Putnam
Minnesota
Tax Exempt
Income Fund
SEMIANNUAL REPORT
November 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "I now believe that the next scarcity will be in municipal bonds
and that the dearth will last a decade or more. That means higher prices
and lower yields. It means buy your municipals now."
-- Marilyn Cohen,
"Why Munis Are a Compelling Buy -- Now"
Forbes, October 20, 1997
* "Minnesota's strong economy continues to provide a solid credit
backdrop for its municipal market, and although the state's limited supply
of securities is challenging, we continue to find ample opportunity to
increase income while minimizing price volatility."
-- Leslie J. Burke, manager
Putnam Minnesota Tax Exempt Income Fund
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
16 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The global flight to the relative safety of bonds in the aftermath of the
Southeast Asian currency crisis in late October provided a dramatic and
positive finale to the first half of Putnam Minnesota Tax Exempt Income Fund's
fiscal year. In the five months prior to that flare-up, the U.S. municipal
bond market had demonstrated solid, albeit tenuous, strength as many investors
cautiously set aside their lingering concerns about the economy, interest
rates, and renewed inflation.
Recognizing the fragility of the generally positive environment both prior to
and following the disruption in global markets, Fund Manager Leslie Burke had
pursued a slightly defensive policy in managing the fund. As the year
unfolded, however, she concluded that a somewhat more dynamic strategy was in
order and began adjusting the portfolio accordingly.
In the report that follows, Leslie provides the specifics of her strategic
shift as well as details about the fiscal year's first half. Then she offers
some insights into what she believes is in store for the rest of the period.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 21, 1998
Report from the Fund Manager
Leslie J. Burke
Putnam Minnesota Tax Exempt Income Fund closed the semiannual period on a
positive note, although the state's economic prosperity continued to limit the
supply of municipal securities available for fund investment. Nonetheless, our
duration management strategy and well-chosen sector concentrations produced
solid performance and allowed the fund to continue providing investors with a
steady stream of current tax-exempt income. For the six months ended November
30, 1997, the fund provided a total return of 4.75% at net asset value (-0.27%
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.
* MUNICIPAL MARKET FEELS EFFECTS OF OCTOBER CORRECTION
An atmosphere of low volatility and narrow trading ranges characterized
fixed-income markets for most of 1997. This lack of direction stemmed from an
ongoing tug of war between high economic growth (negative for the bond market)
and favorable low inflation news (positive for the bond market). The Pacific
Rim crisis and worldwide equity market correction that took place the week of
October 27 changed all that. For a short time afterward, the municipal market
- -- normally somewhat removed from such events -- became caught up in the
worldwide volatility. However, by the end of November, things had begun to
settle down and municipal bonds began benefiting from investors' shift toward
fixed-income investments.
Throughout most of the year, the low interest-rate environment encouraged a
spate of new issues and refundings. This overabundance of supply held back
municipal bond prices for a while until the October correction resulted in an
explosive rally for bonds. Since then, municipal bond yields have become
unusually attractive relative to taxable Treasuries, and we have been taking
full advantage of the resulting opportunities.
* DEFENSIVE POSITIONING TARGETS INCOME, LIMITS VOLATILITY
During the final month and a half of the semiannual period, interest rates
drifted lower, as investors concluded that the Southeast Asian situation was
having a deflationary effect on the U.S. economy. This appears to preclude a
near-term rise in inflation or any immediate Federal Reserve Board action on
interest rates. However, we believe that interest rates will begin to rise
sometime during 1998 once investors refocus their attention on the economic
strength and tight labor conditions in the United States. To protect the
portfolio's net asset value in today's somewhat unsettled market conditions --
and cushion it against the potential for higher interest rates ahead -- we
have continued to maintain a defensive investment strategy.
Duration management remains a key component of this strategy. Quite simply,
duration is a mathematical measure used to indicate how much the prices of
portfolio holdings are likely to move up or down with each percentage-point
shift in interest rates. By carefully monitoring and adjusting the fund's
duration profile, we are better able to manage its interest-rate risk.
Typically a shorter duration can help preserve portfolio value when interest
rates rise, and consequently, the fund has maintained a relatively short
duration during the past six months.
[GRAPHIC OMITTED: HORIZONTAL BAR CHART TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Hospitals/health care 25.0%
Education 22.0%
Housing 11.6%
Utilities 9.9%
Water and sewerage 7.1%
Footnote reads:
* Based on net assets as of 11/30/97. Holdings will vary over time.
Given the inverse relationship between a bond's yield and its price, it's no
surprise that just as municipal bond yields have become so attractive relative
to taxable Treasuries, their prices have also become inexpensive. In fact,
this situation reflects a seasonal municipal bond supply surge that has not
been met with equally strong demand. The supply/demand imbalance should
gradually correct itself as we move farther into 1998. In anticipation of this
shift, we have been taking advantage of current prices to become fully
invested in the market. Because this move could result in a longer duration
than we deem prudent, we have balanced our municipal investments by selling
Treasury futures contracts. This strategy has pushed the portfolio's duration
back down to a point that is slightly shorter than its competitive benchmark.
We have continued our attempts to minimize the portfolio's volatility by
scrutinizing the call structure of individual securities and concentrating on
holdings that are less sensitive to interest-rate changes. Thus, we have
maintained our focus on intermediate-term municipal securities as well as on
lower-rated higher-coupon bonds. The strength of the economy has continued to
compress credit spreads between various sectors of the municipal market, and
these lower-rated higher-yielding bonds have been outperforming. 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.
One of our recent high-coupon bond purchases was in the utilities sector, a
very well-structured bond issued by Northern Minnesota Power. While this
holding, along with others discussed in this report, was viewed favorably at
the end of the fiscal period, all are subject to review and comment in
accordance with the fund's investment strategy and may vary in the future.
* SECTOR ALLOCATIONS REFLECT STATE'S CONTINUED ECONOMIC VIGOR
Minnesota's business climate has remained quite favorable over the semiannual
period with real estate valuations rising, job creation growing, and ample
revenues flowing into the coffers of the state and local municipalities. This
environment has created a positive credit backdrop for municipal bonds and
continues to make tax-backed issues such as local general obligation bonds in
high demand among retail and institutional investors. However, these
conditions have also severely limited the supply of structurally favorable
bonds, since municipalities with hefty tax revenues have reduced need for bond
financing. To capitalize on these positive market conditions, we recently
reentered the industrial revenue bond sector while increasing the portfolio's
exposure to utilities and local general obligation bonds -- two sectors that
have benefited from the state's strong economy.
[GRAPHIC OMITTED: PIE CHART CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A 13.7%
Aa 21.4%
Aaa 46.8%
Ba 13.0%
Baa 5.1%
Footnote reads:
* As a percentage of market value as of 11/30/97. 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.
Health care, higher education, and housing also continue to represent
significant investment sectors for the fund. In fact, we recently increased
our higher education holdings with the purchase of bonds issued by two
well-established colleges with good credit standing: St. John's College and
St. Thomas College. The fund's health-care holdings actually decreased just
after the close of the semiannual period, as one of our major holdings, a bond
issued by Healtheast Hospital, was called out of the market on December 15,
1997. The hospital is taking advantage of the current low interest rates to
reduce its borrowing costs by refinancing its debt. In addition to redeploying
assets into the sectors and bonds discussed above, the fund did purchase some
of the new Healtheast Hospital bonds as well, since they were well structured
and provide good tax exempt income.
* CONSTRUCTIVE, CAUTIOUS OUTLOOK
While Minnesota's severely limited supply of municipal investments continues
to extend the time line for implementing some of our strategies, the state's
sound economy continues to provide a favorable backdrop for the market. We
plan to retain our defensive posture, however, for as time goes on, we still
believe that tight U.S. labor market conditions will exert moderate upward
pressure on interest rates. We believe that our focus on key strategies such
as careful security selection and reducing call risk and interest-rate
sensitivity in the portfolio should serve us very well as we move farther into
1998. At the same time, the fund's full investment in the municipal market
should position it to benefit once bond supply drops and demand rises after
January 1.
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 11/30/97, 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 11/30/97
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 4.75% -0.27% 4.41% -0.59% 4.59% 1.20%
- ------------------------------------------------------------------------------
1 year 6.12 1.10 5.44 0.44 5.69 2.31
- ------------------------------------------------------------------------------
5 years 36.67 30.17 31.61 29.61 34.43 30.02
Annual average 6.45 5.41 5.65 5.32 6.10 5.39
- ------------------------------------------------------------------------------
Life of fund 73.74 65.56 63.09 63.09 68.29 62.84
Annual average 7.06 6.42 6.22 6.22 6.64 6.20
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/97
Lehman Bros. Consumer
Municipal Bond Index Price Index
- ------------------------------------------------------------------------------
6 months 5.40% 0.87%
- ------------------------------------------------------------------------------
1 year 7.18 1.83
- ------------------------------------------------------------------------------
5 years 42.06 13.73
Annual average 7.27 2.61
- ------------------------------------------------------------------------------
Life of fund 88.86 28.58
Annual average 8.18 3.16
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% and 3.25%, respectively. Class B share returns for
the 1-, 5-, and 10-year (where available) and life-of-fund periods reflect
the applicable contingent deferred sales charge (CDSC), which is 5% in the
first year, declines 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 expenses 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 11/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.231351 $0.201039 $0.217741
- ------------------------------------------------------------------------------
Capital gains1 -- -- --
- ------------------------------------------------------------------------------
Total $0.231351 $0.201039 $0.217741
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Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/97 $8.95 $9.40 $8.92 $8.94 $9.24
- ------------------------------------------------------------------------------
11/30/97 9.14 9.60 9.11 9.13 9.44
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.02% 4.78% 4.38% 4.73% 4.58%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.08 8.64 7.92 8.56 8.29
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.77 4.54 4.18 4.52 4.38
- ------------------------------------------------------------------------------
Taxable equivalent3 8.63 8.21 7.56 8.18 7.92
- ------------------------------------------------------------------------------
1 Capital 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 44.73% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
4 Based only on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 12/31/97
(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
- ------------------------------------------------------------------------------
6 months 4.52% -0.45% 4.22% -0.79% 4.50% 1.12%
- ------------------------------------------------------------------------------
1 year 7.40 2.29 6.74 1.74 7.22 3.75
- ------------------------------------------------------------------------------
5 years 36.36 29.91 31.41 29.41 34.25 29.87
Annual average 6.40 5.37 5.62 5.29 6.07 5.37
- ------------------------------------------------------------------------------
Life of fund 75.26 67.01 64.48 64.48 69.93 64.43
Annual average 7.09 6.46 6.26 6.26 6.69 6.26
- ------------------------------------------------------------------------------
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. See first page of
performance section for performance calculation method.
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 charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. It is not possible to
invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
<TABLE>
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Portfolio of investments owned
November 30,1997 (Unaudited)
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
MUNICIPAL BONDS AND NOTES (96.8%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Minnesota (94.3%)
- ---------------------------------------------------------------------------------------------------------------------------
Bemidji, Hosp. Fac. Rev. Bonds (First Mtge.-North
Country Hlth. Svcs.)
$1,200,000 5 5/8s, 9/1/21 A $ 1,222,500
1,760,000 5 5/8s, 9/1/15 A 1,799,600
500,000 Centennial Indpt. Sch. Dist. No. 012 G.O. Bonds,
Ser. A, FSA, 7.15s, 2/1/12 Aaa 531,250
1,930,000 Chaska Indl. Dev. Rev. Bonds (Lifecore Biomedical Inc.),
10 1/4s, 9/1/20 BB-/P 2,212,263
3,000,000 Cloquet, Poll. Control Rev. Bonds (Potlatch Corp.),
5.9s, 10/1/26 A- 3,123,750
1,000,000 Duluth, Econ. Dev. Auth. Hlthcare Fac. Rev. Bonds
(Duluth Clinic), AMBAC, 6.3s, 11/1/22 Aaa 1,077,500
1,000,000 Duluth Gross Rev. Bonds (Duluth Entertainment),
7.6s, 12/1/11 Baa 1,127,500
950,000 Duluth, Hosp. Rev. Bonds (St. Luke's Hosp.), 9s, 5/1/18 Aaa 988,788
500,000 Fergus Falls, Cmnty. Dev. Rev. Bonds (Lincoln -
St. Andrews Assn.), 8 3/4s, 11/1/06 BB+/P 511,315
1,000,000 Hutchinson, Indpt. School Dist. No. 423 G.O. Bonds,
Ser. A, 5 3/4s, 2/1/13 Aa1 1,055,000
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 1,774,319
1,500,000 Intl. Falls, Poll. Ctr. Rev Bonds (Boise Cascade Corp.),
5.65s, 12/1/22 BBB 1,505,625
2,000,000 Minneapolis Single Fam. Rev. Bonds (Phase V), GNMA
Coll., 6 1/4s, 4/1/22 Aaa 2,132,500
Minneapolis & St. Paul Hsg. & Redev. Auth. Hlth.
Care Syst. Rev. Bonds
4,000,000 (Group Hlth. Plan Inc.), 6.9s, 12/1/22 A3 4,425,000
2,000,000 (Hlth. One Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,147,500
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- 1,227,931
Minneapolis, G.O. Bonds (Sports Arena)
3,000,000 5.2s, 10/1/24 Aaa 3,022,500
1,500,000 5 1/8s, 10/1/20 Aaa 1,501,875
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,811,094
3,050,000 Minneapolis, Special Sch. Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa1 3,061,437
575,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam. Mtge.
Rev. Bonds (Phase VI), Ser. A, GNMA Coll.,
8.3s, 8/1/21 AAA 590,301
2,715,000 Minnetonka, Indpt. School Dist No. 276 Rev. Bonds,
Ser. B, 5 3/4s, 2/1/22 Aa1 2,816,813
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 592,808
400,000 Ser. A-Lot 2, 8 3/8s, 8/1/09 BB+/P 412,388
750,000 Ser. B-Lot 1, 7s, 8/1/16 BB+/P 795,000
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
1,500,000 Ser. A, 6.95s, 3/1/13 Aaa 1,650,000
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,303,750
3,000,000 Ser. B, 5s, 3/1/18 Aaa 2,966,250
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,225,356
MN State Higher Ed. Fac. Auth. Rev. Bonds
1,000,000 (U. St. Thomas), Ser. 3-C, 7 1/8s, 9/1/14 Aaa 1,085,000
580,000 (U. St. Thomas), Ser. 4-P, 5.4s, 4/1/23 A2 572,750
1,000,000 (St. Johns U.), Ser. 4-L, 5.35s, 10/1/17 A3 1,006,250
1,000,000 MN State G.O. Bonds, 6s, 8/1/05 Aaa 1,102,500
3,000,000 MN State Duluth Arpt. Tax Increment G.O. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,187,500
MN State Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
1,640,000 Ser. B-1, 6 3/4s, 1/1/26 AA 1,748,650
975,000 Ser. Q, 6.7s, 1/1/17 AA 1,056,656
5,000,000 MN State Hsg. Fin. Agcy. Single Fam. Rev. Bonds,
Ser. E, 6.85s, 1/1/24 AA 5,368,750
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds, Ser. A,
6.95s, 2/1/14 AA2 1,597,500
Morris Hosp. Fac. Rev. Bonds (Stevens Cmnty.
Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 AAA/P 275,625
500,000 Ser. B, 8 1/4s, 5/1/10 AAA/P 551,250
1,000,000 North Branch, MN Indpt. School Dist. No. 138 G.O.
Bonds, Ser. A, FGIC, 5 1/2s, 2/1/12 Aaa 1,030,000
North St. Paul Maplewood Indpt. Sch. Dist. No. 622
G.O. Bonds, Ser. A, MBIA
2,000,000 7.1s, 2/1/9 Aaa 2,315,000
3,000,000 6 7/8s, 2/1/15 Aaa 3,450,000
Northern Muni. Pwr. Agcy. MN Elec. Syst. Rev. Bonds,
2,000,000 Ser. A, 7 1/4s, 1/1/16 A 2,106,120
2,450,000 FSA, 5 1/2s, 1/1/07 Aaa 2,597,000
1,000,000 Northfield College Fac. Rev. Bonds (St. Olaf College),
6.4s, 10/1/21 A3 1,061,250
1,160,000 Ramsey Cnty., G.O.Bonds, Ser. A, 5 3/8s, 2/1/16 Aaa 1,178,850
Rochester Hlth. Care Fac. IFB (Mayo Foundation)
3,000,000 Ser. E, 7.913s, 11/15/12 AA+ 3,352,500
3,300,000 Ser. H, 7.966s, 11/15/15 # AA+ 3,712,500
4,000,000 Rochester Hlth. Care Fac. Rev. Bonds (Olmsted
Med. Group), 7 1/2s, 7/1/19 BB+/P 4,330,000
2,440,000 Rochester, Indpt. Sch. Dist. No. 535 G.O. Bonds,
Ser. A, 5 1/4s, 2/1/15 Aaa 2,488,800
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl.),
6.95s, 10/1/12 Baa1 2,706,250
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,790,625
Southern MN, Muni. Pwr. Agcy. Syst. Rev. Bonds
300,000 Ser. A, 8 1/8s, 1/1/18 Aaa 306,981
1,240,000 Ser. B, 5s, 1/1/13 A2 1,209,000
10,000,000 MBIA, zero %, 1/1/20 Aaa 3,100,000
1,760,000 Spring Lake Park, Indpt. School Dist. No. 016
Rev. Bonds, MBIA, 5 1/4s, 2/1/17 Aaa 1,771,000
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)
2,800,000 Ser. B, 9 3/4s, 11/1/17 Ba 2,866,500
3,500,000 Ser. A, 6 5/8s, 11/1/17 Ba 3,714,375
1,000,000 Ser. B, 5.85s, 11/1/17 Ba1 1,008,750
1,500,000 Ser. A, 5.7s, 11/1/15 Ba 1,505,625
2,475,000 St. Paul, Indpt. Sch. Dist. No. 625 COP, Ser. C,
5 1/4s, 2/1/16 AA3 2,484,281
3,500,000 Todd Morrison & Stearns Cntys., Indpt. Sch. Dist.
No. 2753 G.O. Bonds, MBIA, 5s, 4/1/17 Aaa 3,421,250
3,000,000 U. Of Minn. Rev. Bonds, Ser. A, 5 1/2s, 7/1/08 AA 3,210,000
4,310,000 Western MN Muni. Pwr. Agcy. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 1/1/06 Aaa 4,837,975
------------
134,364,976
Puerto Rico (2.5%)
- ---------------------------------------------------------------------------------------------------------------------------
2,150,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 6 1/4s, 7/1/12 Aaa 2,445,625
1,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth. Rev. Bonds,
Ser. Y, 6 1/4s, 7/1/13 A 1,131,250
------------
3,576,875
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Total Investments (cost $130,026,427) *** $137,941,851
- ---------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $142,473,177.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at November 30, 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 November 30, 1997. Securities rated by Putnam are
indicated by "/P" and are not publicly rated.
*** The aggregate identified cost on a tax basis is $130,026,427 resulting in gross unrealized
appreciation and depreciation of $8,234,978 and $319,554, respectively, or net unrealized
appreciation of $7,915,424.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at November 30, 1997.
The rates shown on IFB's, which are securities paying interest rates that vary inversely to
changes in the market interest rates are the current interest rates at November 30, 1997.
The fund had the following industry group concentrations greater than 10% at November 30, 1997 (as
a percentage of net assets):
Hospitals/health care 25.0%
Education 22.0
Housing 11.6
The fund had the following insurance concentration greater than 10% at November 30, 1997 (as a
percentage of net assets):
MBIA 13.1%
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- ---------------------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1997
(aggregate face value $14,645,688)
Unrealized
Total Market Aggregate Face Expiration Appreciation/
Value Value Date (Depreciation)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
20 yr T-bond Futures
Contracts (Short) $12,395,500 $12,217,250 Dec 97 $(178,250)
Municipal Bond Index
Futures Contracts (Long) 2,445,625 2,428,438 Dec 97 17,187
- ---------------------------------------------------------------------------------------------------
$(161,063)
- ---------------------------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $130,026,427) (Note 1) $137,941,851
- ---------------------------------------------------------------------------------------------------
Cash 57,790
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 2,420,816
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 251,267
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 7,033,024
- ---------------------------------------------------------------------------------------------------
Total assets 147,704,748
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 9,125
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 237,172
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 4,569,811
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 74,030
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 212,001
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,606
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,748
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,070
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 62,684
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 36,324
- ---------------------------------------------------------------------------------------------------
Total liabilities 5,231,571
- ---------------------------------------------------------------------------------------------------
Net assets $142,473,177
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $137,520,239
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 62,192
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,863,615)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,754,361
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $142,473,177
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($101,011,953 divided by 11,055,936 shares) $9.14
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.14)* $9.60
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($39,644,727 divided by 4,353,298 shares)+ $9.11
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,816,497 divided by 198,932 shares) $9.13
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.13)** $9.44
- ---------------------------------------------------------------------------------------------------
* 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 deffered
sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $4,223,854
- --------------------------------------------------------------------------------------------------
Expenses:
Compensation of Manager (Note 2) 418,805
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 86,988
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,936
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,166
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 101,005
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 160,359
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,642
- --------------------------------------------------------------------------------------------------
Reports to shareholders 11,914
- --------------------------------------------------------------------------------------------------
Registration fees 307
- --------------------------------------------------------------------------------------------------
Auditing 13,780
- --------------------------------------------------------------------------------------------------
Legal 8,389
- --------------------------------------------------------------------------------------------------
Postage 10,428
- --------------------------------------------------------------------------------------------------
Other 4,105
- --------------------------------------------------------------------------------------------------
Total expenses 826,824
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (38,016)
- --------------------------------------------------------------------------------------------------
Net expenses 788,808
- --------------------------------------------------------------------------------------------------
Net investment income 3,435,046
- --------------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (39,912)
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (738,092)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 3,624,638
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,846,634
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,281,680
- --------------------------------------------------------------------------------------------------
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
1997* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,435,046 $ 6,770,788
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (778,004) 460,729
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,624,638 2,249,425
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,281,680 9,480,942
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,562,908) (5,182,778)
- ----------------------------------------------------------------------------------------------------------------------
Class B (834,164) (1,529,534)
- ----------------------------------------------------------------------------------------------------------------------
Class M (35,332) (49,476)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,877,106 4,855,431
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 7,726,382 7,574,585
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 134,746,795 127,172,210
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $62,192 and $59,550, respectively) $142,473,177 $134,746,795
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.95 $ 8.76 $ 8.95 $ 8.79 $ 9.06 $ 8.74
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .23 .47 .47 .51 .51 .55
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 .19 (.19) .15 (.27) .33
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .42 .66 .28 .66 .24 .88
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.47) (.47) (.50) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.47) (.47) (.50) (.51) (.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.14 $ 8.95 $ 8.76 $ 8.95 $ 8.79 $ 9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.75* 7.73 3.16 7.90 2.57 10.33
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $101,012 $98,307 $96,110 $98,418 $95,587 $86,611
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .50* 1.03 1.01 .99 1.03 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.55* 5.32 5.26 5.85 5.60 6.12
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.02* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 July 15, 1993+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.92 $ 8.73 $ 8.92 $ 8.77 $ 9.18
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .20 .41 .41 .45 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 .19 (.19) .15 (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .39 .60 .22 .60 (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.20) (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.20) (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.11 $ 8.92 $ 8.73 $ 8.92 $ 8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.41* 7.04 2.49 7.17 (.32)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $39,645 $35,333 $30,149 $19,698 $8,873
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83* 1.68 1.67 1.63 1.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.22* 4.67 4.57 5.15 4.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.02* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 April 3, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 8.94 $ 8.76 $8.95 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .45 .43 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .19 .18 (.18) .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .41 .63 .25 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $ 9.13 $ 8.94 $8.76 $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 4.59* 7.29 2.82 2.89*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,816 $1,106 $ 913 $ 1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .65* 1.33 1.32 .21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.44* 5.01 4.72 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 8.02* 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
November 30, 1997 (Unaudited)
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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains and losses on investment securities.
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) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations.
E) 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 capital gains, 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
F) 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. 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.
G) 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 yield to maturity
basis.
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% thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 1997, fund expenses were reduced by
$38,016 under expense offset arrangements with PFTC and brokerage service
arrangements. 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 funds receive an annual Trustees fee of which $368 has been
allocated to the fund 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 "Deferral 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
Deferral 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 retainer and meeting fees 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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $7,094 and $-- from the sale of
class A and class M shares, respectively and $28,300 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $124 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1997, purchases and sales of
investment securities other than short-term investments aggregated $14,229,332
and $10,638,612, 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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 616,066 $ 5,600,811
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 191,896 1,746,057
- ------------------------------------------------------------
807,962 7,346,868
Shares
repurchased (737,556) (6,705,871)
- ------------------------------------------------------------
Net increase 70,406 $ 640,997
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 531,312 $ 4,813,935
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 61,021 553,516
- ------------------------------------------------------------
592,333 5,367,451
Shares
repurchased (200,240) (1,814,172)
- ------------------------------------------------------------
Net increase 392,093 $ 3,553,279
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
November 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 74,682 $ 677,454
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
dividends 3,188 28,976
- ------------------------------------------------------------
77,870 706,430
Shares repurchased (2,591) (23,600)
- ------------------------------------------------------------
Net increase 75,279 $ 682,830
- ------------------------------------------------------------
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
- ------------------------------------------------------------
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
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA049-36883-279 11/97
