receivable for shares of the fund sold 306,645
- ---------------------------------------------------------------
Receivable for securities sold 1,599,002
- ---------------------------------------------------------------
Unamortized organization expenses (Note 1) 3,360
- ---------------------------------------------------------------
Total assets $107,574,008
- ---------------------------------------------------------------
Liabilities
- ---------------------------------------------------------------
Payable for securities purchased $2,616,846
- ---------------------------------------------------------------
Payable for shares of the fund
repurchased 8,902
- ---------------------------------------------------------------
Distributions payable to shareholders 230,326
- ---------------------------------------------------------------
Payable for compensation of
Manager (Note 2) 155,643
- ---------------------------------------------------------------
Payable for compensation of
Trustee (Note 2) 351
- ---------------------------------------------------------------
Payable for investor servicing and
custodian fees (Note 2) 24,948
- ---------------------------------------------------------------
Payable for administrative
services (Note 2) 1,423
- ---------------------------------------------------------------
Payable for distribution
fees (Note 2) 37,765
- ---------------------------------------------------------------
Other accrued expenses 37,427
- ---------------------------------------------------------------
Total liabilities 3,113,631
- ---------------------------------------------------------------
Net assets $104,460,377
- ---------------------------------------------------------------
Represented by
- ---------------------------------------------------------------
Paid-in capital (Notes 4 and 5) $104,177,574
- ---------------------------------------------------------------
Distributions in excess of net investment income (64,452)
- ---------------------------------------------------------------
Accumulated net realized loss on investments (309,428)
- ---------------------------------------------------------------
Net unrealized appreciation of investments
and futures contracts 656,683
- ---------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $104,460,377
- ---------------------------------------------------------------
Computation of net asset value and offering price
- ---------------------------------------------------------------
Net asset value and redemption price per class A share
($95,587,090 divided by 10,871,939 shares) $8.79
- ---------------------------------------------------------------
Offering price per share (100/95.25 of $8.79)* $9.23
- ---------------------------------------------------------------
Net asset value and offering price per class B share
($8,873,287 dividend by 1,011,320 shares)** $8.77
- ---------------------------------------------------------------
</TABLE>
* On single retail sales of less than $25,000. On sales of
$25,000 or more and on group sales the offering price is
reduced.
** Redemption price per share is equal to net asset value
less any applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Statement of operations
Year ended May 31, 1994
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
Tax exempt interest income $6,504,301
- ---------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------
Compensation of Manager (Note 2) $589,840
- ---------------------------------------------------------------
Investor servicing and
custodian fees (Note 2) 122,455
- ---------------------------------------------------------------
Compensation of Trustees (Note 2) 8,493
- ---------------------------------------------------------------
Auditing 20,567
- ---------------------------------------------------------------
Legal 20,344
- ---------------------------------------------------------------
Postage 9,228
- ---------------------------------------------------------------
Reports to shareholders 21,736
- ---------------------------------------------------------------
Administrative services (Note 2) 5,637
- ---------------------------------------------------------------
Distribution fees -- Class A (Note 2) 189,269
- ---------------------------------------------------------------
Distribution fees -- Class B (Note 2) 28,571
- ---------------------------------------------------------------
Registration fees 7,822
- ---------------------------------------------------------------
Amortization of organization
expenses (Note 1) 3,986
- ---------------------------------------------------------------
Other expenses 3,829
- ---------------------------------------------------------------
Total expenses 1,031,777
- ---------------------------------------------------------------
Net investment income 5,472,524
- ---------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 17,209
- ---------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 160,142
- ---------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (3,593,920)
- ---------------------------------------------------------------
Net loss on investments (3,416,569)
- ---------------------------------------------------------------
Net increase in net assets resulting
from operations $2,055,955
- ---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Statement of changes in net assets
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
Year ended May 31
- ---------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------
Operations:
- ---------------------------------------------------------------
Net investment income $5,472,524 $4,409,213
- ---------------------------------------------------------------
Net realized gain on investments 17,209 375,069
- ---------------------------------------------------------------
Net realized gain on futures
contracts (Notes 1 and 3) 160,142 --
- ---------------------------------------------------------------
Net unrealized (depreciation)
appreciation of investments
Mand futures contracts (3,593,920) 2,247,307
- ---------------------------------------------------------------
Net increase in net assets resulting
from operations 2,055,955 7,031,589
- ---------------------------------------------------------------
Distributions to shareholders from
net investment income:
- ---------------------------------------------------------------
Class A (5,279,232) (4,467,859)
- ---------------------------------------------------------------
Class B (161,707) --
- ---------------------------------------------------------------
Increase from capital share
transactions (Note 4) 21,234,596 24,133,087
- ---------------------------------------------------------------
Total increase in net assets 17,849,612 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 $64,452 and $76,001 respectively) $104,460,377 $86,610,765
- ---------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
Financial Highlights*
(For a share outstanding throughout the period)
<TABLE>
<S> <C>
- ---------------------------------------------------------------
For the period
July 15, 1993
(commencement of
operations) to
- ---------------------------------------------------------------
May 31
- ---------------------------------------------------------------
1994
- ---------------------------------------------------------------
Class B
- ---------------------------------------------------------------
Net Asset Value, Beginning of Period $9.18
- ---------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------
Net investment income .39
- ---------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.41)
- ---------------------------------------------------------------
Total from investment operations (.02)
- ---------------------------------------------------------------
Less distributions from
- ---------------------------------------------------------------
Net Investment Income (.39)
- ---------------------------------------------------------------
Total distributions (.39)
- ---------------------------------------------------------------
Net asset value, end of period $8.77
- ---------------------------------------------------------------
Total investment return at net asset value (%) (b) (.36)(c)
- ---------------------------------------------------------------
Net assets, end of period (in thousands) $8,873
- ---------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.68(c)
- ---------------------------------------------------------------
Ratio of net investment income to average net assets (%)4.81(c)
- ---------------------------------------------------------------
Portfolio turnover (%) 28.19(d)
- ---------------------------------------------------------------
</TABLE>
* Financial Highlights for periods ended through May 31,
1992 have been reclassified and data has been presented to
conform with the requirements issued by the SEC in April,
1993.
(a) Reflects an expense limitation and, during the period
ended May 31, 1990, an absorption of expenses incurred by
the fund. As a result, net investment income of the fund
for the years ended May 31, 1992, 1991 and the period
ended May 31, 1990 reflect expense reductions of
approximately $0.02, $0.07, and $0.14 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.
<PAGE>
Financial Highlights*--continued
(For a share outstanding throughout the period)
<TABLE>
<S> <C>
- ---------------------------------------------------------------
For the period
October 23, 1989
(commencement of
Year ended operations) to
- ---------------------------------------------------------------
May 31 May 31
- ---------------------------------------------------------------
1994 1993 1992 1991 1990
- ---------------------------------------------------------------
Class A Class A
- ---------------------------------------------------------------
$9.06 $8.74 $8.56 $8.43 $8.50
- ---------------------------------------------------------------
- ---------------------------------------------------------------
.51 .55 .55(a) .59(a) .34(a)
- ---------------------------------------------------------------
(.27) .33 .18 .13 (.07)
- ---------------------------------------------------------------
.24 .88 .73 .72 $.27
- ---------------------------------------------------------------
- ---------------------------------------------------------------
(.51) (.56) (.55) (.59) (.34)
- ---------------------------------------------------------------
(.51) (.56) (.55) (.59) (.34)
- ---------------------------------------------------------------
$8.79 $9.06 $8.74 $8.56 $8.43
- ---------------------------------------------------------------
2.57 10.33 8.86 8.82 5.25(c)
- ---------------------------------------------------------------
$95,587 $86,611 $59,914 $16,615 $7,363
- ---------------------------------------------------------------
1.03 1.08 .91(a) .66(a) .27(a)(d)
- ---------------------------------------------------------------
5.60 6.12 6.34(a) 6.84(a) 4.09(a)(d)
- ---------------------------------------------------------------
28.19(d) 37.69 38.79(e) 14.85 98.54(d)
- ---------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Financial Statements
May 31, 1994
Note 1
Significant accounting policies
- ---------------------------------------------------------------
The fund is registered under the Investment Company Act of
1940, as amended, as a diversified, open-end management
investment company. The fund seeks as high a level of current
income exempt from federal income tax and 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) Futures A futures contract is an agreement between two
parties to buy and sell a security at a set price on a future
date. Upon entering into such a contract the Fund is required
to pledge to the broker an amount of cash or investment
securities equal to the minimum 'initial margin' requirements
of the exchange. Pursuant to the contract, the fund agrees to
receive from or pay to the broker an amount of cash equal to
the daily fluctuation in value of the contract. Such receipts
or payments are known as 'variation margin,' and are recorded
by the fund as unrealized gains or losses. When the contract is
closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was
opened and the value at the time it was closed. The potential
risk to the fund is that the change in value of the underlying
securities may not correspond to the change in value of the
futures contracts.
D) Federal taxes It is the policy of the fund to distribute all
of its income within the prescribed time and otherwise comply
with the provisions of the Internal Revenue Code applicable to
regulated investment companies. It is also the intention of the
fund to distribute an amount sufficient to avoid imposition of
any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal
taxes on income, capital gains or unrealized appreciation of
securities held and excise tax on income and capital gains.
At May 31, 1994, the fund had a capital loss carryover of
approximately $355,283, which may be available to offset
realized gains, if any. This amount will expire through 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.
E) Distributions to shareholders Income dividends are recorded
daily by the fund and are distributed monthly. Capital gains
distributions, if any, are recorded on the ex-dividend date and
paid annually, or as necessary to meet the distribution
requirements described above.
The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
differences include treatment of losses on wash sale
transactions, realized and unrealized gains and losses on
futures contracts, organization expenses and the utilization of
capital loss carryover from an acquired fund.
Reclassifications are made to the fund's capital accounts in
order that they reflect income and gains available for
distribution (or available capital loss carryovers) under
income tax regulations. During the year ended May 31, 1994 the
fund reclassified $3,586 to decrease accumulated distributions
in excess of net investment income $281,480 to increase
accumulated net realized loss on investments, with an increase
of $277,894 to additional paid-in capital for the year-end May
31, 1994.
F) Amortization of bond premium and discount Any premium
resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis. Discount on
zero-coupon bonds is accreted according to the effective yield
method.
G) Unamortized organization expenses Expenses incurred by the
fund in connection with its organization, its registration with
the Securities and Exchange Commission and with various states,
and the initial public offering of its shares aggregated
$13,115. These expenses are being amortized over a five-year
period based on projected net assets of the fund.
Note 2
Management fee, administrative services, and other transactions
- ---------------------------------------------------------------
Compensation of Putnam Investment Management, Inc., the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc.,
for management and investment advisory services is paid
quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.6% of the first $500
million of average net assets, 0.5% of the next $500 million,
0.45% of the next $500 million and 0.4% of any amount over $1.5
billion, subject to reduction in any year by the amount of
certain brokerage commissions and fees (less expenses) received
by affiliates of the manager on the fund's portfolio
transactions.
The fund also reimburses the Manager for the compensation and
related expenses of certain officers of the fund and their
staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined
annually by the Trustees. For the year ended May 31, 1994, the
fund paid $5,637 for these services.
Trustees of the fund receive an annual Trustee's fee of $690
and an additional fee for each Trustees' meeting attended.
Trustees who are not interested persons of the Manager and who
serve on committees of the Trustees receive additional fees for
attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are
provided by Putnam Investor Services, a division of PFTC. Fees
paid for these investor servicing and custodial functions for
the year ended May 31, 1994 amounted to $122,455.
Investor servicing and custodian fees reported in the Statement
of operations for the year ended May 31, 1994 have been reduced
by credits allowed by PFTC.
The fund has adopted a distribution plan with respect to its
Class A shares (the 'Class A Plan') pursuant to Rule 12b-1
under the Investment Company Act of 1940. The purpose of the
Class A Plan is to compensate Putnam Mutual Funds Corp., a
wholly-owned subsidiary of Putnam Investments, Inc., for
services provided and expenses incurred by it in distributing
Class A shares. The Trustees have approved payment by the fund
to Putnam Mutual Funds Corp. at an annual rate of 0.20% of the
fund's average net assets attributable to Class A shares. For
the year ended May 31, 1994, the fund paid $189,269 in
distribution fees for Class A shares.
During the year ended May 31, 1994, Putnam Mutual Funds Corp.,
acting as underwriter, received net commissions of $41,915 from
the sale of Class A shares of the fund.
A deferred sales charge of up to 1% is assessed on certain
redemptions of Class A shares purchased as part of an
investment of $1 million or more. For the year ended May 1994,
Putnam Mutual Funds Corp., acting as underwriter, received $27
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
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 ended May 31, 1994, the fund paid Putnam Mutual
Funds Corp. distribution fees of $28,571 for Class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the
contingent deferred sales charges on its 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. For the period ended May 31, 1994,
Putnam Mutual Funds Corp., acting as an underwriter, received
$4,372 in contingent deferred sales charges from redemptions.
Note 3
Purchases and sales of securities
- ---------------------------------------------------------------
During the year ended May 31, 1994, purchases and sales of
investment securities other than short-term municipal
obligation aggregated $47,879,039 and $26,968,562 respectively.
Purchases and sales of short-term municipal obligations
aggregated $21,400,000 and $20,300,000, respectively. In
determining the net gain or loss on securities sold, the cost
of securities has been determined on the identified cost basis.
Transactions in U.S. treasury bond futures contracts during the
year are summarized as follows:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
Sales of Futures Contracts
- ---------------------------------------------------------------
Number of Aggregate
Contracts Face Value
- ---------------------------------------------------------------
Contracts opened 150 $15,192,741
- ---------------------------------------------------------------
Contracts closed (100) (9,992,741)
- ---------------------------------------------------------------
Open at end of year 50 $5,200,000
- ---------------------------------------------------------------
</TABLE>
Note 4
Capital shares
- ---------------------------------------------------------------
At May 31, 1994, there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, class
A and class B capital shares. Transactions in capital shares
were as follows:
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
Year ended May 31
- ---------------------------------------------------------------
1994
- ---------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------
Shares sold 2,011,440 $18,417,919
- ---------------------------------------------------------------
Shares issued in connection with
reinvestment of dividends 393,393 3,595,907
- ---------------------------------------------------------------
2,404,833 22,013,826
- ---------------------------------------------------------------
Shares repurchased (1,095,167) (9,963,783)
- ---------------------------------------------------------------
Net increase 1,309,666 $12,050,043
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
Year ended May 31
- ---------------------------------------------------------------
1993
- ---------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------
Shares sold 3,081,342 $27,498,939
- ---------------------------------------------------------------
Shares issued in connection with
reinvestment of dividends 332,440 2,966,991
- ---------------------------------------------------------------
3,413,782 30,465,930
- ---------------------------------------------------------------
Shares repurchased (707,434) (6,332,843)
- ---------------------------------------------------------------
Net increase 2,706,348 $24,133,087
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------
July 15, 1993
(commencement of operations)
to May 31
- ---------------------------------------------------------------
1994
- ---------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------
Shares sold 1,042,351 $9,463,010
- ---------------------------------------------------------------
Shares issued in connection with
reinvestment of dividends 10,180 91,406
- ---------------------------------------------------------------
1,052,531 9,554,416
- ---------------------------------------------------------------
Shares repurchased (41,211) (369,863)
- ---------------------------------------------------------------
Net increase 1,011,320 $9,184,553
- ---------------------------------------------------------------
</TABLE>
Note 5
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) account 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 $23,622 to
increase distributions in excess of net investment income,
$417,912 to decrease accumulated net realized gain with an
increase of $441,534 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.
These reclassifications which have no impact on the total net
asset value of the fund are primarily attributable to
organization expenses and utilization of capital loss carryover
from an acquired fund, which are treated differently in the
computation of distributable income and capital gains under
federal income tax rules and regulations versus generally
accepted accounting principles.
<PAGE>
Tax Information
The fund has designated all dividends from net investment
income paid during the fiscal year as exempt-interest
dividends. Thus, 100% of these distributions are exempt from
federal income tax. For residents of the state of Minnesota,
100% of the fund's distributions are also exempt from Minnesota
personal income tax.
The Form 1099 you receive in January 1995 will show the tax
status of any taxable distributions paid to your account in
calendar 1994.
<PAGE>
Fund Information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse
TRUSTEES
George Putnam, Chairman
William Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Donald S. Perkins
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C.Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
Howard K. Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
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.
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Bulk Rate
U.S. Postage
PAID
Boston, MA
Permit No. 53749
Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
847-238-12997
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APPENDIX TO FORM N30D FILINGS TO DESCRIBE DIFFERENCES
BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Boldface and italic typefaces are displayed in normal
type.
(3) Headers (e.g. the names of the fund) and footers (e.g.
page
numbers and "The accompanying notes are an integral part of
these
financial statements") are omitted.
(4) Because the printed page breaks are not reflected,
certain tabular
and columnar headings and symbols are displayed differently
in this
filing.
(5) Bullet points and similar graphic signals are omitted.
(6) Page numbering is different.
