Putnam
Minnesota
Tax Exempt
Income Fund
SEMIANNUAL REPORT
November 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "With the state's economy providing a positive backdrop for improving
credit fundamentals, we will continue to capitalize on opportunities to
increase income while minimizing share price volatility."
-- Leslie J. Burke, manager
Putnam Minnesota Tax Exempt Income Fund
* "While the stock market's higher returns may be a lure,
diversification is imperative in any investment portfolio, and municipal
bonds can provide that variety."
-- Business Week, December 16, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
15 Portfolio holdings
19 Financial statements
28 Results of December 5, 1996, shareholder meeting
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam Minnesota Tax Exempt Income Fund's fiscal 1997
presented a significantly brighter municipal bond market environment
than that which had prevailed in the preceding months. As the fiscal
year unfolded, the municipal bond market -- including the market for
Minnesota tax-exempt bonds -- began to develop a sense of serenity,
closing the semiannual period on November 30, 1996, in an almost upbeat
mood.
During the period, Leslie Burke was appointed your fund's manager.
Leslie joined Putnam in 1992 as a credit analyst in the Tax-Exempt Bond
Group. Before joining Putnam, she was with Fidelity Investments. She has
10 years of investment experience.
In the report that follows, Leslie discusses the events and strategies
that drove your fund's performance during the fiscal year's first half
and takes a look at prospects for the second half.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
January 15, 1997
Report from the Fund Manager
Leslie J. Burke
In a semiannual period marked by one record stock market gain after
another, Putnam Minnesota Tax Exempt Income Fund continued to offer
investors one of the essential ingredients of a well-balanced portfolio
- -- an income investment dedicated to providing a steady stream of
current tax-exempt income.
Although the state's limited supply of municipal bonds that meet our
strict quality and structure criteria added to the challenge of our
investment efforts, strategic securities selection and timely adjustment
to the portfolio's duration boosted fund performance. For the six months
ended November 30, 1996, the fund provided shareholders with a total
return of 6.33% at net asset value (1.25% at 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.
* SLOWING ECONOMY AND STRONG DEMAND SPARK MUNICIPAL BOND RALLY
After a difficult and volatile year, the municipal bond market shifted
gears and rallied during your fund's semiannual period. The U.S.
economy's fast-paced growth of 4.6% during the third quarter of calendar
1996 gave way to a projection of 2.2% growth for the final three months
of the year. Economists expect this slowdown to continue into early
1997. This cooling of economic growth soothed investors' concerns over
rising interest rates and helped lead fixed-income investments,
including municipal bonds, to higher price levels.
Strong demand also helped spur the period's municipal bond rally. While
large numbers of individual investors in the United States focused their
attention on the unprecedented gains in the stock market, overseas
investors purchased approximately $175 billion in U.S. bonds -- an
amount that exceeds the federal budget deficit. Although foreign
investors -- ineligible for the tax benefits of U.S. municipal bonds --
invested primarily in Treasury securities, their interest sparked
greater demand and, consequently, rising prices for the municipal market
as well.
* DURATION MANAGEMENT BOOSTS PERFORMANCE AND THEN PROTECTS GAINS
For most of the past six months, we capitalized on the municipal bond
market's positive performance by maintaining an above-average portfolio
duration. Duration is a measure of a portfolio's sensitivity to
interest-rate changes. A longer duration can mean a more volatile net
asset value if rates change -- but also one more likely to appreciate
substantially if rates decline. A shorter duration can help preserve
portfolio value as interest rates rise. During the recent municipal bond
market rally, your fund's longer duration helped boost performance as
interest rates on medium- and long-term municipal bonds dropped by 46
and 50 basis points, respectively.
Toward the end of the period, however, we initiated several steps to
position the fund more defensively. While the market remains strong, we
now believe municipal bonds may be fully priced. With the holiday
shopping period recently ended, the market may need time to adjust to a
new economic picture replete with buoyant statistics about chain store
sales and consumer spending. Accordingly we believe now is the right
time to reduce the portfolio's volatility by reining in its duration
from eight to approximately seven years.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/
health care 29.2%
Education 17.3%
Housing 13.5%
Water and
sewerage 8.7%
Pollution
control 5.8%
Footnote reads:
* Based on net assets as of 11/30/96. Holdings will vary over time.
[GRAPHIC PIE CHART OMITTED: CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
Aaa -- 43.7%
Aa -- 18.5%
A -- 14.2%
Baa -- 16.5%
Ba -- 6.3%
VMIG1 -- 0.8%
Footnote reads:
Based on the fund's market value as of 11/30/96. 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.
The second step we took was to re-position the portfolio from a barbell
structure, which favors holdings in both short- and long-term bonds, to
one that emphasizes bonds in the 15- to 20-year maturity range. In the
current market environment, we believe that these bonds offer better
value and that reducing the fund's exposure to longer-maturity holdings
is a more prudent course at present.
In order to improve performance and further reduce volatility, we also
redeployed substantial assets into the purchase of noncallable
intermediate-term and higher-coupon premium bonds. The low supply level
in the Minnesota municipal market makes the noncallable aspect of these
bonds particularly important to us. An extremely large portion of the
municipal marketplace will be callable in 2003, just seven years away.
Consequently, many investors are now selling callable bonds in favor of
more recent, noncallable issues, such as those we have purchased. These
bonds can be expected to offer more predictable performance than many
callable bonds and may offer greater potential for appreciation.
This explains why your fund benefited substantially from shifting a
large portion of assets into noncallable municipal securities. As
callable bonds reached a ceiling of value, noncallable issues continued
to perform steadily throughout the market rally, their value
appreciating consistently. With a solid proportion of portfolio assets
in noncallable bonds over the last two months of the semiannual period,
we were able to capitalize on this appreciation while minimizing your
fund's exposure to call risk.
* SECTOR STRATEGIES PAY OFF
Minnesota's limited supply of municipal bonds, particularly those we
deem structurally favorable, continues to constrain the degree to which
we can alter the fund's sector allocations. However, we have been able
to capitalize on market opportunities in housing, health-care, and
industrial revenue bonds over the period, and these sector shifts
enhanced performance during the recent market rally.
Attractive yields and ties to solidly performing industries such as
paper continued to make industrial revenue bonds an important source of
income for the fund. Recently we were able to obtain a significant
position in a bond issued by the municipality of Cloquet for the paper
company Potlatch Corporation. This holding has since become an excellent
income generator for the fund.
In the housing sector, we took advantage of a slight summer uptick in
the supply of appropriate issues to increase the fund's weighting.
Health care continued as a consistent theme in the portfolio,
particularly hospital issues. In fact, hospital bonds accounted for
approximately 14% of assets at the end of the period. Over the summer,
our largest hospital system holding, HealthEast, enjoyed a credit
upgrade from Baa to Baa1. Following the upgrade, the market valued the
bonds at a higher price, resulting in solid appreciation for the fund's
position.
* CONSTRUCTIVE, YET CAUTIOUS, OUTLOOK PREVAILS
The Midwest region's economy continues to be one of the strongest in the
country. In Minnesota, economic growth stems from a diverse industrial
base of service and manufacturing sectors. This economic environment
creates a positive credit backdrop for municipal bonds, and therefore,
we do not anticipate making portfolio changes in the next few months
from either a sector or a creditworthiness standpoint.
Nonetheless, after the market's positive performance during the past six
months, we have repositioned the fund more defensively in order to
preserve its net asset value and income stream. This more conservative
posture includes a shorter duration, emphasis on bonds in the 15- to 20-
year maturity range, an increase in noncallable holdings, and a
concentration on higher-coupon bonds.
As your fund enters the second half of fiscal 1997, our large staff of
experienced research analysts will continue to scrutinize existing and
new municipal bond issues to find securities that will contribute to
your fund's stream of tax-exempt income. In a post-rally environment,
however, we must remain mindful of another tax consequence -- capital
gains from the sales of portfolio holdings that have risen in value.
Although it is unlikely that any fund could avoid capital gains
altogether, we plan to shift portfolio holdings only when the benefits
will substantially outweigh the potential negative effects of any
taxable distributions.
Pre-election talks of sweeping tax reforms, such as the flat tax and the
elimination of the Internal Revenue Service, have been shelved, most
likely for the duration of the current administration. Although we
remain aware that these issues are merely dormant, not dead, the short-
term outlook for tax-advantaged income investments remains constructive.
Footnote reads:
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 11/30/96, 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 taxes 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 11/30/96
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 6.33% 1.25% 6.00% 1.00% 6.17% 2.77%
- ------------------------------------------------------------------------
1 year 4.88 -0.06 4.19 -0.79 4.56 1.12
- ------------------------------------------------------------------------
5 years 40.09 33.44 -- -- -- --
Annual average 6.97 5.94 -- -- -- --
- ------------------------------------------------------------------------
Life of class 63.71 56.01 16.06 13.10 12.32 8.73
Annual average 7.18 6.46 4.50 3.71 7.25 5.17
- ------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/96
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.50% 1.28%
- ------------------------------------------------------------------------
1 year 5.89 3.26
- ------------------------------------------------------------------------
5 years 45.83 15.09
Annual average 7.83 2.85
- ------------------------------------------------------------------------
Life of class A 76.21 26.27
Annual average 8.33 3.34
- ------------------------------------------------------------------------
Life of class B 22.50 9.83
Annual average 6.11 2.81
- ------------------------------------------------------------------------
Life of class M 15.06 4.76
Annual average 8.76 2.84
- ------------------------------------------------------------------------
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 or
for distribution fees prior to implementation of the class A
distribution plan in 1990. 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 the applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/96
Class A Class B Class M
- ------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------
Income $0.237417 $0.207682 $0.223975
- ------------------------------------------------------------------------
Total $0.237417 $0.207682 $0.223975
- ------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------
5/31/96 $8.76 $9.20 $8.73 $8.76 $9.05
- ------------------------------------------------------------------------
11/30/96 9.07 9.52 9.04 9.07 9.37
- ------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------
Current dividend
rate1 5.24% 5.00% 4.60% 4.95% 4.79%
- ------------------------------------------------------------------------
Taxable equivalent2 9.48 9.05 8.32 8.96 8.67
- ------------------------------------------------------------------------
Current 30-day
SEC yield3 5.03 4.79 4.39 4.73 4.58
- ------------------------------------------------------------------------
Taxable equivalent2 9.10 8.67 7.94 8.56 8.29
- ------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2 Assumes maximum 44.73% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
3 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/96
(most recent calendar quarter)
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------
6 months 4.37% -0.57% 4.07% -0.93% 4.23% 0.81%
- ------------------------------------------------------------------------
1 year 3.09 -1.83 2.43 -2.47 2.67 -0.68
- ------------------------------------------------------------------------
5 years 36.63 30.09 -- -- -- --
Annual average 6.44 5.40 -- -- -- --
- ------------------------------------------------------------------------
Life of class 62.85 55.19 15.41 12.48 11.59 8.02
Annual average 7.02 6.30 4.22 3.45 6.47 4.51
- ------------------------------------------------------------------------
Footnote reads:
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 or
for distribution fees prior to implementation of the class A
distribution plan in 1990. 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.
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 assumes reinvestment of all
distributions and interest payments and does not take into account
brokerage fees or taxes. Securities in the fund do not match those in
the index and performance of the fund will differ. 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.
A Putnam perspective on risk and reward
You've probably been told how important it is to understand the
relationship between an investment's potential rewards and its
accompanying risks. Given the cautionary nature of such instructions,
it may take most investors a while to realize that risk has a positive
side.
Every risk signals a potential reward. Selecting only those investments
that offer the greatest degree of security generally leads to only
modest rewards. Furthermore, even insured or guaranteed investments may
be subject to changes in their rates of return or, in some cases, in
their principal values. Experienced investors know that no investment is
truly risk free and are therefore willing to take on some measure of
risk in order to increase their potential gains.
The greater the risk, the greater the potential reward. Accepting an
appropriate level of investment risk can give you a better chance of
outpacing inflation over time and seeking to maximize your investment's
return. How much risk? Your financial advisor's feedback and your time
horizon can make all the difference in determining how much risk is
compatible with your investment goals and your peace of mind.
* FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE
How do you find the right balance between investment risks and their
potential rewards? It's helpful to understand the types of risks that
can apply to different types of investments, and to look at your own
portfolio with this perspective.
For short-term goals, your first priority may be managing market risk.
Longer-term investors may be more concerned with inflation risk. And all
income-oriented investors should consider interest-rate, credit, and
prepayment risks carefully. Within each of Putnam's four investment
categories, you can select funds with differing levels of risk and
reward potential to customize your portfolio.
This list covers only the most general types of risks; however, each
investment will also have its own specific risks. You will find a more
detailed discussion of these risk considerations in each fund's
prospectus.
* A RUNDOWN OF RISK TYPES
MARKET RISK Most important for stock funds, but relevant to all funds,
this is a measure of how sensitive a fund's holdings are to changes in
general market conditions. Remember, though, that securities that lose
value quickly in market declines may also show the strongest gains in
more favorable environments.
INTEREST-RATE RISK Since bond prices fall as interest rates rise, this
type of risk is a particular concern for fixed-income investors. However,
interest-rate increases can also have a substantial
negative effect on the stock market.
INFLATION RISK If your investments cannot keep pace with inflation, your
money will begin to lose its purchasing power. Stock investments are
generally considered among the best ways of addressing inflation risk
over the long term.
CREDIT AND PREPAYMENT RISK Credit risk is the concern that the
security's issuer will not be able to meet its payment, while prepayment
risk involves the premature payoff of a loan, with a resulting loss of
interest income. Professional management and in-depth research are
invaluable in managing both these risks.
LIQUIDITY RISK Not all investments can be readily converted into cash at
their perceived market values. Liquidity risk can affect the price of
securities held in the fund's portfolio and, thus, the fund's share
prices.
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.
[DBL. DAGGER] 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
November 30, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FHA Insd. -- Federal Housing Administration Insured
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
MUNICIPAL BONDS AND NOTES (98.5%) *
PRINCIPAL AMOUNT RATING** VALUE
Minnesota (94.8%)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bemidji, Hosp. Fac. Rev. Bonds (First Mtge.-North
Cty Hlth. Svcs.)
$1,200,000 5 5/8s, 9/1/21 A $1,180,500
1,760,000 5 5/8s, 9/1/15 A 1,744,600
700,000 Breckenridge Hosp. Fac. Rev. Bonds
(Franciscan Sisters Hlth. Care), 9 3/8s, 9/1/17 AAA/P 743,960
500,000 Centennial Indpt. Sch. Dist.No. 012 G.O. Bonds,
Ser. A, FSA, 7.15s, 2/1/12 Aaa 543,125
1,950,000 Chaska Indl. Dev. Rev. Bonds (Lifecore
Biomedical Inc.), 10 1/4s, 9/1/20 BB/P 2,232,750
5,000,000 Cloquet, Poll. Control Rev. Bonds (Potlatch Corp.),
5.9s, 10/1/26 A 5,087,500
1,000,000 Duluth Gross Rev. Bonds (Duluth Entertainment),
7.6s, 12/1/11 Baa 1,126,250
950,000 Duluth, Hosp. Rev. Bonds (St. Luke's Hosp.), 9s,
5/1/18 AAA 1,034,313
500,000 Fergus Falls Cmnty. Dev. Rev. Bonds (Lincoln -
St. Andrews Assn.), 8 3/4s, 11/1/06 BBB/P 513,260
1,000,000 Golden Valley Indl. Dev. VRDN (Unicare Homes),
3.8s, 9/1/14 VMIG1 1,000,000
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise
Cascade Corp.), 7.2s, 10/1/24 Baa 1,719,544
2,210,000 Jackson Cnty., Hsg. & Redev. Auth. Indl. Dev.
Rev. Bonds (Chemical Equip.), 8 3/4s, 12/1/09 BBB 2,313,030
Minneapolis G.O. Bonds
4,000,000 (Sports Arena), 5.2s, 10/1/24 Aaa 3,925,000
1,000,000 Ser. B, 5.2s, 3/1/13 Aaa 1,001,250
1,500,000 (Sports Arena), 5 1/8s, 10/1/20 Aaa 1,458,750
810,000 Minneapolis Hosp. Rev. Bonds (Lifespan Inc.),
Ser. B, 9 1/8s, 12/1/14 Aaa 870,086
Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth.
Care Syst. Rev. Bonds
4,000,000 (Group Hlth. Plan Inc.), 6.9s, 12/1/22 A 4,385,000
2,000,000 (Hlth. One Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,160,000
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,794,344
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 1,209,975
630,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam.
Mtge. Rev. Bonds (Phase VI), Ser. A, GNMA Coll.,
8.3s, 8/1/21 AAA 639,450
3,050,000 Minneapolis, Special Sch. Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa 3,000,438
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 598,719
400,000 Ser. A-Lot 2, 8.2s, 8/1/09 BB 416,500
750,000 Ser. B-Lot 1, 7s, 8/1/16 BB 785,625
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
1,500,000 Ser. A, 6.95s, 3/1/13 Aaa 1,678,125
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,255,000
4,720,000 Ser. B, 5s, 3/1/18 Aaa 4,584,300
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,180,456
3,000,000 MN State G.O. Bonds, 5 1/4s, 8/1/15 Aaa 3,018,750
3,000,000 MN State Duluth Arpt. Tax Increment Rev. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,161,250
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 1,108,750
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds, Ser. A,
6.95s, 2/1/14 Aa 1,591,875
MN State Hsg. Fin. Agcy. Single Fam. Mtge.
Rev. Bonds
175,000 Ser. C, 8 1/2s, 7/1/19 Aa 181,781
350,000 Ser. A, FHA Insd., 7.45s, 7/1/22 Aa 372,750
5,000,000 Ser. E, 6.85s, 1/1/24 Aa 5,243,750
1,735,000 Ser. B-1, 6 3/4s, 1/1/26 Aa 1,813,075
1,000,000 Ser. Q, 6.7s, 1/1/17 Aa 1,056,250
2,000,000 Ser. B, 6.35s, 7/1/18 Aa 2,085,000
Morris Hosp. Fac. Rev. Bonds (Stevens Cmnty.
Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 AAA 283,125
500,000 Ser. B, 8 1/4s, 5/1/10 AAA 566,250
North St. Paul Maplewood Indpt. Sch. Dist.
No. 622 Rev. Bonds, Ser. A
2,000,000 MBIA, 7.1s, 2/1/19 Aaa 2,337,500
3,000,000 MBIA, 6 7/8s, 2/1/15 Aaa 3,461,250
2,000,000 Northern MN Muni. Pwr. Agcy. Elec. Syst.
Rev. Bonds, Ser. A, 7 1/4s, 1/1/16 A 2,125,000
1,000,000 Northfield College Fac. Rev. Bonds
(St. Olaf College), 6.4s, 10/1/21 A 1,058,750
Rochester Hlth. Care Fac. IFB (Mayo Foundation)
3,300,000 Ser. H, 8.128s, 11/15/15 # AA 3,522,750
3,000,000 Ser. E, 8.054s, 11/15/12 AA 3,157,500
4,000,000 Rochester Hlth. Care Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB/P 4,215,000
2,440,000 Rochester, Indpt. Sch. Dist. No. 535 G.O. Bonds,
Ser. A, 5 1/4s, 2/1/15 Aaa 2,443,050
2,400,000 St. Cloud Hosp. Fac. Rev. Bonds (St. Cloud Hosp.),
Ser. C, AMBAC, 6 3/4s, 7/1/11 Aaa 2,688,000
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl.),
6.95s, 10/1/12 Baa 2,681,250
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,737,500
Southern MN, Muni. Pwr. Agcy. Syst. Rev. Bonds
1,240,000 Ser. B, 5s, 1/1/13 A 1,156,300
10,000,000 Ser. A, MBIA, zero %, 1/1/20 Aaa 2,787,500
300,000 Southern MN Muni. Pwr. Agcy. Supply Syst.
Rev. Bonds, Ser. A, 8 1/8s, 1/1/18 Aaa 319,287
Spring Lake Pk., Indpt. Sch. Dist. No. 016
Rev. Bonds, MBIA
1,770,000 5 1/4s, 2/1/12 Aaa 1,763,362
1,760,000 5 1/4s, 2/1/17 Aaa 1,751,200
St. Paul, Hsg. & Redev. Auth. Hosp. Rev. Bonds
(Healtheast Proj.)
3,500,000 Ser. B, 9 3/4s, 11/1/17 Baa 3,724,140
1,915,000 Ser. B, 9 5/8s, 11/1/08 Baa 2,035,530
3,500,000 Ser. A, 6 5/8s, 11/1/17 Baa 3,596,250
2,475,000 St. Paul, Indpt. Sch. Dist. No. 625, COP, Ser. C,
5 1/4s, 2/1/16 Aa 2,419,312
3,500,000 Todd Morrison & Stearns Cntys., MN Indpt.
Sch. Dist. No. 2753 G.O. Bonds, MBIA, 5s, 4/1/17 Aaa 3,303,125
--------------
126,948,012
Puerto Rico (3.7%)
- --------------------------------------------------------------------------------------------
3,000,000 Cmnwlth. of PR, G.O. Bonds, 5.4s, 7/1/25 Baa 2,902,500
Comnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds
1,000,000 Ser. Y, 6 1/4s, 7/1/13 A 1,095,000
1,000,000 Ser. W, 5 1/4s, 7/1/20 A 946,250
--------------
4,943,750
- --------------------------------------------------------------------------------------------
Total Municipal Bonds and Notes (cost $125,323,216) *** $131,891,762
- --------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $133,855,928.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent
ratings available at November 30, 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 November 30,
1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $125,323,216, resulting in gross unrealized
appreciation and depreciation of $6,851,736 and $283,190, respectively, or net unrealized
appreciation of $6,568,546.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at November 30, 1996.
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
November 30, 1996.
The fund had the following industry group concentrations greater than 10% at November 30, 1996
(as a percentage of net assets):
Hospitals/Health care 29.2%
Education 17.3
Housing 13.5
The fund had the following insurance concentration greater than 10% at November 30, 1996
(as a percentage of net assets):
MBIA 13.1%
<CAPTION>
- --------------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1996
Aggregate
Total Face Expiration Unrealized
Value Value Date Depreciation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Short) $1,743,281 $1,727,343 Dec-96 $(15,938)
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1996 (Unaudited)
<S> <C>
Assets
- ----------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $125,323,216) (Note 1) $131,891,762
- ----------------------------------------------------------------------------------
Cash 204,136
- ----------------------------------------------------------------------------------
Interest and other receivables 2,375,960
- ----------------------------------------------------------------------------------
Receivable for shares of the fund sold 77,400
- ----------------------------------------------------------------------------------
Total assets 134,549,258
Liabilities
- ----------------------------------------------------------------------------------
Payable for variation margin 13,594
- ----------------------------------------------------------------------------------
Distributions payable to shareholders 240,757
- ----------------------------------------------------------------------------------
Payable for shares of the fund repurchased 104,838
- ----------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 196,361
- ----------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 12,769
- ----------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,468
- ----------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,165
- ----------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 56,839
- ----------------------------------------------------------------------------------
Other accrued expenses 61,539
- ----------------------------------------------------------------------------------
Total liabilities 693,330
- ----------------------------------------------------------------------------------
Net assets $133,855,928
Represented by
- ----------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $129,947,367
- ----------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 66,690
- ----------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,710,737)
- ----------------------------------------------------------------------------------
Net unrealized appreciation of investments 6,552,608
- ----------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $133,855,928
Computation of net asset value and offering price
- ----------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($99,127,531 divided by 10,925,905 shares) $9.07
- ----------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.07)* $9.52
- ----------------------------------------------------------------------------------
Net asset value and offering price per class B share
($33,770,430 divided by 3,734,275 shares)** $9.04
- ----------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($957,967 divided by 105,635 shares) $9.07
- ----------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.07)*** $9.37
- ----------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and
on group sales the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
*** 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.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $4,159,098
- -----------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------
Compensation of Manager (Note 2) 390,619
- -----------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 74,917
- -----------------------------------------------------------------------------
Compensation of Trustees (Note 2) 10,832
- -----------------------------------------------------------------------------
Administrative services (Note 2) 3,471
- -----------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 97,556
- -----------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 133,950
- -----------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 2,347
- -----------------------------------------------------------------------------
Reports to shareholders 14,561
- -----------------------------------------------------------------------------
Registration fees 276
- -----------------------------------------------------------------------------
Auditing 14,423
- -----------------------------------------------------------------------------
Legal 10,970
- -----------------------------------------------------------------------------
Postage 36,995
- -----------------------------------------------------------------------------
Other 6,689
- -----------------------------------------------------------------------------
Total expenses 797,606
- -----------------------------------------------------------------------------
Expense reduction (Note 2) (44,630)
- -----------------------------------------------------------------------------
Net expenses 752,976
- -----------------------------------------------------------------------------
Net investment income 3,406,122
- -----------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (300,834)
- -----------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 126,211
- -----------------------------------------------------------------------------
Net unrealized appreciation of investments
and futures during the period 4,672,310
- -----------------------------------------------------------------------------
Net gain on investments 4,497,687
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $7,903,809
- -----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
November 30 May 31
1996* 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------
Net investment income $3,406,122 $6,329,579
- ----------------------------------------------------------------------------------
Net realized gain (loss)
on investments (174,623) 816,541
- ----------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments 4,672,310 (3,550,267)
- ----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 7,903,809 3,595,853
- ----------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------
From net investment income
Class A (2,607,772) (5,131,471)
- ----------------------------------------------------------------------------------
Class B (739,077) (1,159,900)
- ----------------------------------------------------------------------------------
Class M (23,701) (22,640)
- ----------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 2,150,459 11,772,994
- ----------------------------------------------------------------------------------
Total increase in net assets 6,683,718 9,054,836
- ----------------------------------------------------------------------------------
Net assets
- ----------------------------------------------------------------------------------
Beginning of period 127,172,210 118,117,374
- ----------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $66,690 and
$31,118, respectively) $133,855,928 $127,172,210
- ----------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the period
Six months April 3, 1995 Six months
ended Year (commencement ended Year
November 30 ended of operations) November 30 ended
(Unaudited) May 31 to May 31 (Unaudited) May 31
- ----------------------------------------------------------------------------------------------------------------------------
1996 1996 1995 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------
Class M Class B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.76 $8.95 $8.77 $8.73 $8.92
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .43 .08 .21 .41
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .30 (.18) .17 .31 (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .53 .25 .25 .52 .22
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income (.22) (.44) (.07) (.21) (.41)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.44) (.07) (.21) (.41)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.07 $8.76 $8.95 $9.04 $8.73
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 6.17* 2.82 2.89* 6.00* 2.49
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $958 $913 $1 $33,770 $30,149
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .69* 1.32 .21* .86* 1.67
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.55* 4.72 .93* 2.37* 4.57
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38.60* 109.85 58.18 38.60* 109.85
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
July 15, 1993 Six months
Year (commencement ended Year
ended of operations) to November 30 ended
May 31 May 31 (Unaudited) May 31
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------
Class B Class A
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.77 $9.18 $8.76 $8.95
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .45 .39 .24 .47
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .15 (.41) .31 (.19)
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .60 (.02) .55 .28
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.39) (.24) (.47)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.39) (.24) (.47)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.92 $8.77 $9.07 $8.76
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 7.17 (.32)* 6.33* 3.16
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,698 $8,873 $99,128 $96,110
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) 1.63 1.47* .53* 1.01
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.15 4.23* 2.70* 5.26
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 58.18 28.19 38.60* 109.85
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
Year ended May 31
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
Class A
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.79 $9.06 $8.74 $8.56
- ----------------------------------------------------------------------------------------------------------------------------
Investment operations
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income .51 .51 .55 .55(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .15 (.27) .33 .18
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .66 .24 .88 .73
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------------
From net investment income (.50) (.51) (.56) (.55)
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (.50) (.51) (.56) (.55)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.95 $8.79 $9.06 $8.74
- ----------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%)(b) 7.90 2.57 10.33 8.86
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $98,418 $95,587 $86,611 $59,914
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(d) .99 1.03 1.08 .91(a)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.85 5.60 6.12 6.34(a)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 58.18 28.19 37.69 38.79(c)
- ----------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Reflects an expense limitation in effect during the period. As a result of 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.
(c) 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.
(d) 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
November 30, 1996 (Unaudited)
Note 1
Significant accounting policies
The fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The
fund seeks as high a level of current income exempt from federal income
tax and Minnesota personal income tax as 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. 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, 1996, the fund had a capital loss carryover of approximately
$1,992,000 available to offset future net capital gain, 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 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. 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.
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 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, 0.40% of the next $5 billion, 0.375% of the next $5
billion, 0.355% of the next $5 billion, 0.340% of the next $5 billion
and 0.330% 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 six months ended November 30, 1996, fund expenses were reduced
by $44,630 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 $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 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 six months ended November 30, 1996, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $6,688 and $40 from
the sale of class A and class M shares, respectively and $21,067 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 six months ended November 30, 1996, Putnam
Mutual Funds Corp., acting as underwriter received no monies on class A
redemptions.
Note 3
Purchase and sales of securities
During the period ended November 30, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$62,196,755 and $48,045,256, 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 November 30, 1996, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
November 30, 1996
- ----------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------
Shares sold 572,079 $5,094,053
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 198,903 1,767,638
- ----------------------------------------------------
770,982 6,861,691
Shares
repurchased (813,205) (7,232,539)
- ----------------------------------------------------
Net decrease (42,223) $(370,848)
- ----------------------------------------------------
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)
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------
Shares sold 418,198 $3,708,878
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 54,635 484,001
- ----------------------------------------------------
472,833 4,192,879
Shares
repurchased (190,329) (1,684,090)
- ----------------------------------------------------
Net increase 282,504 $2,508,789
- ----------------------------------------------------
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
- ----------------------------------------------------
Six months ended
November 30, 1996
- ----------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------
Shares sold 4,232 $37,678
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,679 23,700
- ----------------------------------------------------
6,911 61,378
Shares
repurchased (5,483) (48,860)
- ----------------------------------------------------
Net increase 1,428 $12,518
- ----------------------------------------------------
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
- ----------------------------------------------------
Results of December 5, 1996 shareholder meeting
A meeting of shareholders of the fund was held on December 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 8,342,376 178,370
Hans H. Estin 8,337,013 183,733
John A. Hill 8,331,746 189,000
Ronald J. Jackson 8,334,541 186,205
Elizabeth T. Kennan 8,344,754 175,992
Lawrence J. Lasser 8,348,768 171,978
Robert E. Patterson 8,346,810 173,936
Donald S. Perkins 8,345,283 175,463
William F. Pounds 8,351,414 169,332
George Putnam 8,347,615 173,131
George Putnam, III 8,329,289 191,457
Eli Shapiro 8,324,580 196,166
A.J.C. Smith 8,346,810 173,936
W. Nicholas Thorndike 8,335,019 185,727
A proposal to ratify the selection of Price Waterhouse LLP as auditors
for the fund was approved as follows: 8,072,680 votes for, and 62,899
votes against, with 385,167 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
7,407,002 votes for, and 299,635 votes against, with 814,109 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 7,271,635 votes for, and 359,504 votes against, with 889,607
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
7,138,154 votes for, and 496,900 votes against, with 885,692 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investment in real estate was approved as follows: 7,266,987
votes for, and 381,071 votes against, with 872,688 abstentions and
broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
7,438,131 votes for, and 265,219 votes against, with 817,396 abstentions
and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities was approved as follows: 7,374,348 votes
for, and 270,145 votes against, with 876,253 abstentions and broker non-
votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in commodities or commodity contracts was
approved as follows: 7,141,426 votes for, and 523,188 votes against,
with 856,132 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 7,188,718 votes for, and 437,797 votes against,
with 894,231 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 7,017,143
votes for, and 532,421 votes against, with 971,182 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 7,052,950 votes
for, and 526,449 votes against, with 941,347 abstentions and broker non-
votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 7,031,986 votes for, and 540,726 votes against, with 948,034
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 7,043,012 votes for, and 535,647 votes against, with 942,087
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in certain oil, gas and mineral interests
was approved as follows: 7,133,066 votes for, and 460,131 votes against,
with 927,549 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investing to gain control of a company's management was
approved as follows: 7,057,518 votes for, and 542,008 votes against,
with 921,220 abstentions and broker non-votes.
All tabulations are rounded to nearest whole number.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Blake E. Anderson
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.
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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29937-847/238/129 1/97
