PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II, N-30D, 1996-08-01

PUTNAM MINNESOTA TAX EXEMPT INCOME FUND II
N-30D, 1996-08-01

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Putnam
Minnesota
Tax Exempt
Income
Fund

ANNUAL REPORT

May 31, 1996

[LOGO: BOSTON * LONDON * TOKYO]

Fund highlights

* "The many shareholders who are reinvesting their dividends have been
enjoying quite a buying opportunity lately. By reinvesting, they are
taking advantage of currently lower share prices, adding more shares to
their accounts than would have been possible during 1995's rally. They
are also in a better position to benefit from any rise in the bond
market. And with the highly favorable fundamentals of the Minnesota
municipal market combined with receding flat-tax fears, we believe an
investment in Putnam Minnesota Tax Exempt Income Fund is a sound one
indeed."

-- Howard Manning, Fund Manager

* "In an attempt to identify trends before the marketplace does, [Fund
Manager Howard Manning] keeps an eye on happenings in the state and its
various regions. He makes extensive use of in-house research to identify
favorable regions, sectors, industries, political subdivisions, and
individual credits. . . . Minnesota investors seeking tax-free income
should find [the fund] appealing."

-- Value Line Mutual Fund Survey, March 19, 1996

CONTENTS
4 Report from Putnam Management
8 Fund performance summary
13 Portfolio holdings
17 Financial statements

From the Chairman

[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]

(copyright) Karsh, Ottawa

Dear Shareholder:

One of the fascinating things about market watching is that you can
never tell what's going to trigger a defining event. Often what seems
like a defining event one moment is history the next. Who would have
guessed, for example, that a flat-tax proposal would swirl out of the
presidential primary election campaign to douse the municipal bond
market, only to blow away just as the rest of the bond market was
stumbling on statistics suggesting that inflation might flare up?

These were some of the challenges facing Fund Manager Howard Manning
during Putnam Minnesota Tax Exempt Income Fund's fiscal year, which
closed on May 31, 1996. Howard handled them with his usual aplomb as the
results on the following pages reveal.

Besides having the luxury of leaving the day-to-day details to Howard,
shareholders with a long-term investment perspective have the added
advantage of being able to let such events run their course without
undue concern.

Respectfully yours,

/S/George Putnam
George Putnam

Chairman of the Trustees

July 17, 1996

Report from the Fund Manager
Howard Manning

Signs of brisk economic activity early in calendar 1996 put an abrupt
end to the unbridled enthusiasm fixed-income investors experienced
during 1995's robust bond market rally. A string of favorable economic
reports rekindled investors' fear of inflation, pushing yields on long-
term Treasury bonds past the psychologically important 7% mark before
May's end.

By paying careful attention to bond structure and emphasizing issuers
that stand to benefit from a stronger economy, we were able to avoid
significant losses during the recent volatility. Putnam Minnesota Tax
Exempt Income Fund closed fiscal 1996 on May 31 with a total return of
3.16% for class A shares at net asset value and -1.78% at public
offering price. Performance for class B and class M shares can be found
on pages 8 and 9 of this report.

* DEFENSIVE STRATEGY TAKES HOLD

When the fund began fiscal 1996, it was favorably positioned to benefit
from the broad market's strengthening rally. To take full advantage of
declining interest rates and rising bond prices, the fund had maintained
a relatively long portfolio duration for most of the last quarter of
calendar 1995. Duration, as you may know, is a measure of the
portfolio's sensitivity to interest-rate changes. Typically a bond fund
with longer duration offers greater appreciation potential when rates
are declining than a fund with shorter duration. To accomplish this, we
emphasized discount-coupon bonds (those selling at prices below par
value) and long-term zero-coupon bonds. Our aggressive approach proved
rewarding for the greater part of the fiscal year. The tradeoff,
however, may be greater volatility.

By mid-February, investor unease over stronger-than-expected economic
growth and the Federal Reserve Board's neutral position on interest
rates led us to conclude that market turbulence was close at hand. We
decided to take on a more defensive tone by shortening the fund's
duration and selling bonds that, in our opinion, did not exhibit the
best structure in terms of coupon, maturity, or quality for the current
environment.

We employed several strategies to accomplish this repositioning. First,
we eliminated many of the fund's longer-maturity discount coupon
holdings and redeployed assets into noncallable intermediate-term bonds.
The scarcity of bonds in the Minnesota municipal market makes the
noncallable aspect of these bonds particulary important to us, even
though investing in noncallable bonds is usually a lower priority in
rising-rate environments. Because the market characteristics of these
bonds are simply too compelling to ignore, we have offset their slightly
long durations by employing the use of financial futures -- contracts
based on an underlying debt instrument, such as Treasury bonds. We often
employ the use of financial futures when we need to reduce duration but
do not want to deplete the portfolio of holdings that otherwise meet our
structural criteria. By the period's end, the bulk of the portfolio's
net assets were invested in bonds with effective maturities ranging from
10-20 years.

Finally, we have been focusing on higher-coupon bonds that are not
likely to be called away by their issuers in the near future, such as
premium-coupon bonds that sell at prices above their par values.

Your fund's present structure, we believe, offers a better balance of
income and market risk, given the possibility of further volatility; yet
it also allows us to maintain flexibility should the market shift
direction once again.

[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*]

Hospitals/health care 16.9%

Education 13.8%

Housing 10.1%

Utilities 5.2%

Water/sewerage 3.8%

Footnote reads:
*Based on net assets as of 5/31/96. Holdings will vary over time.

SECTOR ALLOCATION TARGETS ECONOMIC BENEFICIARIES

The limited supply of bonds in Minnesota, particularly those we deem
structurally favorable, did not afford us much opportunity to make
substantial changes in your fund's sector allocations during the period.
However, we did place slightly more emphasis on bonds that stood to
benefit from changing market dynamics and improving economic conditions.
These include rated, yet uninsured, hospital bonds; industrial revenue
bonds; and political subdivision securities, such as general obligation
bonds. A number of these issues, in fact, did buoy the fund's
performance during the market's tumult this past spring.

Health care has been a consistent theme in the portfolio and the one
sector that has outperformed all others among municipal bonds year to
date. Low supply levels of hospital bonds and industry consolidations
have created one of the most positive investment environments we've seen
in some time for this sector. In our opinion, uninsured hospital bonds,
particularly BBB-rated bonds, offer extremely attractive value in terms
of income and appreciation potential right now. Furthermore, they
generally provide a steady source of high income for the portfolio.

Solid long-term prospects that have performed well for us throughout the
fiscal year include Minneapolis & St. Paul Housing and Redevelopment
Authority Health Care System revenue bonds and St. Paul Housing and
Redevelopment Authority Hospital revenue bonds, Healtheast Project.
While these holdings and others discussed in this report were viewed
favorably on May 31, 1996, all are subject to review and adjustment in
accordance with the fund's investment strategy and may well vary in the
future.

Because of their attractive yields and ties to the solidly performing
paper industry, several industrial revenue bond holdings -- Sartell
Pollution Control revenue bonds (Champion International Project) and
International Falls Environmental Facility Revenue Bonds-(Boise Cascade
Corp. Project) to name a few -- have done extremely well. Additionally,
recently acquired general obligation bonds issued by the North St. Paul
municipality have made positive contributions to performance.

[GRAPHIC OMITTED: pie chart PORTFOLIO QUALITY OVERVIEW*]

A 14.4%
Aa 25.2%
Aaa 34.9%
Ba 4.9%
Baa 12.2%
VMIG1 8.4%

Footnote reads:
*As a percentage of market value as of 5/31/96. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions, unless otherwise noted, may include unrated securities
judged by Putnam Management to be of comparable quality, and will vary
over time.

* STRATEGY REMAINS GUARDED AS WE MOVE AHEAD

A steadily growing economy presents a challenging environment for bond
investors and one that clearly requires a cautious strategy. We expect
to maintain a defensive course for the near term and focus on bonds we
believe exhibit both the most favorable technical characteristics for
the current climate and the ability to benefit from Minnesota's
strengthening economy.

Interest-rate and inflation concerns aside, we are quite positive about
the Minnesota municipal market. The fundamentals remain appealing:
supply is tight yet demand from nontraditional buyers in the new-issue
market, including banks and insurance companies, and retail investors in
the secondary market should help provide price support. Unemployment
within the state is down to roughly 3%, the property and commercial base
is stable, and the economies of the state's biggest municipal debt
issuers -- Rochester, Duluth, Minneapolis, and St. Paul -- are vibrant.
We believe investors should continue to find the double tax-free returns
of Minnesota municipal debt quite appealing.

The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/96, there is no guarantee the fund will
continue to hold these securities in the future.

Performance summary

Performance should always be considered in light of a fund's investment
strategy. Putnam Minnesota Tax Exempt Income Fund is designed for
investors seeking a high level of current income free from federal and
state income tax consistent with preservation of capital.

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 in the fund.

TOTAL RETURN FOR PERIODS ENDED 5/31/96

COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/96

Lehman Bros.
Municipal Consumer
Bond Index Price Index
- ------------------------------------------------------------------------
1 year 4.57% 2.89%
- ------------------------------------------------------------------------
5 years 41.06 15.49
Annual average 7.12 2.92
- ------------------------------------------------------------------------
Life of class A 62.31 24.68
Annual average 7.64 3.39
- ------------------------------------------------------------------------
Life of class B 12.69 8.45
Annual average 4.31 2.86
- ------------------------------------------------------------------------
Life of class M 8.04 3.44
Annual average 6.83 2.95
- ------------------------------------------------------------------------

Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and principal value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost. POP assumes 4.75% maximum sales charge for class A shares
and 3.25% for class M shares. CDSC for class B shares assumes 5% maximum
contingent deferred sales charge, declining from 5% to 1% in the sixth
year and eliminated thereafter.

TOTAL RETURN FOR PERIODS ENDED 6/30/96
(most recent calendar quarter)

Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
1 year 5.64% 0.62% 4.87% -0.13% 5.09% 1.62%
- ------------------------------------------------------------------------
5 years 38.90 32.37 -- -- -- --
Annual average 6.79 5.77 -- -- -- --
- ------------------------------------------------------------------------
Life of class 55.75 48.42 10.73 7.85 6.88 3.46
Annual average 6.85 6.08 3.50 2.59 5.47 2.76
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns
and principal value will fluctuate so that an investor's shares, when
sold, may be worth more or less than their original cost.

[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
Cumulative total return of a $10,000 investment since 10/23/89

Starting value (Insert ending Total)

$9,525 Fund's class A shares at POP $14,672
$10,000 Lehman Bros. Municipal Bond Index $16,231
$10,000 Consumer Price Index $12,468

(plot points for 10-year total return mountain chart)

Date/year Fund at POP Muni Bond Index CPI
- ---------------------------------------------------
10/23/89 $9,525 $10,000 $10,000
5/31/90 9,834 10,453 10,287
5/31/91 10,701 11,506 10,796
5/31/92 11,650 12,636 11,123
5/31/93 12,852 14,148 11,481
5/31/94 13,182 14,497 11,744
5/31/95 14,223 15,522 12,118
5/31/96 14,672 16,231 12,468

Footnote reads:
Past performance is no assurance of future results. A $10,000 investment
in the fund's class B shares at inception on 7/15/93 would have been
valued at $10,949 on 5/31/96 ($10,664 with a redemption at the end of
the period). A $10,000 investment in the fund's class M shares at
inception on 4/3/95 would have been valued at $10,579 at net asset value
on 5/31/96 ($10,240 at public offering price).

PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------
Income $0.468568 $0.410095 $0.439702
- ------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------
Total $0.468568 $0.410095 $0.439702
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/95 $8.95 $9.40 $8.92 $8.95 $9.25
- ------------------------------------------------------------------------
5/31/96 8.76 9.20 $8.73 8.76 9.05
- ------------------------------------------------------------------------
Current return (End of period)
- ------------------------------------------------------------------------
Current dividend rate2 5.12% 4.87% 4.46% 4.82% 4.67%
- ------------------------------------------------------------------------
Taxable equivalent3 9.26 8.81 8.07 8.72 8.45
- ------------------------------------------------------------------------
Current 30-day SEC yield4 5.05 4.81 4.40 4.75 4.59
- ------------------------------------------------------------------------
Taxable equivalent3 9.14 8.70 7.96 8.59 8.30
- ------------------------------------------------------------------------

1Capital 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 44.73% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.

4 Based only on investment income, calculated using SEC guidelines.

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.

Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.

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 for class A
shares and 3.25% for class M shares.

Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B 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. It is not possible
to invest directly in an index.

Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.

Report of Independent Accountants

To the Trustees and Shareholders of
Putnam Minnesota Tax Exempt Income Fund

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 (the
"fund") at May 31, 1996, 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, 1996 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 LLP
Boston, Massachusetts
July 8, 1996

Portfolio of investments owned
May 31, 1996

Key to Abbreviations
AMBAC - AMBAC Indemnity Corporation
FGIC - Financial Guaranty Insurance Company
FHA Insd. - Federal Housing Administration Insured
FSA - Financial Security Assurance
GNAM Coll. - Government National Mortgage Association Collateralized
G.O. Bonds - General Obligation Bonds
IFB - Inverse Floating Rate Bonds
MBIA - Municipal Bond Investors Assurance Corporation
VRDN - Variable Rate Demand Notes

MUNICIPAL BONDS AND NOTES (96.4%)*
PRINCIPAL AMOUNT RATING VALUE

Minnesota (92.1%)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bemidji, Hosp. Facs. Rev. Bonds (First Mtge-North Cntry. Hlth.)
1,200,000 5 5/8s, 9/1/21 A $1,101,000
1,760,000 5 5/8s, 9/1/15 A 1,641,200
700,000 Breckenridge Hosp. Fac. Rev. Bonds (Franciscan Sisters Hlth., Care), 9 3/8s, 9/1/17 Aaa 759,500
2,000,000 Burnsville, Indpt. School Dist. No. 191 Rev. Bonds, 4 7/8s, 2/1/13 AA 1,755,000
500,000 Centennial Indpt. School Dist. No. 012 Rev. Bonds, Ser. A, FGIC, 7.15s, 2/1/12 Aaa 541,250
1,000,000 Duluth, Gross Rev. Bonds (Duluth Entertainment), 7.6s, 12/1/11 Baa 1,093,750
950,000 Duluth, Hosp. Rev. Bonds (St. Luke's Hosp. Project), 9s, 5/1/18 Aaa 1,049,750
3,800,000 Duluth, Tax Increment VRDN (Lake Superior Paper), 3 3/4s, 9/1/10 VMIGI 3,800,000
500,000 Fergus Falls Cmnty. Dev. Rev. Bonds (Lincoln - St. Andrews Assn. Project), 8 3/4s, 11/1/06 BBB 512,235
2,900,000 Golden Valley, VRDN , 4s, 9/1/14 VMIGI 2,900,000
1,600,000 Hutchinson Indl. Dev. Rev. VRDN (Hutchinson Technical Inc. Project), 3.6s, 6/1/04 VMIGI 1,600,000
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp. Project), 7.2s, 10/1/24 Baa 1,662,813
2,210,000 Jackson Cnty., Hsg. & Redev. Auth. Indl. Dev. Rev. Bonds (Chemical Equip. Project),
8 3/4s, 12/1/09 BBB 2,328,788
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 598,000
400,000 Ser. A-Lot 2, 8.2s, 8/1/09 BB/P 416,000
750,000 Ser. B-Lot 1, 7s, 8/1/16 BB/P 746,250
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds.
1,500,000 Ser. A, 6.95s, 3/1/13 AAA 1,663,125
3,000,000 Ser. A, 6 1/2s, 3/1/14 AAA 3,180,000
3,000,000 MN State G.O. Bonds, 5 1/4s, 8/1/15 Aa 2,835,000
3,000,000 MN State Duluth Arpt. Tax Increment Rev. Bonds, Ser. A, 6 1/4s, 8/1/14 Aa 3,060,000
1,000,000 MN State Higher Ed. Fac. Auth. Mtge. Rev. Bonds (St. Thomas U.), Ser. 3-C, 7 1/8s, 9/1/14 Aaa 1,102,500
MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds
185,000 Ser. C, 8 1/2s, 7/1/19 Aa 192,169
350,000 Ser. A, FHA Insd., 7.45s, 7/1/22 Aa 370,563
1,500,000 Ser. A, 6.95s, 2/1/14 AA 1,576,875
1,765,000 Ser. B-1, 6 3/4s, 1/1/26 Aa 1,822,363
1,000,000 Ser. Q, 6.7s, 1/1/17 Aa 1,046,250
2,000,000 Ser. B, 6.35s, 7/1/18 Aa 2,010,000
1,500,000 Ser. B, 5.65s, 7/1/22 AA 1,389,375
Mahtomedi Indpt. School Dist. No. 832 Rev. Bonds, Ser. B, MBIA
1,275,000 zero %, 2/1/2017 Aaa 366,563
1,575,000 zero %, 2/1/2016 Aaa 480,375
1,105,000 Minneapolis, Cmnty. Dev. Agcy. Supported Dev. Rev. Bonds (Grace-Lee Products Inc.), Ser.
91-3, 8 1/4s, 12/1/11 BBB 1,167,156
1,090,000 Minneapolis, Coml. Dev. Rev. Bonds (Mt. Sinai Hosp. Assn. Project), 9 1/2s, 11/1/06 Aaa 1,136,583
Minneapolis G.O. Bonds (Sports Arena Project)
1,055,000 6s, 4/1/06 Aaa 1,119,619
4,000,000 5.2s, 10/1/24 Aaa 3,625,000
1,500,000 5 1/8s, 10/1/20 Aaa 1,363,125
810,000 Minneapolis, Hosp. Rev. Bonds (Lifespan Inc.), Ser. B, 9 1/8s, 12/1/14 Aaa 884,925
1,675,000 Minneapolis, Rfdg. Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,750,375
Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth. Care Syst. Rev. Bonds
4,000,000 (Group Hlth. Plan Inc. Project), 6.9s, 12/1/22 A 4,240,000
2,000,000 (Hlth. One Obligated Group), Ser. A, MBIA, 6 3/4s, 8/15/14 AAA 2,132,500
660,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam. Mtge. Rev. Bonds (Phase VI),
Ser. A, GNMA, Coll., 8.3s, 8/1/21 Aaa 664,950
Morris Hosp. Fac. Rev. Bonds (Stevens Cmnty. Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 Aaa 282,813
500,000 Ser. B, 8 1/4s, 5/1/10 Aaa 565,625
800,000 New Brighton Indl. Dev. VRDN (Unicare Homes Inc. Project), 4.05s, 12/1/14 VMIGI 800,000
North St. Paul Maplewood Independent School Dist. No. 622 G.O. Bonds, Ser. A,
2,000,000 MBIA, 7.1s, 2/1/19 Aaa 2,277,500
3,000,000 MBIA, 6 7/8s, 2/1/15 Aaa 3,367,500
2,175,000 5s, 2/1/08 Aa 2,096,156
2,100,000 5s, 2/1/07 Aa 2,044,875
700,000 North Suburban Hosp. Dist. Anoka & Ramsey Cmntys. Hosp. Hlth. Ctr. VRDN, 3.8s, 8/1/14 VMIGI 700,000
2,000,000 Northern MN Muni. Pwr. Agcy. Elec. Syst. Rev. Bonds, Ser. A, 7 1/4s, 1/1/16 A 2,107,500
1,000,000 Northfield College Fac. Rev. Bonds (St. Olaf College Project), 6.4s, 10/1/21 A 1,015,000
1,000,000 Plymouth, Multi-Fam. Hsg. Dev. Rev. Bonds (Harbor Lane Apt. Project), 5.95s, 9/1/18 AA 971,250
500,000 Robbinsdale, Indl. Dev. VRDN (Unicare Homes Inc. Project), 4s, 10/1/14 VMIGI 500,000
Rochester, Hlth. Care Fac. IFB
3,000,000 (Mayo Foundation), Ser. E, 7.85s, 11/15/12 AA 3,060,000
3,300,000 (Mayo Foundation), Ser. H, 7.966s, 11/15/15 AA 3,328,875
4,000,000 (Olmsted Med. Group), 7 1/2s, 7/1/19 BB/P 4,120,000
2,000,000 Rochester, Hlth. Care Fac. Rev. Bonds (Mayo Foundation), Ser. I, 5.9s, 11/15/09 AA 2,052,500
Rochester, Indpt. School Dist. No. 535 G.O. Bonds, Ser A
2,440,000 5 1/4s, 2/1/15## Aaa 2,324,100
2,310,000 5 1/4s, 2/1/14## Aaa 2,203,163
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville), Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,696,875
2,400,000 St. Cloud Hosp. Fac. Rev. Bonds (Saint Cloud Hosp.), Ser. C, AMBAC, 6 3/4s, 7/1/11 Aaa 2,658,000
St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds (Healtheast Project)
2,000,000 Ser. B, 9 3/4s, 11/1/17 BBB 2,135,000
3,500,000 Ser. A, 6 5/8s, 11/1/17 Baa 3,416,875
1,450,000 St. Paul, Indpt. School Dist. No. 625 Rev. Bonds, Ser. A, 5s, 2/1/14 Aa 1,308,625
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl. Project), 6.95s, 10/1/12 Baa 2,618,750
Southern MN Muni. Pwr. Agcy. Supply Syst. Rev. Bonds
300,000 Ser. A, 8 1/8s, 1/1/18 Aaa 324,000
2,000,000 Ser. B, 5 3/4s, 1/1/11 A 2,112,500
10,000,000 Southern MN Muni Pwr. Agcy. Supply Syst. Rev. Bonds, MBIA zero%, 1/1/20 Aaa 2,425,000
2,000,000 U. of MN, IFB, 5.666s, 8/15/03 A 1,970,000
------------
117,167,409

Puerto Rico (4.3%)
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 PR Cmnwlth. Hwy. & Trans. Auth. Hwy. Rev. Bonds, Ser. W, 5 1/4s, 7/1/20 A 892,500
800,000 PR Cmnwlth. G.O. Bonds, MBIA, 6 1/2s, 7/1/08 Aaa 886,000
3,000,000 PR Cmnwlth. G.O. Bonds, 5.4s, 7/1/25 A 2,707,500
1,000,000 U. of Puerto Rico Rev. Bonds, Ser. M, MBIA, 5 1/4s, 6/1/25 Aaa 911,250
------------
5,397,250
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $120,684,361)*** $122,564,659
- --------------------------------------------------------------------------------------------------------------------------------

* Percentages indicated are based on net assets of $ 127,172,210.

** The Moody's or Standard & Poor's ratings indicated are believed to be the most
recent ratings available at May 31, 1996 for the securities listed. Ratings are
generally ascribed to securities at the time of issuance. While the agencies may
from time to time revise such ratings, they undertake no obligation to do so, and
the ratings do not necessarily represent what the agencies would ascribe to these
securities at May 31, 1996. Securities rated by Putnam are indicated by "/P" and
are not publicly rated. Ratings are not covered by the Report of
Independent Accountants.

*** The aggregate identified cost on a tax basis is $120,684,361, resulting in gross
unrealized appreciation and depreciation of $3,580,796 and $1,700,498, respectively,
or net unrealized appreciation of $1,880,298.

## When-issued securities (Note 1)

The rates shown on IFB, which are securities paying interest rates that
vary inversely to changes in the market interest rates, and VRDNS are the current
interest rates at May 31, 1996.

The fund had the following industry group concentrations greater than 10% on
May 31, 1996 (as a percentage of net assets):

Hospitals/Health Care 16.9%
Education 13.8%
Housing 10.1%

The fund had the following insurance concentration greater than 10%
at May 31, 1996 (as a percentage of net assets):

MBIA 10.1%

The accompanying notes are an integral part of these financial statements

</TABLE>

Statement of assets and liabilities
<S> <C>
May 31,1996
Assets
- ----------------------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $120,684,361)(Note 1) $122,564,659
- ----------------------------------------------------------------------------------------------------------------
Cash 2,510,242
- ----------------------------------------------------------------------------------------------------------------
Interest receivable 2,012,060
- ----------------------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 52,075
- ----------------------------------------------------------------------------------------------------------------
Receivable for securities sold 5,195,102
- ----------------------------------------------------------------------------------------------------------------
Total assets 132,334,138

Liabilities
- ----------------------------------------------------------------------------------------------------------------
Distributions payable to shareholders 278,162
- ----------------------------------------------------------------------------------------------------------------
Payable for securities purchased 4,549,375
- ----------------------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 74,058
- ----------------------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 159,789
- ----------------------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 70
- ----------------------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,262
- ----------------------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 54,672
- ----------------------------------------------------------------------------------------------------------------
Other accrued expenses 44,540
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 5,161,928
- ----------------------------------------------------------------------------------------------------------------
Net assets $127,172,210

Represented by
- ----------------------------------------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $127,796,908
- ----------------------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 31,118
- ----------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,536,114)
- ----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,880,298
- ----------------------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares outstanding $127,172,210

Computation of net asset value and offering price
- ----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class A shares ($96,110,123 divided by 10,968,128 shares) $8.76
- ----------------------------------------------------------------------------------------------------------------
Offering price per class A shares (100/95.25 of $8.76)* $9.20
- ----------------------------------------------------------------------------------------------------------------
Net asset value and offering price of class B shares ($30,149,353 divided by 3,451,771 shares)+ $8.73
- ----------------------------------------------------------------------------------------------------------------
Net asset value and redemption price of class M shares ($912,734 divided by 104,207 shares) $8.76
- ----------------------------------------------------------------------------------------------------------------
Offering price per class M shares (100/96.75 of $8.76)** $9.05
- ----------------------------------------------------------------------------------------------------------------

* 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.

** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales the offering price is reduced.

+ 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.

</TABLE>

Statement of operations
Year ended May 31,1996

<S> <C>
Tax exempt interest income $7,538,790
- -------------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 742,566
- -------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 177,771
- -------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,304
- -------------------------------------------------------------------------------------------------
Administrative services (Note 2) 7,786
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 196,064
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 216,102
- -------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,375
- -------------------------------------------------------------------------------------------------
Reports to shareholders 1,874
- -------------------------------------------------------------------------------------------------
Registration fees 12,323
- -------------------------------------------------------------------------------------------------
Auditing 24,067
- -------------------------------------------------------------------------------------------------
Legal 11,755
- -------------------------------------------------------------------------------------------------
Postage 12,943
- -------------------------------------------------------------------------------------------------
Other 3,806
- -------------------------------------------------------------------------------------------------
Total expenses 1,419,736
- -------------------------------------------------------------------------------------------------
Expense reduction(Note2) (210,525)
- -------------------------------------------------------------------------------------------------
Net expenses 1,209,211
- -------------------------------------------------------------------------------------------------
Net investment income 6,329,579
- -------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 771,603
- -------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 44,938
- -------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures contracts during the year (3,550,267)
- -------------------------------------------------------------------------------------------------
Net loss on investments (2,733,726)
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,595,853
- -------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

</TABLE>

Statement of changes in net assets
Year ended Year ended
May 31 May 31
1996 1995
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $6,329,579 $6,181,597
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 816,541 (2,755,350)
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (3,550,267) 4,773,882
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,595,853 8,200,129
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (5,131,471) (5,435,247)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,159,900) (711,465)
- ----------------------------------------------------------------------------------------------------------------------
Class M (22,640) --
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 11,772,994 11,603,580
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 9,054,836 13,656,997
- ----------------------------------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 118,117,374 104,460,377
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of $31,118 and distributions
in excess of net investment income of $17,447, respectively) $127,172,210 $118,117,374
- ----------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements.

</TABLE>

Financial Highlights
(For a share outstanding throughout the period)
For the Period
April 3, 1995
(commencement
Year ended of operations)
May 31 to May 31 Year ended May 31
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1996
- ----------------------------------------------------------------------------------------------------------------------
Class M
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.95 $8.77 $8.92
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .43 .08 .41
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (.18) .17 (.19)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .25 .25 .22
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.44) (.07) (.41)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.07) (.41)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.76 $8.95 $8.73
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 2.82 2.89 (c) 2.49
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $913 $1 $30,149
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) 1.32 .21 (c) 1.67
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 4.72 .93 (c) 4.57
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 109.85 58.18 109.85
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial Highlights (continued)
(For a share outstanding throughout the period)
For the Period
July 15, 1993
(commencement
Year ended of operations)
May 31 to May 31
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1996
- ----------------------------------------------------------------------------------------------------------------------
Class B
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.77 $9.18 $8.95
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .45 .39 .47
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .15 (.41) (.19)
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .60 (.02) .28
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.39) (.47)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.39) (.47)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.92 $8.77 $8.76
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 7.17 (0.32) (c) 3.16
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $19,698 $8,873 $96,110
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) 1.63 1.47 (c) 1.01
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.15 4.23 (c) 5.26
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 58.18 28.19 109.85
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial Highlights (continued)
(For a share outstanding throughout the period)

Year ended May 31
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.79 $9.06 $8.74
- ----------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------
Net investment income .51 .51 .55
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .15 (.27) .33
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 .24 .88
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (.50) (.51) (.56)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.51) (.56)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.95 $8.79 $9.06
- ----------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 7.90 2.57 10.33
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $98,418 $95,587 $86,611
- ----------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) .99 1.03 1.08
- ----------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 5.85 5.60 6.12
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 58.18 28.19 37.69
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

Financial Highlights (continued)
(For a share outstanding throughout the period)

- ----------------------------------------------------------------------------
1992
- ----------------------------------------------------------------------------

<S> <C>
- ----------------------------------------------------------------------------
Net asset value, beginning of period $8.56
- ----------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------
Net investment income .55 (a)
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments .18
- ----------------------------------------------------------------------------
Total from investment operations .73
- ----------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------
From net investment income (.55)
- ----------------------------------------------------------------------------
Total distributions (.55)
- ----------------------------------------------------------------------------
Net asset value, end of period $8.74
- ----------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 8.86
- ----------------------------------------------------------------------------
Net assets, end of period (in thousands) $59,914
- ----------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(e) .91 (a)
- ----------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 6.34 (a)
- ----------------------------------------------------------------------------
Portfolio turnover (%) 38.79 (d)
- ----------------------------------------------------------------------------

(a) Reflects an expense limitation in effect during the period. As a result
such limitation, expenses for the Fund reflect a reduction of approximately
$0.02 per share for the year ended May 31, 1992.

(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.

(d) Portfolio turnover excludes the impact of assets received from the
acquisition of Minnesota Tax Exempt Income Fund, then known
as Putnam Minnesota Tax Exempt Income Fund II .

(e) The ratio of expenses to average net assets for the year ended May 31, 1996
includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. (Note 2)

</TABLE>

Notes to financial statements
May 31, 1996

Note 1
Significant accounting policies

Putnam Minnesota Tax Exempt Income Fund, formerly Putnam Minnesota Tax
Exempt Income Fund II (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 the
fund's Manager, Putnam Investment Management, Inc. ("Putnam Managment"),
a wholly-owned subsidiary of Putnam Investments, Inc., believes is
consistent with preservation of capital by investing primarily in a
portfolio of Minnesota tax-exempt securities.

The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares,
which convert to class A shares after approximately six years, do not
pay a front-end sales charge, but pay a higher ongoing distribution fee
than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
M shares are sold with a maximum front-end sales charge of 3.25% and pay
an ongoing distribution fee that is lower than class B shares and higher
than class A shares.

Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.

The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.

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.

Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the trade date; interest income is
not accrued until settlement date. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty
does not perform under the contract.

C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.

The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform.

Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices
supplied by dealers.

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 on securities held and for excise tax on income and capital
gains.

At May 31, 1996, the fund had a capital loss carryover of approximately
$1,992,000 available to offset future net capital gains if any. The
amount of the carryover and the expiration dates are:

Loss Carryover Expiration
- --------------------------------------------
$ 46,000 May 31, 1999
300,000 May 31, 2000
814,000 May 31, 2003
832,000 May 31, 2004

E) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Income dividends are recorded daily by the fund and are distributed
monthly. Capital gain distributions, if any, are recorded on the ex-
dividend date and paid annually. The amount and character of income and
gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles.

These differences include treatment of capital loss carryover, realized
losses on certain futures contracts, and post-October loss deferrals.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended May 31,
1996, the fund reclassified $32,997 to increase undistributed net
investment income and $69,160 to increase paid-in-capital, with an
increase to accumulated net realized loss on investment of $102,157. The
calculation of net investment income per share in the financial
highlights table excludes these adjustments.

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. Discounts on zero coupon bonds and original
issue bonds are accreted according to the effective yield method.

Note 2
Management fee,
administrative services,
and other transactions

Compensation of Putnam Management, for management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.60% of the
first $500 million, 0.50% of the next $500 million, 0.45% of the next
$500 million, and 0.40% 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 Putnam
Management on the fund's portfolio transactions.

The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.

Trustees of the fund receive an annual Trustees fee of $690 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of
the Trustees receive additional fees for attendance at certain committee
meetings.

The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain invested in
certain Putnam funds until distribution in accordance with the Plan.

Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.

For the year ended May 31, 1996, fund expenses were reduced by $210,525
under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.

The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plan provides for payments by
the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.35%,
1.00% and 1.00% of the average net assets attributable to class A, class
B and class M shares, respectively. The Trustees have approved payment
by the fund at an annual rate of 0.20%, 0.85% and 0.50% of the average
net assets attributable to class A, class B and class M shares,
respectively.

For the year ended May 31, 1996, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $25,681 and $141 from the sale
of class A and class M shares, respectively and $43,752 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the year ended May 31, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received no monies on class A redemptions.

Note 3
Purchase and sales of securities

During the year ended May 31, 1996, purchases and sales of investment
securities other than short-term investments aggregated $128,806,888 and
$130,237,272, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on
securities sold, the cost of securities has been determined on the
identified cost basis.

Note 4
Capital shares

At May 31, 1996, there was an unlimited number of shares of beneficial
interest authorized. Class M shares became effective on April 3, 1995
and 115 shares were sold to Putnam Investments, Inc. for $1,000 for the
period April 3, 1995 through May 31, 1995. Transactions in capital
shares were as follows:

Year ended
May 31, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,304,550 $11,690,504
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 384,745 3,430,838
- ----------------------------------------------------
1,689,295 15,121,342
Shares
repurchased (1,721,071) (15,336,253)
- ----------------------------------------------------
Net decrease (31,776) $(214,911)
- ----------------------------------------------------

Year ended
May 31, 1995
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 1,196,795 $10,352,416
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 424,124 3,662,044
- ----------------------------------------------------
1,620,919 14,014,460
Shares
repurchased (1,492,954) (12,756,180)
- ----------------------------------------------------
Net increase 127,965 $1,258,280
- ----------------------------------------------------

Year ended
May 31, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,432,703 $12,742,334
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 83,951 746,428
- ----------------------------------------------------
1,516,654 13,488,762
Shares
repurchased (273,301) (2,434,245)
- ----------------------------------------------------
Net increase 1,243,353 $11,054,517
- ----------------------------------------------------

Year ended
May 31, 1995
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 1,302,085 $11,228,705
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 51,457 442,963
- ----------------------------------------------------
1,353,542 11,671,668
Shares
repurchased (156,444) (1,327,368)
- ----------------------------------------------------
Net increase 1,197,098 $10,344,300
- ----------------------------------------------------

Year ended
May 31, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 107,706 $965,061
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,321 20,751
- ----------------------------------------------------
110,027 985,812
Shares
repurchased (5,935) (52,424)
- ----------------------------------------------------
Net increase 104,092 $933,388
- ----------------------------------------------------

Federal tax information
(Unaudited)

The fund has designated 99.8% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.

The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.

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 LLP

TRUSTEES

George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike

OFFICERS

George Putnam
President

Charles E. Porter
Executive Vice President

Patricia C. Flaherty
Senior Vice President

John D. Hughes
Senior Vice President and Treasurer

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

John R. Verani
Vice President

Paul M. O'Neil
Vice President

Beverly Marcus
Clerk and Assistant Treasurer

This report is for the information of shareholders of Putnam Minnesota
Tax Exempt Income Fund. It may also be used as sales literature when
preceded or accompanied by the current prospectus, which gives details
of sales charges, investment objectives, and operating policies of the
fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information, or to request a prospectus, call toll
free: 1-800-225-1581.

Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
principal amount invested.

PUTNAM INVESTMENTS

The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109

- --------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------

25861-847/238/129 7/96