PUTNAM
CALIFORNIA
TAX EXEMPT
INCOME FUND
[Artwork]
SEMIANNUAL REPORT
March 31, 1995
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
PERFORMANCE HIGHLIGHTS
Morningstar, an independent rating agency, gave the fund's class A shares its
highest ranking -- five stars -- based on risk-adjusted performance as of March
31, 1995. This rating put the fund in the top 10% of all municipal funds. *
Performance should always be considered in light of a fund's investment strate-
gy. The fund is designed for investors seeking a high current income free from
federal and California income taxes, consistent with preservation of capital.
SEMIANNUAL RESULTS AT A GLANCE
CLASS A CLASS B
TOTAL RETURN: NAV POP NAV CDSC
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(change in value during period plus reinvested distributions)
6 months ended 3/31/95 5.56% 0.59% 5.21% 0.21%
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CLASS A CLASS B CLASS M
SHARE VALUE: NAV POP NAV NAV POP
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9/30/94 $8.09 $8.49 $8.08 -- --
2/14/95 -- -- -- $8.13 $8.40
3/31/95 8.26 8.67 8.25 8.25 8.53
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CAPITAL GAINS (1)
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
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Class A 7 $0.240285 $0.025 -- $0.265285
Class B 7 0.213056 0.025 -- 0.238056
Class M 2 0.072623 -- -- 0.072623
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CLASS A CLASS B CLASS M
CURRENT RETURN: NAV POP NAV NAV POP
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End of period 3/31/95
Current dividend rate (2) 5.81% 5.53% 5.03% 5.42% 5.25%
Taxable equivalent (3) 10.81 10.29 9.36 10.08 9.77
Current 30-day SEC yield (4) 5.63 5.36 4.92 5.26 5.07
Taxable equivalent (3) 10.47 9.97 9.15 9.78 9.43
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Performance data represent past results. For performance over longer periods,
see page 8. POP assumes 4.75% maximum sales charge for class A shares and 3.25%
for class M shares. CDSC assumes 5% maximum contingent deferred sales charge.
The fund began offering class M shares on February 14, 1995; total return per-
formance for these shares is not shown because of the brevity of the reporting
period. (1) Capital gains are taxable for federal and, in most cases, state tax
purposes. For some investors, investment income may also be subject to the fe-
deral alternative minimum tax. Investment income may be subject to state and lo-
cal taxes. (2) Income portion of most recent distribution, annualized and divi-
ded by NAV or POP at end of period. (3) Assumes maximum 46.24% 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.
* Morningstar rates funds in relation to other funds with similar investment
objectives, based on the fund's 3-, 5-, and 10-year average annual returns, ad-
justed for risk factors and sales charges. The 4-star rating for the 3-year pe-
riod ended 3/31/95 puts the fund in the top 32.5% among all 638 municipal funds
rated. For 5-, and 10-year performance, the fund received 4 and 5 stars; there
were 458 and 141 municipal funds rated, respectively. Ratings are updated mon-
thly. Performance for other share classes will differ. Past performance is not
indicative of future results.
<PAGE>
FROM THE CHAIRMAN [Photograph of George Putnam]
* (C) Karsh, Ottawa
DEAR SHAREHOLDER:
THE EARLY MONTHS OF PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND'S CURRENT FISCAL
YEAR REPRESENTED A TURBULENT PERIOD FOR GOLDEN STATE MUNICIPAL BOND INVESTORS,
MOST NOTABLY MARKED BY THE TROUBLES IN ORANGE COUNTY. JANUARY BROUGHT A PERCEP-
TIBLY BRIGHTER MOOD, AND A MARKET RISE THAT SIGNIFICANTLY BUOYED YOUR FUND'S
RESULTS.
IT IS GRATIFYING, THEREFORE, TO BE ABLE TO REPORT POSITIVE RESULTS FOR THE SIX
MONTHS ENDED MARCH 31, 1995. THANKS TO YOUR FUND'S BROAD DIVERSIFICATION AND
HIGH-QUALITY PORTFOLIO, SHAREHOLDERS WERE SPARED SIGNIFICANT DAMAGE IN THE AF-
TERMATH OF THE ORANGE COUNTY BANKRUPTCY.
AS YOUR FUND MOVES INTO THE SECOND HALF OF FISCAL 1995, FUND MANAGER WILLIAM H.
REEVES IS OPTIMISTIC ABOUT THE FUND'S PROSPECTS. CALIFORNIA'S ECONOMY REMAINS
STRONG, INTEREST RATES APPEAR TO BE STABILIZING, AND INVESTORS SEEM TO HAVE PUT
ORANGE COUNTY BEHIND THEM. IN THE REPORT THAT FOLLOWS, BILL REVIEWS THE FISCAL
YEAR'S FIRST HALF AND OFFERS HIS INSIGHTS ABOUT THE MONTHS AHEAD.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
MAY 15, 199
*(C) Copyright
<PAGE>
REPORT FROM THE FUND MANAGER
WILLIAM H. REEVES
What a difference a few months can make. By the end of the first quarter of
1995, stabilizing interest rates, low inflation, and positive supply/demand dy-
namics had contributed to a strong turnaround in the tax-free market. Municipal
bonds had recouped more than 50% of their losses since hitting market lows last
November.
With Putnam California Tax Exempt Income Fund's total return for class A shares
rising around 2.8% at public offering price during these same three months, the
semiannual period closed on a much higher note than when it began. The fund's
total return for the six months ended March 31, 1995, was 5.56% at net asset va-
lue (NAV) for class A shares. The fund also offers class B and class M shares,
whose performance, while different, reflected a similar trend.
The fund's strategy of remaining fully invested in high-quality bonds is the
main reason the fund was such a strong participant in the rally. It also helps
to explain why the fund's total return performance for the 12 months ended March
31, 1995, placed the fund's class A shares in the top 25% of the 83 municipal-
debt funds tracked by Lipper Analytical Services. *
Taxable-equivalent yields are now at double-digit levels and represent excellent
values -- particularly for investors in such high-tax states as California. In
fact, your fund's 5.81% current dividend rate at NAV would translate into a cu-
rrent return of 10.81% for a taxable investment, assuming the maximum combined
46.24% federal and state tax rate. Most investors in lower brackets would also
enjoy tax advantages, though not necessarily to the same extent.
* Lipper Analytical Services is an independent research organization; rankings
vary over time and do not reflect the effects of sales charges. In the Califor-
nia municipal debt category, the fund's class A shares ranked 2 out of 16 (top
12%) for 10-year performance, 12 out of 44 (top 27%) for 5-year performance, and
19 out of 83 (top 23%) for 1-year performance. Past performance is not indica-
tive of future results.
<PAGE>
TAX LOSS SELLING, ORANGE COUNTY CONCERNS DEPRESS PRICES
As the end of a tax year approaches, individual and institutional investors ty-
pically employ several strategies to reduce the impact of taxes. So, in October
and November of 1994, many investors began selling municipal bonds with the in-
tent of using the capital losses to offset taxable profits in other sectors.
This tax-loss selling thwarted a brief rally in early October and only led to
further pressures on municipal-bond prices.
In early December, as municipal bonds were enjoying a short rally, the financial
woes of Orange County shook the market. The immediate drop in value of county-
related bonds was only the beginning of the fallout from the $2 billion in
losses sustained by the county's investment fund. Your fund's Orange County
holdings are composed of revenue bonds whose income depends on an individual
project, and not the county, and AAA-rated insured bonds, whose payment of prin-
cipal and interest is guaranteed. Of course your fund's shares are not guaran-
teed.
[Pie Chart - Page 5)
PORTFOLIO QUALITY PROFILE *
A AA AAA BB AND BELOW BBB
12.10% 11.77% 58.28% 9.80% 8.05%
* Based on portfolio market value as of 3/31/95, and will vary over time. Based
on Standard and Poor's ratings. 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, or Baa or higher by Moody's Investors Service, Inc.
<PAGE>
The portfolio's broad diversification and extremely high credit quality played a
major role in minimizing the impact of these events. While the events in Orange
County raised concerns among municipal-bond investors across the country, they
only postponed an inevitable rally in the tax-free market, which began in ear-
nest early in 1995.
POSITIONING FOR AN IMPROVING MUNICIPAL MARKET
The Federal Reserve Board continued its tight stance on U.S. monetary policy du-
ring the period. In November, the Fed's most aggressive increase in short-term
interest rates -- three-quarters of a percentage point -- was another salvo
aimed at slowing the economy and was effective in calming inflation fears. Grow-
ing investor confidence was acknowledged by the mere ripple that the Fed's wide-
ly expected rate increase in February -- the seventh rise in 12 months -- caused
in the bond markets.
With all signs suggesting that the municipal-bond market was oversold and poised
to recover in the last quarter of 1994, we took several steps early in the pe-
riod to help ensure that the fund would be an active participant in a rally. We
moved the fund to a fully invested position by adding a selection of high-quali-
ty bonds with a good balance of attractive income and price appreciation poten-
tial. We also lengthened the portfolio's duration by extending the average matu-
rity slightly and increasing the position of deep discount bonds -- bonds sell-
ing at prices well below what we perceive as their fair market value. Duration
is a mathematical formula that indicates how much bond prices would move up or
down with each percentage-point shift in interest rates. Like maturity, with
which it is often confused, duration is measured in years. The shorter the du-
ration, the less volatility you can expect from the portfolio due to changes in
interest rates.
The fund's assets remain invested across a wide array of industries. Utilities,
hospitals/healthcare and housing were the fund's top industry sectors throughout
the period.
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[Line Chart - Page 7]
GROWTH OF $10,000 OVER 5 YEARS
ENDED MARCH 31, 1995 *
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U.S. TREASURY U.S. TREASURY
SECURITIES BEFORE TAXES MUNICIPAL BONDS SECURITIES AFTER TAXES
3/31/90 10000 10000 10000
3/31/91 11236 10923 10813.40
3/31/92 12456 12014 11561.10
3/31/93 14218 13518 12784.60
3/31/94 14598 13832 12745.20
3/31/95 15225 14859 12883.60
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Sources: Lehman Brothers Municipal Bond Index, Lehman Brothers Treasury Bond In-
dex.
Graph compares the growth of a hypothetical $10,000 investment in tax-free muni-
cipal bonds with a similar investment in U.S. Treasury bonds, and shows the
effective after-tax returns of the fully taxable Treasury securities for an in-
dividual paying the maximum applicable combined federal and state of California
tax rate of 46.24%. U.S. securities are backed by the full faith and credit of
the U.S. government. Indexes are unmanaged and do not account for brokerage
commissions or other costs, and the performance and holdings do not reflect tho-
se of any Putnam fund.
POSITIVE ECONOMIC AND MARKET FUNDAMENTALS SEEN FOR 1995
While the market's heady pace of the past three months is unlikely to continue
over the rest of fiscal 1995, there are several reasons to be cautiously opti-
mistic about your fund's prospects. By most accounts, the dramatic rise in inte-
rest rates is behind us. With interest rates stabilizing, the fund will remain
fully invested to capitalize on market rallies. Furthermore, low inflation and
moderate economic growth foster a generally benign environment for bonds. Fina-
lly, moderately strong demand chasing a diminishing supply of tax-free securi-
ties may help to support prices.
Without a doubt, 1994 endured one of the worst bond markets on record. However,
all signs now suggest that municipal bonds, like most fixed-income investments,
are back on track. Clearly, investors who sat tight and remained committed to
their longer-term goals are well positioned to benefit from an improving tax-
free market.
The views expressed in this report are exclusively those of Putnam Management,
and are not meant as investment advice. Although the described holdings were
viewed favorably as of 3/31/95, there is no guarantee the fund will continue to
hold these securities in the future.
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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, assum-
ing you held the shares through the entire period and reinvested all distribu-
tions 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 va-
rying periods. For comparative purposes, we show how the fund performed relative
to appropriate indexes and benchmarks.
TOTAL RETURN FOR PERIODS ENDED 3/31/95
LEHMAN BROS.
MUNICIPAL
CLASS A CLASS B BOND
NAV POP NAV CDSC INDEX CPI
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6 months 5.56% 0.59% 5.21% 0.21% 5.54% 1.34%
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1 year 6.79 1.72 6.09 1.09 7.43 2.85
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5 years 46.63 39.67 -- -- 48.59 17.64
Annual average 7.96 6.91 -- -- 8.24 3.30
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10 years 149.99 138.12 -- -- 154.56 42.29
Annual average 9.60 9.06 -- -- 9.79 3.59
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Life of class B -- -- 11.44 7.50 14.01 6.70
Annual average -- -- 4.95 3.28 6.03 2.94
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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 1990. The fund began invest-
ment operations on April 29, 1983, offering shares now known as class A shares.
Effective January 4, 1993, the fund began offering class B shares and on Februa-
ry 14, 1995, class M shares. Total return performance for class M shares is not
shown because of the brevity of the reporting period. Performance data represent
past results and will differ for each share class. Investment returns and net
asset value will fluctuate so an investor's shares, when sold, may be worth more
or less than their original cost.
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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.
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 liabili-
ties, divided by the number of outstanding shares, not including any initial or
contingent deferred sales charge.
PUBLIC OFFERING PRICE (POP) is the price of a mutual fund share plus the maximum
sales charge levied at the time of purchase. POP performance figures shown here
assume the maximum 4.75% sales charge for class A shares and 3.25% for class M
shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term fixed-
rate investment-grade tax-exempt bonds representative of the municipal bond mar-
ket. 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.
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<TABLE>
<CAPTION>
PORTFOLIO OF INVESTMENTS OWNED
March 31, 1995 (Unaudited)
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
CALIFORNIA (99.0%)
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<S> <C> <C> <C>
$32,000,000 Anaheim, Certificate of Participation (COP),
Municipal Bond Insurance Association (MBIA),
6.2s, 7/16/23 AAA $ 32,640,000
40,000,000 Anaheim, Pub. Fing. Auth. Rev. Bonds,
MBIA, 6.45s, 12/28/18 AAA 41,650,000
Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates
Med. Ctr.), Ser. A
33,075,000 6.55s, 12/1/22 Baa 30,966,469
8,500,000 6 1/2s, 12/1/11 BBB 8,096,250
10,000,000 Beverly Hills, COP (Civic Ctr. Impt.),
6 3/4s, 6/1/19 AA 10,212,500
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 4,708,125
CA Edl. Fac. Auth. Rev. Bonds
7,030,000 (Pomona College), 8 1/8s, 1/1/17 AAA 7,566,037
15,745,000 (U. of Southern CA Project), Ser. B,
6 3/4s, 10/1/15 AA 16,315,756
CA Hlth. Fac. Auth. Rev. Bonds
6,700,000 (Summit Med. Ctr.), Ser. 85A, 9s, 5/1/15 Ba 6,800,500
11,740,000 (Valley Presbyterian Hosp. Project),
Ser. A, 9s, 5/1/12 B 11,754,675
10,000,000 (Mercy Hlth. Syst.), Ser. C, MBIA,
7 1/4s, 7/1/15 AAA 11,050,000
CA Hlth. Fac. Fin. Auth. Inverse Floating Rate
Bonds (IFB)
35,385,000 MBIA, 5s, 7/1/14 AAA 31,315,725
21,000,000 (Catholic), Ser. B, American Municipal
Bond Assurance Corp. (AMBAC), 5s, 7/1/21 AAA 17,850,000
CA Hlth. Fac. Fin. Auth. Rev. Bonds
2,000,000 (Summit Med. Ctr.), Ser. A, 7.6s, 5/1/15 Ba 1,920,000
12,335,000 (Summit Med. Ctr.), Ser. B, 7.6s, 5/1/15 Ba 11,841,600
9,000,000 (Cedar Knoll), Ser. B, 7 1/2s, 8/1/20 A 9,495,000
8,660,000 (Summit Med. Ctr.), Ser. B, 7 1/2s, 5/1/09 Ba 8,302,775
24,000,000 AMBAC, 5.293s, 7/1/17 AAA 21,660,000
CA Hlth. Fac. Fin. Auth. Variable Rate
Demand Notes (VRDN)
2,100,000 (Sutter Hlth.), Ser. A, 4.4s, 3/1/20 VMIG1 2,100,000
6,340,000 (St. Joseph Hlth. Syst.), Ser. A, 4.4s, 7/1/13 VMIG1 6,340,000
CA Hsg. Fin. Agcy. Home Mtge. Rev. Bonds
7,530,000 Ser. C, 8.3s, 8/1/19 AA 7,925,325
4,570,000 Ser. D, 7 7/8s, 8/1/31 AA 4,861,337
4,860,000 Ser. A, 7 3/4s, 8/1/17 A 5,103,000
30,000,000 CA Hsg. Fin. Auth. IFB, 6.456s, 8/1/23 AA 30,375,000
CA Poll. Control Fin. Auth. Rev. Bonds
12,500,000 (Pacific Gas & Elec. Co.), Ser. A,
8.2s, 12/1/18 A 13,484,375
700,000 (Shell Oil Co. Project), 3.35s, 10/1/11 AAA 700,000
3,000,000 (Southern CA Edison), Ser. A, 2.1s, 2/28/08 VMIG1 3,000,000
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
$11,990,000 CA Poll. Control Fin. Auth. Solid Waste
Disp. Rev. Bonds (Keller Canyon Landfill Co.
Project), 6 7/8s, 11/1/27 A $ 12,199,825
800,000 CA Poll. Control Fin. Auth. VRDN (Shell Oil
Co. Project), Ser. C, 4.4s, 11/1/00 VMIG1 800,000
40,655,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
(Pooled Project, Jt. Pwrs. Agcy.), Ser. B, Bond
Investors Guaranty Insurance (BIGI), 8.1s, 3/1/18 AAA 43,145,119
6,500,000 CA Special Dist. Fin. Auth. COP, Ser. A,
8 1/2s, 7/1/18 Baa 7,028,125
CA State Dept. of Wtr. Resources IFB
(Central Valley Project)
24,200,000 9.24s, 12/1/12 ($21,200,000 acquired
11/25/92, cost $23,299,902; $3,000,000
acquired 2/1/94, cost $4,277,220) ++ AA 30,310,500
26,620,000 Ser. H, 8s, 12/1/16 AAA 27,651,525
14,705,000 CA State Dept. of Wtr. Resources Rev. Bonds
(Central Valley Project), Ser. L, 5 3/4s, 12/1/13 AAA 14,171,944
CA State G.O. Bonds
10,445,000 FGIC, 5s, 11/1/22 AAA 8,930,475
25,460,000 MBIA, 5s, 11/1/22 AAA 21,768,300
8,070,000 FGIC, 4 3/4s, 9/1/23 AAA 6,526,613
37,100,000 CA State G.O. IFB, 7.74s, 9/1/12 (acquired
10/27/92, cost $35,987,000) ++ A 39,186,875
CA State G.O. Bonds
16,545,000 AMBAC, 5 1/2s, 4/1/11 AAA 15,924,563
7,030,000 MBIA, 5 1/2s, 4/1/09 AAA 6,836,675
20,800,000 Ser. 33, MBIA, zero %, 10/1/11 AAA 7,722,000
60,000,000 Ser. 27, MBIA, zero %, 9/1/11 AAA 22,350,000
CA State Pub. Works Board Lease Rev. Bonds
20,690,000 (U. of CA Project), Ser. A, 7s, 9/1/15 AAA 22,991,763
24,000,000 (Dept. of Corrections-State Prisons), Ser. A,
7s, 9/1/09 AAA 26,670,000
21,400,000 (CA State U. Various Projects), Ser. A,
6.6s, 12/1/22 AAA 23,780,750
28,000,000 (Dept. of Corrections-Calipatria State
Prison), Ser. A, MBIA, 6 1/2s, 9/1/17 AAA 29,505,000
59,000,000 6.48s, 9/1/19 A 65,268,750
7,000,000 (Dept. of Corrections-Madera State Prison),
Ser. E, 5 1/2s, 6/1/19 A 6,221,250
6,125,000 (CA State U. Various Projects), Ser. A,
5 1/2s, 6/1/10 A 5,673,281
14,610,000 (Dept. of Corrections-State Prison), Ser. D,
5 3/8s, 6/1/12 A 13,185,525
9,000,000 (Dept. of Corrections-State Prison), Ser. D,
MBIA, 5 3/8s, 6/1/12 AAA 8,392,500
8,000,000 (Dept. of Corrections-State Prison), Ser. D,
MBIA, 5 1/4s, 6/1/08 AAA 7,590,000
9,050,000 (Dept. of Corrections-Del Norte), Ser. C,
MBIA, 5 1/8s,12/1/08 AAA 8,473,063
5,000,000 (CA State U. Various Projects), Ser. A,
5s, 6/1/23 A 4,056,250
33,500,000 (Dept. of Corrections-State Prison), Ser. A,
AMBAC, 5s, 12/1/19 AAA 28,810,000
18,000,000 CA State U. IFB, AMBAC, 9.35, 11/1/21 AAA 20,070,000
</TABLE>
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<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
CA Statewide Cmntys. Dev. Auth. COP
$10,000,000 (Childrens Hosp.), MBIA, 4 3/4s, 6/1/21 AAA $ 8,125,000
CA Statewide Cmntys. Dev. Auth. COP, IFB
6,300,000 (Motion Picture & TV), AMBAC, 2s, 1/1/17 AAA 4,638,375
14,000,000 Castaic Lake, Wtr. Agcy. COP (Wtr. Syst.
Impt. Project), MBIA, 7 1/8s, 8/1/16 AAA 15,627,500
16,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds,
AMBAC, 5 3/4s, 8/1/22 AAA 14,620,000
Commerce, Redev. Agcy. Rev. Bonds
(Project No. 1), Ser. 91-A
8,845,000 7 1/4s, 8/1/21 BBB 9,032,956
68,280,000 zero %, 8/1/21 BBB 10,071,300
35,000,000 Contra Costa, Home Mtge. Fin. Auth. Rev.
Bonds, MBIA, zero %, 9/1/17 AAA 6,868,750
34,915,000 Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G,
MBIA, 5s, 10/1/26 AAA 29,546,819
10,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 BB/P 10,437,500
12,400,000 Culver City, Redev. Fin. Auth. Rev. Bonds,
AMBAC, 5s, 11/1/23 AAA 10,555,500
Duarte, COP (City of Hope Med. Ctr.)
21,000,000 6 1/4s, 4/1/23 Baa 18,900,000
15,000,000 6 1/8s, 4/1/13 Baa 13,706,250
3,750,000 6s, 4/1/08 Baa 3,548,437
14,000,000 East Bay Muni. Util. Dist. Rev. Bonds (Special
Dist. No. 1), Ser. E, FGIC, 5s, 4/1/15 AAA 12,285,000
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 8/15/17 AAA 10,805,437
13,000,000 Foothill, Eastern Transportation Corr. Agcy.
Rev. Bonds, VRDN, 3.85s, 7/1/23 VMIG1 13,000,000
11,140,000 Fresno, COP (Unified Sch. Dist.),
7 1/4s, 3/1/07 A 11,794,475
Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy.
Rev. Bonds
56,000,000 (Issue II), 8 1/4s, 8/15/23 A 59,290,000
23,000,000 (Issue II), 8.2s, 8/15/08 A 24,322,500
25,010,000 (Issue I), 7 7/8s, 2/15/23 A 26,041,663
La Habra, COP (Friendly Hills Hlth.
Care Foundation), Ser. A
38,000,000 7.15s, 7/1/23 BB/P 40,280,000
12,000,000 7.05s, 7/1/13 BB/P 12,720,000
5,125,000 6.7s, 7/1/03 BB/P 5,432,500
4,845,000 6.3s, 7/1/99 BB/P 5,135,700
6,000,000 Local Govt. Fin. Jt. Pwr. Auth. Rev. Bonds
(Anaheim Redev. Agcy.), Ser. A, 8.2s, 9/1/15 A 6,727,500
10,120,000 Loma Linda, Hosp. Rev. Bonds (Loma Linda
U. Med. Ctr.Project), Ser. A, 6s, 12/1/23 BBB 8,589,350
Los Angeles Cnty., COP
25,600,000 6.708s, 6/1/15 A 26,112,000
12,250,000 (Marina Del Rey), Ser. A, 6 1/2s, 7/1/08 BBB/P 11,989,687
24,340,000 Los Angeles Cnty., Hlth. Fac. Auth. Lease
Rev. Bonds (Olive View Med. Ctr.),
7 1/2s, 3/1/08 A 26,561,025
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Los Angeles Cnty., Metro. Trans. Auth.
Sales Tax Rev. Bonds
$21,000,000 Ser. B, AMBAC, 5 1/4s, 7/1/23 AAA $ 18,585,000
34,000,000 Ser. A, FGIC, 5s, 7/1/21 AAA 29,112,500
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 ^^ A 25,415,156
9,500,000 Los Angeles Cnty., Pub. Works Fin. Auth.
Lease Rev. Bonds (Multi-Cap. Fac. Project 4),
MBIA, 4 3/4s, 12/1/10 AAA 8,336,250
13,000,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital Projects), Ser. A, MBIA,
5s, 10/1/23 AAA 11,066,250
13,565,000 Los Angeles Cnty., Trans. Comm. Sales Tax
Rev. Bonds, Ser. A, 8s, 7/1/16 AAA 14,785,850
11,000,000 Los Angeles, Cmnty. Redev. Agcy. Fin. Auth.
Rev. Bonds (Beacon-Normandie), Ser. B,
6 5/8s, 9/1/14 Baa 10,697,500
Los Angeles, Convention & Exhibition Ctr.
Auth. COP
37,465,000 9s, 12/1/20 AAA 48,891,825
20,595,000 Ser. A, MBIA, 5 1/8s, 8/15/13 AAA 18,586,987
29,100,000 Los Angeles, Convention & Exhibition Ctr.
Auth. Lease Rev. Bonds, 5.342s, 8/15/18
(acquired 9/15/94, cost $21,610,242) ++ AAA 23,971,125
Los Angeles, Dept. of Wtr. & Pwr. Elec.
Plant Rev. Bonds
51,200,000 Issue 2, 6.8s, 6/1/31 AA 56,320,000
38,205,000 Issue 2, 6 3/4s, 12/15/29 AA 41,500,181
6,000,000 Ser. 91-2, 6.331s, 6/1/31 AA 6,712,500
25,000,000 Issue 2, FGIC, 5.4s, 11/15/31 AAA 22,250,000
17,760,000 2nd Issue, MBIA, 5 1/4s, 11/15/26 AAA 15,628,800
11,000,000 Los Angeles, Dept. of Wtr. & Pwr.
Waterworks Rev. Bonds, 7s, 2/15/22 AA 11,948,750
25,000,000 Los Angeles, Harbor Dept. Rev. Bonds,
7.6s, 10/1/18 AAA 27,593,750
Los Angeles, State Bldg. Auth. Lease Rev.
Bonds (State Dept. General Svcs.), Ser. A
27,250,000 7 1/2s, 3/1/11 AAA 29,736,563
21,530,000 5 5/8s, 5/1/11 A 19,861,425
Los Angeles, Wastewater Syst. IFB
34,700,000 8.114s, 6/1/19 (acquired 11/18/94,
cost $33,460,631) ++ AAA 36,261,500
17,150,000 Ser. B, 7.15s, 6/1/20 A 19,122,250
20,105,000 Ser. A, 7s, 2/1/20 AAA 22,165,762
50,000,000 Ser. 91-5, AMBAC, 6.519s, 6/1/21 AAA 54,750,000
Los Angeles, Wastewater Syst. Rev. Bonds,
Ser. D, FGIC
17,600,000 5 3/8s, 11/1/08 AAA 16,962,000
22,100,000 5 3/8s, 11/1/07 AAA 21,547,500
20,000,000 Metro. Wtr. Dist. of Southern CA
Waterworks IFB, 8.58s, 8/10/18 AA 18,175,000
Metro. Wtr. Dist. of Southern CA
Waterworks Rev. Bonds
8,600,000 5.808s, 8/5/22 AA 8,406,500
8,780,000 Ser. A, FGIC, 5 3/4s, 7/1/21 AAA 8,362,950
15,330,000 5 1/2s, 7/1/19 AA 14,256,900
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
$67,490,000 Modesto, Irrigation Dist. Fin. Auth.
Custody Receipts, (Purchase Rights)
(Geysers Pwr.), 5.427s, 10/1/15 AAA $ 6,031,919
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds,
Ser. A, AMBAC, 5s, 12/1/13 AAA 14,960,750
Northern CA Pwr. Agcy. Multi. Cap. Fac.
IFB, MBIA
19,000,000 8.564s, 8/1/25 AAA 19,546,250
16,900,000 8.564s, 8/15/17 AAA 17,512,625
Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
299,000 (Geothermal Project No. 3), Ser. 84A,
11 1/2s, 7/1/10 AAA 304,233
17,000,000 (Hydro. Elec. Project No. 1), Ser. B-1,
8s, 7/1/24 AAA 18,636,250
Northern CA Trans. Rev. Bonds (CA-OR
Trans. Project) Ser. A, MBIA
5,000,000 7s, 5/1/10 AAA 5,512,500
5,000,000 5.3s, 5/1/10 AAA 4,725,000
12,500,000 Oakland, COP (Oakland Museum), Ser. A,
AMBAC, 6s, 4/1/12 AAA 12,531,250
7,000,000 Oakland, Redev. Agcy. COP, Ser. A,
9 1/4s, 8/1/16 AAA 7,253,750
14,800,000 Oakland, Redev. Agcy. Rev. Bonds, MBIA,
5.95s, 9/1/19 AAA 14,596,500
Orange Cnty., COP (Solid Waste Management)
10,000,000 7 7/8s, 12/1/13 BBB 10,137,500
4,180,000 7 7/8s, 12/1/07 A 4,237,475
25,000,000 (Juvenile Justice Ctr. Fac.), AMBAC,
6s, 6/1/17 AAA 24,656,250
15,000,000 Orange Cnty., Dev. Agcy. Tax Alloc. Rev.
Bonds (Santa Ana Heights Project),
6 1/8s, 9/1/23 Baa 12,956,250
19,830,000 Orange Cnty., Wtr. Dist. COP, Ser. A,
5s, 8/15/18 AA 16,607,625
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev.
Bonds (Cent. City Revitalization), Ser. A,
6 1/2s, 9/1/16 BBB 12,262,200
22,850,000 Palm Desert, Fin. Auth. Tax Alloc. IFB, MBIA,
7 5/8s, 4/1/22 AAA 23,792,563
10,000,000 Palmdale, Civic Auth. Rev. Bonds (Merged
Redev. Areas Project), Ser A, 6.6s, 9/1/34 A 10,000,000
24,855,000 Pasadena, Variable COP I/F (Index Cap.
Certif.), AMBAC, 5.35s, 2/1/14# AAA 23,394,769
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds,
Ser. B
6,045,000 6 3/4s, 9/2/17 BBB/P 5,871,206
7,230,000 6.6s, 9/2/08 BBB/P 7,067,325
4,910,000 6 1/2s, 9/2/04 BBB/P 4,873,175
9,980,000 6 1/8s, 9/2/02 BBB/P 10,192,075
10,000,000 Pomona, Pub. Fin. Auth. Rev. Bonds
(SW Pomona Redev.), Ser. L, 5 3/4s, 2/1/20 AAA 9,362,500
7,095,000 Rancho, Redev. Agcy. Tax Alloc. Rev. Bonds
(Rancho Redev. Project), MBIA, 6 3/4s, 9/1/20 AAA 7,733,550
44,000,000 Rancho, Wtr. Dist. Fin. Auth. Rev. Bonds,
AMBAC, 6.427s, 8/17/21 AAA 48,290,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Redding, Elec. Syst. COP IFB, MBIA
$19,800,000 8.263s, 7/1/22 AAA $ 20,641,500
1,000,000 6.368s, 7/1/22 AAA 1,042,500
5,000,000 Richmond, Jt. Pwr. Fin. Auth. Rev. Bonds
(Impt. Dists. 851 & 853), Ser. B, 8 1/2s, 9/2/19 BBB/P 5,156,250
24,495,000 Riverside Cnty., Asset Leasing Corp. Rev.
Bonds (Riverside Cnty. Hosp. Project), Ser. A,
6 1/4s, 6/1/19 A 23,607,056
12,700,000 Riverside, Rev. Bonds (Kaiser Permanente),
Ser. A, 9s, 12/1/15 AA 13,271,500
10,000,000 Sacramento Cnty., COP (Sacramento Main
Detention), MBIA, 5 1/2s, 6/1/10 AAA 9,637,500
16,610,000 Sacramento Cnty., Hsg. Auth. Multi-Fam.
Rev. Bonds, Ser. 85-2, Federal National
Mortgage Association (FNMA) Coll., zero %,
11/1/97 AAA 13,578,675
Sacramento Cnty., Multi-Fam. Hsg. Rev. Bonds
8,000,000 Ser. C, 4.4s, 4/15/07 Aa 8,000,000
7,800,000 Ser. A, 4.2s, 4/15/07 A 7,800,000
6,900,000 Ser. B, 4.2s, 4/15/07 A 6,900,000
14,355,000 Sacramento Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds, MBIA, 4 3/4s, 12/1/23 AAA 11,645,494
25,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
9 3/8s, 8/15/18 AAA 25,781,250
Sacramento, Muni. Util. Dist. Elec. Rev. Bonds
34,835,000 Ser. V, 7 7/8s, 8/15/16 AAA 38,841,025
5,930,000 Ser. V, 7 1/2s, 8/15/18 AAA 6,441,463
25,900,000 Ser. R, 7 1/8s, 2/1/13 AAA 27,551,125
9,500,000 Ser. A, MBIA, 6 1/4s, 8/15/10 AAA 9,868,125
17,000,000 Ser. E, MBIA, 5 3/4s, 5/15/22 AAA 16,192,500
22,230,000 San Bernardino Cnty., COP (West Valley
Detention Ctr.), MBIA, 6s, 11/1/18 AAA 22,063,275
14,615,000 San Bernardino, Hosp. Rev. Bonds (San
Bernardino Cmnty. Hosp.), 7 7/8s, 12/1/19 Ba 13,336,187
10,200,000 San Diego Cnty., COP, IFB, MBIA, 8.196s,
11/18/19 AAA 10,582,500
San Diego Cnty., COP
8,850,000 (Vista Detention Fac. Expn. Project),
7 7/8s, 4/1/07 AAA 9,546,937
15,800,000 AMBAC, 5 1/4s, 9/1/06 AAA 16,451,750
San Diego Cnty., Wtr. Auth. Rev. COP RIBS
17,500,000 Ser. 91-B, MBIA, 8.02s, 4/8/21 AAA 18,046,875
28,350,000 Ser. 91-B, MBIA, 8.02s, 4/21/11 AAA 30,830,625
5,000,000 FGIC, 5.681s, 5/1/08 AAA 4,962,500
8,450,000 San Diego, Indl. Dev. Rev. Bonds (San Diego
Gas & Elec. Co.), Ser. A, 9 1/4s, 9/1/20 Aa 8,735,187
San Diego, Regl. Bldg. Auth. Lease Rev. Bonds
11,000,000 MBIA, 6.9s, 5/1/23 AAA 10,766,250
14,100,000 MBIA, 6.85s, 5/1/13 AAA 14,011,875
16,880,000 San Diego, Single Fam. Mtge. Rev. Bonds,
Issue A, zero %, 8/1/16 A 2,257,700
San Diego, Swr. Rev. Bonds, Ser. A
12,000,000 AMBAC, 5 1/4s, 5/15/20 AAA 10,680,000
11,550,000 AMBAC, 5s, 5/15/23 AAA 9,831,937
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
San Joaquin Hills, Trans. Corridor Agcy.
Toll Rd. Rev. Bonds (Senior Lien)
$84,635,000 6 3/4s, 1/1/32 BB/P $ 81,038,013
31,810,000 5s, 1/1/33 BB/P 23,340,587
13,000,000 San Jose, COP (Convention Ctr. Project),
7 7/8s, 9/1/10 AAA 13,845,000
San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
12,700,000 (Merged Area Redev. Project), MBIA,
5s, 8/1/20 AAA 10,890,250
29,100,000 (Redev. Project), MBIA, 4 3/4s, 8/1/24 AAA 23,571,000
20,000,000 San Mateo Cnty., Jt. Pwr. Fin. Auth Lease
Rev. Bonds, Financial Security Assurance
(FSA), 7.97s, 7/15/29 AAA 17,350,000
1,355,000 San Pablo, Redev. Agcy. Single Fam. Mtge.
Rev. Bonds, 10 1/8s, 12/1/14 B 1,458,319
5,000,000 Santa Ana, Cmnty. Redev. Agcy. Tax Alloc.
Rev. Bonds, Ser. B, 6 3/4s, 9/1/19 BBB 4,718,750
11,525,000 Santa Clara Cnty., COP (Cap. Project
No. 1), 8s, 10/1/16 AAA 12,331,750
17,800,000 Santa Clara, Wtr. Dist. COP IFB, FGIC,
7.97s, 8/1/15 AAA 16,598,500
3,000,000 Santa Rosa, Kaiser Permanente Rev. Bonds,
Ser. A, 9s, 12/1/15 AA 3,131,250
45,200,000 South Orange Cnty., Pub. Fin. Auth. Spl.
Tax IFB, FGIC, 5 1/2s, 8/15/15 AAA 42,036,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
20,000,000 (Transmission Project), Ser. B, 7 3/8s,
7/1/21 AA 21,125,000
18,535,000 (Palo Verde Project), Ser. B, 7 1/8s, 7/1/15 AAA 19,508,087
17,995,000 (Transmission Project), Ser. B, 7s, 7/1/22 AA 18,984,725
11,800,000 (Palo Verde Project), Ser. A, 6 7/8s, 7/1/15 AAA 12,390,000
25,855,000 (Multi-Pwr. Project), 6s, 7/1/18 A 25,014,713
11,500,000 (Transmission Project), MBIA, 5 3/4s, 7/1/21 AAA 10,953,750
11,200,000 (Transmission Project), Ser. B, MBIA,
5 1/2s, 7/1/23 AAA 10,290,000
13,635,000 (Mead Adelanto Project), Ser. A, AMBAC,
5s, 7/1/17 AAA 11,811,319
5,500,000 (Palo Verde Project), Ser. A, AMBAC,
5s, 7/1/15 AAA 4,826,250
20,540,000 (Pwr. Project), Ser. A, AMBAC, 5s, 7/1/15 AAA 17,921,150
29,050,000 (Mead Adelanto Project), Ser. A, AMBAC,
4 7/8s, 7/1/20 AAA 24,293,063
Stanislaus, Solid Waste Fac. COP
(Ogden Martin Syst. Inc. Project)
16,520,000 7 5/8s, 1/1/10 BBB 17,346,000
9,150,000 7 1/2s, 1/1/05 BBB 9,584,625
Thousand Oaks, Cmnty. Fac. Dist. Spl. Tax
Rev. Bonds (No. 94-1)
18,775,000 6 7/8s, 9/1/24 BB/P 18,024,000
33,515,000 zero %, 9/1/14 BB/P 7,792,237
Turlock, Hlth. Fac. COP
(Emanuel Med. Ctr. Inc.)
8,500,000 5 3/4s, 10/15/23 BBB 6,608,750
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
$ 5,000,000 5 5/8s, 10/15/13 BBB $ 4,012,500
U. of CA IFB
29,700,000 MBIA, 8.99s, 9/1/16 (acquired 8/12/92,
cost $33,601,600) ++ AAA 36,828,000
8,120,000 AMBAC Ser. 91A, 6.699s, 9/1/09
(acquired 10/25/94, cost $5,801,412) ++ AAA 6,871,550
5,750,000 MBIA Ser. 91D, 4.534s, 9/1/16 (acquired
10/25/94, cost $3,384,450) ++ AAA 4,104,063
6,500,000 AMBAC Ser. 91B, 4.28s, 9/1/19 (acquired
10/25/94, cost $3,473,340) ++ AAA 4,257,500
5,160,000 MBIA Ser. 91C, 4.034s, 9/1/14 (acquired
10/25/94, cost $2,823,449) ++ AAA 3,412,050
U. of CA Rev. Bonds
36,147,000 (USCD Med. Ctr. Satellite Med. Fac.),
7.9s, 12/1/19 BBB 38,496,555
54,500,000 (UCSD Med. Ctr. Satellite Med. Fac.),
7.9s, 12/1/96 AAA 57,497,500
6,000,000 (Multi-Purpose Projects), Ser. A,
6 7/8s, 9/1/16 A 6,712,500
10,000,000 (Multi-Purpose Projects), Ser. C, AMBAC,
5.1s, 9/1/08 AAA 9,387,500
7,440,000 (Multi-Purpose Projects), Ser. B, MBIA,
4.9s, 9/1/08 AAA 6,844,800
8,000,000 (Multi-Purpose Projects), Ser. C, AMBAC,
4 3/4s, 9/1/16 AAA 6,670,000
5,000,000 U. of CA VRDN, Ser. 91E, 4.534s, 9/1/11 AAA 3,900,000
36,945,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB/P 34,405,031
Washington Twp., Hosp. Dist. Rev. Bonds
13,430,000 5 1/2s, 7/1/18 A 11,633,737
6,070,000 5 1/4s, 7/1/23 A 4,969,813
----------------
3,518,942,356
PUERTO RICO (0.1%)
- -------------------------------------------------------------------------------------
4,000,000 Cmnwlth. of Puerto Rico, Hwy. & Trans.
Auth. VRDN, 2.2s, 7/1/99 VMIG1 4,000,000
----------------
TOTAL MUNICIPAL BONDS AND NOTES
(cost $3,342,277,601) $3,522,942,356
</TABLE>
<TABLE>
<CAPTION>
PUT OPTIONS PURCHASED (--%) (cost $2,439,551)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
<S> <C> <C> <C>
1,098,000 U.S. Treasury Bond Futures Jun 95/$102 $ 713,700
----------------
TOTAL INVESTMENTS
(cost $3,344,717,152)*** $3,523,656,056
- -------------------------------------------------------------------------------------
<FN>
* Percentages indicated are based on net assets of $3,554,804,865, which correspond
to a net asset value per class A, class B, and class M share of $8.26, $8.25, and
$8.25, respectively.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most re-
cent ratings available at March 31, 1995 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 March 31, 1995. Securities rated by Putnam are indicated by "/P" and
are not publicly rated.
<PAGE>
^^ 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.
# A portion of this security was pledged to cover margin requirements for futures
contracts at March 31, 1995. The market value of segregated securities with the
custodian for transactions on futures contracts is $2,625,000.
++ 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 those held. The total market value of the restricted securities owned at
March 31, 1995 was $209,173,163 or 5.9% of net assets.
*** The aggregate identified cost on a tax basis is $3,355,529,735, resulting in gross
unrealized appreciation of $202,697,009, and $34,570,688, respectively, or net
unrealized appreciation of $168,126,321.
The rates shown on Inverse Floating Bonds (IFB), which are securities paying
variable interest rates that vary inversely to changes in market interest rates,
Variable COP's and Variable Rate Demand Notes (VRDN) are the current interest
rates at March 31, 1995, which are subject to change based on the terms of the
security.
</TABLE>
WRITTEN CALL OPTIONS OUTSTANDING AT MARCH 31, 1995
(premium received $2,402,004)
NUMBER OF EXPIRATION DATE/
CONTRACTS STRIKE PRICE VALUE
960,000 U.S. Treasury Bond
Futures (Sell) Jun 95/$102 $2,438,400
- -------------------------------------------------------------------------------
FUTURES CONTRACTS OUTSTANDING AT MARCH 31, 1995
AGGREGATE
TOTAL FACE EXPIRATION UNREALIZED
VALUE VALUE DATE DEPRECIATION
U.S. Treasury
Bond Futures
(Sell) $155,859,375 $155,595,625 Jun95 $(263,750)
- -------------------------------------------------------------------------------
The fund had the following industry group concentrations greater than 10% on
March 31, 1995 (as a percentage of net assets):
Water & Sewerage 13.8
Hospitals/Health Care 11.1
The fund had the following insurance concentrations greater than 10% on March
31, 1995 (as a percentage of net assets):
MBIA 18.8%
AMBAC 10.4%
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1995 (Unaudited)
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,344,717,152) (Note 1) $3,523,656,056
Cash 3,512,714
Interest receivable 52,200,458
Receivable for shares of the fund sold 6,962,689
- -------------------------------------------------------------------------------
TOTAL ASSETS $3,586,331,917
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 10,168,025
Distributions payable to shareholders 9,321,054
Payable for shares of the fund repurchased 3,722,027
Payable for compensation of Manager (Note 2) 3,861,486
Payable for administrative services (Note 2) 13,000
Payable for compensation of Trustees (Note 2) 2,431
Payable for investor servicing and custodian fees (Note 2) 115,083
Payable for distribution fees (Note 2) 1,805,474
Written options outstanding at value (premium received $2,402,004) 2,438,400
Other accrued expenses 80,072
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 31,527,052
- -------------------------------------------------------------------------------
NET ASSETS $3,554,804,865
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $3,431,381,887
Distributions in excess of net investment income (Note 5) (1,315,002)
Accumulated net realized loss on investment transactions (Note 5) (53,900,778)
Net unrealized appreciation of investments 178,638,758
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $3,554,804,865
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($3,179,437,410 divided by 384,866,455 shares) $8.26
Offering price per share (100/95.25 of $8.26) * $8.67
Net asset value and offering price of class B share
($374,678,408 divided by 45,400,961 shares) + $8.25
Net asset value and redemption price of class M shares
($689,047 divided by 83,530 shares) $8.25
Offering price per share (100/96.75 of $8.25) ** $8.53
- -------------------------------------------------------------------------------
* 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.
<PAGE>
STATEMENT OF OPERATIONS
Six months ended March 31, 1995 (Unaudited)
TAX EXEMPT INTEREST INCOME $115,590,221
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,985,250
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 263,500
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 41,524
- -------------------------------------------------------------------------------
Auditing 35,283
- -------------------------------------------------------------------------------
Legal 45,218
- -------------------------------------------------------------------------------
Postage 41,277
- -------------------------------------------------------------------------------
Reports to shareholders 75,638
- -------------------------------------------------------------------------------
Administrative services (Note 2) 26,001
- -------------------------------------------------------------------------------
Distribution fees
Class A (Note 2) 3,093,976
Class B (Note 2) 1,474,071
Class M (Note 2) 201
- -------------------------------------------------------------------------------
Other 60,684
- -------------------------------------------------------------------------------
TOTAL EXPENSES 13,142,623
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 102,447,598
- -------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (37,283,993)
- -------------------------------------------------------------------------------
Net realized loss on written options (2,158,203)
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 1,472,534
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 119,545,393
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 81,575,731
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $184,023,329
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
MARCH 31 SEPTEMBER 30
1995 * 1994
- -------------------------------------------------------------------------------
DECREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 102,447,598 $ 218,383,852
- -------------------------------------------------------------------------------
Net realized loss on investments (37,283,993) (1,196,328)
- -------------------------------------------------------------------------------
Net realized loss on writen options (2,158,203) --
- -------------------------------------------------------------------------------
Net realized gain on futures contracts 1,472,534 16,448,541
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments and futures contracts 119,545,393 (378,040,878)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 184,023,329 (144,404,813)
- -------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income:
Class A (93,869,515) (202,657,624)
Class B (9,307,675) (15,701,799)
Class M (1,928) --
- -------------------------------------------------------------------------------
Net realized gain on investments:
Class A (9,709,590) (10,629,107)
Class B (1,080,394) (794,743)
- -------------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (125,626,835) 174,727,426
- -------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (55,572,608) (199,460,660)
- -------------------------------------------------------------------------------
NET ASSETS
Beginning of period 3,610,377,473 3,809,838,133
- -------------------------------------------------------------------------------
END OF PERIOD (including distributions in excess
of net investment income of $1,315,002 and
$583,482, respectively) $3,554,804,865 $3,610,377,473
- -------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS *
(For a share outstanding throughout the period)
FOR THE FOR THE
PERIOD PERIOD
FEB. 14, 1995 JAN. 4, 1993
(COMMENCE- SIX (COMMENCE- SIX
MENT OF MONTHS MENT OF MONTHS
OPERATIONS) ENDED OPERATIONS) ENDED
TO MAR. 31 MAR. 31 SEPT. 30 MAR. 31 YEAR ENDED SEPTEMBER 30
1995** 1995** 1994 1993 1995** 1994 1993
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
CLASS M CLASS B CLASS A
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.13 $8.08 $8.91 $8.37 $8.09 $8.92 $8.39
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .07 .21 .45 .32 .24 .50 .53
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .12 .21 (.81) .55 .20 (.81) .57
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .19 .42 (.36) .87 .44 (.31) 1.10
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.07) (.21) (.45) (.33) (.24) (.50) (.53)
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
From net realized gain or loss on
investments -- (.03) (.02) -- (.03) (.02) (.04)
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
TOTAL DISTRIBUTIONS (.07) (.24) (.47) (.33) (.27) (.52) (.57)
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.25 $8.25 $8.08 $8.91 $8.26 $8.09 $8.92
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 2.37(b) 5.21(b) (4.15) 10.51(b) 5.56(b) (3.53) 13.63
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $689 $374,678 $349,609 $209,657 $3,179,437 $3,260,769 $3,600,182
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
Ratio of expenses to average
net assets (%) .12(b) .67(b) 1.32(c) 1.00(b) .35(b) .68 .69
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
Ratio of net investment income
to average net assets (%) .66(b) 2.67(b) 5.16 3.68(b) 3.00(b) 5.86 6.16
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
Portfolio turnover (%) 35.28 35.28 21.06 22.95 35.28 21.06 22.95
- ---------------------------------------------- ------------------------ ---------------------------------------------------------
<FN>
* 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.
** Unaudited.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS * (Continued)
(For a share outstanding throughout the period)
ELEVEN
MONTHS
ENDED
YEAR ENDED SEPTEMBER 30 SEPT. 30
1992 1991 1990 1989 1988 1987 1986 1985
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $8.11 $7.70 $7.83 $7.67 $7.14 $7.80 $6.97 $6.48
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .54 .54 .54 .56 .57 .57 .61 .58
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .27 .41 (.10) .16 .52 (.66) .83 .49
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .81 .95 .44 .72 1.09 (.09) 1.44 1.07
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.53) (.54) (.54) (.56) (.56) (.57) (.61) (.58)
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized gain or loss on
investments -- -- (.03) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.53) (.54) (.57) (.56) (.56) (.57) (.61) (.58)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $8.39 $8.11 $7.70 $7.83 $7.67 $7.14 $7.80 $6.97
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%) (a) 10.34 12.71 5.75 9.63 15.69 (1.52) 21.36 16.90(b)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $2,854,165 $2,295,154 $1,807,931 $1,541,563 $1,228,401 $1,088,122 $811,399 $463,189
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .60 .56 .52 .52 .51 .52 .53 .55(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 6.53 6.79 6.90 7.09 7.51 7.22 7.91 8.30(b)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 31.25 35.76 33.42 60.77 95.05 93.46 65.88 80.61(b)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1995 (Unaudited)
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 diversi-
fied portfolio of longer-term California tax exempt securities.
The fund offers class A, class B and class M shares. The fund commenced its pu-
blic offering of class M shares on February 1, 1995. 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. Class M shares are sold with a maxi-
mum front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares. Expenses of the fund
are borne pro-rata by the shareholders of each class of shares. Each class bears
expenses unique to that class (including the distribution fees applicable to
such class), and 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 de-
clare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently fol-
lowed 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 va-
luations provided by a pricing service, approved by the Trustees, which uses in-
formation with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining value. The fair value of restricted securities is de-
termined by the Manager 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). In-
terest income is recorded on the accrual basis.
<PAGE>
C) OPTION ACCOUNTING PRINCIPLES The fund may, to the extent consistent with its
investments objectives and policies, seek to increase its current returns by
writing covered call and put options on securities it owns or in which it may
invest. When the fund writes a call or put option, an amount equal to the pre-
mium received by the fund is included in the fund's "Statement of assets and
liabilities" as an asset and an equivalent liability. The amount of the liabili-
ty 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 purcha-
se transaction exceeds the premium received when the option was written) without
regard to any unrealized gain or loss on the underlying security, and the liabi-
lity related to such option is extinguished. If a written call option is exerci-
sed, 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 origi-
nally received reduces the cost of the security or currency the fund purchase
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 wri-
ting 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 inclu-
ded 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 op-
tion. If an option which the fund has purchased expires on the stipulated expi-
ration 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 op-
tion, 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 con-
tract the fund is required to pledge to the broker an amount of cash or securi-
ties equal to the minimum "initial margin" requirements of the exchange. Pur-
suant to the contract, the fund
<PAGE>
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 fund is that the
change in value of the underlying securities may not correspond to the change in
value of the futures contracts. In addition, there is a risk that the fund may
not be able to close out its futures positions due to an illiquid secondary mar-
ket.
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 In-
ternal 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. Therefo-
re, no provision has been made for federal taxes on income, capital gains or un-
realized 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 regula-
tions which may differ from generally accepted accounting principles. These di-
fferences 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.
G) AMORTIZATION OF BOND PREMIUM AND ACCRETION OF BOND DISCOUNT Any premium re-
sulting 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 amor-
tized 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 for management and investment advisory servi-
ces is paid quarterly based on the average net assets of the fund for the quar-
ter. Such fee is based on the following annual rates: 0.60% of the first $500
million of average net assets,
<PAGE>
0.50% of the next $500 million, 0.45% of the next $500 million and 0.40% of any
amount over $1.5 billion, subject, under current law, to reduction in any year
to the extent that expenses (exclusive of brokerage, interest and taxes) of the
fund Manager on the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $4,330 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 func-
tions are provided by Putnam Investor Services, a division of PFTC. Investor
servicing and custodian fees reported in the Statement of operations for the six
months ended March 31, 1995, have been reduced by credits allowed by PFTC.
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 Compa-
ny 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 pro-
vided and expenses incurred by it in distributing shares of the fund. The Trus-
tees have approved payment by the fund at 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 March 31, 1995, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $178,183 and $247 from the sale of class
A and class M shares and $466,563 in contingent deferred sales charges from re-
demptions of class B shares. A deferred sales charge of up to 1% is assessed on
certain redemptions of class A shares purchased as part of an investment of $1
million or more. For the six months ended March 31, 1995, Putnam Mutual Funds
Corp., acting as underwriter received $68,659 on class A redemptions.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the six months ended March 31, 1995, purchases and sales of investment
securities other than short-term investments aggregated $595,613,778 and
$612,352,089, respectively. Purchases and sales of short-term municipal obliga-
tions aggregated $163,631,804 and $300,630,490, respectively. In determining the
net gain or loss on securities sold, the cost of securities has been determined
on the identified cost basis.
<PAGE>
The following is a summary of written options activity during the period.
Premiums received
- -------------------------------------------------------------------------------
Options opened $4,870,992
Options closed 2,468,988
- -------------------------------------------------------------------------------
WRITTEN OPTIONS OUTSTANDING AT END OF PERIOD $2,402,004
- -------------------------------------------------------------------------------
NOTE 4
CAPITAL SHARES
At March 31, 1995, there was an unlimited number of shares of beneficial inte-
rest authorized divided into three classes, class A, class B and class M capital
stock. Transactions in capital shares were as follows:
SIX MONTHS ENDED
MARCH 31, 1995
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 16,129,304 $128,131,830
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 6,536,632 51,861,492
- -------------------------------------------------------------------------------
22,665,936 179,993,322
- -------------------------------------------------------------------------------
Shares repurchased (41,063,915) (323,455,527)
- -------------------------------------------------------------------------------
NET DECREASE (18,397,979) $(143,462,205)
- -------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30, 1994
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
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 DECREASE (291,859) $4,377,423
- -------------------------------------------------------------------------------
SIX MONTHS ENDED
MARCH 31, 1995
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 5,858,291 $46,544,719
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 693,775 5,494,715
- -------------------------------------------------------------------------------
6,552,066 52,039,434
- -------------------------------------------------------------------------------
Shares repurchased (4,445,786) (34,888,008)
- -------------------------------------------------------------------------------
NET INCREASE 2,106,280 $17,151,426
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
<PAGE>
FOR THE PERIOD
FEBRUARY 14, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1995
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 83,311 $682,141
- -------------------------------------------------------------------------------
Shares issued in connection with
reinvestment of distributions 219 1,083
- -------------------------------------------------------------------------------
83,530 683,944
- -------------------------------------------------------------------------------
Shares repurchased -- --
- -------------------------------------------------------------------------------
Net increase 83,530 $683,944
- -------------------------------------------------------------------------------
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the
past five years. The award is presented annually by DALBAR Inc., an independent
firm that monitors and evaluates the quality of service provided by mutual fund
companies throughout the United States. During 1994, DALBAR ranked firms by con-
ducting 80,000 anonymous performance evaluations based on 55 service components.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
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 repre-
sentative.
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.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill 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 Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Gary N. Coburn
Vice President Vice President
James E. Erickson William H. Reeves
Vice President Vice President and Fund Manager
William N. Shiebler John R. Verani
Vice President Vice President
Paul M. O'Neil John D. Hughes
Vice President 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 re-
quest a prospectus, call toll free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OF, OR GUARANTEED OR ENDORSED BY, ANY
FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPO-
RATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND INVOLVE RISK,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
<PAGE>
---------------
PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
---------------
027/337/677-17782
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The registered mark symbol has been replaced by (R).
(8) The dagger symbol has been replaced by +
(9) The double dagger symbol has been replaced by ++
(10) The section symbol has been replaced by +++
(11) The 2 daggers symbol has been replaced by ^^
