<PAGE>
PUTNAM
CALIFORNIA
TAX EXEMPT
INCOME FUND
ANNUAL REPORT
September 30, 1994
[LOGO APPEARS HERE]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
The fund's class A shares earned Morningstar's highest ranking of five stars,
based on risk-adjusted 3-, 5-, and 10-year performance as of September 30,
1994.*
Performance should always be considered in light of a fund's investment
strategy. Putnam California Tax Exempt Income Fund is designed for investors
seeking high current income free from federal and California income taxes,
consistent with capital preservation.
- --------------------------------------------------------------------------------
FISCAL 1994 RESULTS AT A GLANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
Total return NAV POP NAV CDSC
<S> <C> <C> <C> <C>
12 months ended 9/30/94
(change in value during
period plus reinvested
distributions) -3.53% -8.07% -4.15% -8.69%
Share value NAV POP NAV
9/30/93 $8.92 $9.36 $8.91
9/30/94 8.09 8.49 8.08
</TABLE>
<TABLE>
<CAPTION>
Capital gains/1/
Long- Short-
Distributions No. Income term term Total
<S> <C> <C> <C> <C> <C>
Class A 13 $0.498090 $0.019 $0.006 $0.523090
Class B 13 0.444104 0.019 0.006 0.469104
Current return NAV POP NAV
</TABLE>
<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C> <C>
(End of period)
Current dividend rate/2/ 5.98% 5.69% 5.35%
Taxable equivalent/3/ 11.12 10.58 9.95
Current 30-day SEC yield/4/ 5.57 5.30 4.84
Taxable equivalent/3/ 10.36 9.86 9.00
</TABLE>
Performance data represent past results. For performance over longer periods,
see pages 8 and 9. POP assumes 4.75% maximum sales charge. CDSC assumes 5%
maximum contingent deferred sales charge. 1Capital gains 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. 2Income portion of most recent
distribution, annualized and divided by NAV or POP at end of period. 3Assumes
maximum 46.24% combined federal and state tax rate. Results for investors
subject to lower tax rates would not be as advantageous. 4Based only on
investment income, calculated using SEC guidelines.
* Morningstar, an independent rating agency, rates a fund in relation to other
funds with similar investment objectives based on risk-adjusted medium- and
long-term total return, as applicable, adjusted for sales charges. A five-star
rating puts the fund in the top 10%. Ratings are updated monthly. Past
performance is not indicative of future results.
2
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM APPEARS HERE]
DEAR SHAREHOLDER:
MUNICIPAL BOND INVESTORS HAVE EXPERIENCED MORE THAN THEIR SHARE OF FRUSTRATION
OVER THE PAST SEVERAL MONTHS AS THE FIXED-INCOME MARKETS ENDURE A PROLONGED
PERIOD OF VOLATILITY. PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND'S PERFORMANCE
DURING THE FISCAL YEAR ENDED SEPTEMBER 30, 1994, REFLECTS THIS UNSETTLED
ENVIRONMENT.
SOME SIGNS OF ENCOURAGEMENT ARE BEGINNING TO APPEAR FOR INVESTORS IN TAX-EXEMPT
SECURITIES HOWEVER. SUPPLIES MAY BECOME TIGHTER AS MORE INVESTORS SEEK TAX
RELIEF; AS WITH ANY COMMODITY, MORE DOLLARS CHASING FEWER GOODS SHOULD TRANSLATE
INTO HIGHER PRICES. WE BELIEVE MANY SECTORS OF THE TAX-EXEMPT MARKET, INCLUDING
HEALTH CARE, EDUCATION, AND RESOURCE RECOVERY, ARE POISED FOR GROWTH, WHICH
SHOULD BODE WELL OVER THE LONGER TERM FOR INVESTMENTS IN THOSE AREAS.
WITH PUTNAM'S CONSIDERABLE CREDIT RESEARCH AND ANALYSIS CAPABILITIES BEHIND
HIM, FUND MANAGER WILLIAM REEVES WILL CONTINUE TO SEEK OUT THE MOST
PROMISING TAX-EXEMPT INVESTMENTS FOR YOUR FUND. BILL'S REPORT ON FISCAL '94
AND WHAT HE SEES IN STORE FOR FISCAL '95 FOLLOWS.
RESPECTFULLY YOURS,
/s/ George Putnam
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 16, 1994
3
<PAGE>
REPORT FROM THE FUND MANAGER
WILLIAM H. REEVES
The fiscal year ended September 30, 1994, was one of the most challenging
environments in recent memory for fixed-income investments, particularly single-
state municipal bond funds. Nevertheless, Putnam California Tax Exempt Income
Fund proved it was able to hold its own. The fund's high-quality portfolio
continued to deliver a steady stream of tax-free income, while its relatively
defensive position helped cushion declines in value through an extremely
volatile market.
Although the municipal bond market's performance, along with that of virtually
all other fixed-income investments, was somewhat disappointing, Putnam
Management is very optimistic about the future. In our opinion, current market
fundamentals are favorable. California is also regaining its fiscal health,
which may add stability to the state's municipal bond market. Moreover, higher
income tax rates and attractive yields relative to taxable bonds should increase
the demand for municipal securities among tax-conscious investors.
STRATEGY SHIFTS REFLECT RISING RATES
Maintaining attractive tax-free income while reducing price volatility has been
a formidable task in this year's rising-interest-rate environment. One
important measure we have taken has been to shorten the duration of the
portfolio. Duration is a mathematical formula that shows a bond fund's
sensitivity to interest rate changes. The shorter the duration, the less
volatility you can expect from the portfolio. Consequently, shortening the
portfolio's average duration in recent months has been instrumental in
protecting the fund's net asset value.
We also invested approximately 12% of the portfolio in inverse floaters or
residual interest bonds (RIBs). These are variable-rate bonds whose yields move
in the opposite direction of short-term interest rates. Because of a relatively
steep yield curve and comparatively low short-term tax-free interest rates, we
continue to find value in these bonds. We also believe there is the potential
4
<PAGE>
for appreciation in this area should rates stabilize or begin to reverse
direction. If rates continue to rise, however, we have used several hedging
techniques in an effort to reduce volatility.
In order to make the portfolio more defensive and to offset some of the price
and market risk associated with these securities, we invested in a number of
prerefunded bonds. Prerefundings occur when a municipality issues new bonds to
raise funds to pay off an older issue at its first call date. Proceeds from the
new bonds are often invested in top-quality securities. Because of the relative
safety of principal represented by these securities, the older prerefunded bonds
are generally considered to have a credit rating of AAA.
Given the fairly inhospitable market conditions of recent months, our emphasis
on high-quality holdings continues to constitute a key component of the fund's
investment strategy. Higher-quality bonds generally carry lower credit risk,
which is the risk that an issuer will default or fail to make interest payments
on a bond. Your fund maintained an extremely high-quality portfolio throughout
the annual period. Almost 88% of the portfolio was in investment grade bonds,
those rated BBB or higher. Furthermore, more than 55% of the portfolio's
holdings were rated in the highest quality category, AAA.
[TAX-FREE CALIFORNIA DEBT VERSUS TAXABLE TREASURIES CHART APPEARS HERE]
Cumulative total return. Sources: California municipal debt: Lipper Analytical
Services. Treasury bonds: Lehman Brother Treasury Bond Index. After-tax returns
assume the maximum 46.24% combined federal and state income tax rate. Treasury
bonds' interest and principal payments are guaranteed by the full faith and
credit of the U.S. government.
5
<PAGE>
For many of these holdings, timely payment of principal and interest is insured
by the major municipal bond insurance companies.
STRONG MARKET FUNDAMENTALS
After last year's heavy flow of new bond issuances and refinancing, the supply
of bonds coming to market is down by more than 40% this year. Consequently,
although there can be no guarantees, we believe that demand may well increase
significantly in coming months, especially in high-tax states like California.
This could help stabilize the market and has the potential to improve the value
of your fund's portfolio.
During much of the past year, excessive market volatility has eroded the value
of municipal bonds and, in turn, municipal bond funds. Yet, as more investors
experience the impact of higher taxes, the tax-free income that municipal bonds
provide is becoming increasingly attractive.
SIGNS OF RECOVERY IN THE GOLDEN STATE
The California economy has suffered its share of difficulties over the past
year. However, it is now beginning to show improvement. Major economic
indicators have stabilized and the overall business climate is positive. While
lawmakers have yet to fully resolve the state's fiscal situation, the California
budget has built-in trigger mechanisms that will ensure balance even when
legislators cannot agree.
With one of the largest economies in the world, California stands to benefit
from any positive global economic forces or developments, such as the General
Agreement on Tariffs and Trade (GATT) and the North American Free Trade
Agreement (NAFTA). In addition, California businesses are well positioned, both
culturally and geographically, to benefit from the explosive growth occurring in
many Pacific Rim economies.
Within California itself, the entertainment, biotechnology, and health care
industries hold particular promise for growth. Our extensive research into these
areas has already produced new investment opportunities for your fund, and we
will continue to carefully analyze the market to keep abreast of new issues that
may be appropriate additions to the portfolio.
6
<PAGE>
[PORTFOLIO QUALITY PROFILE GRAPH APPEARS HERE]
* Based on Portfolio market value as of 9/30/94. All ratings reflect Standard &
Poor's (R) descriptions, unless noted otherwise. While the fund has the
flexibility to invest in higher-yielding, lower-rated bonds, generally at
least 75% of the portfolio will be investment grade. Investment-grade
securities are those rated BBB or higher by Standard & Poor's, Baa or higher
by Moody's Investors Service, Inc.
As these newer industries replace traditional economic kingpins like aerospace
and other defense-related businesses, the California economy is undergoing
profound structural change. Over the long term, this change should be quite
positive, although there will surely be some short-term wrinkles along the way.
POSITIVE OUTLOOK
Favorable market trends, improving California economic and fiscal situations,
and attractive municipal bond valuations make us optimistic about next year's
municipal bond market. We still believe the U.S. economy is growing at an
acceptable pace and has not entered an inflationary cycle. The Federal Reserve
Board remains committed to keeping inflation in check and, while rising interest
rates can mean ongoing market volatility, fixed-income markets traditionally
have reacted positively over the long term to moderate economic growth with
relatively low inflation. With its large size, exceptional research
capabilities, and emphasis on high quality, your fund is well positioned to
benefit from this environment.
The views expressed in this report are exclusively those of Putnam Management,
and not meant as investment advice. Although the described holdings were viewed
favorably as of September 30, 1994, there is no guarantee the fund will continue
to hold these securities in the future.
7
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions back into the fund. We show total return in two ways: on a
cumulative long-term basis and on average how the fund might have grown each
year over varying periods. For comparative purposes, we show how the fund
performed relative to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 9/30/94
<TABLE>
<CAPTION>
Lehman Bros.
Class A Class B Municipal
NAV POP NAV CDSC Bond Index CPI
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year -3.53% -8.07% -4.15% -8.69% -2.44% 2.96%
- -----------------------------------------------------------------------------------
5 years 44.17 37.34 -- -- 46.85 19.52
Annual average 7.59 6.55 -- -- 7.99 3.63
- -----------------------------------------------------------------------------------
10 years 159.11 146.87 -- -- 162.63 42.29
Annual average 9.99 9.46 -- -- 10.14 3.59
- -----------------------------------------------------------------------------------
Life of class B -- -- 5.92 2.06 8.03 5.29
Annual average -- -- 3.36 1.18 4.54 3.00
- -----------------------------------------------------------------------------------
</TABLE>
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions or, for class A shares, distribution fees prior to
implementation of the class A distribution plan in 1993. The fund began
investment operations April 29, 1983, offering shares now known as class A
shares. Effective January 4, 1993, the fund began offering class B shares.
Performance data represent past results. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost.
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.
8
<PAGE>
[GROWTH OF A $10,000 INVESTMENT GRAPH APPEARS HERE]
Past performance is no assurance of future results. A $10,000 investment in the
fund's class B shares at inception on 1/4/93 would have been valued at $10,592
on 9/30/94 ($10,206 with a redemption at the end of the period).
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including any
initial or contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 4.75% sales charge for class A shares.
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.
9
<PAGE>
THE PUTNAM FUND SELECTOR(TM)
The Putnam Fund Selector shows the many opportunities for investors within every
investment strategy. All investors should first accumulate a base of
conservative, cash-equivalent investments. Then, with the help of your
investment advisor, diversify your portfolio by investing in the Putnam Family
of Funds.
[ARTWORK APPEARS HERE]
10
<PAGE>
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Health Sciences Trust
Investors Fund
Natural Resources Fund*
New Opportunities Fund
OTC Emerging Growth Fund
Overseas Growth Fund
Vista Fund
Voyager Fund
PUTNAM GROWTH AND INCOME FUNDS
Convertible Income-Growth Trust
Dividend Growth Fund
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Managed Income Trust
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
Adjustable Rate U.S. Government Fund
American Government Income Fund
Balanced Government Fund
Corporate Asset Trust
Diversified Income Trust
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Trust
Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE FUNDS
Intermediate Tax Exempt Fund
Municipal Income Fund
Tax Exempt Income Fund
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds+
Arizona, California, Florida,
Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio, and
Pennsylvania
LIFESTAGE(SM) FUNDS
Putnam Asset Allocation Funds --
three investment portfolios that
spread your money across a variety
of stocks, bonds, and money market
investments to help maximize your
return and reduce your risk.
The three portfolios:
Putnam Asset Allocation: Balanced Portfolio
Putnam Asset Allocation: Conservative Portfolio
Putnam Asset Allocation: Growth Portfolio
MOST CONSERVATIVE INVESTMENTS(++)
Putnam money market funds:
Money Market Fund**
Tax Exempt Money Market Fund
California Tax Exempt Money Market Fund
New York Tax Exempt Money Market Fund
CDs and savings accounts(S)
* Formerly Energy-Resources Trust.
++ Formerly Daily Dividend Trust.
+ Not available in all states.
(++) Relative to above.
** Formerly Daily Dividend Trust.
(S) Not offered by Putnam Investments. Certificates of deposit offer a fixed
rate of return and may be insured, up to certain limits, by federal/state
agencies. Savings accounts may also be insured up to certain limits.
Please call your financial advisor or Putnam to obtain a prospectus for
any Putnam fund. It contains more complete information, including charges
and expenses. Read it carefully before you invest or send money.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the Year Ended September 30, 1994
To the Trustees and Shareholders of
Putnam California Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments owned (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 California Tax Exempt Income Fund (the "fund") at September 30, 1994, and
the results of its operations, the changes in its net assets, and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. 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 generally accepted auditing standards
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 September 30, 1994 by correspondence with
the custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 15, 1994
12
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.2%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (98.4%)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$16,000,000 Anaheim, Certif. of Participation (COP) Residual Interest Bonds (RIBS)
(Convention Ctr.), Municipal Bond Insurance Assoc. (MBIA), 8.18s, 7/16/23 AAA $ 14,840,000
20,000,000 Anaheim, Pub. Fin. Auth. Tax Alloc. RIBS, MBIA, 9.32s, 12/28/18 AAA 20,075,000
Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates Med. Ctr.), Ser. A,
33,075,000 6.55s, 12/1/22 Baa 30,553,031
8,500,000 6 1/2s, 12/1/11 Baa 8,011,250
25,000,000 Beverly Hills, COP (Civic Ctr. Impt.), 6 3/4s, 6/1/19 AA 25,468,750
4,500,000 Buena Park, Cmnty. Redev. Agcy. Tax Alloc. Rev. Bonds (Central Bus. Dist.),
Financial Guaranty Insurance Co. (FGIC), 8.9s, 11/1/15 AAA 4,803,750
CA Edl. Fac. Auth. Rev. Bonds
7,030,000 (Pomona College), 8 1/8s, 1/1/17 AAA 7,662,700
15,745,000 (U. of Southern CA Project), Ser. B, 6 3/4s, 10/1/15 AA 16,414,163
CA Hlth. Fac. Auth. Rev. Bonds
10,000,000 (Sutter Cmnty. Hosp. of Sacramento), 9 1/8s, 1/1/05 A 10,312,500
6,700,000 (Summit Med. Ctr.), Ser. 85A, 9s, 5/1/15 Ba 6,825,625
11,740,000 (Valley Presbyterian Hosp. Project), Ser. A, 9s, 5/1/12 B 11,857,400
10,000,000 (Mercy Hlth. Syst.), Ser. C, MBIA, 7 1/4s, 7/1/15 AAA 11,062,500
35,385,000 CA Hlth. Fac. Fin. Auth. RIBS (Catholic Health Care West) MBIA, 2.83s, 7/1/14 AAA 32,288,813
CA Hlth. Fac. Fin. Auth. Rev. Bonds
2,000,000 (Summit Med. Ctr.), Ser. A, 7.6s, 5/1/15 Ba 1,960,000
12,335,000 (Summit Med. Ctr.), Ser. B, 7.6s, 5/1/15 Ba 12,088,300
9,000,000 (CedarKnoll), Ser. B, 7 1/2s, 8/1/20 A 9,618,750
8,660,000 (Summit Med. Ctr.), Ser. B, 7 1/2s, 5/1/09 Ba 8,432,675
10,000,000 (Sutter Hosp.), Ser. A, American Municipal Bond Assurance Corp.
(AMBAC), 6.7s, 1/1/13 AAA 10,112,500
16,000,000 AMBAC 5.293s, 7/1/17 AAA 13,740,000
8,000,000 AMBAC 5.293s, 7/1/17 AAA 6,820,000
3,400,000 CA Hlth. Fac. Fin. Auth. Variable Rate Demand Notes (VRDN) (Sutter Hlth.),
Ser. A, 3.55s, 3/1/20 VMIG1 3,400,000
CA Hsg. Fin. Agcy. Home Mtge. Rev. Bonds
7,530,000 Ser. C, 8.3s, 8/1/19 AA 7,840,613
4,570,000 Ser. D, 7 7/8s, 8/1/31 AA 4,798,500
4,980,000 Ser. A, 7 3/4s, 8/1/17 AA 5,197,875
8,080,000 Ser. A, 7.7s, 8/1/30 AA 8,433,500
11,150,000 Ser. E, 7.65s, 8/1/29 AA 11,582,063
5,000,000 CA Hsg. Fin Agcy. RIBS 9.11s, 8/1/23 AA 4,706,250
4,800,000 CA Poll. Control Fin. Auth. Resource Recvy. VRDN, (Burney Forest
Products Project), Ser. A, 3.55s, 9/1/20 P1 4,800,000
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$12,500,000 CA Poll. Control Fin. Auth. Rev. Bonds
(Pacific Gas & Elec. Co.), Ser. A, 8.2s, 12/1/18 A $ 13,593,750
CA Poll. Control Fin. Auth. Solid Waste Disposal Rev. Bonds
11,990,000 (Keller Canyon Landfill Co. Project), 6 7/8s, 11/1/27 A 12,004,988
10,000,000 (North Cnty. Recycling Ctr.), Ser. A, 6 3/4s, 7/1/17 AAA 10,137,500
6,700,000 CA Poll. Control Fin. Auth. VRDN (Southern CA Edison), Ser. A, 3.6s, 2/28/08 A-1 6,700,000
41,260,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds (Pooled Project, Joint Powers Agcy.),
Ser. B, Bond Investors Guaranty Insurance (BIGI), 8.1s, 3/1/18 AAA 44,560,800
3,250,000 CA School Cash Reserve Prog. Auth. Pool Rev. Bonds Ser. A, 4 1/2s, 7/5/95 MIG1 3,260,156
6,500,000 CA Special Dist. Fin. Auth. COP, Ser. A, 8 1/2s, 7/1/18 Baa 7,109,375
26,620,000 CA State Dept. of Wtr. Resources Rev. Bonds
(Central Valley Project), Ser. H, 8s, 12/1/16 AAA 28,117,375
24,200,000 CA State Dept. of Wtr. Resources RIBS (Central Valley Project), 10.122s,
12/1/12 ($21,200,000 acquired 11/25/92, cost $23,299,902;
$3,000,000 acquired 2/01/94, cost $4,277,220)(c) AA 27,920,750
CA State General Obligation (G.O.) Bonds
16,545,000 AMBAC, 5 1/2s, 4/1/11 AAA 14,952,544
7,030,000 MBIA, 5 1/2s, 4/1/09 AAA 6,625,775
25,460,000 MBIA, 5s, 11/1/22 AAA 20,240,700
10,445,000 FGIC, 5s, 11/1/22 AAA 8,316,831
8,070,000 FGIC, 4 3/4s, 9/1/23 AAA 6,052,500
20,800,000 Ser. 33, zero %, MBIA, 10/1/11 AAA 6,890,000
60,000,000 Ser. 27, zero %, MBIA, 9/1/11 AAA 20,025,000
37,100,000 CA State G.O. RIBS, 8.936s, 9/1/12 (acquired 10/27/92, cost $35,987,000)(c) A 35,662,375
CA State Pub. Works Board Lease Rev. Bonds
20,690,000 (U. of CA Project), Ser. A, 7s, 9/1/15 AAA 22,914,175
24,000,000 (Dept. of Corrections-State Prisons), Ser. A, 7s, 9/1/09 AAA 26,580,000
21,400,000 (CA State U. Various Projects), Ser. A, 6.6s, 12/1/22(f) AAA 23,433,000
28,000,000 (Dept. of Corrections-Calipatria State Prison), Ser. A, MBIA, 6 1/2s, 9/1/17 AAA 28,490,000
59,000,000 (Dept. Of Corrections-State Prison) 6.48s, 9/1/19 A 63,793,750
5,225,000 (Dept. of Corrections-Calipatria State Prison), 5 3/4s, 9/1/21 A 4,539,219
6,000,000 (CA State U. Various Projects), Ser. A, 5 1/2s, 6/1/14 A 5,220,000
6,125,000 (CA State U. Various Projects), Ser. A, 5 1/2s, 6/1/10 A 5,474,219
14,610,000 (Dept. of Corrections-State Prison), Ser. D, 5 3/8s, 6/1/12 A 12,601,125
9,000,000 (Dept. of Corrections-State Prison), Ser. D, MBIA, 5 3/8s, 6/1/12 AAA 8,021,250
6,795,000 (Dept. of Corrections-State Prison), Ser. A, AMBAC, 5 1/4s, 12/1/13 AAA 5,877,675
8,000,000 (Dept. of Corrections-State Prison), MBIA, 5 1/4s, 6/1/08 AAA 7,270,000
5,000,000 (CA State U. Various Projects), Ser A, 5s, 6/1/23 A 3,868,750
25,000,000 (Dept. of Corrections-State Prisons), Ser. A, AMBAC, 5s, 12/1/19 AAA 20,156,250
80,000,000 CA State Rev. Antic. Wts. (RAW) Ser. C, 5 3/4s, 4/25/96 MIG1 81,050,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 3,000,000 CA State Rev. Antic. Note Ser. A, 5s, 6/28/95 MIG1 $ 3,020,625
18,000,000 CA State U. RIBS, AMBAC, 10.302s, 11/1/21 (acquired 3/2/92,
cost $19,013,580)(c) AAA 19,890,000
5,000,000 CA Statewide Cmntys. Dev. Auth. COP,
(Catholic H.C. West), MBIA, 5 1/2s, 7/1/23 AAA 4,325,000
14,000,000 Castaic Lake Wtr. Agcy. COP
(Wtr. Syst. Impt. Project), MBIA, 7 1/8s, 8/1/16 AAA 15,575,000
32,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds, AMBAC, 5 3/4s, 8/1/22 AAA 28,720,000
Commerce, Redev. Agcy. Rev. Bonds (Project No. 1), Ser. 91-A,
8,845,000 7 1/4s, 8/1/21 BBB 8,966,619
68,280,000 zero %, 8/1/21 BBB 10,754,100
35,000,000 Contra Costa, Home Mtge. Fin. Auth. Rev. Bonds MBIA, zero %, 9/1/17 AAA 7,481,250
5,000,000 Contra Costa, Trans. Auth. Sales Tax Rev. VRDN, Ser. A, FGIC, 3.35s, 3/1/09 VMIG1 5,000,000
34,915,000 Contra Costa, Wtr. Dist. Wtr. Rev. Bonds, Ser. G, MBIA, 5s, 10/1/26 AAA 27,932,000
10,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B, 9 1/2s, 7/1/20 BB/P 10,375,000
Duarte, COP (City of Hope Med. Ctr.)
21,000,000 6 1/4s, 4/1/23 Baa 19,320,000
15,000,000 6 1/8s, 4/1/13 Baa 13,950,000
3,750,000 6s, 4/1/08 Baa 3,520,313
14,000,000 East Bay, Muni. Util. Dist. Rev. Bonds Special Dist. No. 001. Ser. E, 5s, 4/1/15 AA 11,690,000
7,900,000 East Bay, Muni. Util. Dist. Wtr. Syst. Rev. Bonds MBIA, 5s, 6/1/14 AAA 6,596,500
18,005,000 Eastern Muni. Water Dist. Wtr. & Swr. COP VRDN, Ser. B, FGIC, 3.3s, 7/1/20 VMIG1 18,005,000
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A, AMBAC, 6 1/4s, 8/15/17 AAA 10,510,500
11,140,000 Fresno, COP (Unified Sch. Dist.), 7 1/4s, 3/1/07 A 11,571,675
4,250,000 Fresno, Wtr. Syst. Rev. Bonds Ser. A, 7.3s, 6/1/20 A 4,648,438
10,000,000 Intermodal Container Transfer Fac. Jt. Pwr. Auth. Rev. Bonds
Ser. A, 7.7s, 11/1/14 Aa 10,687,500
Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy. Loc. Pool. Rev. Bonds
56,000,000 (Issue 11), 8 1/4s, 8/15/23 A 60,550,000
23,000,000 (Issue 11), 8.2s, 8/15/08 A 24,955,000
25,010,000 7 7/8s, 2/15/23 A 26,510,600
Irvine Ranch, Wtr. Dist. VRDN
2,700,000 3.55s, 8/1/16 VMIG1 2,700,000
5,000,000 3 1/2s, 4/1/33 VMIG1 5,000,000
5,700,000 Ser. B, 3 1/2s, 10/1/04 VMIG1 5,700,000
6,800,000 3.45s, 8/1/16 VMIG1 6,800,000
LA Habra, COP (Friendly Hills Hlth. Care Fndtn.), Ser. A,
38,000,000 7.15s, 7/1/23 BB/P 38,000,000
12,000,000 7.05s, 7/1/13 BB/P 12,000,000
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 5,125,000 6.7s, 7/1/03 BB/P $ 5,125,000
4,845,000 6.3s, 7/1/99 BB/P 4,845,000
6,000,000 Local Govt. Fin. Jt. Pwr. Auth. Rev. Bonds (Anaheim Redev. Agcy.),
Ser. A, 8.2s, 9/1/15 A 6,772,500
Loma Linda, Hosp. Rev. Bonds
(Loma Linda U. Med. Ctr. Project),
11,270,000 Ser. B, AMBAC, 7s, 12/1/15 AAA 11,918,025
10,120,000 Ser. A, 6s, 12/1/23 BBB 8,386,950
18,370,000 Los Angeles Cnty., Capital Asset Leasing Corp. I/F AMBAC, 3.8s, 12/1/07 AAA 18,278,150
Los Angeles Cnty., COP
12,500,000 (Marina Del Rey), Ser. A, 6 1/2s, 7/1/08 BBB/P 12,015,625
Los Angeles Cnty., COP RIBS
12,750,000 (Master Project), 9.646s, 6/1/15 A 12,670,313
2,200,000 Los Angeles Cnty., Cmnty. Dev. COP VRDN
(Willowbrook Project.), 3.45s, 11/15/15 A-1 2,200,000
24,340,000 Los Angeles Cnty., Hlth. Fac. Auth. Lease Rev. Bonds
(Olive View Med. Ctr.), 7 1/2s, 3/1/08 A 26,713,150
Los Angeles Cnty., Metro. Trans. Auth. Sales Tax Rev. Bonds
41,000,000 Ser. 2B, AMBAC, 5 1/4s, 7/1/23 AAA 33,876,250
34,000,000 Ser A, FGIC, 5s, 7/1/21 AAA 27,200,000
26,235,000 Los Angeles Cnty., Pension Obligation Ltd. Interest Muni. Oblig. COP
Stepped-coupon, Ser. A, zero % (6.9s, 6/30/96), 6/30/08(d) A 25,120,013
9,500,000 Los Angeles Cnty., Pub. Works Fin. Auth. Lease Rev. Bonds (Multi-Capital
Facs. Project IV), MBIA, 4 3/4s, 12/1/10 AAA 7,861,250
13,000,000 Los Angeles Cnty., Santn. Districts Fin. Auth.
Rev. Bonds (Cap. Projects), Ser. A, MBIA, 5s, 10/1/23 AAA 10,302,500
Los Angeles Cnty., Trans. Comm. Sales Tax Rev. Bonds
13,565,000 Ser. A, 8s, 7/1/16 AAA 14,921,500
Los Angeles Cnty., Trans. Comm. Sales Tax VRDN
13,250,000 Ser. A, FGIC, 3.45s, 7/1/12 VMIGI 13,250,000
11,000,000 Los Angeles, Cmnty. Redev. Agcy. Fin. Auth. Rev. Bonds
(Beacon-Normandie), Ser. B, 6 5/8s, 9/1/14 Baa 10,422,500
29,100,000 Los Angeles, Convention & Exhibition Ctr. Auth.
Lease RIBS 7.101s, 8/15/18 (acquired 9/15/94, cost $21,610,242)(c) AAA/P 20,988,375
37,465,000 Los Angeles, Convention and Exhibition Ctr. Auth. COP, 9s, 12/1/20(f) AAA 47,627,381
Los Angeles, Dept. Wtr & Swr. Elec. Plt. Rev. Bonds
51,200,000 Issue 2, 6.8s, 6/1/31 AA 56,000,000
6,000,000 Ser. 91-2, 6.331s, 6/1/31 AA 6,547,500
17,760,000 Issue 2, MBIA, 5 1/4s, 11/15/26 AAA 14,563,200
38,205,000 Los Angeles, Dept. of Wtr. & Pwr. Elec. Plt.
Rev. Bonds, Issue 2, 6 3/4s, 12/15/29 AA 41,547,938
11,000,000 Los Angeles, Dept. of Wtr. & Pwr. Wtrwks. Rev. Bonds, 7s, 2/15/22 AA 11,976,250
25,000,000 Los Angeles Harbor Dept. Rev. Bonds, 7.6s, 10/1/18 AAA 27,843,750
Los Angeles, State Bldg. Auth. Lease Rev. Bonds
(State Dept. General Svcs.), Ser. A,
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$27,250,000 7 1/2s, 3/1/11 AAA $ 29,906,875
21,530,000 5 5/8s, 5/1/11 A 19,403,913
Los Angeles, Wastewater Sys. Rev. Bonds
17,150,000 Ser. B, 7.15s, 6/1/20 A 19,079,375
20,105,000 Ser. A, 7s, 2/1/20 AAA 22,115,500
50,000,000 Ser 91-5, AMBAC, 6.519s, 6/1/21 AAA 54,562,500
17,600,000 Ser. D, FGIC, 5 3/8s, 11/1/08 AAA 16,412,000
22,100,000 Ser, D, FGIC, 5 3/8s, 11/1/07 AAA 20,856,875
34,700,000 Los Angeles, Wastewater Sys. RIBS 9.231s, 6/1/19 (acquired 7/13/92,
cost $36,256,642)(c) AAA 33,832,500
Metro. Wtr. Dist. of Southern CA Waterworks Rev. Bonds
16,780,000 Ser. A, 5 3/4s, 7/1/21 AA 15,290,775
40,000,000 5.606s, 8/14/18 AA 36,850,000
15,330,000 5 1/2s, 7/1/19 AA 13,394,588
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds, Ser. A, AMBAC, 5s, 12/1/13 AAA 15,728,500
Northn. CA Pwr. Agcy. Multi. Cap. Fac. RIBS, MBIA,
8,450,000 10.105s, 8/15/17 AAA 8,545,063
9,500,000 9.355s, 8/1/25 AAA 9,606,875
Northn. CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
299,000 (Geothermal Project No. 3), Ser. 84A, 11 1/2s, 7/1/10 AAA 307,970
17,000,000 (Hydro. Elec. Project No. 1), Ser. B-1, 8s, 7/1/24 AAA 18,763,750
Northn. CA Trans. Rev. Bonds (CA-OR Trans. Project), Ser. A, MBIA,
5,000,000 7s, 5/1/10 AAA 5,500,000
5,000,000 5.3s, 5/1/10 AAA 4,518,750
12,500,000 Oakland, COP (Oakland Museum), Ser. A, AMBAC, 6s, 4/1/12 AAA 12,093,750
7,000,000 Oakland, Redev. Agcy. COP Ser. A, 9 1/4s, 8/1/16 AAA 7,420,000
14,800,000 Oakland, State Redev. Agcy. Rev. Bond MBIA, 5.95s, 9/1/19 AAA 13,801,000
Orange Cnty., COP
10,000,000 (Solid Waste Management), 7 7/8s, 12/1/13 A 10,900,000
4,180,000 (Solid Waste Management), 7 7/8s, 12/1/07 A 4,561,425
25,000,000 (Juvenile Justice Ctr. Fac.), AMBAC, 6s, 6/1/17 AAA 23,968,750
15,000,000 Orange Cnty., Dev. Agcy. Tax Alloc. Rev. Bonds
(Santa Ana Heights Project), 6 1/8s, 9/1/23 Baa 13,406,250
2,850,000 Orange Cnty., Impt. Bd. Act of 1915 VRDN
(Irvine Coast Assmnt. Dist. No. 88-1), 3.6s, 9/2/18 VMIG1 2,850,000
Orange Cnty., Sanitation Dists. COP VRDN
8,900,000 Ser C, FGIC, 3.45s, 8/1/17 VMIG1 8,900,000
3,600,000 AMBAC, 2.2s, 8/1/16 A 3,600,000
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev. Bonds
(Cent. City Revitalization), Ser. A, 6 1/2s, 9/1/16 BBB 11,877,000
22,850,000 Palm Desert, Fin. Auth. Tax Alloc. Inverse Rate Floater, MBIA, 9.255s, 4/1/22 AAA 22,507,250
10,000,000 Palmdale, Civic Auth. Rev. Bonds (Merged Redev. Project), Ser A, 6.6s, 9/1/34 A 9,587,500
24,855,000 Pasadena, Variable COP I/F (Index Cap. Ctf.), AMBAC, 5.35s, 2/1/14(f) AAA 23,425,838
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds, Ser. B,
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$ 6,060,000 6 3/4s, 9/2/17 BBB/P $ 5,719,125
7,245,000 6.6s, 9/2/08 BBB/P 6,918,975
4,920,000 6 1/2s, 9/2/04 BBB/P 4,790,850
14,535,000 6 1/8s, 9/2/02 BBB/P 14,644,013
Pomona, Pub. Fin. Auth. Rev. Bonds
10,000,000 (SW Pomona Redev.), Ser. L, Capital Market Assurance Corporation (CAPMAC),
5 3/4s, 2/1/20 AAA 8,912,500
5,000,000 (Pomona Redev.), Ser. L, CAPMAC, 5.7s, 2/1/13 AAA 4,556,250
7,095,000 Rancho Cucamonga, Redev. Agcy. Tax Alloc. Rev. Bonds (Rancho Redev. Project),
MBIA, 6 3/4s, 9/1/20 AAA 7,724,681
44,000,000 Rancho, Wtr Dist. Fin. Auth. Rev. Bonds, AMBAC, 6.427s, 8/17/21 AAA 47,300,000
10,400,000 Redding, Elec. Sys. Rev. COP RIBS, MBIA, 9.105s, 7/1/22 AAA 10,270,000
5,000,000 Richmond Jt. Pwrs. Fin. Auth. Impt. Rev. Bonds, Ser. B, 8 1/2s, 9/2/19 BBB/P 5,187,500
24,495,000 Riverside Cnty., Asset Leasing Corp. Rev. Bonds
(Riverside Cnty. Hosp. Project), Ser. A, 6 1/4s, 6/1/19 A 22,688,494
6,640,000 Riverside, Elec. Rev. Bonds 5s, 10/1/13 AA 5,660,600
12,700,000 Riverside, Rev. Bonds (Kaiser Permanente), Ser. A, 9s, 12/1/15 AA 13,493,750
7,000,000 Sacramento, City Fin. Auth. Lease Rev. Bonds, Ser. A, AMBAC, 5.4s, 11/1/20 AAA 6,002,500
10,000,000 Sacramento Cnty., COP (Sacramento Main Detention), MBIA, 5 1/2s, 6/1/10 AAA 9,425,000
16,610,000 Sacramento Cnty., Hsg. Auth. Multi-Fam. Rev. Bonds Ser. 85-2,
Federal National Mortgage Association, zero %, 11/1/97 AAA 13,080,375
25,000,000 Sacramento, Muni. Util. Dist. Elec. RIBS, FGIC, 8.87s, 8/15/18 AAA 24,125,000
Sacramento, Muni. Util. Dist. Elec. Rev. Bonds
34,835,000 Ser. V, 7 7/8s, 8/15/16 AAA 39,015,200
5,930,000 Ser. V, 7 1/2s, 8/15/18 AAA 6,463,700
25,900,000 Ser. R, 7 1/8s, 2/1/13 AAA 27,777,750
9,500,000 Ser. A, MBIA, 6 1/4s, 8/15/10 AAA 9,571,250
9,265,000 Ser. C, MBIA, 5 3/4s, 11/15/07 AAA 9,033,375
15,355,000 Sacramento Cnty., Santn. Dist. Fin. Auth. Rev. Bonds MBIA, 4 3/4s, 12/1/23 AAA 11,535,444
1,000,000 San Bernardino Cnty., Hsg. Auth. Multi-Fam. VRDN (Brookside Meadows),
Ser. A, 4.2s, 8/1/05 VMIG2 1,000,000
22,500,000 San Bernardino Cnty., COP (West Valley Detention Ctr.), MBIA, 6s, 11/1/18 AAA 21,375,000
14,615,000 San Bernardino, Hosp. Rev. Bonds (San Bernardino Cmnty. Hosp.), 7 7/8s, 12/1/19 Ba 14,103,475
9,000,000 San Diego Cnty., COP, RIBS MBIA, 9.956s, 11/18/19 AAA 8,741,250
San Diego Cnty., COP,
8,850,000 (Vista Detention Fac. Expn. Project), 7 7/8s, 4/1/07 AAA 9,646,500
15,800,000 AMBAC, 5 1/4s, 9/1/06 AAA 16,511,000
2,000,000 San Diego Cnty., Regl. Trans. Commn. Sales Tax VRDN Ser 2A, FGIC, 3s, 4/1/08 VMIGI 2,000,000
San Diego Cnty., Wtr. Auth. Rev. COP RIBS
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$17,500,000 Ser. 91-B, MBIA, 9.07s, 4/8/21 AAA $ 16,800,000
28,350,000 Ser. 91-B, MBIA, 9.07s, 5/1/11 AAA 28,385,438
5,000,000 FGIC, 5.681s, 5/1/08 AAA 4,806,250
9,700,000 San Diego Ctny., Tax & Rev. Antic. Notes, 4 1/2s, 9/29/95 VMIG1 9,693,938
8,450,000 San Diego, Indl. Dev. Rev. Bonds (San Diego Gas & Elec. Co.), Ser. A,
9 1/4s, 9/1/20 Aa 8,925,313
San Diego, Regl. Bldg. Auth. Lease RIBS, MBIA,
11,000,000 3.81s, 5/1/23 AAA 10,078,750
14,100,000 3.76s, 5/1/13 AAA 13,324,500
21,075,000 San Diego, Single Fam. Mtge. Rev. Bonds, Issue A, zero %, 8/1/16 A 2,739,750
San Diego, Swr. Rev. Bonds
12,000,000 AMBAC, 5 1/4s, 5/15/20 AAA 9,990,000
11,550,000 Ser. A, AMBAC, 5s, 5/15/23 AAA 9,138,938
San Joaquin Hills, Trans. Corridor Agcy. Toll Rd. Rev. Bonds
70,750,000 6 3/4s, 1/1/32 BB/P 66,505,000
31,810,000 5s, 1/1/33 BB/P 22,505,575
13,000,000 San Jose, COP (Convention Ctr. Project), 7 7/8s, 9/1/10 AAA 14,040,000
30,700,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev. Project), MBIA, 5s, 8/1/20 AAA 24,598,375
20,000,000 San Mateo Cnty., Jt. Pwrs. Fing. Auth. Lease RIBS,
Financial Security Assurance, 8.02s, 7/15/29 AAA 15,725,000
1,465,000 San Pablo, Redev. Agcy. Single Fam. Mtge. Rev. Bonds, 10 1/8s, 12/1/14 B 1,554,731
11,525,000 Santa Clara Cnty., COP (Cap. Project No. 1), 8s, 10/1/16 AAA 12,504,625
17,800,000 Santa Clara Vy., Wtr. Dist. COP RIBS, 7.97s, 8/1/15 AAA 14,952,000
5,000,000 Santa Margarita/Dana Point Auth. Rev. Bonds,
Ser. B, MBIA, 5 3/4s, 8/1/20 AAA 4,575,000
3,000,000 Santa Rosa, Hosp. Rev. Bonds (Kaiser Permanente), Ser. A, 9s, 12/1/15 AA 3,183,750
22,600,000 South Orange Cnty., Pub. Fing. Auth. Spl. Tax RIBS, FGIC, 5 1/2s, 8/15/15 AAA 18,193,000
Southern CA Pub. Pwr Auth. Rev. Bonds
20,000,000 (Transmission Project), Ser. B, 7 3/8s, 7/1/21 AA 21,300,000
18,535,000 (Palo Verde Project), Ser. B, 7 1/8s, 7/1/15 AAA 19,716,606
17,995,000 (Transmission Project), Ser. B, 7s, 7/1/22 AA 19,164,675
11,800,000 (Palo Verde Project), Ser. A, 6 7/8s, 7/1/15 AAA 12,493,250
25,855,000 (Multi. Pwr. Projects), 6s, 7/1/18 A 23,786,600
13,500,000 (Southern Transmission Project), MBIA, 5 3/4s, 7/1/21 AAA 12,217,500
11,200,000 (Transmission Project), Ser. B, MBIA, 5 1/2s, 7/1/23 AAA 9,688,000
5,330,000 (Multi. Pwr. Projects), 5 1/2s, 7/1/20 A 4,563,813
8,500,000 (San Juan Unit 3), Ser. A, MBIA, 5 1/4s, 1/1/14 AAA 7,352,500
13,635,000 (Mead Adelanto Project), Ser. A, AMBAC, 5s, 7/1/17 AAA 11,146,613
20,540,000 Ser. A, AMBAC, 5s, 7/1/15 AAA 16,945,500
5,500,000 (Palo Verde Project), Ser. A, AMBAC, 5s, 7/1/15 AAA 4,558,125
29,050,000 (Mead Adelanto Project), Ser. A, AMBAC, 4 7/8s, 7/1/20 AAA 22,622,688
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(b) VALUE
CALIFORNIA (continued)
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
$14,600,000 Southern CA Pub. Pwr Auth. VRDN (Southern Transmission Project),
AMBAC, 3 1/4s, 7/1/19 VMIG1 $ 14,600,000
Stanislaus, Waste & Energy Fin. Agcy. Solid Waste Fac. COP
(Ogden Martin Syst. Inc. Project),
16,800,000 7 5/8s, 1/1/10 BBB 17,724,000
9,750,000 7 1/2s, 1/1/05 BBB 10,237,500
6,830,000 Stockton, Hlth. Fac. Rev. Bonds (Dameron Hosp. Assn.), Ser. A, 11 3/8s, 12/1/14 AAA 7,124,544
2,150,000 Triunfo Cnty., Santn. Dist. COP VRDN (Wastewater Reclamation Project),
3.5s, 6/1/19 VMIG1 2,150,000
Turlock, Hlth. Fac. COP (Emanuel Med. Ctr. Inc.)
8,500,000 5 3/4s, 10/15/23 BBB 6,863,750
5,000,000 5 5/8s, 10/15/13 BBB 4,143,750
29,700,000 U. of CA RIBS, MBIA, 9.61s, 9/1/16 (acquired 8/12/92, cost $33,601,600)(c) AAA 36,159,750
U. of CA Rev. Bonds
36,147,000 (USCD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/19 BBB 37,999,534
54,500,000 (UCSD Med. Ctr. Satellite Med. Fac.), 7.9s, 12/1/96 AAA 58,315,000
6,000,000 (Multi. Purpose Projects), Ser. A, 6 7/8s, 9/1/16 A 6,645,000
5,000,000 (Hsg. Sys.) Ser. A, MBIA, 5.3s, 11/1/06 AAA 4,750,000
16,240,000 (Multi. Purpose Project), Ser. C, AMBAC, 5 1/8s, 9/1/09 AAA 14,433,300
10,000,000 (Multi. Purpose Projects), Ser. C, AMBAC, 5.1s, 9/1/08 AAA 9,000,000
11,500,000 (Multi. Purpose Projects), Ser. B, MBIA, 5s, 9/1/16 AAA 9,430,000
7,000,000 (Hsg. Syst.), Ser. A, MBIA, 5s, 11/1/13 AAA 5,871,250
10,000,000 (Multi. Purpose Projects), Ser. C, AMBAC, 5s, 9/1/11 AAA 8,575,000
7,440,000 (Multi. Purpose Projects), Ser. B, MBIA, 4.9s, 9/1/08 AAA 6,407,700
13,000,000 (Multi. Purpose Project), Ser. C, AMBAC, 4 7/8s, 9/1/19 AAA 10,172,500
10,325,000 (Multi. Purpose Projects), Ser. B, MBIA, 4 3/4s, 9/1/14 AAA 8,208,375
8,000,000 (Multi. Purpose Projects), Ser. C, AMBAC, 4 3/4s, 9/1/16 AAA 6,240,000
1,500,000 Union City, Hsg. Mtge. VRDN (Greenhaven Apts. Project), Ser. A,
3.95s, 10/1/11 VMIG2 1,500,000
36,945,000 Valley Hlth. Sys. COP 6 7/8s, 5/15/23 BB/P 33,065,761
Washington Twp., Hosp. Dist. Rev. Bonds
13,430,000 5 1/2s, 7/1/18 A 11,331,563
6,070,000 5 1/4s, 7/1/23 A 4,833,238
--------------
3,553,300,027
PUERTO RICO (0.8%)
- -------------------------------------------------------------------------------------------------------------------------------
7,000,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth. VRDN, Ser. X, 3 1/4s, 7/1/99 VMIG1 7,000,000
18,100,000 Cmnwlth. of Puerto Rico, Pub. Impt. G.O. Bonds, 7.7s, 7/1/20 AAA 20,724,500
--------------
27,724,500
--------------
TOTAL MUNICIPAL BONDS AND NOTES (cost $3,521,952,912) $3,581,024,527
==============
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL OPTIONS (0.1%)(a)
PRINCIPAL AMOUNT RATINGS(b) VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Modesto, Irr. Dist. Fin. Auth. Rev. Bonds, Custody Receipts (Geysers
Geothormal Power Project), Ser. A, MBIA
$20,385,000 6s, 10/1/15 AAA/P $ 993,769
4,405,000 5.8s, 10/1/11 AAA/P 211,991
4,165,000 5 3/4s, 10/1/10 AAA/P 208,250
3,945,000 5.65s, 10/1/09 AAA/P 204,647
3,735,000 5.55s, 10/1/08 AAA/P 203,091
3,540,000 5.45s, 10/1/07 AAA/P 203,550
3,365,000 5.35s, 10/1/06 AAA/P 204,003
3,195,000 5 1/4s, 10/1/05 AAA/P 203,681
3,040,000 5.15s, 10/1/04 AAA/P 203,300
2,895,000 5.05s, 10/1/03 AAA/P 206,269
2,755,000 4.95s, 10/1/02 AAA/P 206,625
2,630,000 4.85s, 10/1/01 AAA/P 208,756
2,510,000 4.7s, 10/1/00 AAA/P 213,350
2,400,000 4 1/2s, 10/1/99 AAA/P 214,500
2,305,000 4 1/4s, 10/1/98 AAA/P 220,416
2,220,000 3 3/4s, 10/1/97 AAA/P 220,613
-------------
TOTAL MUNICIPAL OPTIONS (cost $4,589,233) $ 4,126,811
-------------
TOTAL INVESTMENTS (cost $3,526,542,145)(e) $3,585,151,338
=============
</TABLE>
(a) Percentages indicated are based on net assets of $3,610,377,473, which
corresponds to a net asset value per share for class A and class B
shareholders of $8.09 and $8.08, respectively.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at September 30, 1994 for the securities
listed. Ratings are generally ascribed to securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated do
not necessarily represent ratings which the rating agencies would ascribe to
these securities at September 30, 1994. Securities rated by Putnam are
indicated by "/P" and are not publicily rated. Ratings are not covered by
the Report of Independent Accountants.
(c) Restricted as to public resale. At the date of acquisition, these
securities were valued at cost. There were no outstanding unrestricted
securities of the same class as that held. Total market value of restricted
securities owned at September 30, 1994 was $174,453,750 or 4.8% of net
assets.
(d) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin receiving
interest at this rate.
(e) The aggregate identified cost for federal income tax purposes is
$3,533,333,284, resulting in gross unrealized appreciation and depreciation
of $146,592,326 and $94,774,272, respectively, or net unrealized
appreciation of $51,818,054.
(f) A portion of these securities were pledged to cover margin requirements
for futures contracts at September 30, 1994. The market value of segregated
securities with the custodian for transactions on futures contracts is
$58,585,381 or 1.6% of net assets.
The rates shown on Residual Interest Bonds (RIBS) and Inverse Rate Floaters
(I/F), which are securities paying variable interest rates that vary inversely
to changes in market interest rates, Floating rate notes, Variable COP's and
Variable Rate Demand Notes (VRDN) are the current interest rates at September
30, 1994, which are subject to change based on the terms of the security.
21
<PAGE>
The Fund had the following industry group concentrations greater than 10% on
September 30, 1994 (as a percentage of net assets):
Water & Sewer 18.7%
Hospitals 11.8
Utilities 10.1
The Fund had the following insurance concentrations greater than 10% on
September 30, 1994 (as a percentage of net assets):
MBIA 16.3%
AMBAC 14.8
FUTURES CONTRACTS OUTSTANDING at September 30, 1994
<TABLE>
<CAPTION>
Unrealized
Total Aggregate Face Expiration Appreciation
Value Value Date (Depreciation)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury
Bond Futures
(Sell) $321,970,469 $323,443,516 Dec/94 $1,473,047
Municipal Bond Index
(Buy) 65,671,875 66,660,750 Dec/94 (988,875)
------------
Total $ 484,172
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
<TABLE>
ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Investments in securities, at value
(identified cost $3,526,542,145) (Note 1) $3,585,151,338
- --------------------------------------------------------------------------------
Cash 623,108
- --------------------------------------------------------------------------------
Interest receivable 55,412,419
- --------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,832,908
- --------------------------------------------------------------------------------
Receivable for securities sold 5,052,111
- --------------------------------------------------------------------------------
Total assets 3,652,071,884
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
Payable for securities purchased 17,683,513
- --------------------------------------------------------------------------------
Distributions payable to shareholders 9,393,019
- --------------------------------------------------------------------------------
Payable for shares of the fund repurchased 7,049,038
- --------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,123,764
- --------------------------------------------------------------------------------
Payable for administrative services (Note 2) 11,089
- --------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,732
- --------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 133,966
- --------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,911,472
- --------------------------------------------------------------------------------
Other accrued expenses 186,005
- --------------------------------------------------------------------------------
Payable for variation margin on futures contracts 1,199,813
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 41,694,411
- --------------------------------------------------------------------------------
NET ASSETS $3,610,377,473
- --------------------------------------------------------------------------------
REPRESENTED BY
- --------------------------------------------------------------------------------
Paid-in capital (Notes 1,4 and 5) $3,557,008,722
- --------------------------------------------------------------------------------
Distributions in excess of net investment income (Notes 1 and 5) (583,482)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions
(Notes 1 and 5) (5,141,132)
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures
contracts 59,093,365
- --------------------------------------------------------------------------------
TOTAL--REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $3,610,377,473
- --------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- --------------------------------------------------------------------------------
Net asset value and redemption price of class A
shares ($3,260,768,652 divided by 403,264,434 shares) $8.09
- --------------------------------------------------------------------------------
Offering price per share (100/95.25 of $8.09)* $8.49
- --------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($349,608,821 divided by 43,294,681 shares)+ $8.08
- --------------------------------------------------------------------------------
</TABLE>
* On single retail sales of less than $25,000. On sales of $25,000 or more and
on group sales the offering price is reduced.
+ Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
STATEMENT OF OPERATIONS
Year ended September 30, 1994
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $ 245,868,117
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,808,364
- --------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 590,712
- --------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 83,489
- --------------------------------------------------------------------------------
Auditing 83,000
- --------------------------------------------------------------------------------
Legal 47,260
- --------------------------------------------------------------------------------
Postage 174,551
- --------------------------------------------------------------------------------
Reports to shareholders 35,572
- --------------------------------------------------------------------------------
Administrative services (Note 2) 50,500
- --------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,909,728
- --------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,562,554
- --------------------------------------------------------------------------------
Registration fees 77,942
- --------------------------------------------------------------------------------
Other 60,593
- --------------------------------------------------------------------------------
TOTAL EXPENSES 27,484,265
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME 218,383,852
- --------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,196,328)
- --------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 16,448,541
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments and
futures contracts during the year (378,040,878)
- --------------------------------------------------------------------------------
NET LOSS ON INVESTMENT TRANSACTIONS (362,788,665)
- --------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(144,404,813)
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended September 30
1994 1993
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations:
- --------------------------------------------------------------------------------
Net investment income $ 218,383,852 $ 200,894,657
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,196,328) 6,404,745
- --------------------------------------------------------------------------------
Net realized gain (loss) on futures
contracts 16,448,541 (1,878,498)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and futures contracts (378,040,878) 219,500,380
- --------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (144,404,813) 424,921,284
- --------------------------------------------------------------------------------
Distributions to shareholders from
- --------------------------------------------------------------------------------
Net investment income:
- --------------------------------------------------------------------------------
Class A (202,657,624) (198,606,196)
- --------------------------------------------------------------------------------
Class B (15,701,799) (3,652,739)
- --------------------------------------------------------------------------------
Net realized gain on investments:
- --------------------------------------------------------------------------------
Class A (10,629,107) (13,426,704)
- --------------------------------------------------------------------------------
Class B (794,743) --
- --------------------------------------------------------------------------------
Increase from capital share transactions
(Note 4) 174,727,426 746,437,801
- --------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (199,460,660) 955,673,446
- --------------------------------------------------------------------------------
NET ASSETS
- --------------------------------------------------------------------------------
Beginning of year 3,809,838,133 2,854,164,687
- --------------------------------------------------------------------------------
End of year (including distributions in
excess of net investment income of
$583,482 and undistributed net
investment income of $27,295,
respectively) $3,610,377,473 $3,809,838,133
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
For the period
January 4, 1993
(commencement of
Year ended operations) to Year ended
September 30 September 30 September 30
1994 1993 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
Class B Class A
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 8.91 $ 8.37 $ 8.92 $ 8.39 $ 8.11 $ 7.70 $ 7.83
- -----------------------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .45 .32 .50 .53 .54 .54 .54
- -----------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments (.81) .55 (.81) .57 .27 .41 (.10)
- -----------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations (.36) .87 (.31) 1.10 .81 .95 .44
- -----------------------------------------------------------------------------------------------------------------------
Distributions to
Shareholders from:
Net Investment Income (.45) (.33) (.50) (.53) (.53) (.54) (.54)
- -----------------------------------------------------------------------------------------------------------------------
Net Realized Gain or Loss
on Investments (.02) -- (.02) (.04) -- -- (.03)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (.47) (.33) (.52) (.57) (.53) (.54) (.57)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $ 8.08 $ 8.91 $ 8.09 $ 8.92 $ 8.39 $ 8.11 $ 7.70
- -----------------------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (a) (4.15) 10.51(b) (3.53) 13.63 10.34 12.71 5.75
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(in thousands) $349,609 $209,657 $3,260,769 $3,600,182 $2,854,165 $2,295,154 $1,807,931
- -----------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) 1.32 1.00(b) .68 .69 .60 .56 .52
- -----------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net Assets (%) 5.16 3.68(b) 5.86 6.16 6.53 6.79 6.90
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 21.06 22.95 21.06 22.95 31.25 35.76 33.42
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Eleven Months Year
ended ended
September 30 October 31
1989 1988 1987 1986 1985 1984
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $ 7.67 $ 7.14 $ 7.80 $ 6.97 $ 6.48 $ 6.80
- ----------------------------------------------------------------------------------------------------------
Investment Operations
Net Investment Income .56 .57 .57 .61 .58 .62
- ----------------------------------------------------------------------------------------------------------
Net Realized and Unrealized
Gain (Loss) on Investments .16 .52 (.66) .83 .49 (.32)
- ----------------------------------------------------------------------------------------------------------
Total from Investment
Operations .72 1.09 (.09) 1.44 1.07 .30
- ----------------------------------------------------------------------------------------------------------
Distributions to
Shareholders from:
Net Investment Income (.56) (.56) (.57) (.61) (.58) (.62)
- ----------------------------------------------------------------------------------------------------------
Net Realized Gain or Loss
on Investments -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Total Distributions (.56) (.56) (.57) (.61) (.58) (.62)
- ----------------------------------------------------------------------------------------------------------
Net Asset Value, End of
Period $ 7.83 $ 7.67 $ 7.14 $ 7.80 $ 6.97 $ 6.48
- ----------------------------------------------------------------------------------------------------------
Total Investment Return at
Net Asset Value (%) (a) 9.63 15.69 (1.52) 21.36 16.90(b) 4.66
- ----------------------------------------------------------------------------------------------------------
Net Assets, End of Period
(in thousands) $1,541,563 $1,228,401 $1,088,122 $811,399 $463,189 $302,450
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets (%) .52 .51 .52 .53 .55(b) .65
- ----------------------------------------------------------------------------------------------------------
Ratio of Net Investment
Income to Average Net Assets (%) 7.09 7.51 7.22 7.91 8.30(b) 9.32
- ----------------------------------------------------------------------------------------------------------
Portfolio Turnover (%) 60.77 95.05 93.46 65.88 80.61(b) 167.68
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Table has been restated to reflect a 2-for-1 share split declared by the
fund to shareholders of record on October 27, 1989, effective October 28,
1989.
(a) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(b) Not annualized.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The fund seeks as high a
level of current income exempt from federal income tax and California personal
income tax as Putnam Investment Management, Inc. (Putnam Management) believes is
consistent with preservation of capital by investing primarily in a diversified
portfolio of longer-term California tax exempt securities.
The fund offers both Class A and Class B shares. Class A shares are sold with a
maximum front-end sales charge of 4.75%. Class B shares 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. Expenses of the fund are borne pro-rata by the
holders of both classes 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 to be necessary
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
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The fair values of restricted securities are
determined by following procedures approved by the Trustees, and such valuations
and procedures are reviewed periodically by the Trustees.
B SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis.
C OPTION ACCOUNTING PRINCIPLES When the fund writes a call or put option, an
amount equal to the premium received by the fund is included in the Fund's
28
<PAGE>
"Statement of assets and liabilities" as an asset and an equivalent liability.
The amount of the liability is subsequently "marked-to-market" to reflect the
current market value of the option written. The current market value of an
option is the last sale price or, in the absence of a sale, the last offering
price. If an option expires on its stipulated expiration date, or if the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or loss if
the cost of a closing purchase transaction exceeds the premium received when the
option was written) without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is extinguished.
If a written call option is exercised, the Fund realizes a gain or loss from the
sale of the underlying security or currency and the proceeds of the sale are
increased by the premium originally received. If a written put option is
exercised, the amount of the premium originally received reduces the cost of the
security or currency the Fund purchases upon exercise of the option.
The Fund writes covered call options; that is, options for which it holds the
underlying security or its equivalent. Accordingly, the risk in writing a call
option is that the Fund relinquishes the opportunity to profit if the market
price of the underlying security increases and the option is exercised. In
writing a put option, the Fund assumes the risk of incurring a loss if the
market price of the underlying security decreases and the option is exercised.
The premium paid by the Fund for the purchase of a call or put option is
included in the Fund's "Statement of assets and liabilities" as an investment
and subsequently "marked-to-market" to reflect the current market value of the
option. If an option which the Fund has purchased expires on the stipulated
expiration date, the Fund realizes a loss in the amount of the cost of the
option. If the Fund enters into a closing sale transaction, the Fund realizes a
gain or loss, depending on whether the proceeds from the closing sale
transaction are greater or less than the cost of the option. If the Fund
exercises a call option, the cost of the securities or currencies acquired by
exercising the call is increased by the premium paid to buy the call. If the
Fund exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are decreased by the premium
originally paid.
D FUTURES A futures contract is an agreement between two parties to buy and sell
a security at a set price on a future date. Upon entering into such a contract
the fund is required to pledge to the broker an amount of cash or securities
equal to the minimum "initial margin'' requirements of the exchange. Pursuant to
the contract, the fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as "variation margin'' and are recorded by the fund as
unrealized gains or losses. 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. The potential
risk to the
29
<PAGE>
fund is that the change in value of the underlying securities may not correspond
to the change in value of the futures contracts.
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.
Therefore, no provision has been made for federal taxes on income, capital gains
or unrealized appreciation of securities held and excise tax on income and
capital gains.
F DISTRIBUTIONS TO SHAREHOLDERS
Income dividends are recorded daily by the fund and are distributed monthly.
Capital gains distributions, if any, are recorded on the ex-dividend date and
paid annually.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of losses on wash
sale transactions and realized and unrealized gains and losses on futures
contracts. Reclassifications are made to the fund's capital accounts as
necessary so that they reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. During the year
ended September 30, 1994 the fund reclassified $748 to decrease distributions in
excess of net investment income and $748 to increase paid-in capital.
G AMORTIZATION OF BOND PREMIUM AND ACCRETION OF BOND DISCOUNT Any premium
resulting from the purchase of securities is amortized using the effective yield
method for bonds issued after September 27, 1985 and on a straight-line basis
for bonds issued prior thereto. 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. Discount on zero-coupon bonds, original issue discount
bonds and stepped coupon bonds is accreted according to the effective yield
method.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, the fund's Manager, a wholly-owned subsidiary
of Putnam Investments, Inc., for management and investment advisory services is
paid quarterly based on the average net assets of the fund for the quarter. Such
fee is based on the following annual rates: 0.6% of the first $500 million of
average net assets, 0.5% of the next $500 million, 0.45% of the next $500
million and 0.4% of any amount over $1.5 billion, subject to reduction in any
year to the extent that expenses (exclusive of brokerage, interest and taxes) of
the fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the
next $70 million and 1.5% of any excess over $100 million and by the amount of
certain brokerage commissions and fees (less expenses) received by affiliates of
the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related
30
<PAGE>
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. For the year ended
September 30, 1994, the fund paid $50,500 for these services.
Trustees of the fund receive an annual Trustee's fee of $4,490 and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund 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. Fees
paid for these investor servicing and custodial functions for the year ended
September 30, 1994 amounted to $590,712.
Investor servicing and custodian fees reported in the Statement of operations
for the year ended September 30, 1994, have been reduced by credits allowed by
PFTC.
The fund has adopted a Distribution Plan with respect to its class A shares (the
"Class A Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940.
The purpose of the Class A Plan 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 class A shares. The Trustees have
approved payment by the fund to Putnam Mutual Funds Corp. at an annual rate of
0.20% of the fund's average net assets attributable to class A shares. For the
year ended September 30, 1994, the fund paid $6,909,728 in distribution fees for
class A shares.
During the year ended September 30, 1994, Putnam Mutual Funds Corp., acting as
an underwriter, received net commissions of $673,215 from the sale of class A
shares of the fund.
A deferred sales charge of up to 1.00% is assessed on certain redemptions of
class A shares purchased as part of an investment of $1 million or more. For the
year ended September 30, 1994, Putnam Mutual Funds Corp., acting as an
underwriter, received $189,771 on Class A redemptions.
The fund has adopted a separate distribution plan with respect to its Class B
shares (the "Class B Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The purpose of the Class B Plan is to compensate Putnam Mutual
Funds Corp. for services provided and expenses incurred by it in distributing
class B shares. The Trustees have approved payment by the fund to Putnam Mutual
Funds Corp. at an annual rate of 0.85% of the average net assets attributable to
class B shares. For the year ended September 30, 1994, the fund paid Putnam
Mutual Funds Corp. distribution fees of $2,562,554 for class B shares.
Putnam Mutual Funds Corp. also receives the proceeds on the contingent deferred
sales charges on certain class B share redemptions within six years of purchase.
The charge is based on
31
<PAGE>
declining rates, which begin at 5.00% of the net asset value of the redeemed
shares. Putnam Mutual Funds Corp. received contingent deferred sales charges of
$777,478 from redemptions during the year ended September 30, 1994.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1994, purchases and sales of investment
securities other than short-term investments aggregated $767,549,740 and
$1,194,572,946, respectively. Purchases and sales of short-term municipal
obligations aggregated $413,126,469 and $235,677,055, respectively. In
determining the net gain or loss on securities sold, the cost of securities has
been determined on the identified cost basis.
Transactions in U.S. Treasury Bond futures contracts during the year are
summarized as follows:
<TABLE>
<CAPTION>
Sales of Futures Contracts
- ---------------------------------------------------------------
Number of Aggregate
Contracts Face Value
----------- -----------------
<S> <C> <C>
- ---------------------------------------------------------------
Contracts opened 23,950 $ 2,452,600,453
- ---------------------------------------------------------------
Contracts closed (20,685) ($2,129,156,937)
- ---------------------------------------------------------------
Contracts outstanding
at end of year 3,265 323,443,516
- ---------------------------------------------------------------
Purchases of Future Contracts
- ---------------------------------------------------------------
Number of Aggregate
Contracts Face Value
----------- -----------------
Contracts opened 1,305 $ 168,230,813
- ---------------------------------------------------------------
Contracts closed (555) ($101,570,063)
- ---------------------------------------------------------------
Contracts outstanding
at end of year 750 $ 66,660,750
- ---------------------------------------------------------------
</TABLE>
NOTE 4
CAPITAL SHARES
At September 30, 1994, there was an unlimited number of shares of beneficial
interest authorized divided into two classes, class A and class B capital stock.
Transactions in capital shares were as follows:
<TABLE>
<CAPTION>
Year ended September 30, 1994
Class A Shares Amount
- ----------------------------------------------------------------
<S> <C> <C>
Shares sold 50,232,378 $ 429,526,389
Shares issued in connection with
reinvestment of
distributions 12,323,950 104,369,611
- ----------------------------------------------------------------
62,556,328 533,896,000
- ----------------------------------------------------------------
Shares repurchased (62,848,187) (529,518,577)
- ----------------------------------------------------------------
Net increase (decrease) (291,859) $ 4,377,423
- ----------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30, 1993
Class A Shares Amount
- -----------------------------------------------------------------
<S> <C> <C>
Shares sold 87,662,983 $ 750,416,527
Shares issued in connection with
reinvestment of
distributions 12,746,668 109,221,501
- -----------------------------------------------------------------
100,409,651 859,638,028
- -----------------------------------------------------------------
Shares repurchased (36,970,600) (317,203,921)
- -----------------------------------------------------------------
Net increase 63,439,051 $ 542,434,107
- -----------------------------------------------------------------
Year ended September 30, 1994
Class B Shares Amount
- -----------------------------------------------------------------
Shares sold 23,546,598 $ 201,688,777
Shares issued in connection with
reinvestment of
distributions 1,055,352 8,884,795
- -----------------------------------------------------------------
24,601,950 210,573,572
- -----------------------------------------------------------------
Shares repurchased (4,825,694) (40,223,569)
- -----------------------------------------------------------------
Net increase 19,776,256 $ 170,350,003
- -----------------------------------------------------------------
January 4, 1993 (commencement of
operations) to September 30, 1993
- -----------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------
Shares sold 24,025,104 $ 208,410,028
Shares issued in connection with
reinvestment of
distributions 236,070 2,065,977
- -----------------------------------------------------------------
24,261,174 210,476,005
- -----------------------------------------------------------------
Shares repurchased (742,749) (6,472,311)
- -----------------------------------------------------------------
Net increase 23,518,425 $ 204,003,694
- -----------------------------------------------------------------
</TABLE>
NOTE 5
RECLASSIFICATION OF CAPITAL ACCOUNTS
Effective October 1, 1993, Putnam California Tax Exempt Income Fund, Inc. has
adopted the provisions of the AICPA Statement of Position (SOP) 93-2
"Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gains and Return of Capital Distributions, by Investment Companies."
The purpose of this SOP is to report the accumulated net investment income
(loss) and accumulated net realized gain (loss) accounts in such a manner as to
approximate amounts available for future distributions (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
As a result of the SOP the fund has reclassified $635,953 to decrease
undistributed net investment income and $923,810 to increase accumulated net
realized gain with a decrease of $287,857, to additional paid-in capital. These
reclassifications represent the cumulative amounts necessary to report these
balances through September 30, 1994. These reclassifications, which have no
impact on the total net asset value of the fund, are primarily attributable to
bond premiums and original issue discount, which are treated differently in the
computation of distributable income and capital gains under federal income tax
rules and regulations versus generally accepted accounting principles.
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FEDERAL TAX INFORMATION
The fund has designated all distributions paid from net investment income paid
during the fiscal year as exempt-interest dividends. Thus, 100% of these
distributions are exempt from federal income tax. For residents of the state of
California, 100% of the fund's distributions from net investment income are also
exempt from California personal income tax.
During the fiscal year the fund distributed $0.006 per share from short-term
capital gains constituting "dividend income" and $0.019 per share from long-term
capital gains constituting "capital gains", on December 2, 1993, for federal
income tax purposes.
The Form 1099 you will receive in January 1995 will show the tax status of all
distributions paid to your account in calendar 1994.
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FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John R. Verani
Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
William H. Reeves
Vice President and Fund Manager
William N. Shiebler
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam California 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.
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PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
The Putnam Funds PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investment
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027/337-14783
