Putnam
Minnesota
Tax Exempt
Income Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
11-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
This is the last letter to you and the other shareholders of Putnam
Minnesota Tax Exempt Income Fund that I will be signing. After more than
30 years as Chairman of the Trustees and President of the Putnam Funds,
the time has come for me to step aside.
In June, John Hill will become Chairman. John is currently an independent
Trustee and has served on the board for the past 14 years. In addition, my
son, George Putnam, III, will take on the role of President. I am
confident that the leadership of the funds will be in exceptionally strong
hands.
I will become Chairman Emeritus, remain a shareholder, and stay in close
touch with the funds. It has been my privilege to serve you.
In one final piece of news, I am pleased to announce the appointment of
Susan A. McCormack as your fund's manager. Before joining Putnam as a
tax-exempt bond analyst in 1994, Susan was with Merrill Lynch. She has 13
years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
January 19, 2000
Report from the Fund Manager
Susan A. McCormack
During the first six months of Putnam Minnesota Tax Exempt Income Fund's
fiscal year, which ended November 30, 1999, the Federal Reserve Board
raised short-term interest rates by 0.25% on three separate occasions --
in June, August, and November. As rates rose and prices fell during the
period, your fund's relatively short maturity structure and overall
neutral duration provided some measure of price protection relative to
other, more aggressively positioned bond portfolios. However, your fund
was by no means immune to the price declines that all fixed-income
investments experience when interest rates rise.
Total return for 6 months ended 11/30/99
Class A Class B Class M
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------
-3.09% -7.68% -3.43% -8.15% -3.14% -6.25%
- ----------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 6.
Rather than trying to seek temporary shelter during the market downturn,
we took advantage of rising interest rates to gradually extend the
portfolio's duration as we identified opportunities. Although we still
maintain a conservative position, any lengthening in its maturity
structure makes your fund more sensitive to changes in bond prices, up or
down. Our objective is to secure a stable future dividend stream as well
as keep ahead of inflation and to improve the total return on portfolio
securities over the full market cycle. What's more, as we swapped
lower-yielding issues with shorter maturities for higher-yielding,
longer-term securities, some transactions generated capital losses that
may be available to defer taxes on any capital gains the fund realizes in
the future. This is an important consideration for shareholders because
only the fund's dividends are exempt from taxes, and any capital gains
realized are taxable.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Health care/
hospitals 35.4%
Education 18.0%
Utilities 11.3%
Housing 9.1%
Paper and
forest products 5.8%
Footnote reads:
*Based on net assets as of 11/30/99. Holdings will vary over time.
* GRADUAL LENGTHENING OF MATURITIES
Calendar 1999 has been described as the second-worst period in bond market
history. Despite this or perhaps because of it, we believe that this is a
good time for municipal bond investors to be incrementally lengthening
maturities. The combination of a healthy economy and a protracted period
of declining interest rates during the fund's 1999 fiscal year led to a
diminished need for municipal financing and a dwindling supply of new
issues. Meanwhile, the yield spread between municipal bonds and Treasuries
has been narrow. Municipal bonds have been yielding almost 100% of the
yield on long-term taxable Treasury bonds versus the historical norm of
about 85%. Municipal bond prices have been less volatile than those of
even the highest quality government bonds. This means that current
tax-free yields on municipal bonds are next to impossible to equal in the
taxable markets. While investors had backed away from the municipal bond
market for several months, these returns have proved too compelling to
ignore. There has been a noticeable increase in demand for municipal
bonds, but supply continues to be tight, creating a favorable situation
for municipal bond fund owners.
"States enjoy another year of bulging tax coffers," The Wall Street Journal
reported in its December 15, 1999, issue. Along with the country's economic
expansion, state tax revenues were up 5.7% in fiscal 1999 from an already
strong fiscal 1998, according to the Center for the Study of the States.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Aa/AA -- 20.1%
A -- 8.6%
Baa/BBB -- 11.0%
Ba/bb -- 13.0%
Aaa/AAA -- 47.3%
Footnote reads:
*As a percentage of market value as of 11/30/99. 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.
Our optimistic outlook is tempered primarily by the specter of inflation.
In the past, a strong economy and low unemployment, such as we are
experiencing today, led to wage increases and a rise in the cost of
living. This scenario seems unlikely, but some caution seems justified.
Furthermore, it is never possible to pinpoint the peak in interest rates.
Our job is to balance the need to preserve principal with the importance
of maintaining a strong, steady income stream for shareholders as far into
the future as possible. We believe the near-term price risks posed by
securities with longer maturities are justified by the long-term potential
for higher returns in a healthy economy.
* FINANCIAL STRENGTH KEEPS MINNESOTA BOND RATINGS HIGH
Minnesota bonds continue to enjoy high levels of creditworthiness, won
through years of fiscally conservative management that led to substantial
budget surpluses. Governor Ventura's election, which followed campaign
promises of cutting tax rates and returning surplus funds to the people,
caused some concern that tax cuts might be harmful in the long run unless
there were commensurate cuts in spending. Although a wait-and-see attitude
prevails, confidence is growing that the conservative tenor of the state
in general, coupled with growth in such diverse industries as agribusiness
and biotechnology, will help Minnesota maintain its financial vitality.
Thousands of projects, just two types of bonds
Although municipal bonds are used to finance thousands of different public
projects, from highways to water treatment plants, there are only two basic
types of bonds. The difference is in how each type repays its investors. With
general obligation bonds (GOs), investors receive their interest and principal
from property taxes. The bonds are secured by the ability of the municipality
to raise taxes. Cities and towns usually issue general obligation bonds to
finance schools, parks, or public building projects. Revenue bonds, on the
other hand, are repaid through fees derived from tolls, charges, or rents.
Highways, bridges, and water, sewers, and sewage treatment plants are typical
projects financed or improved by revenue bond proceeds. Industrial revenue
bonds operate under the same principle but are used to finance projects
for corporations and other private users in cases where a state or local
government thinks the project is good for the community.
The state's fiscal strength is reflected in the fact that most of the
fund's investments are investment grade or better. However, because of our
commitment to seeking the highest returns available on a risk-adjusted
basis, we also seek opportunities that other investors may have
overlooked. We believe the best opportunities for investors come from
careful bond selection rather than from the performance of any given
sector. Thus, health care continues to constitute a meaningful portion of
you fund's portfolio even though some hospitals and extended-care
facilities are on difficult ground financially. This reflects an
industry-wide period of consolidations, mergers, alignments, and
formations of new networks. The pace of change in this sector demands
extensive, ongoing research, but it also provides opportunities.
As we moved to lengthen the fund's duration, in some cases, we added new
securities, which had the effect of shifting the portfolio's industry
diversification. For example, we recently sold some Puerto Rican Highway
bonds and used the proceeds to invest in a small, new hospital issue.
Fairmont Hospital was not rated by the major rating agencies, but our
research indicates it may be one of the winners when the sector returns to
favor.
* CAUTIOUS BUT FAIRLY OPTIMISTIC OUTLOOK
Rising interest rates create attractive opportunities for fixed-income
investors to secure high income over longer periods. Unfortunately, rising
rates mean falling bond prices. However, successful investors in all
markets have accepted difficult periods because of the promise that often
lies beyond them. We believe this may prove to be another opportunity
point.
Undoubtedly there will be stumbling blocks ahead, and the Fed could
increase rates again at its meeting in February if the economy is unable
to grow at a slower, noninflationary pace. Consequently, we intend to
continue to move forward with caution, edging the fund toward a longer
duration to minimize the impact of declining prices as much as possible
while securing a strong future income stream for 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 11/30/99, 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 high current income free
from federal and state income taxes, consistent with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 11/30/99
Class A Class B Class M
(inception dates) (10/23/89) (7/15/93) (4/3/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months -3.09% -7.68% -3.43% -8.15% -3.14% -6.25%
- ----------------------------------------------------------------------------
1 year -2.65 -7.27 -3.31 -7.94 -2.95 -6.10
- ----------------------------------------------------------------------------
5 years 35.49 29.01 31.09 29.09 33.34 29.08
Annual average 6.26 5.23 5.56 5.24 5.92 5.24
- ----------------------------------------------------------------------------
10 years 77.03 68.58 64.21 64.21 70.84 65.37
Annual average 5.88 5.36 5.08 5.08 5.50 5.16
- ----------------------------------------------------------------------------
Life of fund 79.21 70.77 66.01 66.01 72.73 67.15
Annual average 5.95 5.44 5.15 5.15 5.56 5.22
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 11/30/99
Lehman Bros. Municipal Consumer
Bond Index price index
- --------------------------------------------------------------------------
6 months -1.87% 1.32%
- --------------------------------------------------------------------------
1 year -1.08 2.68
- --------------------------------------------------------------------------
5 years 43.85 12.49
Annual average 7.54 2.38
- --------------------------------------------------------------------------
10 years 97.86 33.76
Annual average 7.06 2.57
- --------------------------------------------------------------------------
Life of fund 101.32 34.08
Annual average 7.19 2.95
- --------------------------------------------------------------------------
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 11/30/99
- -------------------------------------------------------------------------
Class A Class B Class M
- -------------------------------------------------------------------------
Distributions (number) 6 6 6
- -------------------------------------------------------------------------
Income $0.221034 $0.191933 $0.207725
- -------------------------------------------------------------------------
Capital gains1
- -------------------------------------------------------------------------
Total $0.221034 $0.191933 $0.207725
- -------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- -------------------------------------------------------------------------
5/31/99 $9.05 $9.50 $9.02 $9.04 $9.34
- -------------------------------------------------------------------------
11/30/99 8.55 8.98 8.52 8.55 8.84
- -------------------------------------------------------------------------
Current return (end of period)
- -------------------------------------------------------------------------
Current dividend rate2 5.24% 4.99% 4.59% 4.94% 4.78%
- -------------------------------------------------------------------------
Taxable equivalent3 9.48 9.03 8.31 8.94 8.65
- -------------------------------------------------------------------------
Current 30-day SEC yield4 4.95 4.71 4.30 4.65 4.49
- -------------------------------------------------------------------------
Taxable equivalent3 8.96 8.52 7.78 8.41 8.12
- -------------------------------------------------------------------------
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 12/31/99 (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
- --------------------------------------------------------------------------
6 months -2.93% -7.51% -3.26% -7.99% -3.08% -6.24%
- --------------------------------------------------------------------------
1 year -4.03 -8.59 -4.56 -9.13 -4.31 -7.43
- --------------------------------------------------------------------------
5 years 30.46 24.20 26.34 24.34 28.35 24.19
Annual average 5.46 4.43 4.79 4.45 5.12 4.43
- --------------------------------------------------------------------------
10 years 73.42 65.16 60.97 60.97 67.35 62.00
Annual average 5.66 5.15 4.88 4.88 5.28 4.94
- --------------------------------------------------------------------------
Life of fund 77.05 68.71 64.11 64.11 70.61 65.09
Annual average 5.77 5.27 4.98 4.98 5.38 5.04
- --------------------------------------------------------------------------
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 class B 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.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
*Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Welcome to www.putnaminv.com
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VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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A guide to the financial statements
These sections of the report 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.
<TABLE>
<CAPTION>
The fund's portfolio
November 30, 1999 (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
MUNICIPAL BONDS AND NOTES (97.5%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Minnesota (97.5%)
- --------------------------------------------------------------------------------------------------------------------------
Bemidji, Hosp. Fac. Rev. Bonds (First Mtge.-North
Country Hlth.Svcs.)
$ 1,200,000 5 5/8s, 9/1/21 A $ 1,120,500
1,760,000 5 5/8s, 9/1/15 A 1,694,000
500,000 Centennial, Indpt. G.O. Bonds (School Dist. No. 12),
Ser. A, FSA, 7.15s, 2/1/12 Aaa 502,575
1,885,000 Chaska, Indl. Dev. Rev. Bonds (Lifecore
Biomedical, Inc.), 10 1/4s, 9/1/20 BB/P 2,035,442
3,000,000 Cloquet, Poll. Control Rev. Bonds (Potlatch Corp.),
5.9s, 10/1/26 BBB+ 2,823,750
Duluth, Econ. Dev. Auth. Hlthcare Fac. Rev. Bonds
1,000,000 (Duluth Clinic), AMBAC, 6.3s, 11/1/22 Aaa 1,068,750
1,250,000 (BSM Properties, Inc.), Ser. A, 5 7/8s, 12/1/28 BB/P 1,093,750
1,000,000 Duluth, Gross Rev. Bonds (Duluth Entertainment),
7.6s, 12/1/11 Baa2 1,091,250
1,000,000 Hutchinson, Indpt. G.O. Bonds (School Dist.
No. 423), Ser. A, 5 3/4s, 2/1/13 Aa1 1,023,750
1,565,000 Intl. Falls, Env. Fac. Rev. Bonds (Boise Cascade Corp.),
7.2s, 10/1/24 Baa3 1,668,681
1,500,000 Intl. Falls, Poll. Ctr. Rev Bonds (Boise Cascade Corp.),
5.65s, 12/1/22 BB+ 1,312,500
2,000,000 Martin Cnty., Hosp. Rev Bonds (Fairmont
Cmnty. Hosp.), 6 5/8s, 9/1/22 BB+/P 1,872,500
1,750,000 Minneapolis & St. Paul Comnty Arpt. Rev. Bonds,
Ser. A, AMBAC, 5s, 1/1/30 Aaa 1,518,125
Minneapolis & St. Paul, Hsg. & Redev. Auth. Hlthcare
Syst. Rev. Bonds
2,000,000 (Group Hlth. Plan Inc.), 6.9s, 10/15/22 A 2,085,000
2,000,000 (HlthOne Obligated Group), Ser. A, MBIA,
6 3/4s, 8/15/14 Aaa 2,075,780
1,000,000 (Children's Hlthcare), Ser. A, FSA, 5.7s, 8/15/16 Aaa 982,500
Minneapolis & St. Paul, Metropolitan Arpt. Cmnty.
Arpt. Rev. Bonds
1,000,000 Ser. B, FGIC, 5 1/2s, 1/1/11 AAA 1,001,250
1,250,000 Ser. B, AMBAC, 5 1/4s, 1/1/14 Aaa 1,198,438
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- 1,174,063
Minneapolis, G.O. Bonds (Sports Arena)
3,000,000 5.2s, 10/1/24 Aaa 2,730,000
1,500,000 5 1/8s, 10/1/20 Aaa 1,372,500
Minneapolis, Rev. Bonds (Walker Methodist Sr. Svcs.)
2,000,000 Ser. A, 6s, 11/15/28 BB-/P 1,722,500
1,300,000 Ser. C, 6s, 11/15/28 BB-/P 1,119,625
1,675,000 Minneapolis, Sales Tax G.O. Bonds, 6 1/4s, 4/1/12 Aaa 1,750,375
1,560,000 Minneapolis, Single Family Rev. Bonds (Phase V),
FNMA Coll. & GNMA Coll., 6 1/4s, 4/1/22 Aaa 1,583,400
3,050,000 Minneapolis, Special Sch. Dist. No. 1 G.O. Bonds,
5s, 2/1/12 Aa1 2,969,938
310,000 Minneapolis-St. Paul, Hsg. Fin. Board Single Fam.
Mtge. Rev. Bonds (Phase VI), Ser. A, GNMA
Coll., 8.3s, 8/1/21 AAA 311,082
7,480,000 Minnesota, Agricultural & Econ. Dev. Board Rev.
Bonds (Benedictine Hlth.), Ser. A, MBIA,
5 1/4s, 2/15/14 AAA 7,264,950
Minnesota, Muni. Pwr. Agcy. Elec. Syst.
Rev. Bonds, FSA
1,500,000 5 3/8s, 1/1/14 Aaa 1,481,250
1,000,000 5 1/4s, 1/1/13 Aaa 986,250
2,715,000 Minnetonka, Indpt. Rev. Bonds (School Dist No. 276),
Ser. B, 5 3/4s, 2/1/22 Aa1 2,701,425
MN Agricultural & Econ. Dev. Board Rev. Bonds
750,000 (Small Bus. Dev. Loan Program), Ser. B-Lot 1,
7s, 8/1/16 BB+/P 770,625
3,000,000 (Fairview Hosp), Ser. A, MBIA, 5 1/2s, 11/15/17 Aaa 2,902,500
MN Pub. Fac. Auth. Wtr. Poll. Control Rev. Bonds
1,500,000 Ser. A, 6.95s, 3/1/13 Aaa 1,576,875
3,000,000 Ser. A, 6 1/2s, 3/1/14 Aaa 3,187,500
2,245,000 Ser. B, 5s, 3/1/17 Aaa 2,051,365
3,000,000 MN State Duluth Arpt. Tax Increment G.O. Bonds,
Ser. 95A, 6 1/4s, 8/1/14 Aaa 3,116,250
1,000,000 MN State G.O. Bonds, 6s, 8/1/05 Aaa 1,066,250
MN State Higher Ed. Fac. Auth. Rev. Bonds
1,000,000 (U. St. Thomas), Ser. 3-C, 7 1/8s, 9/1/14 Aaa 1,032,770
580,000 (U. St. Thomas), Ser. 4-P, 5.4s, 4/1/23 A2 536,500
1,000,000 (St. Johns U.), Ser. 4-L, 5.35s, 10/1/17 A3 923,750
1,500,000 MN State Hsg. Fin. Agcy. Dev. Rev. Bonds, Ser. A,
6.95s, 2/1/14 Aa2 1,554,375
MN State Hsg. Fin. Agcy. Single Fam. Mtge.
Rev. Bonds
4,785,000 Ser. E, 6.85s, 1/1/24 AA+ 4,916,588
1,470,000 Ser. B-1, 6 3/4s, 1/1/26 AA+ 1,504,913
680,000 Ser. Q, 6.7s, 1/1/17 AA+ 705,500
1,000,000 Monticello Big Lake Cmnty. Hosp. Dist. Rev. Bonds
(Hlthcare Fac.), Ser. A, 5 3/4s, 12/1/19 BBB/P 892,500
Morris Hosp. Fac. Rev. Bonds (Stevens Cmnty.
Memorial Hosp.)
250,000 Ser. A, 8 1/4s, 5/1/10 AAA/P 256,842
500,000 Ser. B, 8 1/4s, 5/1/10 AAA/P 513,685
1,500,000 New Hope, Hsg. & Hlth. Rev. Bonds (Minnesota
Masonic Home North Ridge), 5 7/8s, 3/1/29 BB-/P 1,306,875
1,000,000 North Branch, MN Indpt. G.O. Bonds (School Dist.
No. 138), Ser. A, FGIC, 5 1/2s, 2/1/12 Aaa 1,025,000
North St. Paul Maplewood Indpt Sch. Dist. No.
622 G.O. Bonds
2,000,000 Ser. A, MBIA, 7.1s, 2/1/19 Aaa 2,215,000
3,000,000 Ser. A, MBIA, 6 7/8s, 2/1/15 Aaa 3,292,500
3,000,000 Northern MN Muni. Pwr. Agcy. Elec. Syst. Rev.
Bonds, Ser. B, AMBAC, 4 3/4s, 1/1/20 Aaa 2,576,250
2,450,000 Northern MN Muni. Pwr. Agcy. Rev. Bonds, FSA,
5 1/2s, 1/1/07 A2 2,535,750
1,000,000 Northfield College Fac. Rev. Bonds (St. Olaf
College), 6.4s, 10/1/21 A3 1,031,250
Northfield, Hlthcare Fac. Rev. Bonds
(Retirement Ctr.), Ser. A
1,230,000 6s, 5/1/28 BB/P 1,093,163
690,000 5 3/4s, 5/1/16 BB/P 621,863
1,125,000 Olmsted Cnty., Hlthcare Fac. Rev. Bonds
(Olmsted Med. Ctr.), 5.55s, 7/1/19 BB+/P 946,406
1,160,000 Ramsey Cnty., G.O. Bonds, Ser. A, 5 3/8s, 2/1/16 Aaa 1,129,550
Rochester Hlthcare Fac. IFB (Mayo Foundation)
3,000,000 Ser. E, 9.37s, 11/15/12 AA+ 3,206,250
3,300,000 Ser. H, 9.081s, 11/15/15 (SEG) AA+ 3,415,500
4,000,000 Rochester Hlthcare Fac. Rev. Bonds (Olmsted
Med. Group), 7 1/2s, 7/1/19 BB+/P 4,515,000
2,440,000 Rochester, Indpt. Sch. G.O. Bonds (Dist. No. 535),
Ser. A, 5 1/4s, 2/1/15 Aaa 2,494,900
2,500,000 Sartell Poll. Control Rev. Bonds (Champion Intl.),
6.95s, 10/1/12 Baa1 2,621,875
2,500,000 SCA Multi-Fam. Mtge. Rev. Bonds (Burnsville),
Ser. A-9, FSA, 7.1s, 1/1/30 Aaa 2,671,875
Southern MN Muni. Pwr. Agcy. Syst. Rev. Bonds
1,240,000 Ser. B, 5s, 1/1/13 A+ 1,162,500
10,000,000 MBIA, zero %, 1/1/20 Aaa 3,037,500
2,400,000 St. Cloud, Hosp. Fac. Rev. Bonds, Ser. C, AMBAC,
6 3/4s, 7/1/11 Aaa 2,535,000
St. Paul, Hsg. & Hosp. Redev. Auth.
Rev. Bonds (Hltheast)
3,315,000 Ser. A, 6 5/8s, 11/1/17 Baa3 3,140,963
1,000,000 Ser. B, 5.85s, 11/1/17 Baa3 865,000
500,000 Ser. A, 5.7s, 11/1/15 Baa3 433,750
2,500,000 St. Paul, Hsg. & Redev. Auth. Rev. Bonds
(Regions Hosp.), 5.3s, 5/15/28 BBB+ 2,075,000
2,475,000 St. Paul, Indpt. COP (School Dist. No. 625), Ser. C,
5 1/4s, 2/1/16 AA 2,366,719
U. of MN Rev. Bonds, Ser. A
1,000,000 5 3/4s, 7/1/18 Aa2 1,006,250
3,000,000 5 1/2s, 7/1/08 Aa2 3,120,000
4,310,000 Western MN Muni. Pwr. Agcy. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 1/1/06 Aaa 4,633,250
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $143,354,986) (b) $ 141,919,626
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $145,558,045.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
November 30, 1999 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, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
(b) The aggregate identified cost on a tax basis is $143,354,986, resulting in gross unrealized appreciation and
depreciation of $3,291,455 and $4,726,815, respectively, or net unrealized depreciation of $1,435,360.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at November 30, 1999.
The rates shown on IFB, which are securities paying interest rates that vary inversely to changes in the market
interest rates, are the current interest rates at November 30, 1999.
The fund had the following industry group concentrations greater than 10% at November 30, 1999 (as a percentage of
net assets):
Health care/hospitals 35.4%
Education 18.0
Utilities 11.3
The fund had the following insurance concentration greater than 10% at November 30, 1999 (as a percentage of net
assets):
MBIA 14.3%
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at November 30, 1999 (Unaudited)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
- -------------------------------------------------------------------------------
Municipal Bond
Future (Long) $3,300,000 $3,361,955 Dec-99 $(61,955)
Municipal Bond
Future (Long) 1,497,000 1,498,711 Mar-00 (1,711)
- -------------------------------------------------------------------------------
$(63,666)
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
November 30, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $143,354,986) (Note 1) $141,919,626
- -----------------------------------------------------------------------------------------------
Cash 1,738,841
- -----------------------------------------------------------------------------------------------
Interest and other receivables 2,479,844
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 20,208
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 29,628
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 18,845
- -----------------------------------------------------------------------------------------------
Total assets 146,206,992
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 259,599
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 91,114
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 185,006
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 5,941
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 10,203
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,044
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 68,215
- -----------------------------------------------------------------------------------------------
Other accrued expenses 27,825
- -----------------------------------------------------------------------------------------------
Total liabilities 648,947
- -----------------------------------------------------------------------------------------------
Net assets $145,558,045
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $150,923,940
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (74,110)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (3,792,759)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (1,499,026)
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $145,558,045
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($94,266,298 divided by 11,029,443 shares) $8.55
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.55)* $8.98
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($49,267,748 divided by 5,781,912 shares)+ $8.52
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($2,023,999 divided by 236,851 shares) $8.55
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.55)** $8.84
- -----------------------------------------------------------------------------------------------
* 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, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $ 4,454,466
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 377,552
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 87,022
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,664
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,094
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 98,631
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 214,900
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 5,034
- -----------------------------------------------------------------------------------------------
Reports to shareholders 7,177
- -----------------------------------------------------------------------------------------------
Legal 3,032
- -----------------------------------------------------------------------------------------------
Auditing 23,914
- -----------------------------------------------------------------------------------------------
Postage 6,408
- -----------------------------------------------------------------------------------------------
Other 6,695
- -----------------------------------------------------------------------------------------------
Total expenses 839,123
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (27,268)
- -----------------------------------------------------------------------------------------------
Net expenses 811,855
- -----------------------------------------------------------------------------------------------
Net investment income 3,642,611
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (144,732)
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (238,047)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the period (8,376,300)
- -----------------------------------------------------------------------------------------------
Net loss on investments (8,759,079)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(5,116,468)
- -----------------------------------------------------------------------------------------------
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
1999* 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 3,642,611 $ 7,013,391
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (382,779) (18,383)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (8,376,300) (2,300,514)
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (5,116,468) 4,694,494
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (2,485,965) (5,044,666)
- ---------------------------------------------------------------------------------------------------------------
Class B (1,109,451) (1,999,529)
- ---------------------------------------------------------------------------------------------------------------
Class M (47,363) (65,961)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (1,524,894) 11,859,519
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (10,284,141) 9,443,857
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 155,842,186 146,398,329
- ---------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income of $74,110 and
$73,942, respectively) $145,558,045 $155,842,186
- ---------------------------------------------------------------------------------------------------------------
* 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
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.05 $9.19 $8.95 $8.76 $8.95 $8.79
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .45(a) .45 .47 .47 .51
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.50) (.14) .24 .19 (.19) .15
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.28) .31 .69 .66 .28 .66
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.45) (.45) (.47) (.47) (.50)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.45) (.45) (.47) (.47) (.50)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.55 $9.05 $9.19 $8.95 $8.76 $8.95
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.09)* 3.38 7.90 7.73 3.16 7.90
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $94,266 $102,869 $100,806 $98,307 $96,110 $98,418
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .45* .92(a) 1.01 1.03 1.01 .99
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.52* 4.81(a) 4.89 5.32 5.26 5.85
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.02* 12.79 10.67 50.80 109.85 58.18
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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, 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share Nov. 30
operating performance (Unaudited) Year ended May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.02 $9.16 $8.92 $8.73 $8.92 $8.77
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .38(a) .39 .41 .41 .45
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.50) (.13) .24 .19 (.19) .15
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.31) .25 .63 .60 .22 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.39) (.39) (.41) (.41) (.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.19) (.39) (.39) (.41) (.41) (.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.52 $9.02 $9.16 $8.92 $8.73 $8.92
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.43)* 2.70 7.20 7.04 2.49 7.17
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $49,268 $51,360 $44,100 $35,333 $30,149 $19,698
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .77* 1.57(a) 1.66 1.68 1.67 1.63
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.20* 4.16(a) 4.22 4.67 4.57 5.15
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.02* 12.79 10.67 50.80 109.85 58.18
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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, 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share Nov. 30 April 3, 1995+
operating performance (Unaudited) Year ended May 31 to May 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.04 $9.19 $8.94 $8.76 $8.95 $8.77
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .21 .41(a) .42 .45 .43 .08
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.49) (.14) .26 .18 (.18) .17
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.28) .27 .68 .63 .25 .25
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.42) (.43) (.45) (.44) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.21) (.42) (.43) (.45) (.44) (.07)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.55 $9.04 $9.19 $8.94 $8.76 $8.95
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) (3.14)* 2.96 7.70 7.29 2.82 2.89*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,024 $1,613 $1,492 $1,106 $913 $1
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .60* 1.22(a) 1.31 1.33 1.32 .21*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.39* 4.51(a) 4.64 5.01 4.72 .93*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 2.02* 12.79 10.67 50.80 109.85 58.18
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(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, 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) The ratio of expenses to average net assets for the year ended May 31, 1996 and thereafter, includes amounts paid through
expense offset arrangements. Prior period ratios exclude these amounts (Note 2).
</TABLE>
Notes to financial statements
November 30, 1999 (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 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. Restricted
securities are stated at fair value following procedures approved by the
Trustees. 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). Gains or losses on securities sold are determined on
the identified cost basis.
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, 1999, 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, 1999, the fund had a capital loss carryover of approximately
$1,529,000 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
F) Distributions to shareholders Income dividends are recorded daily by
the fund and are paid monthly. Capital gain distributions, if any, are
recorded on the ex-dividend date and paid at least annually. The amount
and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
G) Amortization of bond premium and accretion of bond discount Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. The premium in excess of the call
price, if any, is amortized to the call date; thereafter, the remaining
excess premium is amortized to maturity. Discounts on zero coupon bonds
and original issue discount 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 approved a
management fee waiver of 0.10% on each tier. On June 4, 1999, the Trustees
approved a management fee schedule which became effective on July 1, 1999,
based upon the lesser of (i) an annual rate of 0.50% of the average net
asset value of the Fund or (ii) the initial tiers mentioned above.
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, 1999, fund expenses were reduced by
$27,268 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 $533 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees receive additional fees for attendance at
certain committee meetings.
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 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, 1999, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $7,916 and $694 from the
sale of class A and class M shares, respectively and $70,735 in contingent
deferred sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended November 30, 1999, Putnam Mutual Funds
Corp., acting as underwriter received $1,650 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended November 30, 1999, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $2,999,890 and $6,302,736, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At November 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 504,757 $ 4,434,456
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 191,764 1,674,526
- -----------------------------------------------------------------------------
696,521 6,108,982
Shares
repurchased (1,029,022) (8,987,744)
- -----------------------------------------------------------------------------
Net decrease (332,501) $(2,878,762)
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 658,417 $5,756,235
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 88,559 771,067
- -----------------------------------------------------------------------------
746,976 6,527,302
Shares
repurchased (656,284) (5,703,277)
- -----------------------------------------------------------------------------
Net increase 90,692 $ 824,025
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Six months ended November 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 89,000 $793,040
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,757 41,444
- -----------------------------------------------------------------------------
93,757 834,484
Shares
repurchased (35,312) (304,641)
- -----------------------------------------------------------------------------
Net increase 58,445 $529,843
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]**
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
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
Susan A. McCormack
Vice President and Fund Manager
Richard A. Monaghan
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
SA049-57641 847/238/129 1/00
