Putnam Minnesota Tax Exempt Income Fund II
SEMIANNUAL REPORT
November 30, 1994
[LOGO]
BOSTON * LONDON * TOKYO
PERFORMANCE HIGHLIGHTS
Lipper Analytical Services ranked Putnam Minnesota Tax Exempt
Income Fund II's class A shares in the top 34% of similar funds
tracked for 1-year performance as of November 30, 1994.*
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 1995 RESULTS AT A GLANCE
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Class A Class B
Total return NAV POP NAV CDSC
- ----------------------------------------------------------------
6 months ended 11/30/94
(change in value during
period plus reinvested
distributions -4.61% -9.16% -4.88% -9.53%
- ----------------------------------------------------------------
Share value NAV POP NAV
- ----------------------------------------------------------------
5/31/94 $8.79 $9.23 $8.77
11/30/94 8.16 8.57 8.14
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Capital gains(1)
Long- Short-
Distributions No. Income term term Total
- ----------------------------------------------------------------
Class A 6 0.253013 0 0 0.253013
Class B 6 0.227435 0 00.227435
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Current return NAV POP NAV
- ----------------------------------------------------------------
End of period
Current dividend rate(2) 6.11% 5.82% 5.54%
Taxable equivalent(3) 11.05 10.53 10.02
Current 30-day SEC yield(4)6.12 5.83 5.46
Taxable equivalent(3) 11.07 10.55 9.88
- ----------------------------------------------------------------
<FN>
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. (1)Capital gains are taxable for
federal and, in most cases, state tax purposes. For some
investors, investment income may also be subject to the
federal Alternative Minimum Tax. Investment income may be
subject to state and local taxes. (2)Income portion of most
recent distribution, annualized and divided by NAV or POP at
end of period. (3)Assumes maximum combined state and federal
tax rates of 44.73%. Results for investors subject to lower
tax rates would not be as advantageous. (4)Based only on
investment income, calculated using SEC guidelines.
* Lipper Analytical Services is an independent research
organization; its rankings vary over time and do not reflect
the effects of sales charges. Past performance is no
guarantee of future results.
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<PAGE>
FROM THE CHAIRMAN
[PHOTO]
(c) Karsh, Ottawa
Dear Shareholder:
As we begin a new year, most investors won't regret the passing
of the old. Since last February, when the Federal Reserve Board
began a series of increases in interest rates, 1994 was marked by
sharp corrections followed by small gains and extended
uncertainty for virtually all financial markets.
Well in advance of the Fed's first increase, Fund Manager Howard
Manning had adopted defensive strategies designed to reduce the
impact of rising rates on Putnam Minnesota Tax Exempt Income Fund
II's portfolio. While defensive strategies proved relatively
successful, fund performance generally edged into the negative
numbers.
Bonds bore the brunt of the downturn and tax-free municipals
incurred the steepest decline. Although shifts in the market as a
whole inevitably affect your fund, Putnam Management's philosophy
of selecting securities on an issue-by-issue basis with a
thorough examination of each issuer's credit quality should
continue to help protect your fund's portfolio.
In the accompanying report, Howard discusses the first half of
fiscal 1995 and prospects for the challenging months ahead.
Respectfully yours,
/s/ George Putnam
George Putnam
Chairman of the Trustees
January 18, 1995
REPORT FROM THE FUND MANAGER
HOWARD MANNING
Since our last report six months ago, the municipal bond market
has endured what can truly be called tough times. This year's
turbulence and uncertainty, particularly during October and
November, tested the mettle of even the most experienced bond
fund managers. The market's prolonged downturn had a negative
effect on virtually all fixed-income investments, including most
municipal bonds. Not surprisingly, Putnam Minnesota Tax Exempt
Income Fund II's performance over the semiannual period moved in
tandem.
However, you can take some measure of comfort in knowing that
your fund continued to provide an attractive level of tax-free
income throughout the semiannual period. For investors in the
maximum combined federal and state tax rate of 44.73%, a taxable
investment would have had to provide a current return of 11.05%
to equal the fund's class A share current dividend rate of 6.11%
at net asset value as of November 30, 1994.
DEFENSIVELY STRUCTURING COUPON, QUALITY, AND CALL EXPOSURE
Overall, our strategy has been to take advantage of the
volatility-dampening effects of certain issues while, at the same
time, tapping the upside potential of others.
We've increased the fund's weighting in premium coupon bonds --
those selling at prices above their par value. Premiums typically
offer coupons higher than current rates, tend to be less
seriously affected when prices decline, and help shorten duration
because their higher income stream represents a greater portion
of their return, thus providing a temporary floor for their
prices. The fund also continues to hold discount coupon bonds --
those selling at prices below their par value -- because of their
potential for price appreciation. Should the market recover, we
believe these issues are especially likely to increase in value.
To further reduce price volatility and increase credit quality
without sacrificing yield, we have clustered the fund's holdings
in both premium and discount coupon bonds.
We've also anchored a majority its assets at the highest (AAA)
and lowest (BBB) levels of the investment-grade spectrum. We've
selectively increased the fund's exposure to BBB issues because
they tend to experience less price volatility than higher- grade
bonds and can provide an attractive yield. However, since the
yield spread between BBB and AAA bonds remains narrow, we've also
increased the fund's weighting in AAA and insured issues. Should
the yield spread widen and the market rebound, these issues stand
to appreciate significantly.
Maintaining a substantial degree of call protection remains an
ongoing part of our strategy. Between $150 billion and $200
billion worth of high coupon bonds issued in the municipal market
in 1984 and 1985 are due to mature or become callable over the
next 18 months. Therefore, we have stepped up our purchase of
both premium noncallable bonds and those with first call dates
that extend beyond the year 2000.
MANAGING DURATION PRESENTS SPECIAL CHALLENGES
Keeping an eye on the fund's average duration -- a mathematical
formula used to assess a portfolio's price volatility -- is
critical in a rising-interest-rate environment. The shorter the
duration, the less volatility you can expect from the portfolio.
CREDIT QUALITY BREAKDOWN
[PIE CHART]
Plot information
- -----------------------------------------------------------------
AAA = 24%
AA = 24%
A = 30%
BBB = 16%
BB = 6%
[FN]
As of 11/30/94, will differ in future. A bond rated BBB/Baa or
higher is considered investment grade. Ratings reflect Standard &
Poor's(R) descriptions, unless noted otherwise.
However, where long-term municipal bonds are concerned, Minnesota
is unique. Minnesota maintains a conservative approach to debt
issuance, resulting in a relatively limited bond supply
statewide. Managing the fund's average duration in such a tight
market is an additional challenge. We've been able to rein in
duration to approximately eight and a half years by emphasizing
premium coupon bonds and using various hedging strategies, such
as financial futures. A future is a contract based on a financial
instrument, like a Treasury bill or certificates of deposit, and
is used to help offset adverse fluctuations in interest rates.
STRIKING WHILE THE IRON IS HOT
We believe Putnam's extensive research capabilities and decades
of money management experience give us an advantage in uncovering
attractive opportunities that might be overlooked by less-
experienced investors. Such was the case with some of the fund's
newer holdings.
In October, we made a strategic decision to sell the fund's
entire position of intermediate zero coupon bonds, which
represented about 3% of the fund's net assets. This action
allowed us to redeploy the assets into higher-yielding, insured
longer-term zero coupon bonds newly issued by Southern Minnesota
Municipal Power. Within days of coming to the new issue market,
the bonds landed in the secondary market at a lower price as a
result of market volatility. The shortage of Minnesota bonds
makes attractively priced issues, such as this one, a rarity. So
we scooped them up, even though this lengthened the fund's
average duration, making the use of financial futures necessary.
Another factor in this purchase is our belief that it's important
to lock into higher-yielding, quality name insured bonds whenever
possible. Should the market rebound, as we anticipate, a long-
term zero coupon bond with an insured status should offer
substantial potential for price appreciation.
We also took a significant position in the North Saint Paul
Minnesota School Financing issue, which became available when
yields were at their highest.We invested approximately 4% of the
fund's net assets and purchased insured, AAA-rated paper that
offered an attractive yield and 10 years of call protection. By
early December, these bonds had already risen in value, and we
believe further appreciation is possible.
TOP INDUSTRY SECTORS*
[BAR CHART]
Plot Points
- -----------------------------------------------------------------
Hospitals/Healthcare 23.5%
Political Subdivision 16.4%
Utitlities 15.7%
Housing 8.7%
Miscellaneous 8.7%
[FN]
*Based on net assets on 11/31/94. Will differ in future.
[/FN]
PATIENCE AND VISION CAN OFFER REWARDS
We believe the psychological impact of rising interest rates,
rather than any indication of poor market fundamentals, was the
main cause for widespread price declines during the period. The
fund's performance in this difficult environment should not
obscure what we see as excellent potential for attractive long-
term total return. Favorable market trends, such as an
anticipated supply/demand imbalance -- nationwide year-to-date
new issuance has dropped by more than 40% from 1993's record
amounts -- should have even greater positive effects on
Minnesota's already tight supply.
Of course, the possibility exists for continued volatility over
the near term given the Federal Reserve Board's firm resolve to
beat inflation. However, we believe decreased supply, combined
with a healthy state economy and growing investor demand for tax
relief, places Minnesota municipal bonds in the vanguard of fixed-
income investments poised for a solid recovery.
[FN]
The views expressed throughout the report are exclusively those
of Putnam Management. They are not meant as investment advice.
Although the described holdings were viewed favorably as of
November 30, 1994, there is no guarantee the fund will continue
to hold these securities in the future.
[/FN]
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's
shares changed over time, assuming you held the shares through
the entire period and reinvested all distributions back into the
fund. We show total return in two ways: on a cumulative long-term
basis and on average how the fund might have grown each year over
varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 11/30/94
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LEHMAN BROS.
CLASS A CLASS B MUNICIPAL
NAV POP NAV CDSC BOND INDEX CPI
- -----------------------------------------------------------------------
6 months -4.61% -9.16% -4.88% -9.53% -3.48% 1.49%
- -----------------------------------------------------------------------
1 year -5.97 -10.45 -6.56 -11.00 -5.25 2.68
- -----------------------------------------------------------------------
5 years 30.66 24.42 -- -- 37.52 18.90
Annual average 5.49 4.47 -- -- 6.58 3.52
- -----------------------------------------------------------------------
Life of class A 32.27 26.04 -- -- 39.92 19.19
Annual average 5.62 4.63 -- -- 6.79 3.49
- -----------------------------------------------------------------------
Life of class B -- -- -4.98 -8.53 -2.73 3.67
Annual average -- -- -3.64 -6.26 -1.99 2.65
- -----------------------------------------------------------------------
</TABLE>
TOTAL RETURN FOR PERIODS ENDED 12/31/94
most recent calendar quarter
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CLASS A CLASS B
NAV POP NAV CDSC
- -----------------------------------------------------------------
1 YEAR -5.65% -10.17% -6.21% -10.67
- -----------------------------------------------------------------
5 years 32.59 26.27 --
Annual average 5.80 4.78 --
- -----------------------------------------------------------------
Life of class A 35.36 28.99 --
Annual average 6.01 5.03 --
- -----------------------------------------------------------------
Life of class B -2.77 -6.40
Annual average -1.91 -4.43
- -----------------------------------------------------------------
<FN>
POP assumes 4.75% maximum sales charge. CDSC assumes 5% maximum
contingent deferred sales charge.
Fund performance data do not take into account any adjustment for
taxes payable on reinvested distributions. The fund began
operations on October 23, 1989 offering shares now known as
class A. Effective July 15, 1993, the fund began offering class B
shares. Performance data represent past results and will differ
for each share class. Investment returns and net asset value will
fluctuate so an investor's shares, when sold, may be worth more
or less than their original cost. Past performance is no
guarantee of future results.
</TABLE>
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred sales
charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share
plus the maximum sales charge levied at the time of purchase. POP
performance figures shown here assume the maximum 4.75% sales
charge.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at
the time of the redemption of class B shares and assumes
redemption at the end of the period. Your fund's CDSC declines
from a 5% maximum during the first year to 1% during the sixth
year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-
term fixed-rate investment-grade tax-exempt bonds representative
of the municipal bond market. The index does not take into
account brokerage commissions or other costs, may include bonds
different from those in the fund, and may pose different risks
than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
<PAGE>
THE PUTNAM FUND SELECTOR(Trademark)
The Putnam Fund Selector(Trademark) 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 CHART]
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Trust
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 FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds*
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and Pennsylvania
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
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 of return and may be insured, up to
certain limits, by federal/state agencies. Savings accounts
may also be insured up to certain limits.
Please call your financial advisor or Putnam at 1-800-225-
1581 to obtain a prospectus for any Putnam fund. It contains
more complete information, including charges and expenses.
Please read it carefully before you invest or send money.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
November 30, 1994 (Unaudited)
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MUNICIPAL BONDS AND NOTES (101.0%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
Minnesota (99.2%)
- -----------------------------------------------------------------
$4,745,000Bass Brook, Poll. Control
Rev. Bonds (Pwr. & Lt. Co.
Project), 6s, 7/1/22 A $ 4,009,525
300,000 Becker, Poll. Control Rev.
Bonds (Northern States Pwr.
Co.-Sherburne Cnty. Generating
Station Unit), Ser. 89-A,
6.8s, 4/1/07 A 302,619
1,000,000Bloomington, Independent School
Dist. No. 271 Rev. Bonds,
5 1/4s, 2/1/14 AA 832,500
75,000Brainerd, Hosp. Fac. Rev. Bonds
(Benedictine Hlth. Syst.- St.
Joseph), Municipal Bond Insurance
Assn. (MBIA), 9 5/8s, 10/1/12 AAA 79,500
700,000Breckenridge, Hosp. Facs. Rev.
Bonds (Franciscan Sisters Hlth.
Care), 9 3/8s, 9/1/17 A/P 781,375
30,000Buffalo, Hosp. Rev. Bonds (Hlth.
Ctr. Syst. Project), Ser. B, 10s,
10/1/14 A/P 31,838
575,000Burnsville, Hosp. Syst. Rev.
Bonds (Fairview Cmnty. Hosp.),
Ser. A, MBIA, 9s, 5/1/12 AAA 595,844
500,000Centennial, Independent School
Dist. No. 12 Rev. Bonds, Ser. A,
7.15s, 2/1/12 AAA 529,375
2,200,000Chaska, Independent School Dist.
No. 112 Rev. Bonds,
5 7/8s, 2/1/12 AA 1,988,250
1,500,000Detroit Lakes, Hlth. Care Facs.
Rev. Bonds (Benedictine Hlth.
Syst.-St. Mary), Ser. G,
6s, 2/15/12 AAA 1,344,375
1,000,000 Duluth, Gross Rev. Bonds
(Duluth Entertainment),
7.6s, 12/1/11 Baa 1,000,000
950,000 Duluth, Hosp. Rev. Bonds
(St. Luke's Hosp. Project),
9s, 5/1/18 AAA 1,068,750
2,200,000Duluth, Tax Increment Variable
Rate Demand Notes (VRDN)(Lake
Superior Paper), 4 3/4s,
9/1/10 VMIG1 2,200,000
500,000Eden Prairie, Multi-Fam. Hsg.
Rev. Bonds (Windslope Apts.
Project), 7.1s, 11/1/17 A 488,125
500,000Fergus Falls, Cmnty. Dev. Rev.
Bonds (Lincoln-St. Andrews Assn.
Project), 8 3/4s, 11/1/06 BBB/P 515,000
1,500,000Hennepin Cnty., Lease Rev.
Certif. of Participation,
Ser. A, 6.8s, 5/15/17 AA 1,500,000
1,290,000Hopkins, Independent School Dist.
No. 270 Rev. Bonds, Ser. A, MBIA,
4.8s, 2/1/11 AAA 1,048,125
1,565,000International Falls, Env. Fac.
Rev. Bonds (Boise Cascade Corp.
Project), 7.2s, 10/1/24 Baa 1,435,888
2,210,000Jackson Cnty., Hsg. & Redev.
Auth. Indl. Dev. Rev. Bonds
(Chemical Equip. Project),
8 3/4s, 12/1/09 BBB/P 2,171,325
MN Agricultural & Econ. Dev.
Board Rev. Bonds
(Small Bus. Dev. Loan Program)
575,000Ser. E-Lot 1, 8 1/2s, 8/1/10 BB/P
579,313
465,000Ser. E-Lot 2, 8 1/2s, 8/1/10 BB/P
468,488
390,000Ser. A-Lot 1, 8 1/4s, 8/1/09 BB/P
393,900
400,000 Ser. A-Lot 2, 8.2s, 8/1/09 BB/P
402,500
3,000,000MN General Obligation (G.O.)
Bonds, 5.4s, 8/1/13 AA 2,576,250
MN Higher Edl. Fac. Auth.
Mtge. Rev. Bonds
1,000,000(U. of St. Thomas), Ser. 3-C,
7 1/8s, 9/1/14 A 1,071,250
3,000,000 (St. Benedict College),
Ser. 3-W, 6 3/8s, 3/1/20 Baa 2,636,250
1,500,000MN Hsg. Fin. Agcy. Dev. Rev.
Bonds, Ser. A, 6.95s, 2/1/14 A 1,432,500
MN Hsg. Fin. Agcy. Single Fam.
Mtge. Rev. Bonds
190,000 Ser. C, 8 1/2s, 7/1/19 AA
195,700
355,000 Ser. A, 7.45s, 7/1/22 AA
368,756
1,000,000 Ser. E, 6.8s, 7/1/25 AA
1,857,500
1,930,000 Ser. B-1, 6 3/4s, 1/1/26 AA
1,792,488
1,000,000 Ser. Q, 6.7s, 1/1/17 AA
936,250
500,000MN Pub. Fac. Auth. Wtr. Poll.
Control Rev. Bonds,
Ser. A, 6.95s, 3/1/13 AA 506,250
1,000,000Minneapolis, Cmnty. Dev. Agcy.
Hlth. Care Facs. Rev. Bonds
(Walker Methodist Hlth. Project),
9 1/2s, 4/1/10 A 1,028,750
Minneapolis, Cmnty. Dev. Agcy.
Supported Dev. Rev. Bonds
600,000 Ser. 87-1 8 5/8s, 12/1/12 BBB
621,000
1,105,000(Grace-Lee Products Inc.)
Ser. 91-3, 8 1/4s, 12/1/11 BBB 1,127,100
400,000Minneapolis, Cmnty. Econ. Dev.
Agcy. Rev. Bonds (Shaw Acquisition
Project), Ser. 85-1,
9 1/4s, 6/1/05 AA 413,500
1,150,000Minneapolis, Coml. Dev. Rev.
Bonds (Mt. Sinai Hosp. Assn.
Project), 9 1/2s, 11/1/06 Aaa 1,262,125
350,000Minneapolis, Convention Ctr.
Sales Tax Rev. Bonds, American
Municipal Bond Assurance Corp.
(AMBAC), 7 3/4s, 4/1/11 AAA 369,250
750,000Minneapolis, Hlth. Care Fac.
Rev. Bonds (Baptist Residence
Project), 8.7s, 11/1/09 BB/P 803,438
Minneapolis, Hosp. Rev. Bonds
20,000 (St. Mary's Hosp. &
Rehabilitation), 10s, 6/1/13 AAA 27,150
810,000 (Lifespan Inc.), Ser. B,
9 1/8s, 12/1/14 AAA 904,163
350,000Minneapolis-St. Paul, Hsg. Fin.
Board Multi-Fam. Rev. Bonds
(Riverside Plaza), 8.2s,
12/20/18 AAA 360,063
765,000Minneapolis-St. Paul, Hsg. Fin.
Board Single Fam. Mtge. Rev.
Bonds (Phase VI), Ser. A,
Government National Mortage
Association (GNMA) Coll.,
8.3s, 8/1/21 AAA 781,256
Minneapolis-St. Paul, Hsg. &
Redev. Auth. Hlth. Care Syst.
Rev. Bonds
3,550,000(Hlth. One Obligation Group),
Ser. A, MBIA, 6 3/4s, 8/15/14 AAA 3,558,875
5,000,000(Group Hlth. Plan Inc. Project),
6.9s, 10/15/22 A 4,775,000
700,000Minneapolis-St. Paul, Metro.
Arpts. Rev. Bonds, Ser. 8,
6.6s, 1/1/10 AAA 703,500
Morris, Hosp. Facs. Rev. Bonds
(Stevens Cmnty. Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 BBB/P
258,750
500,000 Ser. B, 8 1/4s, 5/1/10 BBB/P
517,500
915,000New Ulm, Hosp. Facs. Rev. Bonds
(Hlth. Ctr. Syst. Project),
Ser. C, 10s, 10/1/14 A 981,338
250,000New York Mills, Independent School
Dist. No. 553 Rev. Bonds Ser. A,
6.8s, 2/1/5 Baa 255,000
Northern MN Muni. Pwr. Agcy.
Elec. Syst. Rev. Bonds, Ser. A,
2,215,000 7 1/4s, 1/1/16 A
2,300,831
1,000,000 6s, 1/1/20 A
866,250
Northern St. Paul-Maplewood
Independent School Dist. No. 622
Rev. Bonds, MBIA, Ser. A
2,000,000 7.1s, 2/1/19 AAA
2,017,500
3,000,000 6 7/8s, 2/1/15(c) AAA
2,996,250
1,950,000Northfield, College Fac. Rev.
Bonds (St. Olaf College Project),
6.4s, 10/1/21 A 1,833,000
1,800,000Owatonna, Hosp. Rev. Bonds
(Hlth. Ctr. Syst. Project),
Ser. C, 10s, 10/1/14 A 1,914,750
30,000Pine River, Nursing Home Rev.
Bonds (Lutheran Good Samaritan
Society Project), AMBAC,
9.2s, 1/1/00 AAA 30,675
1,000,000Plymouth, Multi-Fam. Hsg. Dev.
Rev. Bonds (Harbor Lane Apt.
Project), 5.95s, 9/1/18 AAA 850,000
1,170,000Ramsey & Washington Cntys.,
Resource Recvy. Rev. Bonds
(Northern States Pwr. Co.
Project), Ser. A, 6 3/4s,
12/1/06 AA 1,218,263
Rochester, Hlth. Care Fac. Rev.
Bonds
3,000,000Residual Interest Bonds (RIBS)
(Mayo Foundation ), Ser. E,
9.07s, 11/15/12 AA 2,730,000
3,300,000RIBS (Mayo Foundation), Ser. E,
8.837s, 11/15/15 AA 2,644,125
3,000,000(Olmsted Medical Group), 7 1/2s,
7/1/19 BB/P 2,778,750
1,750,000 Rosemount, School. Dist.
No. 196 Rev. Bonds, Ser. A,
5 7/8s, 6/1/14 AA 1,561,875
1,000,000Roseville, Independent School
Dist. No. 623 Rev. Bonds Ser. A,
Financial Guaranty Insurance Corp.,
6s, 2/1/23 AAA 886,250
2,500,000Sartell, Poll. Control Rev. Bonds
(Champion Intl. Project),
6.95s, 10/1/12 Baa 2,328,125
Southern MN Muni. Pwr. Agcy.
Supply Syst. Rev. Bonds
300,000 Ser. A, 8 1/8s, 1/1/18 AAA
327,750
1,000,000 Ser. A, 5 3/4s, 1/1/18 AAA
900,000
2,000,000Rfdg., Ser. A, 5 3/4s, 1/1/18 A
1,725,000
2,000,000 Ser. B, 5 3/4s, 1/1/11 A
1,962,500
11,500,000Ser. A, MBIA, zero %, 1/1/21 AAA
1,796,875
100,000St. Louis Park, Hosp. Facs.
Rev. Bonds (Methodist Hosp.
Project), Ser. A, AMBAC,
9 1/2s, 7/1/08 AAA $ 104,375
St. Paul, Hsg. & Redev. Auth.
Hosp. Rev. Bonds (Healtheast
Project)
2,000,000 Ser. B, 9 3/4s, 11/1/17 Baa
2,167,500
1,150,000 Ser. A, 6 5/8s, 11/1/17 Baa
966,000
2,000,000St. Paul, Hsg. & Redev. Auth.
Sales Tax Rev. Bonds (Civic
Center Project) 5.45s, 11/1/13 A 1,675,000
250,000 St. Paul, Swr. Rev. Bonds,
Ser. A, AMBAC, 8s, 12/1/08 AAA 270,938
1,180,000Wayzata Independent School
Dist. No. 284 Rev. Bonds,
Ser. B, 5.85s, 2/1/10 Aa 1,085,600
Western MN Muni. Pwr. Agcy.
Supply Rev. Bonds, Ser. A
675,000 9 1/4s, 1/1/04 A
713,813
1,300,000 7s, 1/1/13 A
1,321,125
2,000,000White Bear Lake Independent
School Dist. No. 624 Rev.
Bonds, 6s, 2/1/14 Aa 1,795,000
- -----------------------------------------------------------------
$99,655,687
- -----------------------------------------------------------------
Puerto Rico (1.8%)
- -----------------------------------------------------------------
$2,425,000Cmnwlth. of Puerto Rico, Hwy. &
Trans. Auth. Rev. Bonds, Ser. W,
5 1/4s, 7/1/20 A $ 1,864,219
- -----------------------------------------------------------------
Total Investments
(cost $107,189,181)(d) $101,519,906
- -----------------------------------------------------------------
<FN>
NOTES
(a) Percentages indicated are based on net assets of
$100,465,366, which correspond to a net asset value per
class A and class B share of $8.16 and $8.14, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at November
30, 1994 for the securities listed. Ratings are generally
ascribed to securities at the time of issuance. While the
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,
1994. Securities rated by Putnam are indicated by "/P" and
are not publicly rated.
(c) This security, valued at $2,996,250 or 3.0% 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.
(d) The aggregate identified cost on a tax cost basis is
$107,194,358, resulting in gross unrealized appreciation and
depreciation of $892,282 and $6,566,734, respectively, or
net unrealized depreciation of $5,674,452.
The rates shown on Variable Rate Demand Notes and Residual
Interest Bonds are the current interest rates at November
30, 1994, which are subject to change based on the terms of
the security.
The fund had the following industry group concentrations
greater than 10% on November 30, 1994 (as a percentage of
net assets):
Hospitals/Health Care 23.5%
Political Subdivision 16.4
Utilities 15.7
</TABLE>
U.S. Treasury Bond Futures Outstanding at November 30, 1994
<TABLE><CAPTION>
<S> <C> <C> <C> <C>
Aggregate Expiration Unrealized
Total Value Face Value Date Depreciation
- -----------------------------------------------------------------
U.S. Treasury Bond
Futures (Sell) $4,903,125 $4,898,437 Mar/95 ($4,688)
- -----------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1994 (Unaudited)
<TABLE><CAPTION>
<S> <C>
ASSETS
- -----------------------------------------------------------------
Investments in securities, at value
(identified cost $107,189,181) (Note 1) $101,519,906
- -----------------------------------------------------------------
Cash 192,721
- -----------------------------------------------------------------
Interest receivable 2,013,660
- -----------------------------------------------------------------
Receivable for shares of the fund sold 104,357
- -----------------------------------------------------------------
Receivable for securities sold 3,225,120
- -----------------------------------------------------------------
Total assets $107,055,764
- -----------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------
Payable for securities purchased 5,952,261
- -----------------------------------------------------------------
Payable for shares of the fund repurchased 124,744
- -----------------------------------------------------------------
Distributions payable to shareholders 234,066
- -----------------------------------------------------------------
Payable for compensation of Manager (Note 2) 156,157
- -----------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 114
- -----------------------------------------------------------------
Payable for administrative services (Note 2) 2,847
- -----------------------------------------------------------------
Payable for investor servicing and
custodian fees (Note 2) 22,803
- -----------------------------------------------------------------
Payable for distribution fees (Note 2) 39,069
- -----------------------------------------------------------------
Other accrued expenses 25,524
- -----------------------------------------------------------------
Payable for variation margin 32,813
- -----------------------------------------------------------------
Total liabilities 6,590,398
- -----------------------------------------------------------------
Net assets $100,465,366
- -----------------------------------------------------------------
REPRESENTED BY
- -----------------------------------------------------------------
Paid-in capital (Notes 4 and 5) $108,021,933
- -----------------------------------------------------------------
Distributions in excess of net investment income (36,902)
- -----------------------------------------------------------------
Accumulated net realized loss on investments (1,845,701)
- -----------------------------------------------------------------
Net unrealized appreciation of investments
and futures contracts (5,673,963)
- -----------------------------------------------------------------
Total -- Representing net assets applicable
to capital shares outstanding $100,465,366
- -----------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -----------------------------------------------------------------
Net asset value and redemption of class A shares
($87,464,231 divided by 10,720,076 shares) $8.16
-----
Offering price per share (100/95.25 of $8.16)* $8.57
- -----------------------------------------------------------------
Net asset value and redemption price of class B shares
($13,001,135 divided by 1,597,657 shares)(+) $8.14
- -----------------------------------------------------------------
<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, 1994 (Unaudited)
<TABLE><CAPTION>
<S> <C>
TAX EXEMPT INVESTMENT INCOME $3,643,583
- -----------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------
Compensation of Manager (Note 2) 316,823
- -----------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 47,378
- -----------------------------------------------------------------
Compensation of Trustees (Note 2) 4,513
- -----------------------------------------------------------------
Administrative services (Note 2) 3,510
- -----------------------------------------------------------------
Reports to shareholders 9,450
- -----------------------------------------------------------------
Auditing 10,467
- -----------------------------------------------------------------
Legal 9,025
- -----------------------------------------------------------------
Postage 6,769
- -----------------------------------------------------------------
Distribution fees -- class A (Note 2) 94,418
- -----------------------------------------------------------------
Distribution fees -- class B (Note 2) 47,761
- -----------------------------------------------------------------
Registration fees 3,507
- -----------------------------------------------------------------
Amortization of organization expenses (Note 1) 3,360
- -----------------------------------------------------------------
Other expenses 1,877
- -----------------------------------------------------------------
Total expenses 558,858
- -----------------------------------------------------------------
Net investment income $3,084,725
- -----------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,612,499)
- -----------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3)76,226
- -----------------------------------------------------------------
Net unrealized depreciation of investments
and futures contracts during the period (6,330,645)
- -----------------------------------------------------------------
Net loss on investments (7,866,918)
- -----------------------------------------------------------------
Net decrease in net assets resulting
from operations $(4,782,193)
- -----------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
Six months ended Year ended
November 30 November 30
- -----------------------------------------------------------------
1994* 1994
- -----------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- -----------------------------------------------------------------
Operations:
- -----------------------------------------------------------------
Net investment income $3,084,725 $5,472,524
- -----------------------------------------------------------------
Net realized gain (loss)
on investments (1,612,499) 17,209
- -----------------------------------------------------------------
Net realized gain on
future contracts 76,226 160,142
- -----------------------------------------------------------------
Net unrealized depreciation of
investments and futures contracts (6,330,645) (3,593,920)
- -----------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations (4,782,193) 2,055,955
- -----------------------------------------------------------------
Distributions to shareholders
from net investment income:
- -----------------------------------------------------------------
class A (2,760,381) (5,279,232)
- -----------------------------------------------------------------
class B (296,795) (161,707)
- -----------------------------------------------------------------
Increase from capital share
transactions (Note 4) 3,844,358 21,234,596
- -----------------------------------------------------------------
Total increase (decrease) in
net assets (3,995,011) 17,849,612
- -----------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------
Beginning of period 104,460,377 86,610,765
- -----------------------------------------------------------------
End of period (including distributions
in excess of net investment income
of $36,902 and $64,452,
respectively) $100,465,366 $104,460,377
- -----------------------------------------------------------------
<FN>
* Unaudited.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C>
For the period
July 15, 1993
(commencement of
Six months ended operations) to
November 30 May 31
- -----------------------------------------------------------------
1994* 1994
- -----------------------------------------------------------------
Class B
- -----------------------------------------------------------------
Net asset value, beginning of period $8.77 $9.18
- -----------------------------------------------------------------
Investment operations
Net investment income .23 .39
Net realized and unrealized gain (loss)
on investments (.63) (.41)
- -----------------------------------------------------------------
Total from investment operations (.40) (.02)
- -----------------------------------------------------------------
Less Distributions from:
Net Investment Income (.23) (.39)
- -----------------------------------------------------------------
Total distributions (.23) (.39)
- -----------------------------------------------------------------
Net asset value, end of period $8.14 $8.77
- -----------------------------------------------------------------
Total investment return at
net asset value (%)(b) (4.88)(c) (.32)(c)
- -----------------------------------------------------------------
Net assets, end of period (in thousands)$13,001 $8,873
- -----------------------------------------------------------------
Ratio of expenses to average net assets (%).09(c) 1.47(c)
- -----------------------------------------------------------------
Ratio of net investment income to average
net assets (%) .28(c) 4.23(c)
- -----------------------------------------------------------------
Portfolio turnover (%) 17.75 28.19
- -----------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(continued)
<TABLE><CAPTION>
<C> <C> <C> <C> <C> <C>
For the period
October 23, 1989
(commencement
Six months ended of operations)
November 30 Year ended May 31 to May 31
- -----------------------------------------------------------------
1994* 1994 1993 1992 1991 1990
- -----------------------------------------------------------------
Class A
- -----------------------------------------------------------------
$8.79 $9.06 $8.74 $8.56 $8.43 $8.50
- -----------------------------------------------------------------
.26 .51 .55 .55(a) .59(a) .34(a)
(.64) (.27) .33 .18 .13 (.07)
- -----------------------------------------------------------------
(.38) .24 .88 .73 .72 .27
- -----------------------------------------------------------------
(.25) (.51) (.56) (.55) (.59) (.34)
- -----------------------------------------------------------------
(.25) (.51) (.56) (.55) (.59) (.34)
- -----------------------------------------------------------------
$8.16 $8.79 $9.06 $8.74 $8.56 $8.43
- -----------------------------------------------------------------
(4.61)(c) 2.57 10.33 8.86 8.82 3.20(c)
- -----------------------------------------------------------------
$87,464 $95,587 $86,611 $59,914 $16,615 $7,363
- -----------------------------------------------------------------
.44 1.03 1.08 .91(a) .66(a) .27(a)(c)
- -----------------------------------------------------------------
2.65 5.60 6.12 6.34(a) 6.84(a) 4.09(a)(c)
- -----------------------------------------------------------------
17.75 28.19 37.69 38.79(d) 14.85 95.54(c)
- -----------------------------------------------------------------
<FN>
* Unaudited.
(a) Reflects an expense limitation, and, during the period ended
May 31, 1990, an absorption of expenses incurred by the
fund. As a result, net investment income of the fund for the
years ended May 31, 1992, 1991 and the period ended May 31,
1990 reflect expense reductions of approximately $0.01,
$0.05, and $0.05, respectively.
(b) Total investment return assumes dividend reinvestment and
does not reflect the effect of sales charges.
(c) Not annualized.
(d) Portfolio turnover excludes the impact of assets from the
acquisition of Putnam Minnesota Tax Exempt Income Fund.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management investment
company. The fund seeks as high a level of current income exempt
from federal income tax and 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.
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, which were amortized over a five-year period
based on projected net assets of the fund, concluded during the
six months ended November 30, 1994.
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, under current law, to reduction in any year by the
amount of certain brokerage commissions and fees (less expenses)
received by affiliates of the manager of the fund's portfolio
transactions.
The fund also reimburses the Manager for the compensation and
related expenses of certain officers of the fund and their staff
who provide administrative services to the fund. The aggregate
amount of all such reimbursements is determined annually by the
Trustees.
Trustees of the fund receive an annual Trustee's fee of $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.
Investor servicing and custodian fees reported in the Statement
of operations for the six months ended November 30, 1994 have
been reduced by credits allowed by PFTC.
The fund has adopted a distribution plan with respect to class A
shares (the "Class A Plan") pursuant to Rule 12b-1 of 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 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 average net assets attributable to
class A shares.
During the six months ended November 30, 1994, Putnam Mutual
Funds Corp., acting as the underwriter, received net commissions
of $8,185 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 six months ended November 30,
1994, Putnam Mutual Funds Corp., acting as the underwriter,
received $7 on such redemptions.
The fund has adopted a separate distribution plan with respect to
its class B shares (the "Class B Plan") pursuant to Rule 12b-1 of
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 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. Putnam Mutual Funds Corp. acting as the
underwriter, also receives the proceeds of the contingent
deferred sales charges levied on class B share redemptions within
four years of purchase. The charge is based on declining rates,
which begin at 5.0% of the net asset value of the redeemed
shares. Putnam Mutual Funds Corp. received $11,701 in contingent
deferred sales charges from such redemptions for the six months
ended November 30, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended November 30, 1994, purchases and
sales of investment securities other than short-term municipal
obligation aggregated $30,311,085 and $24,843,684 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
period are summarized as follows:
<TABLE><CAPTION>
<S> <C> <C>
Sales of Futures Contracts
- -----------------------------------------------------------------
Number of Aggregate
Contracts Face Value
- -----------------------------------------------------------------
Contracts opened
at beginning
of period 50 $5,200,000
Contracts opened 530 52,702,875
- -----------------------------------------------------------------
Contracts closed (530) (53,004,438)
- -----------------------------------------------------------------
Contracts open at end of period 50 $4,898,437
- -----------------------------------------------------------------
</TABLE>
NOTE 4
CAPITAL SHARES
At November 30, 1994, there was an unlimited number of shares of
beneficial interest authorized, divided into two classes, class A
and class B capital shares. Transactions in capital shares were
as follows:
<TABLE><CAPTION>
<S> <C> <C>
Six months ended November 30
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------
Shares sold 414,934 $3,607,453
Shares issued in connection
with reinvestment of dividends 216,240 1,863,966
- -----------------------------------------------------------------
631,174 5,471,419
Shares repurchased (783,037) (6,682,370)
- -----------------------------------------------------------------
Net decrease (151,863) $(1,211,131)
- -----------------------------------------------------------------
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
- -----------------------------------------------------------------
Six months ended November 30
- -----------------------------------------------------------------
1994
- -----------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------
Shares sold 635,905 $5,473,149
Shares issued in connection
with reinvestment of dividends 21,115 180,742
- -----------------------------------------------------------------
657,020 5,653,891
Shares repurchased (70,683) (598,402)
- -----------------------------------------------------------------
Net increase 586,337 $5,055,489
- -----------------------------------------------------------------
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>
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested
Service Seal for the past five years, through 1994. DALBAR, an
independent research firm, ran more than 10,000 tests of 38
shareholder service components. In every category, Putnam
outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a
month from a Putnam fund or from your checking or savings
account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same
class of shares without a service charge. (This privilege is
subject to change or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business
day at the then-current net asset value, which may be more or
less than their original cost.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and
speak with a helpful Putnam representative.
To make an additional investment in this or any other Putnam
fund, contact your financial advisor or call our toll-free
number: 1-800-225-1581.
* Regular investing, of course, does not guarantee a profit or
protect against a loss in a declining market. Investors
should consider their ability to continue purchasing shares
during periods of low price levels.
<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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Howard Manning
Vice President and Fund Manager
William N. Shiebler
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam
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, and the most
recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free
1-800-225-1581.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
847/237-15844
<PAGE>
APPENDIX TO FORM N-30D 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 symbols are omitted.
(6) Page Numbering is different.
