Putnam
Minnesota
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Since we reported that municipal bonds were a 'screaming buy' ('Why You
Should Bond with Munis,' September 1998), they have become even more
attractive. . . . Trouble is, it's long been next to impossible for an
individual investor to figure out how to get a good deal on a muni bond.
. . . How can you avoid getting snared? The simple answer is to buy via a
mutual fund."
-- "Munificent Munis," Money, November 1998
* "The supply of new issues has already begun to taper off and investment
money is trickling back into the market. While there can be no assurances,
we believe it is only a matter of time before demand begins to pick up in
earnest. Investors simply need to recognize how much of a missed
opportunity the municipal market has been. Once this occurs, a favorable
supply/demand balance should result and Putnam Minnesota Tax Exempt Income
Fund should benefit."
-- Leslie J. Burke, fund manager
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 rush of foreign investors to the safety of U.S. Treasury bonds in
recent months has driven prices on these securities markedly higher.
Because of the inverse relationship of yields to prices, yields on 30-year
Treasuries have declined to virtually the same level as those on long-term
municipals. This near parity has made Minnesota tax-exempt bonds unusually
attractive for the state's tax-conscious investors.
During the first half of Putnam Minnesota Tax Exempt Income Fund's fiscal
1999, Fund Manager Leslie Burke focused closely on portfolio structure,
adjusting duration and credit quality in search of the highest current
income consistent with the fund's secondary emphasis on preservation of
capital.
In the following report from Leslie, you will find a detailed discussion
of this strategy and other aspects of the fund's performance during the
six months ended November 30, 1998. She also offers her views on prospects
for the remainder of fiscal 1999.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 20, 1999
Report from the Fund Manager
Leslie J. Burke
For most of the six months ended November 30, 1998, the municipal bond
market was all dressed up with no place to go. The financial and economic
health of many foreign nations took another turn for the worse during the
period, causing investors around the world to become increasingly risk
averse. As a result, U.S. government-guaranteed Treasury securities of all
maturities became the most sought-after fixed-income investments because
of their safe-haven status. Domestic and foreign investors alike poured
money into the Treasury market, causing a record-setting rally. Meanwhile,
municipal bonds were largely overlooked despite their attractive income
potential, relative price stability, and the market's positive underlying
fundamentals.
While Treasury yields declined and prices soared, municipal bond prices
remained flat, resulting in their notable underperformance relative to
Treasury securities during the past six months. Consequently, Putnam
Minnesota Tax Exempt Income Fund's performance for the semiannual period
reflects the mood of the market. The fund provided a total return of 2.91%
at net asset value for class A shares and -2.00% at public offering price.
More detailed performance information can be found on pages 9 and 10 of
this report.
* PORTFOLIO STRUCTURED FOR UNCERTAIN ENVIRONMENT
The unprecedented degree of volatility in the world's financial markets
created an investment atmosphere that worried investors and puzzled many
experts. The inability of municipal bonds to make headway despite the
unusually attractive characteristics of the overall market is a case in
point. Traditionally municipal bonds are relatively insulated from global
market movements. In this uncertain environment, the way we structured
your fund's portfolio -- in terms of duration, credit quality, income, and
appreciation potential -- became more critical than usual.
The scarce supply of municipal issues in the Minnesota market has always
made it a challenge to get the right balance of different types of
securities. Strong state and local economies have diminished the need for
traditional issuers to borrow; they are generating enough cash flow
internally to meet their financial needs. Having stated this caveat, we
structured the portfolio as best we could to cushion it against further
volatility while providing it with enough flexibility to benefit from
renewed interest in the market.
* CONSERVATIVE APPROACH SEEKS TO KEEP DURATION NEUTRAL
Duration, which is measured in years, is a kind of barometer of a fund's
sensitivity to interest-rate changes. During the period, we took a guarded
approach to interest rates and kept your fund's average duration
relatively neutral. The results suggest that your fund's sensitivity to
either rising or declining rates did not differ significantly from its
competitors or the market average.
Throughout the summer and into early fall, we clustered, or bulleted, the
fund's holdings at what we believed to be the optimum point along the
yield curve -- in long intermediate-term securities. When the yield curve
began to steepen later in the period, these securities performed well.
As longer-term municipal bond prices became historically cheap relative to
comparable Treasury securities, we moved the bulleted position farther out
on the yield curve to select longer-term bonds. Because this position had
the potential to lengthen the fund's duration more than we deemed prudent,
we employed the use of financial futures -- contracts based on an
underlying debt instrument, such as Treasury bonds -- to keep the
portfolio's duration in check. Unfortunately this move hampered your
fund's performance potential during the height of the Treasury market's
rally. Since then, we have scaled this position back somewhat but have not
eliminated it, believing it still has merit given what we believe is the
real possibility of a municipal market rally.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care/
hospitals 29.2%
Education 18.5%
Utilities 11.5%
Housing 11.0%
Transportation 5.4%
Footnote reads:
*Based on net assets as of 11/30/98. Holdings will vary over time.
Inasmuch as we could, we favored insured discount coupon bonds -- Standard
and Poor's AAA-rated bonds with stated coupons lower than the current
market rate. But because they sell at prices below par, their effective
yields are actually much higher than the stated coupon. Once investors
recognize the value that exists in municipal bonds and return to the
market, these holdings stand to perform well.
* CREDIT SENSITIVE ISSUES HELP BOOST PERFORMANCE
One way we have tried to make your fund's portfolio more competitive is to
selectively target issues that can enhance the fund's income potential. To
do this, we have relied on the strength of Putnam's credit research
department to identify undervalued issues with higher return potential.
Putnam's credit research team looks carefully not only at each issuer but
also at the overall industry in which each operates. Often the people who
depend on and benefit from an issuer are also consulted. Through such
in-depth credit analysis, we uncovered several yield-enhanced
opportunities in the hospital and long-term care sectors of the market.
During the period, we purchased several new issues that offered both
appreciation potential and yields in the 6% range. Regions Hospital,
Duluth Board of Social Ministry, and Northfield and Walker Retirement
Center are a few holdings we anticipate will perform well. While the
securities discussed in this report were viewed favorably at the end of
the period, all holdings are subject to review in accordance with the
fund's investment strategy and may vary in the future.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 20.7%
A -- 11.7%
Baa/BBB -- 10.4%
Ba/BB -- 9.7%
VMIG1 -- 0.7%
Aaa/AAA -- 46.8%
Footnote reads:
*As a percentage of market value as of 11/30/98. A bond rated Baa or
higher is considered investment grade. Ratings reflect Moody's and
Standard & Poor's(R) descriptions; percentages may include unrated bonds
considered by Putnam Management to be of comparable quality. Ratings will
vary over time.
One top-performing holding and notable credit success story was your
fund's investment in the Olmstead Medical Group. Purchased several years
ago after extensive credit and market analysis, this high-yielding
security enjoyed a substantial run-up in price as a result of improved
fundamentals and advance refunding early in the period.
A prerefunded bond is one secured by an escrow account of U.S. government
obligations, such as Treasury securities, in an amount sufficient enough
to pay off the entire bond issue at maturity. It is often perceived as
ultrasafe because of the government backing. As a result, prerefunded
bonds tend to trade like high quality bonds. The prerefunding of the
Olmstead holding was exceptionally timely, since prerefunding activity
virtually ground to a halt later in the summer; when Treasury yields
plummeted, Treasury escrows were not adequate enough to pay off municipal
issues.
Another home run for the fund was an investment in lower-quality,
high-coupon Puerto Rico debt. As investors began to chase higher yields,
your fund's Puerto Rico holdings appreciated in price. Because of the
difficult trading environment in Minnesota, however, we opted not to take
profits. Believing that they had no further room to appreciate on a spread
basis, we chose instead to insure these bonds which, in turn, insulated
them from credit quality changes. They then became, in effect, bonds with
a Standard and Poor's rating of AAA. Our efforts proved timely. Soon
thereafter, Hurricane Georges hit the island and uninsured bonds suffered
in price.
* MUNICIPAL BOND PERFORMANCE SHOULD IMPROVE
The magnitude of the Treasury market rally during the period pushed the
yield ratio between municipal bonds and comparable Treasury securities to
the 95% to 100% range, up from the historical 80% to 85%. History suggests
that any time this ratio exceeds 85%, a buying opportunity exists. While
no assurances can be made, we believe the municipal market will eventually
enjoy better sponsorship and resume its upward path once investors come to
recognize the outstanding value that currently exists. In the meantime, we
are holding steady, keeping your fund fully invested and, in our opinion,
well positioned to benefit from any opportunity the market may have in
store.
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 11/30/98, 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 11/30/98
Class A Class B Class M
(inception date) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
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6 months 2.91% -2.00% 2.57% -2.43% 2.75% -0.61%
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1 year 5.95 0.88 5.27 0.27 5.76 2.29
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5 years 30.87 24.63 26.68 24.68 28.76 24.57
Annual average 5.53 4.50 4.84 4.51 5.19 4.49
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Life of fund 84.08 75.42 71.69 71.69 77.98 72.22
Annual average 6.94 6.37 6.12 6.12 6.54 6.16
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/98
Lehman Bros. Consumer
Municipal Bond Index Price Index
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6 months 3.84% 0.74%
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1 year 7.77 1.55
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5 years 37.81 12.48
Annual average 6.63 2.38
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Life of fund 103.52 30.57
Annual average 8.14 2.98
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Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. 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 11/30/98
Class A Class B Class M
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Distributions (number) 6 6 6
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Income $0.224 $0.193 $0.210
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Capital gains1 -- -- --
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Total $0.224 $0.193 $0.210
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Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
5/31/98 $9.19 $9.65 $9.16 $9.19 $9.50
- ------------------------------------------------------------------------------
11/30/98 9.23 9.69 9.20 9.23 9.54
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Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 4.84% 4.61% 4.19% 4.53% 4.39%
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Taxable equivalent3 8.75 8.33 7.57 8.20 7.94
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Current 30-day SEC yield4 3.98 3.79 3.33 3.68 3.56
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Taxable equivalent3 7.20 6.86 6.02 6.66 6.44
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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 12/31/98
(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 2.60% -2.29% 2.26% -2.74% 2.45% -0.90%
- ------------------------------------------------------------------------------
1 year 5.07 0.06 4.38 -0.62 4.75 1.34
- ------------------------------------------------------------------------------
5 years 28.58 22.42 24.45 22.48 26.48 22.44
Annual average 5.16 4.13 4.47 4.14 4.81 4.13
- ------------------------------------------------------------------------------
Life of fund 84.47 75.79 71.95 71.95 78.31 72.54
Annual average 6.89 6.33 6.08 6.08 6.50 6.12
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost.
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 4.75% maximum 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>
<CAPTION>
Portfolio of investments owned
November 30, 1998 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FNMA Coll. -- Federal National Mortgage Association Collateralized
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 (100.5%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
<S> <C>
Minnesota (97.4%)
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Bemidji, Hosp. Fac. Rev. Bonds
$ 1,200,000 (First Mtge.-North Country Hlth. Svcs.),
5 5/8s, 9/1/21 A $ 1,248,000
1,760,000 (First Mtge.-North Country Hlth. Svcs.),
5 5/8s, 9/1/15 A 1,839,200
500,000 Centennial, Indpt. G.O. Bonds (School Dist. No. 12),
Ser. A, FSA, 7.15s, 2/1/12 Aaa 521,875
1,910,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 2,083,581
3,000,000 Cloquet, Poll. Control Rev. Bonds (Potlatch Corp.),
5.9s, 10/1/26 A- 3,183,750
1,000,000 Duluth, Gross Rev. Bonds (Duluth Entertainment),
7.6s, 12/1/11 Baa 1,138,750
Duluth, Econ. Dev. Auth. Hlthcare Fac. Rev. Bonds
1,000,000 AMBAC, (BSM Prop.), 6.3s, 11/1/22 Aaa 1,095,000
750,000 (BSM Prop.), Ser. A, 5 7/8s, 12/1/28 BB/P 750,000
1,000,000 Hutchinson, Indpt. G.O. Bonds (School Dist.
No. 423), Ser. A, 5 3/4s, 2/1/13 Aa1 1,096,250
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade
Corp.), 7.2s, 10/1/24 Baa3 1,760,625
1,500,000 Intl. Falls, Poll. Ctr. Rev Bonds (Boise Cascade
Corp.), 5.65s, 12/1/22 BBB- 1,483,125
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- 1,215,500
Minneapolis, G.O. Bonds (Sports Arena)
3,000,000 5.2s, 10/1/24 Aaa 3,071,250
1,500,000 5 1/8s, 10/1/20 Aaa 1,528,125
Minneapolis Rev. Bonds (Walker Methodist Sr. Svcs.)
2,000,000 Ser. A, 6s, 11/15/28 BB-/P 2,000,000
1,300,000 Ser. C, 6s, 11/15/28 BB-/P 1,300,000
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,817,375
1,695,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 1,809,413
3,050,000 Minneapolis, Special School Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa1 3,137,688
475,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam.
Mtge. Rev. Bonds (Phase VI), Ser. A, GNMA Coll.,
8.3s, 8/1/21 AAA 483,313
7,000,000 Minneapolis & St. Paul Comnty. Arpt. Rev. Bonds,
Ser. A, AMBAC, 5s, 1/1/30 Aaa 6,973,750
Minneapolis & St. Paul, Hsg. & Redev. Auth.
Hlthcare Syst. Rev. Bonds
4,000,000 (Group Hlth. Plan Inc.), 6.9s, 10/15/22 A- 4,365,000
2,000,000 (HlthOne Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,130,000
1,000,000 (Children's Hlthcare), Ser. A, FSA, 5.7s, 8/15/16 Aaa 1,078,750
2,715,000 Minnetonka, Indpt. Rev. Bonds (School Dist No. 276),
Ser. B, 5 3/4s, 2/1/22 Aa1 2,905,050
MN Agricultural & Econ. Dev. Board Rev. Bonds
750,000 (Small Bus. Dev. Loan Program), Ser. B-Lot 1, 7s,
8/1/16 BB+/P 795,000
3,000,000 (Fairview Hosp), Ser. A, MBIA, 5 1/2s, 11/15/17 Aaa 3,232,500
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
1,500,000 Ser. A, 6.95s, 3/1/13 Aaa 1,636,875
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,311,250
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,259,030
1,000,000 MN State G.O. Bonds, 6s, 8/1/05 Aaa 1,122,500
3,000,000 MN State Duluth Arpt. Tax Increment G.O. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,303,750
MN State Higher Ed. Fac. Auth. Rev. Bonds
1,000,000 (U. St. Thomas), Ser. 3-C, 7 1/8s, 9/1/14 AAA/P 1,072,500
580,000 (U. St. Thomas), Ser. 4-P, 5.4s, 4/1/23 A2 589,425
1,000,000 (St. Johns U.), Ser. 4-L, 5.35s, 10/1/17 A3 1,015,000
MN State Hsg. Fin. Agcy. Single Fam. Mtge. Rev. Bonds
1,595,000 Ser. B-1, 6 3/4s, 1/1/26 AA+ 1,700,669
960,000 Ser. Q, 6.7s, 1/1/17 AA+ 1,035,600
5,000,000 Ser. E, 6.85s, 1/1/24 AA+ 5,331,250
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds,
Ser. A, 6.95s, 2/1/14 Aa2 1,593,750
1,000,000 Monticello Big Lake Cmnty. Hosp. Dist. Rev. Bonds
(Hlthcare Fac.), Ser. A, 5 3/4s, 12/1/19 BBB/P 996,250
Morris Hosp. Fac. Rev. Bonds (Stevens Cmnty.
Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 AAA/P 269,375
500,000 Ser. B, 8 1/4s, 5/1/10 AAA/P 538,750
1,000,000 North Branch, MN Indpt. G.O. Bonds
(School Dist. No. 138), Ser. A, FGIC, 5 1/2s,
2/1/12 Aaa 1,062,500
North St. Paul Maplewood Indpt. Sch. Dist. No. 622
G.O. Bonds, Ser. A, MBIA
2,000,000 7.1s, 2/1/19 Aaa 2,342,500
3,000,000 6 7/8s, 2/1/15 Aaa 3,495,000
500,000 North Suburban Hospital Dist. VRDN
(Anoka & Ramsey Cnty. Hosp., Hlth. Ctr.),
3.3s, 8/1/14 AA- 500,000
3,000,000 Northern MN Muni. Pwr. Agcy. Elec. Sys. Rev.
Bonds, Ser. B, AMBAC, 4 3/4s, 1/1/20 Aaa 2,932,500
Northern MN Muni. Pwr. Agcy. Rev. Bonds
2,000,000 Ser. A, 7 1/4s, 1/1/16 A2 2,046,360
2,450,000 FSA, 5 1/2s, 1/1/07 Aaa 2,691,938
1,000,000 Northfield College Fac. Rev. Bonds
(St. Olaf College), 6.4s, 10/1/21 A3 1,081,250
Northfield, Hlthcare Fac. Rev. Bonds
(Retirement Ctr.), Ser. A
1,230,000 6s, 5/1/28 BB/P 1,242,300
690,000 5 3/4s, 5/1/16 BB/P 696,900
1,125,000 Olmsted Cnty., Hlthcare Fac. Rev. Bonds
(Olmsted Med. Ctr.), 5.55s, 7/1/19 BB+/P 1,106,719
1,160,000 Ramsey Cnty., G.O. Bonds, Ser. A, 5 3/8s, 2/1/16 Aaa 1,212,200
Rochester Hlthcare Fac. IFB (Mayo Foundation)
3,000,000 Ser. E, 8.32s, 11/15/12 AA+ 3,375,000
3,300,000 Ser. H, 8.29s, 11/15/15 AA+ 3,844,500
4,000,000 Rochester Hlthcare Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB+/P 4,695,000
2,440,000 Rochester, Indpt. Sch. G.O. Bonds (Dist. No. 535),
Ser. A, 5 1/4s, 2/1/15 Aaa 2,629,100
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl.),
6.95s, 10/1/12 Baa1 2,718,750
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,793,750
Southern MN Muni. Pwr. Agcy. Syst. Rev. Bonds
1,240,000 Ser. B, 5s, 1/1/13 A+ 1,243,100
10,000,000 MBIA, zero %, 1/1/20 Aaa 3,512,500
2,400,000 St. Cloud, Hosp. Fac. Rev. Bonds, Ser. C, AMBAC,
6 3/4s, 7/1/11 Aaa 2,631,000
St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Hltheast)
3,410,000 Ser. A, 6 5/8s, 11/1/17 Baa3 3,652,963
1,000,000 Ser. B, 5.85s, 11/1/17 Baa3 1,036,250
500,000 Ser. A, 5.7s, 11/1/15 Baa3 513,750
2,500,000 St. Paul, Hsg. & Redev. Auth. Rev. Bonds
(Regions Hosp.), 5.3s, 5/15/28 BBB+ 2,440,625
2,475,000 St. Paul, Indpt. COP (School Dist. No. 625),
Ser. C, 5 1/4s, 2/1/16 AA 2,527,593
U. Of MN Rev. Bonds, Ser. A
1,000,000 5 3/4s, 7/1/18 Aa2 1,110,000
3,000,000 5 1/2s, 7/1/08 Aa2 3,307,500
4,310,000 Western MN Muni. Pwr. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 1/1/06 Aaa 4,897,237
--------------
147,157,629
Puerto Rico (3.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,150,000 Cmnwlth. of PR, G.O. Bonds, MBIA, 6 1/4s, 7/1/12 Aaa 2,561,187
1,000,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN, MBIA,
3.05s, 12/1/15 VMIG1 1,000,000
1,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. Rev. Bonds,
Ser. Y, MBIA, 6 1/4s, 7/1/13 AAA 1,183,750
--------------
4,744,937
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Total Investments (cost $141,948,822) (b) $ 151,902,566
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(a) Percentages indicated are based on net assets of $151,114,667.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1998 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, 1998. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $141,948,822 resulting in gross unrealized appreciation and
depreciation of $10,142,834 and $189,090, respectively, or net unrealized appreciation of $9,953,744.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at November 30, 1998.
The rates shown on IFB's, which are securities paying interest rates that vary inversely to changes in the
market interest rates, and VRDN's are the current interest rates at November 30, 1998.
The fund had the following industry group concentrations greater than 10% at November 30, 1998 (as a
percentage of net assets):
Hospitals/Health care 29.2%
Education 18.5
Utilities 11.5
Housing 11.0
The fund had the following insurance concentration greater than 10% at November 30, 1998 (as a percentage of
net assets):
MBIA 12.9%
AMBAC 12.3
- ---------------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1998 (Unaudited)
Unrealized
Aggregate Face Expiration Appreciation
Total Value Value Date (Depreciation)
- ---------------------------------------------------------------------------------------
Municipal Bond Index (Long) $1,897,031 $1,885,560 Dec.-98 $ 11,471
Municipal Bond Index (Short) 1,008,750 1,006,952 Mar.-99 (1,798)
U.S.Treasury Bond (Short) 5,193,750 5,077,972 Dec.-98 (115,778)
U.S.Treasury 20 yr. Bond (Short) 1,036,750 1,035,215 Mar.-99 (1,535)
- ---------------------------------------------------------------------------------------
$(107,640)
- ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1998 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $141,948,822) (Note 1) $ 151,902,566
- -----------------------------------------------------------------------------------------------
Cash 296,575
- -----------------------------------------------------------------------------------------------
Interest and other receivables 2,588,803
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 5,000
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 339,589
- -----------------------------------------------------------------------------------------------
Total assets 155,132,533
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for variation margin 58,886
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 248,282
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 3,289,800
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 119,014
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 187,115
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 13,615
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 8,387
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,009
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 67,888
- -----------------------------------------------------------------------------------------------
Other accrued expenses 23,860
- -----------------------------------------------------------------------------------------------
Total liabilities 4,017,856
- -----------------------------------------------------------------------------------------------
Net assets $151,114,677
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $ 144,689,179
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 16,207
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,436,813)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 9,846,104
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $151,114,677
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($102,667,656 divided by 11,121,345 shares) $9.23
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $9.23)* $9.69
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($47,010,311 divided by 5,110,467 shares)+ $9.20
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($1,436,710 divided by 155,709 shares) $9.23
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $9.23)** $9.54
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or more and on group
sales the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended November 30, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $4,329,593
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 399,086
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 94,987
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,940
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 102,919
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 192,678
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 3,657
- -----------------------------------------------------------------------------------------------
Reports to shareholders 5,959
- -----------------------------------------------------------------------------------------------
Registration fees 1,425
- -----------------------------------------------------------------------------------------------
Auditing 15,976
- -----------------------------------------------------------------------------------------------
Postage 7,935
- -----------------------------------------------------------------------------------------------
Other 37,747
- -----------------------------------------------------------------------------------------------
Total expenses 866,309
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (23,986)
- -----------------------------------------------------------------------------------------------
Net expenses 842,323
- -----------------------------------------------------------------------------------------------
Net investment income 3,487,270
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 612,953
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (686,252)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
futures contracts during the period 668,316
- -----------------------------------------------------------------------------------------------
Net gain on investments 595,017
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $4,082,287
- -----------------------------------------------------------------------------------------------
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
1998* 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 3,487,270 $ 6,726,905
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (73,299) (1,277,903)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 668,316 5,048,065
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,082,287 10,497,067
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,492,520) (5,020,689)
- ---------------------------------------------------------------------------------------------------------------
Class B (950,839) (1,688,604)
- ---------------------------------------------------------------------------------------------------------------
Class M (33,273) (71,593)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,110,693 7,935,353
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 4,716,348 11,651,534
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 146,398,329 134,746,795
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $16,207 and $5,569, respectively) $151,114,677 $146,398,329
- ---------------------------------------------------------------------------------------------------------------
* 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.19 $8.95 $8.76 $8.95 $8.79 $9.06
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .45 .47 .47 .51 .51
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .24 .19 (.19) .15 (.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .26 .69 .66 .28 .66 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.45) (.47) (.47) (.50) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.45) (.47) (.47) (.50) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.23 $9.19 $8.95 $8.76 $8.95 $8.79
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.91* 7.90 7.73 3.16 7.90 2.57
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $102,668 $100,806 $98,307 $96,110 $98,418 $95,587
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* 1.01 1.03 1.01 .99 1.03
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.44* 4.89 5.32 5.26 5.85 5.60
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.93* 10.67 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 November 31, 1998 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.16 $8.92 $8.73 $8.92 $8.77 $9.18
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .39 .41 .41 .45 .39
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .24 .19 (.19) .15 (.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .23 .63 .60 .22 .60 (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.39) (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.39) (.41) (.41) (.45) (.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.20 $9.16 $8.92 $8.73 $8.92 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.57* 7.20 7.04 2.49 7.17 (.32)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $47,010 $44,100 $35,333 $30,149 $19,698 $8,873
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* 1.66 1.68 1.67 1.63 1.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.11* 4.22 4.67 4.57 5.15 4.23*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.93* 10.67 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 November 31, 1998 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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.19 $8.94 $8.76 $8.95 $8.77
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .21 .42 .45 .43 .08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .04 .26 .18 (.18) .17
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .25 .68 .63 .25 .25
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.43) (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.43) (.45) (.44) (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $9.23 $9.19 $8.94 $8.76 $8.95
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.75* 7.70 7.29 2.82 2.89*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,437 $1,492 $1,106 $913 $1
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .63* 1.31 1.33 1.32 .21*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.28* 4.64 5.01 4.72 .93*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 7.93* 10.67 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 November 31, 1998 and thereafter, includes
amounts paid through expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
November 30, 1998 (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
Putnam Investment Management, Inc. ("Putnam Management"), the fund's
Manager, a wholly-owned subsidiary of Putnam Investments, Inc., believes
is consistent with preservation of capital by investing primarily in a
diversified portfolio of longer-term Minnesota tax exempt securities.
The fund offers class A, class B and class M shares. Class A shares are
sold with a maximum front-end sales charge of 4.75%. Class B shares, which
convert to class A shares after approximately six to 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. The fair
value of restricted securities is determined by the Putnam Management
following procedures approved by the Trustees, and such valuations and
procedures are reviewed periodically by the Trustees.
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. For the six months
ended November 30, 1998, the fund had no borrowings against the line of
credit.
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, 1998, the fund had a capital loss carryover of approximately
$1,719,000 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
164,000 May 31, 2006
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 distributions
(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. Effective August 1, 1998, the trustees voted to reduce
the annual fee to 0.50% of average net assets. This reduction will remain
in effect until January 31, 2000.
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, 1998, fund expenses were reduced by
$23,986 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.
Each Trustee of the fund receives an annual Trustee fee, of which $330 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 have approved 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, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $12,457 and no monies
from the sale of class A and class M shares, respectively and received
$33,766 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 that were purchased without an initial sales
charge as part of an investment of $1 million or more. For the six months
ended November 30, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $6,186 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended November 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$18,185,013 and $11,713,794 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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended
November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 852,939 $ 7,853,992
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 183,685 1,691,979
- -----------------------------------------------------------------------------
1,036,624 9,545,971
Shares
repurchased (880,635) (8,111,267)
- -----------------------------------------------------------------------------
Net increase 155,989 $ 1,434,704
- -----------------------------------------------------------------------------
Year ended
May 31, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,312,937 $ 12,011,038
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 370,581 3,391,346
- -----------------------------------------------------------------------------
1,683,518 15,402,384
Shares
repurchased (1,703,692) (15,576,477)
- -----------------------------------------------------------------------------
Net decrease (20,174) $ (174,093)
- -----------------------------------------------------------------------------
Six months ended
November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 601,559 $5,524,967
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 70,778 649,840
- -----------------------------------------------------------------------------
672,337 6,174,807
Shares
repurchased (374,524) (3,437,153)
- -----------------------------------------------------------------------------
Net decrease 297,813 $2,737,654
- -----------------------------------------------------------------------------
Year ended
May 31, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,212,364 $11,053,422
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 123,282 1,124,947
- -----------------------------------------------------------------------------
1,335,646 12,178,369
Shares
repurchased (484,197) (4,416,317)
- -----------------------------------------------------------------------------
Net decrease 851,449 $ 7,762,052
- -----------------------------------------------------------------------------
Six months ended
November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,755 $ 25,484
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,514 32,347
- -----------------------------------------------------------------------------
6,269 57,831
Shares
repurchased (12,969) (119,496)
- -----------------------------------------------------------------------------
Net decrease (6,700) $ (61,665)
- -----------------------------------------------------------------------------
Year ended
May 31, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 81,529 $ 740,471
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,025 64,302
- -----------------------------------------------------------------------------
88,554 804,773
Shares
repurchased (49,798) (457,379)
- -----------------------------------------------------------------------------
Net increase 38,756 $ 347,394
- -----------------------------------------------------------------------------
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Leslie J. Burke
Vice President and Fund Manager
John R. Verani
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
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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SA049/48667/847/238/129 1/99
