Putnam
Minnesota
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
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From the Trustees
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Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We embark upon this new era of Putnam's rich heritage with confidence
and we look forward to the opportunity of continuing to help you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
REPORT FROM THE FUND MANAGER
Susan A. McCormack
During Putnam Minnesota Tax Exempt Income Fund's fiscal year, which
ended May 31, 2000, the Federal Reserve Board raised interest rates six
times. The most recent increase, in May, pushed short-term rates up by
half a percentage point -- the first time in more than five years that
the central bank raised rates by that much. Although the higher yields
these rate increases produce benefit investors seeking income, rising
rates push bond prices down -- a fixed-income fact of life that is
reflected in your fund's total returns.
Total return for 12 months ended 5/31/00
Class A Class B Class M
NAV POP NAV CDSC NAV POP
----------------------------------------------------
-3.30% -7.88% -3.84% -8.44% -3.49% -6.59%
----------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 7.
* EARLY JUNE STATISTICS INDICATE SLOWING ECONOMY
As prices fell during the year, we began to extend the fund's duration
selectively. Duration is a measure of the price sensitivity of a bond
fund to changes in interest rates. On average, a portfolio of securities
scheduled to mature in a relatively long period is likely to be more
volatile in price than a fund with a shorter duration. In addition, we
emphasized higher yields in an effort to lock in as high a stream of
sustainable income as possible. As of the end of fiscal 2000, the
average duration of the securities in the portfolio was 8.1 years versus
7.3 years at the beginning of the period.
Although total return for the year was negative, since it reflects price
changes as well as dividends, the average market yield of portfolio
holdings was 6.07% as of May 31, 2000, compared with 5.13% at the
beginning of the fiscal year. (The fund's 30-day SEC yield will differ.
Yields and dividend rates as of the last day of the fiscal year can be
found on page 8.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care 33.8%
Education 19.5%
Utilities 10.1%
Housing 6.1%
Water and sewer 3.9%
Footnote reads:
*Based on net assets as of 5/31/00. Holdings will vary over time.
"With the stock-market volatility and higher interest rates. . . bond
funds are beginning to look more attractive to some investors."
-- "Your Money," The Orange County Register, May 6, 2000
Although the decline in principal value that accompanies increasing
interest rates is never easy for bond investors to accept, it is
important to keep in mind that the Fed's objective -- to contain
inflation -- is ultimately positive for the financial markets. Recent
financial news stories highlighted statistics that show the economy is
slowing, leading many observers to hope that the Fed will end its
year-long cycle of rate increases. However, early reactions by Fed
members indicate that they want more evidence of a slowing economy. For
example, in a June 8 interview with Reuters, Dallas Federal Reserve Bank
President Robert McTeer described the economy as "still strong" and said
that the news of increasing jobless claims and slowing wage increases
was only a sign that the economy was "letting a little steam out."
* WIDER YIELD SPREADS MAKE HIGH-YIELD BONDS MORE ATTRACTIVE
During much of the past year, liquidity has been tight in the bond
market. Strong, positive momentum among high-tech stocks deflected
interest from more conservative investments. During the latter half of
the fund's fiscal year, as the stock market's euphoria received some
unpleasant interruptions, many investors took profits, resulting in
taxable capital gains. To reduce the resulting tax consequences, some
investors elected to realize losses on their bond portfolios to offset
gains. With more money flowing out of the bond market than into it, the
difference in yields between lower- and higher-rated bonds intensified.
For example, at the beginning of the fiscal year, BBB-rated bonds yield
about 40 basis points more than comparable AAA-rated bonds, but recently
that difference widened to about 75 basis points. This remarkable yield
difference, in our view, compensates investors for the higher risk
inherent in lower-rated bonds.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aaa/AAA -- 44.8%
Aa/AA -- 22.9%
A -- 6.4%
Baa/BBB -- 8.6%
Ba/BB -- 15.8%
VMIG1 -- 1.5%
Footnote reads:
*As a percentage of market value as of 5/31/00. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
Early signs indicate that liquidity may be returning to the bond market,
which may also bring yield spreads back closer to historic norms.
Although there can be no assurances, as the fiscal year drew to a close
in May, investor interest in municipal bonds seemed to be on an upswing
as a result of the attractive tax-free yields currently available.
* FUND STRATEGIES DESIGNED TO SECURE TAX BENEFITS, INCOME
One of our goals in the past year, as rising interest rates caused bond
prices to decline, has been to take increasing advantage of the higher
yields available. We have sold some securities purchased in previous
years when interest rates were lower and invested the proceeds in new,
higher-yielding issues with comparable characteristics. In some cases,
this meant realizing a loss on the sale of older securities; however,
any such losses will be available to offset any future capital gains the
fund may realize, which would otherwise be taxable to shareholders.
(Only the net investment income your fund earns is tax exempt.)
Fiscal policy? Monetary policy?
Fiscal policy refers to the federal government's use of spending and taxation
to control the economy. If the government raises taxes, people will have
less money to spend, therefore reducing demand. If the government lowers
taxes, people will be more inclined to spend money. The government can
also spend money to influence demand.
Monetary policy attempts to influence the economy by controlling the
money supply. Monetary policy is normally carried out by a central bank.
The central bank in the United States is the Federal Reserve. Monetary
policy can influence the economy by altering interest rates. By reducing
the supply of money, monetary policy can raise interest rates and
discourage lending. Decreased lending results in less investment and
less production.
Right now, the Fed's Board of Governors is implementing tighter monetary
policy and bond funds, including municipal bonds, are not performing
well as a result of the inverse relationship of interest rates and bond
prices. Treasury bonds take the brunt of the impact when interest rates
rise, while municipal bonds (attracting only domestic investors) are
somewhat insulated but by no means exempt. Rising interest rates also
affects the supply of municipal bonds because cities and towns do not
want to float new bonds or refund outstanding bonds when interest rates
are rising.
(First two paragraphs adapted from "The Importance of Independence" by
David W. Gallivan, www.GetExuberant.com.)
Robbinsdale Independent School District is a recent example of a new
issue we purchased using proceeds from the sale of a lower yielding
security. We bought the Robbinsdale bonds when they were issued in March
with a coupon of 5 5/8 maturing in 2021. They were rated Aa1 by Moody's.
We bought them at a yield to the fund of 5.8% using proceeds from the
sale of some Northern Municipal Power Agency bonds. The Northern bonds
we sold had a coupon of 5 1/2 maturing in 2007, with a yield to the fund
of approximately 4.7% based on their price when we purchased them
several years ago. This transaction enabled us to realize a loss, extend
the portfolio maturity, and increase the fund's yield.
* INVESTING FOR HIGH YIELD DEMANDS RESEARCH, ONGOING VIGILANCE
Minnesota's fiscal strength is reflected in the fact that well over half
of your fund's investments are rated AA or better. The state's economy
is strong and diversified, and it enjoys sizable budget surpluses.
However, we are committed to seeking the highest returns available for
this fund's shareholders, and we believe the best opportunities at this
time come from carefully selected, lower-rated bonds.
Consequently, the health-care sector is your fund's largest area of
concentration, even though some hospitals and extended care facilities
are on difficult financial ground. The Balanced Budget Act had a
negative impact on hospitals nationwide because it changed medical
reimbursement schedules. Some hospitals became insolvent, but the
stronger institutions survived. Today Congress is concerned that the
decreased availability of hospital beds may harm their constituents.
More recently, trends that hurt this industry seem to be reversing.
However, individual issues require close attention. Most of the hospital
issues the fund owns are not insured and are lower rated, but they offer
higher potential reward. In addition to the scrutiny that goes into each
purchase decision, we receive quarterly or, in some cases, monthly
financial reports, and since we speak directly to the people managing
each facility, we are alert to developments that may affect the
facility's financial health.
* ECONOMIC, MARKET, AND SUPPLY/DEMAND TRENDS SEEM FAVORABLE
The Federal Reserve Board sets policy based on statistical evidence of
current economic trends. The bond and stock markets, on the other hand,
move up or down based on investors' hopes or fears of what might happen,
which are often exaggerated. We believe the current yield spreads
between lower- and higher-rated bonds suggest that the market may have
more than discounted future tightening by the Fed and anticipated all
but the most severe economic scenarios. Although we expect the markets
to remain unstable over the near term and more rate hikes are possible,
we believe price performance will improve for the bond market as a whole
as the fund's new fiscal year unfolds.
Meanwhile, with large state and local budget surpluses and in today's
higher interest-rate environment, supply in the municipal market is
likely to continue to be tight. In a slower economic environment,
investors may take renewed interest in the fixed-income markets in
general and in tax-free bonds in particular because of their extremely
attractive yields. This would tend to bring renewed demand and potential
price recovery to municipal bond fund shareholders.
The views expressed here are exclusively those of Putnam Management.
They are not meant as investment advice. Although the described holdings
were viewed favorably as of 5/31/00, 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 Fund is designed for investors seeking a high level
of current income free from federal and state income tax consistent with
preservation of capital.
TOTAL RETURN FOR PERIODS ENDED 5/31/00
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
----------------------------------------------------------------------
1 year -3.30% -7.88% -3.84% -8.44% -3.49% -6.59%
----------------------------------------------------------------------
5 years 19.82 14.07 16.10 14.24 18.00 14.18
Annual average 3.68 2.67 3.03 2.70 3.37 2.69
----------------------------------------------------------------------
10 years 73.30 65.06 61.06 61.06 67.33 61.86
Annual average 5.65 5.14 4.88 4.88 5.28 4.93
----------------------------------------------------------------------
Life of fund 78.83 70.41 65.30 65.30 72.11 66.55
Annual average 5.64 5.16 4.86 4.86 5.26 4.93
----------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/00
Lehman Bros. Municipal Consumer
Bond Index price index
----------------------------------------------------------------------
1 year -0.86% 3.07%
----------------------------------------------------------------------
5 years 28.55 12.55
Annual average 5.15 2.39
----------------------------------------------------------------------
10 years 94.58 32.59
Annual average 6.88 2.86
----------------------------------------------------------------------
Life of fund 103.39 36.39
Annual average 6.94 2.98
----------------------------------------------------------------------
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.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 5/31/90
Lehman Brothers
Fund's class A Municipal Bond Consumer price
Date shares at POP Index index
5/31/90 9,525 10,000 10,000
5/31/91 10,365 11,008 10,495
5/31/92 11,283 12,089 10,813
5/31/93 12,448 13,535 11,161
5/31/94 12,768 13,869 11,416
5/31/95 13,776 15,137 11,780
5/31/96 14,211 15,828 12,121
5/31/97 15,309 17,141 12,392
5/31/98 16,512 18,750 12,601
5/31/99 17,069 19,627 12,864
5/31/00 $16,506 $19,458 $13,259
Footnote reads:
Past performance is no assurance of future results. At the end of
the same time period, a $10,000 investment in the fund's class B
shares would have been valued at $16,106 and no contingent deferred
sales charges would apply; a $10,000 investment in the fund's class M
shares would have been valued at $16,733 ($16,186 at public offering
price).
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 5/31/00
Class A Class B Class M
----------------------------------------------------------------------
Distributions (number) 12 12 12
----------------------------------------------------------------------
Income $0.441902 $0.384898 $0.415899
----------------------------------------------------------------------
Capital gains1 -- -- --
----------------------------------------------------------------------
Total $0.441902 $0.384898 $0.415899
----------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
----------------------------------------------------------------------
5/31/99 $9.05 $9.50 $9.02 $9.04 $9.34
----------------------------------------------------------------------
5/31/00 8.31 8.72 8.29 8.31 8.59
----------------------------------------------------------------------
Current return (end of period)
----------------------------------------------------------------------
Current dividend rate2 5.37% 5.11% 4.71% 5.07% 4.90%
----------------------------------------------------------------------
Taxable equivalent3 9.66 9.20 8.48 9.12 8.82
----------------------------------------------------------------------
Current 30-day SEC yield4 5.29 5.04 4.63 4.98 4.82
----------------------------------------------------------------------
Taxable equivalent3 9.52 9.07 8.33 8.96 8.67
----------------------------------------------------------------------
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 44.43% 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 6/30/00 (most recent calendar quarter)
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
----------------------------------------------------------------------
1year 0.15% -4.57% -0.49% -5.25% -0.14% -3.40%
----------------------------------------------------------------------
5 years 23.91 18.02 19.97 18.05 21.93 17.92
Annual average 4.38 3.37 3.71 3.37 4.05 3.35
----------------------------------------------------------------------
10 years 75.71 67.40 63.49 63.49 69.66 64.11
Annual average 5.80 5.29 5.04 5.04 5.43 5.08
----------------------------------------------------------------------
Life of fund 82.67 74.07 68.82 68.82 75.79 70.10
Annual average 5.80 5.32 5.02 5.02 5.42 5.10
----------------------------------------------------------------------
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. 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 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 index of
approximately 20,000 investment-grade, fixed-rate 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.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss
for the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that
remain in the portfolio -- any change in unrealized gains or losses over
the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended May 31, 2000
To the Trustees and Shareholders of
Putnam Minnesota Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio (except for bond ratings) and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of Putnam Minnesota Tax Exempt Income Fund (the "fund") at May
31, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at May 31,
2000 by correspondence with the custodian, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 11, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FNMA Coll. -- Federal National Mortgage Association Collateralized
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
GNMA Coll. -- Government National Mortgage Association Collateralized
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Minnesota (96.7%)
-------------------------------------------------------------------------------------------------------------------
Bemidji, Hosp. Fac. Rev. Bonds (First Mtge.-North
Country Hlth.Svcs.)
$ 1,200,000 5 5/8s, 9/1/21 A $ 1,066,500
1,760,000 5 5/8s, 9/1/15 A 1,643,400
1,885,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 2,015,103
3,000,000 Cloquet, Poll. Control Rev. Bonds
(Potlatch Corp.), 5.9s, 10/1/26 BBB+ 2,647,500
1,000,000 Duluth, Gross Rev. Bonds (Duluth Entertainment),
7.6s, 12/1/11 Baa 1,076,250
Duluth, Econ. Dev. Auth. Hlthcare Fac. Rev. Bonds
1,000,000 (Duluth Clinic), AMBAC, 6.3s, 11/1/22 Aaa 1,048,750
1,250,000 (BSM Properties, Inc.), Ser. A, 5 7/8s, 12/1/28 BB/P 978,125
1,000,000 Hutchinson, Indpt. G.O. Bonds
(School Dist. No. 423), Ser. A, 5 3/4s, 2/1/13 Aa1 1,013,750
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds
(Boise Cascade Corp.), 7.2s, 10/1/24 Baa3 1,566,956
1,500,000 Intl. Falls, Poll. Ctr. Rev Bonds
(Boise Cascade Corp.), 5.65s, 12/1/22 BB+ 1,278,750
2,000,000 Martin Cnty., Hosp. Rev Bonds
(Fairmont Cmnty. Hosp.), 6 5/8s, 9/1/22 BB/P 1,732,500
Minneapolis Rev. Bonds (Walker Methodist Sr. Svcs.)
2,000,000 Ser. A, 6s, 11/15/28 BB-/P 1,605,000
1,300,000 Ser. C, 6s, 11/15/28 BB-/P 1,043,250
Minneapolis & St. Paul Comnty Arpt. Rev. Bonds
1,000,000 Ser. B, FGIC, 5 1/2s, 1/1/11 AAA 981,250
1,750,000 Ser. A, AMBAC, 5s, 1/1/30 Aaa 1,480,938
280,000 Minneapolis & St. Paul, Hsg. Fin. Board Single
Fam. Mtge. Rev. Bonds (Phase VI), Ser. A,
GNMA Coll., 8.3s, 8/1/21 AAA 280,160
Minneapolis & St. Paul, Hsg. & Redev. Auth.
Hlthcare Syst. Rev. Bonds
2,000,000 (HlthOne Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,047,160
1,000,000 (Childrens Hlthcare), Ser. A, FSA, 5.7s, 8/15/16 Aaa 965,000
1,250,000 Minneapolis & St. Paul, Metropolitan Arpt. Cmnty.
Arpt. Rev. Bonds, Ser. B, AMBAC, 5 1/4s, 1/1/14 Aaa 1,164,063
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- 1,157,488
Minneapolis, G.O. Bonds (Sports Arena)
3,000,000 5.2s, 10/1/24 Aaa 2,666,250
1,500,000 5 1/8s, 10/1/20 Aaa 1,344,375
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,727,344
1,445,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 1,459,450
3,050,000 Minneapolis, Special Sch. Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa+ 2,908,932
7,480,000 Minnesota, Agricultural & Econ. Dev. Board Rev.
Bonds (Benedictine Hlth.), Ser. A, MBIA,
5 1/4s, 2/15/14 AAA 7,003,150
1,000,000 Minnesota, Muni. Pwr. Agcy. Elec. Syst. Rev. Bonds,
FSA, 5 3/8s, 1/1/14 Aaa 967,500
2,715,000 Minnetonka, Indpt. Rev. Bonds (School Dist
No. 276), Ser. B, 5 3/4s, 2/1/22 Aa1 2,647,125
MN Agricultural & Econ. Dev. Board Rev. Bonds
750,000 (Small Bus. Dev. Loan Program), Ser. B-Lot
1, 7s, 8/1/16 BBB-/P 765,938
3,000,000 (Fairview Hosp), Ser. A, MBIA, 5 1/2s, 11/15/17 Aaa 2,850,000
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,135,000
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,040,144
3,000,000 MN State Duluth Arpt. Tax Increment G.O. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,071,250
1,000,000 MN State G.O. Bonds, 6s, 8/1/05 Aaa 1,041,250
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 1,015,660
580,000 (U. St. Thomas), Ser. 4-P, 5.4s, 4/1/23 A2 526,350
1,000,000 (St. Johns U.), Ser. 4-L, 5.35s, 10/1/17 A3 907,500
4,970,000 MN State Hsg. Fin. Agcy., FRB, 8.35s, 1/1/24 Aa2 5,147,827
MN State Hsg. Fin. Agcy. Single Fam. Mtge. Rev.
Bonds
1,440,000 Ser. B-1, 6 3/4s, 1/1/26 Aa2 1,463,400
645,000 Ser. Q, 6.7s, 1/1/17 Aa2 665,963
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds, Ser. A,
6.95s, 2/1/14 Aa2 1,540,170
1,000,000 Monticello Big Lake Cmnty. Hosp. Dist. Rev. Bonds
(Hlthcare Fac.), Ser. A, 5 3/4s, 12/1/19 BBB/P 825,000
1,500,000 New Hope, Hsg. & Hlth. Rev. Bonds
(Minnesota Masonic Home North Ridge),
5 7/8s, 3/1/29 BB-/P 1,186,875
North St. Paul Maplewood Indpt Sch. Dist. No.
622 G.O. Bonds, Ser. A, MBIA
2,000,000 7.1s, 2/1/19 Aaa 2,162,500
3,000,000 6 7/8s, 2/1/15 Aaa 3,213,750
3,000,000 Northern MN Muni. Pwr. Agcy. Elec. Syst. Rev.
Bonds, Ser. B, AMBAC, 4 3/4s, 1/1/20 AAA 2,512,500
1,000,000 Northern MN Muni. Pwr. Agcy. Rev. Bonds, FSA,
5 1/2s, 1/1/07 A 1,015,000
1,000,000 Northfield College Fac. Rev. Bonds
(St. Olaf College), 6.4s, 10/1/21 A3 1,013,750
Northfield, Hlthcare Fac. Rev. Bonds
(Retirement Ctr.), Ser. A
1,230,000 6s, 5/1/28 BB/P 994,763
690,000 5 3/4s, 5/1/16 BB/P 577,875
1,125,000 Olmsted Cnty., Hlthcare Fac. Rev. Bonds
(Olmsted Med. Ctr.), 5.55s, 7/1/19 BB+/P 876,094
1,160,000 Ramsey Cnty., G.O. Bonds, Ser. A, 5 3/8s, 2/1/16 Aaa 1,104,900
2,000,000 Robbinsdale, G.O. Bonds (Indpt. School Dist.
No. 281), 5 5/8s, 2/1/21 Aa1 1,920,000
Rochester Hlthcare Fac. IFB (Mayo Foundation)
3,000,000 Ser. E, 7.66s, 11/15/12 AA+ 3,090,000
3,300,000 Ser. H, 7.41s, 11/15/15 (SEG) AA+ 3,378,375
4,000,000 Rochester Hlthcare Fac. Rev. Bonds
(Olmsted Med. Group), 7 1/2s, 7/1/19 BB+/P 4,415,000
2,000,000 Rochester, Indpt. Sch. G.O. Bonds (Dist. No. 535),
Ser. A, 5 1/4s, 2/1/15 Aaa 2,007,500
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl.),
6.95s, 10/1/12 Baa 2,584,375
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,631,250
Southern MN Muni. Pwr. Agcy. Syst. Rev. Bonds
1,240,000 Ser. B, 5s, 1/1/13 A 1,139,250
10,000,000 MBIA, zero %, 1/1/20 Aaa 3,087,500
1,500,000 St. Cloud, Hlth. Care Rev. Bonds (St. Cloud Hosp.
Oblig. Group), Ser. A, 6 1/4s, 5/1/17 Aaa 1,552,500
St. Paul, Hsg. & Hosp. Redev. Auth. Rev. Bonds
(Hltheast)
3,315,000 Ser. A, 6 5/8s, 11/1/17 Ba1 2,855,044
1,000,000 Ser. B, 5.85s, 11/1/17 Ba1 790,000
500,000 Ser. A, 5.7s, 11/1/15 Ba1 401,875
2,500,000 St. Paul, Hsg. & Redev. Auth. Rev. Bonds
(Regions Hosp.), 5.3s, 5/15/28 BBB+ 1,896,875
2,475,000 St. Paul, Indpt. COP (School Dist. No. 625),
Ser. C, 5 1/4s, 2/1/16 Aa3 2,326,500
U. of MN Rev. Bonds, Ser. A
1,000,000 5 3/4s, 7/1/18 Aa 1,005,000
3,000,000 5 1/2s, 7/1/08 Aa 3,056,250
4,310,000 Western MN Muni. Pwr. Agcy. Rev. Bonds,
Ser. A, AMBAC, 6 1/4s, 1/1/06 Aaa 4,530,889
----------------
129,837,661
Puerto Rico (1.5%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN, MBIA,
3.4s, 12/1/15 VMIGI 2,000,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $137,225,581) (b) $ 131,837,661
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $134,301,722.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at May 31, 2000 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the agencies may from time to time revise such ratings,
they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at May 31, 2000. Securities rated by Putnam are indicated by
"/P" and are not publicly rated. Ratings are not covered by the Report
of independent accountants.
(b) The aggregate identified cost on a tax basis is $137,225,581,
resulting in gross unrealized appreciation and depreciation of
$2,066,994 and $7,454,914, respectively, or net unrealized depreciation
of $5,387,920.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at May 31,
2000.
The rates shown on Floating Rate Bonds (FRB) are the current
interest rates at May 31, 2000, which are subject to change based on the
terms of the security.
The rates shown on IFB, 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 May 31, 2000.
The fund had the following industry group concentrations greater
than 10% at May 31, 2000 (as a percentage of net assets):
Health care/hospitals 33.8%
Education 19.5
Utilities 10.1
The fund had the following insurance concentration greater than
10% at May 31, 2000 (as a percentage of net assets):
MBIA 16.7%
-----------------------------------------------------------------------------
Futures Contracts Outstanding at May 31, 2000
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
-----------------------------------------------------------------------------
Municipal Bond
Future (Long) $3,090,656 $3,060,250 Jun-00 $30,406
-----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $137,225,581) (Note 1) $131,837,661
-------------------------------------------------------------------------------------------
Cash 753,092
-------------------------------------------------------------------------------------------
Interest and other receivables 2,108,752
-------------------------------------------------------------------------------------------
Receivable for securities sold 97,099
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 223,079
-------------------------------------------------------------------------------------------
Receivable for variation margin 26,812
-------------------------------------------------------------------------------------------
Total assets 135,046,495
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 268,478
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 185,196
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 170,752
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,860
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,976
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 951
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 62,547
-------------------------------------------------------------------------------------------
Other accrued expenses 43,013
-------------------------------------------------------------------------------------------
Total liabilities 744,773
-------------------------------------------------------------------------------------------
Net assets $134,301,722
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $143,535,200
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (73,651)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,802,313)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (5,357,514)
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $134,301,722
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($86,867,556 divided by 10,448,348 shares) $8.31
-------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.31)* $8.72
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($45,249,050 divided by 5,458,529 shares)+ $8.29
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,185,116 divided by 262,904 shares) $8.31
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.31)** $8.59
-------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000
or more and on group sales, the offering price is reduced.
** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
+ Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended May 31, 2000
<S> <C>
Tax exempt interest income: $ 8,625,928
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 734,213
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 170,580
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,443
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,848
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 187,600
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 412,788
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 10,512
-------------------------------------------------------------------------------------------
Reports to shareholders 13,344
-------------------------------------------------------------------------------------------
Legal 5,624
-------------------------------------------------------------------------------------------
Auditing 41,208
-------------------------------------------------------------------------------------------
Postage 11,175
-------------------------------------------------------------------------------------------
Other 13,924
-------------------------------------------------------------------------------------------
Management fee waiver (Note 2) (12,654)
-------------------------------------------------------------------------------------------
Total expenses 1,605,605
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (87,702)
-------------------------------------------------------------------------------------------
Net expenses 1,517,903
-------------------------------------------------------------------------------------------
Net investment income 7,108,025
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (235,008)
-------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (168,149)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (12,234,788)
-------------------------------------------------------------------------------------------
Net loss on investments (12,637,945)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (5,529,920)
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended May 31
------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 7,108,025 $ 7,013,391
--------------------------------------------------------------------------------------------------
Net realized loss on investments (403,157) (18,383)
--------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (12,234,788) (2,300,514)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,529,920) 4,694,494
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (4,824,004) (5,044,666)
--------------------------------------------------------------------------------------------------
Class B (2,182,127) (1,999,529)
--------------------------------------------------------------------------------------------------
Class M (101,603) (65,961)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (8,902,810) 11,859,519
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (21,540,464) 9,443,857
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 155,842,186 146,398,329
--------------------------------------------------------------------------------------------------
End of year (including distributions in excess of net
investment income of $73,651 and $73,942, respectively) $134,301,722 $155,842,186
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.05 $9.19 $8.95 $8.76 $8.95
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .44(a) .45(a) .45 .47 .47
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.74) (.14) .24 .19 (.19)
------------------------------------------------------------------------------------------------
Total from
investment operations (.30) .31 .69 .66 .28
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.44) (.45) (.45) (.47) (.47)
------------------------------------------------------------------------------------------------
Total distributions (.44) (.45) (.45) (.47) (.47)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.31 $9.05 $9.19 $8.95 $8.76
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.30) 3.38 7.90 7.73 3.16
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $86,868 $102,869 $100,806 $98,307 $96,110
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .89(a) .92(a) 1.01 1.03 1.01
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.15(a) 4.81(a) 4.89 5.32 5.26
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.09 12.79 10.67 50.80 109.85
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B, and class M, respectively. Expenses of the fund for the year
ended May 31, 1999, reflect a reduction of $.01 per share for Class A,
Class B and Class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.02 $9.16 $8.92 $8.73 $8.92
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .38(a) .38(a) .39 .41 .41
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.73) (.13) .24 .19 (.19)
------------------------------------------------------------------------------------------------
Total from
investment operations (.35) .25 .63 .60 .22
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.38) (.39) (.39) (.41) (.41)
------------------------------------------------------------------------------------------------
Total distributions (.38) (.39) (.39) (.41) (.41)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.29 $9.02 $9.16 $8.92 $8.73
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.84) 2.70 7.20 7.04 2.49
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $45,249 $51,360 $44,100 $35,333 $30,149
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.54(a) 1.57(a) 1.66 1.68 1.67
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.50(a) 4.16(a) 4.22 4.67 4.57
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.09 12.79 10.67 50.80 109.85
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B, and class M, respectively. Expenses of the fund for the year
ended May 31, 1999, reflect a reduction of $.01 per share for Class A,
Class B and Class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended May 31
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.04 $9.19 $8.94 $8.76 $8.95
------------------------------------------------------------------------------------------------
Investment operations
------------------------------------------------------------------------------------------------
Net investment income .42(a) .41(a) .42 .45 .43
------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.73) (.14) .26 .18 (.18)
------------------------------------------------------------------------------------------------
Total from
investment operations (.31) .27 .68 .63 .25
------------------------------------------------------------------------------------------------
Less distributions:
------------------------------------------------------------------------------------------------
From net
investment income (.42) (.42) (.43) (.45) (.44)
------------------------------------------------------------------------------------------------
Total distributions (.42) (.42) (.43) (.45) (.44)
------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.31 $9.04 $9.19 $8.94 $8.76
------------------------------------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.49) 2.96 7.70 7.29 2.82
------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,185 $1,613 $1,492 $1,106 $913
------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.19(a) 1.22(a) 1.31 1.33 1.32
------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.87(a) 4.51(a) 4.64 5.01 4.72
------------------------------------------------------------------------------------------------
Portfolio turnover (%) 12.09 12.79 10.67 50.80 109.85
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
(a) Reflects a management fee waiver during the period (Note 2). As a
result of such waiver, expenses of the fund for the year ended May 31,
2000, reflect a reduction of less than $0.01 per share for class A,
class B, and class M, respectively. Expenses of the fund for the year
ended May 31, 1999, reflect a reduction of $.01 per share for Class A,
Class B and Class M, respectively.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
May 31, 2000
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 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 higher than class A but lower than
class B 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 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 year ended
May 31, 2000, 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, 2000, the fund had a capital loss carryover of approximately
$3,143,000 available to offset future capital gains, if any. The amount
of the carryover and the expiration dates are:
Loss Carryover Expiration
-------------- ------------------
$ 533,000 May 31, 2003
832,000 May 31, 2004
164,000 May 31, 2006
1,614,000 May 31, 2008
F) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences include temporary and permanent
differences of post-October loss deferrals, dividends payable and
unrealized gains and losses on certain futures contracts.
Reclassifications are made to the fund's capital accounts to reflect
income and gains available for distribution (or available capital loss
carryovers) under income tax regulations. For the year ended May 31,
2000, the fund reclassified $10,824 to decrease paid-in-capital, with a
decrease to accumulated net realized losses of $10,824. The calculation
of net investment income per share in the financial highlights table
excludes these adjustments.
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 upon the lesser of (i) an annual rate of
0.50% of the average net asset value of the Fund or (ii): 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. Prior to July 1, 1999 the
management fee was based on (ii) above. Through July 1, 1999, a
management fee waiver of 0.10% on each tier was in effect.
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 year ended May 31, 2000, fund expenses were reduced by $87,702
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.
Each Trustee of the fund receives an annual Trustee fee, of which $537
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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 year ended May 31, 2000, Putnam Retail Management, Inc., acting
as underwriter received net commissions of $14,429 and $918 from the
sale of class A and class M shares, respectively and $104,818 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 year ended May 31,
2000, Putnam Retail Management, Inc., acting as underwriter received
$2,220 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended May 31, 2000, cost of purchases and proceeds from
sales of investment securities other than short-term investments
aggregated $17,111,670 and $28,491,758, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At May 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 969,633 $ 8,330,592
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 385,763 3,298,977
---------------------------------------------------------------------------
1,355,396 11,629,569
Shares
repurchased (2,268,992) (19,396,757)
---------------------------------------------------------------------------
Net decrease (913,596) $(7,767,188)
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 1,710,452 $15,734,086
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 365,555 3,362,246
---------------------------------------------------------------------------
2,076,007 19,096,332
Shares
repurchased (1,679,419) (15,447,343)
---------------------------------------------------------------------------
Net increase 396,588 $ 3,648,989
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 944,525 $ 8,148,812
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 179,197 1,527,643
---------------------------------------------------------------------------
1,123,722 9,676,455
Shares
repurchased (1,356,413) (11,563,533)
---------------------------------------------------------------------------
Net decrease (232,691) $(1,887,078)
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 1,465,405 $13,439,627
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 149,792 1,373,031
---------------------------------------------------------------------------
1,615,197 14,812,658
Shares
repurchased (736,631) (6,747,277)
---------------------------------------------------------------------------
Net increase 878,566 $ 8,065,381
---------------------------------------------------------------------------
Year ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 116,897 $1,030,599
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,400 88,673
---------------------------------------------------------------------------
127,297 1,119,272
Shares
repurchased (42,799) (367,816)
---------------------------------------------------------------------------
Net increase 84,498 $ 751,456
---------------------------------------------------------------------------
Year ended May 31, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 42,013 $384,045
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,867 63,137
---------------------------------------------------------------------------
48,880 447,182
Shares
repurchased (32,883) (302,033)
---------------------------------------------------------------------------
Net increase 15,997 $145,149
---------------------------------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
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
Susan McCormack
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
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' Web site: 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
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN049-62268 847/238/129 7/00
