Putnam
Minnesota
Tax Exempt
Income Fund
ANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "While short supply may slow the pace of portfolio changes with
this fund, the state's economic strength continues to support its
municipal bond credit market and we remain confident of the fund's
ability to capitalize on this situation and achieve its long-term
goals of high current income and principal preservation."
-- Leslie J. Burke, manager
Putnam Minnesota Tax Exempt Income Fund
* "Based on tax-equivalent yields alone, muni funds easily outshine
most taxable-bond funds."
-- Morningstar Mutual Funds, March 1997
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Putnam Minnesota Tax Exempt Income Fund began fiscal 1997 on a hopeful, yet
cautious note in June 1996 after a somewhat tumultuous year for the municipal
bond market. The hope was warranted, as the market rallied in the fall. The
caution was justified, for the rally ended abruptly in late winter, cut short
by investor worries that inflation and interest rates would both rise in the
wake of an economy still growing too fast.
From the vantage point of the fiscal year's close on May 31, 1997, we can see
that the volatility, while somewhat nerve-racking for many investors, was
unusually low. By spring, even the Federal Reserve Board's increase in the
federal funds rate in late March, the source of considerable earlier anxiety,
caused little stir.
It is in these contexts that Fund Manager Leslie Burke discusses your fund's
performance for the year just past and her view of its prospects for the year
ahead. Her report begins on the following page.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Leslie J. Burke
Although the state's extremely limited supply of appropriate investments
continued to slow implementation of certain elements of our investment
strategy, Putnam Minnesota Tax Exempt Income Fund concluded its fiscal year on
a competitive note. Once again, duration management and timely sector shifts
drove returns, allowing the fund to continue to provide investors with a
steady stream of current tax-exempt income. For the 12 months ended May 31,
1997, the fund provided shareholders with a total return of 7.73% at net asset
value (2.58% at the public offering price) for class A shares. Results for
class B and class M shares and for longer periods can be found on pages 9 and
10.
* MARKET CHARACTERIZED BY ABNORMALLY LOW VOLATILITY
Compared with performance during other years in the not-too-distant past, the
municipal bond market for the period was characterized by abnormally low
volatility in all dimensions. This covers not just interest-rate movements,
but changes in bond spreads as well. Even the quarter of a percentage point
increase by the Federal Reserve Board in late March was virtually a nonevent,
primarily because the long-awaited rate increase had already been priced into
the market. Throughout the year, interest rates moved up and down in a
relatively narrow trading range, with the 30-year Aaa municipal falling from
5.82% to 5.47% over the period. This produced modest appreciation in net asset
value while still keeping dividends at an attractive level.
While many expected the March interest-rate increase to be the first in a
series, the Fed left rates alone at its May meeting. Once again, the
fixed-income market reaction appeared subdued, although bond prices did
respond favorably. Until there is more evidence of inflation, we believe the
markets will continue to show some uncertainty while they await further Fed
action.
* MUNICIPALS OUTPERFORM TAXABLE BONDS OVER PERIOD
As they benefited from market stability, most municipal investments also
outperformed their taxable counterparts for much of the period. The fading
prominence of last year's flat-tax proposals explains some of this
outperformance, although favorable supply and demand trends probably account
for much more. Supply is running slightly below the pace of one year ago,
while demand -- from individual investors, insurance companies, and other less
traditional municipal bond buyers -- has remained steady. Issuers have
continued to meet this demand by structuring municipal offerings with terms
that are especially attractive to these buyers, many of whom are interested
mainly in high-quality, intermediate-term securities. The result has been
strong municipal market performance, especially relative to similar taxable
investments.
* DEFENSIVE POSITIONING GENERATES INCOME, LIMITS VOLATILITY
Although the municipal market continues to perform well, yields on longer-term
issues are near historic lows and we have begun to believe that future
municipal bond price appreciation may be somewhat limited. Accordingly, in
recent months we have adopted a defensive management strategy to continue
seeking solid tax-exempt income while protecting the fund's assets in the face
of rising interest rates and robust economic growth.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/
health care 27.5%
Education 16.7%
Housing 12.9%
Water and
sewerage 8.5%
Utilities 8.2%
Footnote reads:
* Based on net assets as of 5/31/97. Holdings will vary over time.
Duration management has been a key component of this defensive strategy, and
over the past several months we have reduced the portfolio's duration from
approximately seven years to six. Duration is a measure of the price
sensitivity of a portfolio of bonds to changes in interest rates. Like
maturity, with which it is often confused, duration is measured in years. In a
rising interest-rate environment like this one, a shorter duration helps
protect the fund's net asset value by cushioning the effect of interest-rate
changes.
In addition to reducing duration, we have also attempted to concentrate the
portfolio in holdings that are less sensitive to interest-rate changes. At the
same time, we have retained our focus on the call structure of individual
securities in anticipation of the year 2003, when a significant portion of the
municipal marketplace becomes callable. This dual mandate continues to prompt
a repositioning of the portfolio away from long-term securities and into more
intermediate-term municipal bonds with maturities between 10 and 20 years.
This sector of the market has continued to perform well, and these holdings
have helped cushion the fund's net asset value amid rising interest rates.
Higher-coupon bonds have become another important focus for the fund,
providing high current income along with a measure of protection in the
rising-rate environment. With the strengthening economy compressing credit
spreads between various sectors of the municipal market, these lower-rated
high-yielding bonds have been outperforming. The growing economy has bolstered
the financial standing of many issuers and increased demand for many
higher-yielding investments. Some issuers have even parlayed stronger bottom
lines into improved credit ratings. Putnam's credit research analysts have
been able to identify securities with strong credit fundamentals that also pay
the highest possible rate of income. Because these securities trade on their
own credit quality and structural merits, they are less sensitive to
interest-rate movements than other high-yield investments.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A -- 14.2%
Aa -- 18.7%
Aaa -- 46.4%
B and under -- 0.5%
Ba -- 6.2%
Baa -- 14.0%
Footnote reads:
* As a percentage of market value as of 5/31/97. A bond rated Baa or
higher is considered investment grade. All ratings reflect Moody's
descriptions, unless noted otherwise; percentages may include unrated
bonds considered by Putnam Management to be of comparable quality.
Ratings will vary over time.
* STATE'S ECONOMIC STRENGTH PROMPTS PORTFOLIO SHIFTS
In tandem with the overall U.S. economy, Minnesota's business climate has also
been quite positive over the annual period. The state has a strong service
economy, as well as a solid light-manufacturing base. The resulting steady
flow of tax revenue to municipalities has supported the entire municipal
market and made tax-backed issues like local general obligation bonds in high
demand among retail and institutional investors. Despite the state's extremely
limited supply of structurally favorable bonds, we have capitalized on these
positive market conditions. We recently purchased two higher-education issues
and are expanding the portfolio's large position in general obligation bonds.
The health-care and housing sectors also continue to play major roles in the
portfolio. In fact, our defensive strategy recently led to the purchase of
some Minneapolis Housing Authority (MHA) bonds financed by proceeds from the
sale of a significant portion of the portfolio's position in a bond issued by
the municipality of Cloquet for the paper company Potlatch Corporation.
Because the price of housing bonds tends not to fluctuate too widely, housing
is generally considered a more defensive sector. These MHA bonds also offered
higher coupons than the Potlatch bond, providing the fund with an additional
defensive feature and more income. While these holdings, along with others
discussed in this report, were viewed favorably at the end of the fiscal
period, all are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* DEFENSIVE POSITIONING EXPECTED TO CONTINUE INTO FISCAL '98
Looking ahead, we consider a continuation of the current low volatility to be
an unreasonable expectation. In fact, unless the economy shows more convincing
signs of a slowdown, we expect another Fed tightening this year. The markets
will be watching each employment and inflation report closely as key measures
of the economy's growth pace. At the same time, the municipal market may come
under some pressure in coming months as a seasonal supply uptick tests the
limits of buyer demand. However, investors should not let a small rise in
interest rates keep them from buying municipal bonds. Municipals still
represent good after-tax value against taxable investments and an excellent
way to diversify a stock-heavy portfolio.
As steady economic growth continues, your fund's defensive positioning
continues to be the most prudent course toward high current income and price
stability. Although Minnesota's extremely low supply of credit and
structurally appropriate issues remains a challenge, our large, highly
experienced staff of research analysts will concentrate on seeking to identify
undervalued issuers -- particularly of intermediate-term and higher coupon
bonds -- to generate a competitive income for the fund.
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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 5/31/97
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 7.73% 2.58% 7.04% 2.04% 7.29% 3.85%
- ------------------------------------------------------------------------------
5 years 35.68 29.17 30.60 28.60 33.33 28.95
Annual average 6.29 5.25 5.48 5.16 5.92 5.22
- ------------------------------------------------------------------------------
Life of fund 65.86 58.05 56.20 56.20 60.90 55.69
Annual average 6.88 6.21 6.04 6.04 6.46 6.00
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
1 year 8.29% 2.23%
- ------------------------------------------------------------------------------
5 years 41.80 14.60
Annual average 7.24 2.76
- ------------------------------------------------------------------------------
Life of fund 79.18 27.47
Annual average 8.00 3.25
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One, five, and ten year and life of fund returns for class B shares
reflect the applicable contingent deferred sales charges (CDSC), which is
5% in the first year, declines each year to 1% in the sixth year, and is
eliminated thereafter. Returns shown for class B and class M shares for
periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Returns shown for class A shares have not been adjusted to reflect
payments under the class A distribution plan prior to its implementation.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.473449 $0.413951 $0.446509
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.473449 $0.413951 $0.446509
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/96 $8.76 $9.20 $8.73 $8.76 $9.05
- ------------------------------------------------------------------------------
5/31/97 8.95 9.40 8.92 8.94 9.24
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend
rate2 5.25% 5.00% 4.61% 4.96% 4.80%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.50 9.05 8.34 8.97 8.68
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 5.16 4.91 4.55 4.90 4.74
- ------------------------------------------------------------------------------
Taxable equivalent3 9.34 8.88 8.23 8.87 8.58
- ------------------------------------------------------------------------------
1Capital gains, if any, 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.
2Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
3Assumes maximum 44.73% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(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 7.27% 2.19% 6.61% 1.61% 6.97% 3.45%
- ------------------------------------------------------------------------------
5 years 35.12 28.69 30.04 28.04 32.77 28.44
Annual average 6.20 5.17 5.39 5.07 5.83 5.13
- ------------------------------------------------------------------------------
Life of fund 67.37 59.50 57.58 57.58 62.35 57.09
Annual average 6.93 6.26 6.09 6.09 6.50 6.05
- ------------------------------------------------------------------------------
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. Please see preceding
page for an explanation of calculation methods.
[GRAPHIC WORM CHART OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/23/89
PLOT POINTS
Lehman Bros. Consumer
Fund's class A Municipal Bond Price
DATE shares at POP Index Index
- -------- --------------- ---------------- --------
10/23/89 9,529 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 15,822 12,118
5/31/96 14,672 16,545 12,468
5/31/97 15,805 17,918 12,747
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $15,620 at net asset value on 5/31/97 and no contingent deferred
sales charges would apply; a $10,000 investment in the fund's class M shares
would have been valued at $16,090 at net asset value on 5/31/97 ($15,569 at
public offering price). Please see first page of this section for performance
calculation methods.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund *
Health Sciences Trust
International Growth Fund +
International New Opportunities Fund
Investors Fund
New Opportunities Fund
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
Intermediate U.S. Government Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain
a price of $1.00 per share, although there is no assurance that this
price will be maintained in the future.
[2 DBL. DAGGERS] 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.
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,
1997, and the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
investments owned at May 31, 1997 by correspondence with the custodian and the
application of alternative auditing procedures where investments purchased
were not yet received by the custodian, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1997
Portfolio of investments owned
May 31, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FSA -- Financial Security Assurance
GNMA 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
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (97.9%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Minnesota (95.3%)
- ------------------------------------------------------------------------------------------------------------
Bemidji, Hosp. Fac. Rev. Bonds
(First Mtge. -- North Country Hlth. Svcs.)
$ 1,200,000 5 5/8s, 9/1/21 A $ 1,168,500
1,760,000 5 5/8s, 9/1/15 A 1,729,200
700,000 Breckenridge Hosp. Fac. Rev. Bonds
(Franciscan Sisters Hlth. Care), 9 3/8s, 9/1/17 AAA/P 723,149
500,000 Centennial Indpt. Sch. Dist. No. 012 G.O. Bonds,
Ser. A, FSA, 7.15s, 2/1/12 Aaa 534,375
1,950,000 Chaska Indl. Dev. Rev. Bonds
(Lifecore Biomedical Inc.), 10 1/4s, 9/1/20 BB/P 2,215,688
3,000,000 Cloquet, Poll. Control Rev. Bonds
(Potlatch Corp.), 5.9s, 10/1/26 A 3,030,000
1,000,000 Duluth, Econ. Dev. Auth. Hlthcare Fac. Rev. Bonds
(Duluth Clinic), AMBAC, 6.3s, 11/1/22 Aaa 1,047,500
1,000,000 Duluth Gross Rev. Bonds
(Duluth Entertainment), 7.6s, 12/1/11 Baa 1,108,750
950,000 Duluth, Hosp. Rev. Bonds (St. Luke's Hosp.),
9s, 5/1/18 Baa 1,011,731
500,000 Fergus Falls, Cmnty. Dev. Rev. Bonds
(Lincoln - St. Andrews Assn.), 8 3/4s, 11/1/06 BBB 510,425
2,900,000 Golden Valley Indl. Dev. VRDN (Unicare Homes),
4.3s, 9/1/14 A-2 2,900,000
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp.), 7.2s, 10/1/24 Baa 1,703,894
2,210,000 Jackson Cnty., Hsg. & Redev. Auth. Indl. Dev.
Rev. Bonds (Chemical Equip.), 8 3/4s, 12/1/09 BBB 2,283,328
1,105,000 Minneapolis, Cmnty. Dev. Agcy. Supported Dev.
Rev. Bonds (Grace-Lee Products Inc.),
Ser. 91-3, 8 1/4s, 12/1/11 A 1,218,262
Minneapolis, G.O. Bonds (Sports Arena)
3,000,000 5.2s, 10/1/24 Aaa 2,857,500
1,500,000 5 1/8s, 10/1/20 Aaa 1,419,375
810,000 Minneapolis, Hosp. Rev. Bonds (Lifespan Inc.),
Ser. B, 9 1/8s, 12/1/14 Aaa 846,912
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,775,500
2,000,000 Minneapolis Single Fam. Rev. Bonds (Phase V),
GNMA Coll., 6 1/4s, 4/1/22 Aaa 2,052,500
3,050,000 Minneapolis, Special Sch. Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa 2,950,875
600,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam.
Mtge. Rev. Bonds (Phase VI), Ser. A, GNMA Coll.,
8.3s, 8/1/21 AAA 612,000
Minneapolis & St. Paul Hsg. & Redev. Auth.
Hlth. Care Syst. Rev. Bonds
4,000,000 (Group Hlth. Plan Inc.), 6.9s, 12/1/22 A 4,345,000
2,000,000 (Hlth. One Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,135,000
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 595,125
400,000 Ser. A-Lot 2, 8 3/8s, 8/1/09 BB/P 414,000
750,000 Ser. B, Lot 1, 7s, 8/1/16 BB/P 775,313
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
1,500,000 Ser. A, 6.95s, 3/1/13 Aaa 1,651,875
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,232,500
4,720,000 Ser. B, 5s, 3/1/18 Aaa 4,448,600
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,118,719
3,000,000 MN State Duluth Arpt. Tax Increment Rev. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,120,000
1,000,000 MN State G.O. Bonds, 6s, 8/1/05 Aaa 1,081,250
1,000,000 MN State Higher Ed. Fac. Auth. Mtge. Rev. Bonds
(St. Thomas Univ.), Ser. 3-C, 7 1/8s, 9/1/14 AAA/P 1,088,750
MN State Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
55,000 Ser. C, 8 1/2s, 7/1/19 Aa 55,019
1,710,000 Ser. B-1, 6 3/4s, 1/1/26 Aa 1,776,263
990,000 Ser. Q, 6.7s, 1/1/17 Aa 1,044,450
5,000,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 Aa 5,212,500
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds,
Ser. A, 6.95s, 2/1/14 Aa 1,580,625
Morris Hosp. Fac. Rev. Bonds
(Stevens Cmnty. Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 AAA/P 278,125
500,000 Ser. B, 8 1/4s, 5/1/10 AAA/P 556,250
North St. Paul Maplewood Independent Sch. Dist.
No. 622 G.O. Bonds, Ser. A
2,000,000 MBIA, 7.1s, 2/1/19 Aaa 2,287,500
3,000,000 MBIA, 6 7/8s, 2/1/15 Aaa 3,408,750
600,000 North Suburban Hospital Dist. (Anoka & Ramsey
Cnty. Hosp., Hlth. Ctr.) VRDN, 3.9s, 8/1/14 VMIG1 600,000
2,000,000 Northern MN Muni. Pwr. Agcy. Elec. Syst.
Rev. Bonds, Ser. A, 7 1/4s, 1/1/16 A 2,112,500
1,000,000 Northfield College Fac. Rev. Bonds
(St. Olaf College), 6.4s, 10/1/21 A 1,042,500
Rochester Hlth. Care Fac. IFB
3,000,000 (Mayo Foundation), Ser. E, 8.054s, 11/15/12 AA 3,161,250
3,300,000 (Mayo Foundation), Ser. H, 7.763s, 11/15/15 # AA 3,436,125
4,000,000 Rochester Hlth. Care Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB/P 4,195,000
2,440,000 Rochester, Indpt. Sch. Dist. No. 535 G.O. Bonds,
Ser. A, 5 1/4s, 2/1/15 Aaa 2,400,350
2,500,000 Sartell Poll. Control Rev. Bonds
(Champion Intl.), 6.95s, 10/1/12 Baa 2,659,375
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,718,750
Southern MN, Muni. Pwr. Agcy. Syst. Rev. Bonds
300,000 Ser. A, 8 1/8s, 1/1/18 Aaa 313,113
1,240,000 Ser. B, 5s, 1/1/13 A 1,137,700
10,000,000 MBIA, zero %, 1/1/20 Aaa 2,812,500
1,760,000 Spring Lake Park, Indpt. Sch. Dist No. 016
Rev. Bonds, MBIA, 5 1/4s, 2/1/17 Aaa 1,716,000
2,400,000 St. Cloud Hosp. Fac. Rev. Bonds
(Saint Cloud Hosp.), Ser. C, AMBAC,
6 3/4s, 7/1/11 Aaa 2,646,000
St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Healtheast)
3,500,000 Ser. B, 9 3/4s, 11/1/17 Baa 3,638,880
1,915,000 Ser. B, 9 5/8s, 11/1/08 Baa 1,990,029
3,500,000 Ser. A, 6 5/8s, 11/1/17 Baa 3,587,500
2,475,000 St. Paul, Indpt. Sch. Dist. No. 625 COP,
Ser. C, 5 1/4s, 2/1/16 Aa 2,360,531
3,500,000 Todd Morrison & Stearns Cntys., MN Indpt. Sch
Dist. No. 2753 G.O. Bonds, MBIA, 5s, 4/1/17 Aaa 3,237,500
3,000,000 U. of Minn. Rev. Bonds, Ser. A, 5 1/2s, 7/1/08 Aa 3,120,000
4,310,000 Western MN Muni. Pwr. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 1/1/06 Aaa 4,697,900
--------------
128,488,581
Puerto Rico (2.6%)
- ------------------------------------------------------------------------------------------------------------
$ 2,150,000 Cmnwlth. of PR G.O. Bonds, MBIA, 6 1/4s, 7/1/12 Aaa $ 2,373,062
1,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Y, 6 1/4s, 7/1/13 Baa 1,086,250
--------------
3,459,312
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $127,636,420) *** $ 131,947,893
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $134,746,795.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at May 31, 1997 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, 1997. 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 $127,636,420, resulting in gross unrealized appreciation
and depreciation of $4,819,158 and $507,685, respectively, or net unrealized appreciation of $4,311,473.
# A portion of this security was pledged and segregated with the custodian to cover margin requirements
for futures contracts at May 31, 1997.
The rates shown on IFBs, 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, 1997.
The fund had the following industry group concentrations greater than 10% at May 31, 1997 (as a
percentage of net assets):
Hospitals/Health Care 27.5%
Education 16.7
Housing 12.9
The fund had the following insurance concentration greater than 10% at May 31, 1997 (as a percentage
of net assets):
MBIA 13.3%
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 1997
Total Market Aggregate Face Expiration Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bonds Index
Futures Contracts (Short) $ 6,201,000 $ 6,019,250 Jun-97 $ (181,750)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $127,636,420) (Note 1) $ 131,947,893
- ---------------------------------------------------------------------------------------------------
Cash 709,931
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 2,374,745
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 197,561
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 220,616
- ---------------------------------------------------------------------------------------------------
Total assets 135,450,746
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 16,563
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 296,608
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 64,464
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 202,389
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 15,745
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,555
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,148
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 58,652
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 42,827
- ---------------------------------------------------------------------------------------------------
Total liabilities 703,951
- ---------------------------------------------------------------------------------------------------
Net assets $ 134,746,795
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 132,643,133
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 59,550
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,085,611)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,129,723
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $ 134,746,795
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($98,307,335 divided by 10,985,530 shares) $8.95
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.95)* $9.40
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($35,333,466 divided by 3,961,205 shares)+ $8.92
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,105,994 divided by 123,653 shares) $8.94
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.94)** $9.24
- ---------------------------------------------------------------------------------------------------
* 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>
<TABLE>
<CAPTION>
Statement of operations
Year ended May 31, 1997
<S> <C>
Tax exempt interest income $ 8,246,717
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 789,906
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 159,156
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 14,897
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 6,873
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 194,769
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 278,617
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 4,927
- --------------------------------------------------------------------------------------------------
Reports to shareholders 25,727
- --------------------------------------------------------------------------------------------------
Registration fees 1,607
- --------------------------------------------------------------------------------------------------
Auditing 27,661
- --------------------------------------------------------------------------------------------------
Legal 20,529
- --------------------------------------------------------------------------------------------------
Postage 15,399
- --------------------------------------------------------------------------------------------------
Other 25,313
- --------------------------------------------------------------------------------------------------
Total expenses 1,565,381
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (89,452)
- --------------------------------------------------------------------------------------------------
Net expenses 1,475,929
- --------------------------------------------------------------------------------------------------
Net investment income 6,770,788
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (80,562)
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 541,291
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures during the year 2,249,425
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,710,154
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $9,480,942
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended May 31
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Increase in net assets
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 6,770,788 $ 6,329,579
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 460,729 816,541
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 2,249,425 (3,550,267)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 9,480,942 3,595,853
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (5,182,778) (5,131,471)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,529,534) (1,159,900)
- ----------------------------------------------------------------------------------------------------------------------
Class M (49,476) (22,640)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,855,431 11,772,994
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 7,574,585 9,054,836
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 127,172,210 118,117,374
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $59,550 and $31,118, respectively) $134,746,795 $127,172,210
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.95 $8.79 $9.06 $8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .47 .47 .51 .51 .55
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 (.19) .15 (.27) .33
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .66 .28 .66 .24 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.47) (.47) (.50) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.50) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.95 $8.76 $8.95 $8.79 $9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.73 3.16 7.90 2.57 10.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $98,307 $96,110 $98,418 $95,587 $86,611
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.03 1.01 .99 1.03 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.32 5.26 5.85 5.60 6.12
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.80 109.85 58.18 28.19 37.69
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 15, 1993+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.73 $8.92 $8.77 $9.18
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41 .41 .45 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 (.19) .15 (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .60 .22 .60 (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.92 $8.73 $8.92 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.04 2.49 7.17 (.32) *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $35,333 $30,149 $19,698 $8,873
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.68 1.67 1.63 1.47 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.67 4.57 5.15 4.23 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.80 109.85 58.18 28.19
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share April 3, 1995+
operating performance Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.95 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .43 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .18 (.18) .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .63 .25 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.94 $8.76 $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.29 2.82 2.89 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,106 $913 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.33 1.32 .21 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.01 4.72 .93 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 50.80 109.85 58.18
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
May 31, 1997
Note 1
Significant accounting policies
Putnam Minnesota Tax Exempt Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax and Minnesota personal income tax as the
fund's Manager, Putnam Investment Management, Inc. ("Putnam Management"), 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 eight 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.
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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
At May 31, 1997, the fund had a capital loss carryover of approximately
$1,555,000 available to offset future net capital gain, if any. The amount of
the carryover and the expiration dates are:
Loss Carryover Expiration
- -------------- --------------------
$ 723,000 May 31, 2003
$ 832,000 May 31, 2004
E) Distributions to shareholders 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 at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of market discount,
realized and unrealized gains and losses on certain futures contracts, and
capital loss carryover. 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, 1997, the fund reclassified $19,432 to increase undistributed net
investment income and $9,206 to decrease paid-in-capital, with an increase to
accumulated net realized loss on investments of $10,226. The calculation of
net investment income per share in the financial highlights table excludes
these adjustments.
F) Amortization of bond premium and accretion of bond 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 discount 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 of
average net assets, 0.50% of the next $500 million, 0.45% of the next $500
million, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
of the next $5 billion, 0.34% of the next $5 billion, and 0.33% of any amount
thereafter. Prior to September 20, 1996, any amount over $1.5 billion was
based on 0.40%.
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.
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, 1997, fund expenses were reduced by $89,452 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.
Trustees of the fund receive an annual Trustees fee of $380 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 has 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 in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total compensation for the three years preceding
retirement. Pension expense for the fund is included in Compensation of
trustees in the Statement of operations. Accrued pension liability is included
in Payable for compensation of Trustees in the Statement of assets and
liabilities.
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 Plans provide 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $14,517 and $69 from the sale of class
A and class M shares, respectively and $54,301 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, 1997, Putnam Mutual Funds Corp., acting as underwriter received $996
on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $77,672,287 and
$63,996,448, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were
as follows:
Year ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,283,188 $ 11,437,737
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 389,142 3,468,329
- ------------------------------------------------------------
1,672,330 14,906,066
Shares
repurchased (1,654,928) (14,754,582)
- ------------------------------------------------------------
Net increase 17,402 $ 151,484
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 1,304,550 $ 11,690,504
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 790,026 $ 7,019,605
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 111,269 988,567
- ------------------------------------------------------------
901,295 8,008,172
Shares
repurchased (391,861) (3,478,216)
- ------------------------------------------------------------
Net increase 509,434 $ 4,529,956
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 1,432,703 $12,742,334
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 21,421 $ 191,695
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 5,478 48,811
- ------------------------------------------------------------
26,899 240,506
Shares
repurchased (7,453) (66,515)
- ------------------------------------------------------------
Net increase 19,446 $ 173,991
- ------------------------------------------------------------
Year ended
May 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 107,706 $ 965,061
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 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 99.55% 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 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
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www.putnaminv.com
Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
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
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
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Leslie J. Burke
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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