As filed with the Securities and Exchange Commission on
November 1, 1995
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / x /
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Pre-Effective Amendment No. / /
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Post-Effective Amendment No. / /
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(Check appropriate box or boxes)
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PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
(Exact Name of Registrant as Specified in Charter)
One Post Office Square, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
617-292-1000
(Area Code and Telephone Number)
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JOHN R. VERANI, Vice President
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
One Post Office Square
Boston, Massachusetts 02109
(Name and address of Agent for Service)
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Copy to:
JOHN W. GERSTMAYR, Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
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It is proposed that this Registration Statement become effective
on December 1, 1995 pursuant to Rule 488.
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An indefinite amount of the Registrant's securities has been
registered under the Securities Act of 1933 pursuant to Rule 24f-
2 under the Investment Company Act of 1940. In reliance upon
such Rule, no filing fee is being paid at this time. A Rule 24f-
2 notice for Putnam California Tax Exempt Income Fund, a series
of the Registrant and on whose behalf this Registration Statement
and is being filed for the year ended September 30, 1994 was
filed on November 30, 1994.
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PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
CROSS-REFERENCE SHEET
(as required by Rule 481(a))
Form N-14 Item No.
Part A Caption in Prospectus/Proxy Statement of
Putnam California Intermediate Tax Exempt
Fund
1. Cross-Reference Sheet; Front Cover
2. Front Cover
3. Synopsis; Risk factors
4. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of
Reorganization; Background and reasons for
the proposed reorganization; Information
about the reorganization
5. Front Cover -- Incorporated by reference to
specified documents
6. Front Cover -- Incorporated by reference to
specified documents
7. Introduction; Proposal regarding approval or
disapproval of Agreement and Plan of
Reorganization; Information about the
reorganization; Voting information
8. Not Applicable
9. Not Applicable
Part B Caption in Statement of Additional
Information
10. Cover Page
11. Cover Page
12. Cover Page -- Incorporated by reference to
specified documents
13. Cover Page -- Incorporated by reference to
specified documents
14. Independent Accountants and Financial
Statements
Part C
The information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
IMPORTANT INFORMATION
FOR SHAREHOLDERS IN
PUTNAM CALIFORNIA INTERMEDIATE TAX EXEMPT FUND
The document you hold in your hands contains a combined
prospectus/proxy statement and proxy card. A proxy card is, in
essence, a ballot. When you vote your proxy, it tells us how to
vote on your behalf on important issues relating to your fund.
If you complete and sign the proxy, we'll vote it exactly as you
tell us. If you simply sign the proxy, we'll vote it in
accordance with the Trustees' recommendation on page .
While investors sometimes find these materials intimidating, we
are, in fact, asking for your vote on just one matter. So we
urge you to spend a few minutes with the combined
prospectus/proxy statement, fill out your proxy card, and return
it to us. When shareholders don't return their proxies in
sufficient numbers, we have to incur the expense of additional
follow-up solicitations, which can cost your fund money.
We want to know how you would like to vote and welcome your
comments. Please take a few minutes with these materials and
return your proxy to us.
Table of Contents
A Message from the Chairman 6
Notice of Shareholder meeting 7
Combined Prospectus/Proxy Statement 8
Proxy card enclosed
If you have any questions, please contact us at the special toll-
free number we have set up for you (1-800-225-1581) or call your
financial advisor.
A Message from the Chairman
(photograph of George Putnam appears here)
Dear Shareholder:
I am writing you to ask you for your vote on an important matter
that affects your investment in Putnam California Intermediate
Tax Exempt Fund (the "Intermediate Fund"). While you are, of
course, welcome to join us at the Intermediate Fund's meeting,
most shareholders cast their vote by filling out and signing the
enclosed proxy card.
We are asking for your vote on the following matter:
1. Approval of a proposed merger of the Intermediate Fund
into Putnam California Tax Exempt Income Fund (the "Income
Fund"). In this merger, your shares of the Intermediate Fund
would, in effect, be exchanged at net asset value and on a
tax-free basis for shares of the Income Fund.
The proposed merger will combine two funds that both seek as high
a level of current income exempt from federal income tax and
California personal income taxes as Putnam Investment Management,
Inc. ("Putnam Management"), the Funds' investment manager,
believes is consistent with preservation of capital.
The Intermediate Fund seeks its objective by investing primarily
in intermediate-term California tax exempt securities, while the
Income Fund seeks its objective by investing primarily in longer-
term California tax exempt securities.
The Trustees recommend approval of the merger because the merger
offers shareholders of the Intermediate Fund an opportunity to
pursue similar investment objectives with economies of scale that
may result in lower expenses over the shorter- and longer-term.
Your vote is important to us. We appreciate the time and
consideration I am sure you will give this important matter. If
you have questions about the proposal, please call 1-800-225-
1581, or your financial advisor.
Sincerely yours,
(signature of George Putnam)
George Putnam, Chairman
Putnam Intermediate Fund
Notice of a Meeting of Shareholders
This is the formal agenda for the shareholder meeting. It tells
you what matters will be voted on and the time and place of the
meeting, if you can attend in person.
To the Shareholders of Putnam California Intermediate Tax Exempt
Fund:
A Meeting of Shareholders of Putnam California Intermediate Tax
Exempt Fund (the "Fund" or the "Intermediate Fund") will be held
March 7, 1996 at 2:00 p.m., Boston time, on the eighth floor of
One Post Office Square, Boston, Massachusetts, to consider the
following:
1. Approving an Agreement and Plan of Reorganization providing
for the transfer of all of the assets of the Fund to Putnam
California Tax Exempt Income Fund (the "Income Fund") in
exchange for shares of the Income Fund and the assumption by
the Income Fund of all of the liabilities of the Fund, and
the distribution of such shares to the shareholders of the
Fund in complete liquidation of the Fund. See page .
2. Transacting such other business as may properly come before
the meeting.
By the Trustees
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter Robert E. Patterson
Hans H. Estin Donald S. Perkins
John A. Hill George Putnam, III
Elizabeth T. Kennan Eli Shapiro
Lawrence J. Lasser A.J.C. Smith
W. Nicholas Thorndike
WE URGE YOU TO MARK, SIGN, DATE, AND MAIL THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOU WILL BE
REPRESENTED AT THE MEETING.
December , 1995
Prospectus/Proxy Statement
November , 1995
ACQUISITION OF THE ASSETS OF
Putnam California Intermediate Tax Exempt Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
BY AND IN EXCHANGE FOR SHARES OF
Putnam California Tax Exempt Income Fund
One Post Office Square
Boston, Massachusetts 02109
(617) 292-1000
Table of Contents
Agreement and Plan of Reorganization EXHIBIT A
This document will give you the information you need to vote on
the proposed merger. Much of the information is required under
rules of the Securities and Exchange Commission ("SEC"); some of
it is technical. If there is anything you don't understand,
please contact us at our special toll-free number, 1-800-225-
1581, or call your financial advisor.
This Prospectus/Proxy Statement relates to the proposed merger of
Putnam California Intermediate Tax Exempt Fund (the "Intermediate
Fund") into Putnam California Tax Exempt Income Fund (the "Income
Fund"), each of which is a series of Putnam California Tax Exempt
Income Trust (the "Trust"), through the transfer of all assets of
the Intermediate Fund to the Income Fund in exchange for Class A
and Class B shares of beneficial interest of the Income Fund (the
"Merger Shares") and the assumption by the Income Fund of all of
the liabilities of the Intermediate Fund thereby liquidating the
Intermediate Fund. (The Income Fund and the Intermediate Fund
are collectively referred to herein as the "Funds," and each is
referred to individually as a "Fund"). As a result of the
proposed transaction, each Class A and Class B shareholder of the
Intermediate Fund will receive a number of full and fractional
Class A and Class B Merger Shares, respectively, equal in value
at the date of the exchange to the aggregate value of the
shareholder's Intermediate Fund shares.
This Prospectus/Proxy Statement explains concisely what you
should know before investing in the Income Fund. Please read it
and keep it for future reference. This Prospectus/Proxy
Statement is accompanied by (i) the Prospectus, dated February 1,
1995, of the Income Fund, Intermediate Fund and Putnam California
Tax Exempt Money Market Fund (the "Prospectus"), and (ii) the
Report of Independent Accountants and financial statements
included in the Income Fund's Annual Report to Shareholders for
the fiscal year ended September 30, 1994. Each of the Prospectus
and Annual Report are incorporated into this Prospectus/Proxy
Statement by reference.
The following documents have been filed with the Securities and
Exchange Commission and are also incorporated into this
Prospectus/Proxy Statement by reference:
(i) the current Statement of Additional Information of the
Income Fund, dated February 1, 1995, as revised October 9,
1995,
(ii) the current Statement of Additional Information of the
Intermediate Fund, dated February 1, 1995, as revised
October 9, 1995,
(iii) the Report of Independent Accountants and financial
statements included in the Intermediate Fund's Annual Report
to Shareholders for the fiscal year ended September 30,
1995,
(iv) the unaudited financial statements included in the
Intermediate Fund's Semi-Annual Report to Shareholders for the
six months ended March 31, 1995,
(v) the unaudited financial statements included in the
Income Fund's Semi-Annual Report to shareholders for the six
months ended March 31, 1995, and
(iv) a Statement of Additional Information dated November ,
1995, relating to the transactions described in this
Prospectus/Proxy Statement.
For a free copy of any or all of these Prospectuses or Statements
of Additional Information or a copy of the Intermediate Fund's
Annual Report, please contact us at the special toll-free number
we have set up for you (1-800-225-1581).
Proxy materials, information statements and other information
filed by the Income Fund can be inspected and copied at the
Public Reference Facilities maintained by the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Copies of such material can also be obtained from the
Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
THE SECURITIES OFFERED BY THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
SUCH PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SHARES OF THE INCOME FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY FINANCIAL INSTITUTION, ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY, AND INVOLVE RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
Synopsis
The responses to the questions that follow provide an overview of
key points typically of concern to shareholders considering a
proposed merger between funds. These responses are qualified in
their entirety to the remainder of the Prospectus/Proxy
Statement, which contains additional information and further
details regarding the proposed merger.
1. What is being proposed?
The Trustees of the Trust are recommending that shareholders
approve the merger of the Intermediate Fund into the Income Fund.
The merger is proposed to be accomplished pursuant to an
Agreement and Plan of Reorganization providing for the transfer
of all of the assets of the Intermediate Fund to the Income Fund
in exchange for shares of the Income Fund and for the assumption
by the Income Fund of all of the liabilities of the Intermediate
Fund. The completion of these transactions, followed by the
distribution of the Income Fund shares received by the
Intermediate Fund, will result in the complete liquidation of the
Intermediate Fund.
2. What will happen to my shares of the Intermediate Fund?
As a result of the proposed transaction, the Intermediate Fund
will receive a number of Class A and Class B Shares of the Income
Fund (the "Merger Shares") equal in value to the value of the net
assets of the Intermediate Fund being transferred that are
attributable to the Class A and Class B shares, respectively, of
the Intermediate Fund. Following the transfer, each Class A and
Class B shareholder of the Intermediate Fund will receive a
number of full and fractional Class A and Class B Merger Shares,
respectively, of the Income Fund equal in value at the date of
the exchange to the aggregate value of the shareholder's
Intermediate Fund shares.
3. Why are the Trustees proposing the merger?
The Trustees of the Trust recommend approval of the merger
because the merger offers shareholders of the Intermediate Fund
an opportunity to pursue similar investment objectives with
economies of scale that may result in lower expenses over the
shorter- and longer-term.
4. How do the investment objectives, policies and restrictions of
the two Funds compare?
Each Fund seeks as high a level of current income exempt from
federal tax and California personal income tax as Putnam
Investment Management, Inc. ("Putnam Management") believes is
consistent with preservation of capital. The Intermediate Fund
seeks this investment objective by investing primarily in
intermediate-term California Tax Exempt Securities (as defined
below), while the Income Fund seeks this investment objective by
investing primarily in longer-term California Tax Exempt
Securities. The Intermediate Fund seeks to maintain a portfolio
dollar-weighted average maturity of six to ten years, while the
Income Fund has no such specific focus on average maturity.
California Tax Exempt Securities are debt obligations issued by
the State of California, its political subdivisions, and their
agencies, instrumentalities or other governmental units, the
interest from which is, in the opinion of bond counsel, exempt
from federal income tax and California personal income tax. A
more detailed description of California Tax Exempt Securities is
contained in the Prospectus.
The Intermediate Fund will normally invest at least 80% of its
net assets in California Tax Exempt Securities except when it is
investing for temporary defensive purposes, while at least 90% of
the Income Fund's income distributions will be exempt from both
federal income tax and California personal income tax, except
during times of adverse market conditions. Neither Fund treats
interest income that may be subject to federal alternative
minimum tax for individuals as tax-exempt for purposes of
measuring compliance with its respective policy.
Each Fund's investments in California Tax Exempt Securities and
taxable securities will be limited to securities rated not lower
than the five highest grades by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P"), and, in the
case of the Intermediate Fund, Fitch Investors Services, Inc., or
unrated securities which Putnam Management determines are of
comparable quality. As of September 30, 1995, the quality
composition of the Fund's portfolios, as rated by Moody's and S&P
except where otherwise noted, were as follows:
AAA AA A BBB BB and below
Income Fund 60.99% 11.67% 8.57% 12.42% 6.35%
Intermediate Fund 44.52% 10.26% 20.26% 24.96%
The Intermediate Fund is a "non-diversified" fund under the
Investment Company Act of 1940 (the "1940 Act"), permitting it to
invest a higher percentage of its assets in the securities of a
single issuer than the Income Fund, which is a "diversified" fund
under the 1940 Act.
Both Funds may also hold a portion of their assets in cash or
money market instruments. Both Funds may engage in financial
futures and options strategies for hedging purposes, and both
Funds may enter into repurchase agreements and forward
commitments.
5. How do the management fees and other expenses of the two Funds
compare, and what are they estimated to be following the merger?
As shown in the table below, although the Funds currently have
identical management fee schedules, the management fees for the
Intermediate Fund are currently lower than the management fees
for the Income Fund due to an expense limitation in effect for
the Intermediate Fund. In the absence of the expense limitation,
management fees for the Intermediate Fund would be higher.
Estimated "Other expenses" and total fund operating expenses for
the Intermediate Fund for the 1995 fiscal year, which are based
on estimates, are higher than the comparable expenses for the
Income Fund for the 1994 fiscal year. Both Funds have adopted
identical Class A and Class B Distribution Plans pursuant to Rule
12b-1 under the 1940 Act, which provide for identical fees,
except that the Trustees of the Trust currently limit payments
under the Intermediate Fund's Class A and Class B plans to 0.15%
and 0.75%, respectively, and limit payments under the Income
Fund's Class A and Class B plans to 0.20% and 0.85%,
respectively.
The following table summarizes expenses (i) that the Intermediate
Fund expects to incur during its first full fiscal year and (ii)
that the Income Fund has incurred in its past fiscal year, which
are the same as the expected expenses for the Income Fund after
giving effect to the proposed merger. The expenses shown in the
table do not reflect the application of commissions or cash
management credits that may reduce certain fund expenses. The
Examples show the estimated cumulative expenses attributable to a
hypothetical $1,000 investment over specified periods.
Class A Class B
Shares Shares
Shareholder Transaction Expenses
Maximum Sales Charge Imposed
on Purchases (as a percentage
of offering price)
Intermediate Fund 3.25% NONE*
(Not applicable
to Merger Shares)
Income Fund 4.75% NONE*
(Not applicable
to Merger Shares)
Deferred Sales Charge (as a
percentage of the lower of
original purchase price or
redemption proceeds)
Intermediate Fund 3.0% in the first
year, declining
to 1.0% in the
fourth year, and
NONE** eliminated thereafter+
Income Fund 5.0% in the first
year, declining
to 1.0% in the
sixth year, and
NONE** eliminated thereafter+
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management 12b-1 Other Total Fund
Fees Fees Expenses Operating Expenses
Intermediate
Fund
Class A 0.32*% 0.15% 0.47% 0.94%*
Class B 0.32*% 0.75% 0.47% 1.54%*
Income
Fund
Class A 0.45% 0.20% 0.10% 0.75%
Class B 0.45% 0.85% 0.10% 1.40%
* after expense limitation
The tables are provided to help you understand an investor's
share of the operating expenses which each Fund incurs. The
management fees and total fund operating expenses for the
Intermediate Fund reflect an expense limitation currently in
effect. In the absence of the expense limitation, management
fees would be 0.60% for Class A and Class B shares and total fund
operating expenses would be 1.22% for Class A shares and 1.82%
for Class B shares. The 12b-1 fees shown in the table reflect
the amount to which the Trustees currently limit payments under
the each Fund's Class A and Class B Distribution Plans.
* Class B shares are sold without a front-end sales charge, but
their higher 12b-1 fees may cause long-term shareholders to pay
more than the economic equivalent of the maximum permitted front-
end sales charge.
** A deferred sales charge of up to 1.00% is assessed on certain
redemptions of Class A shares that were purchased without an
initial sales charge as part of an investment of $1 million or
more.
+ For purposes of determining the contingent deferred sales
charge applicable to Class B Merger Shares, such shares will be
treated as having been acquired as of the dates originally
acquired by the Intermediate Fund shareholder. See "Information
about the reorganization - Description of the Merger Shares."
Examples
An investment of $1,000 would incur the following expenses,
assuming 5% annual return and, except as indicated, redemption at
the end of each period. Some of the expenses shown for the
Intermediate Fund are lower than the corresponding expenses for
the Income Fund. The difference shows the effect of the lower
sales charge applicable to initial purchase of Intermediate Fund
shares. The proposed merger will not change the expenses shown
for the Income Fund.
1 3 5 10
year years years years
Intermediate
Fund
Class A $42 $61 $83 $144
Class B $46 $69 $84 $167***
Class B $16 $49 $84 $167***
(no redemption)
Income
Fund
Class A $55 $70 $87 $136
Class B $64 $74 $97 $150***
Class B $14 $44 $77 $150***
(no redemption)
*** Reflects conversion of Class B shares to Class A shares
(which pay lower ongoing expenses) approximately eight years
after purchase.
The Examples do not represent past or future expense levels.
Actual expenses may be greater or less than those shown. Federal
regulations require the Examples to assume a 5% annual return,
but actual annual return will vary.
As shown in the table and described in the Prospectus, the Funds
determine the contingent deferred sales charge ("CDSC")
applicable to their respective shares according to different
schedules. If the proposed merger takes place, the CDSC
applicable upon redemption of Class B Merger Shares will be
determined according to the CDSC schedule for the Intermediate
Fund.
6. What are the federal income tax consequences of the proposed
merger?
For federal income tax purposes, no gain or loss will be
recognized by the Intermediate Fund or its shareholders as a
result of the merger.
7. Do the distribution policies of the two Funds differ?
No. Each of the Funds distributes any net investment income at
least monthly and any net realized capital gains at least
annually.
The Income Fund will not permit any Intermediate Fund shareholder
holding certificates for Intermediate Fund shares at the time of
the merger to receive cash dividends or other distributions,
receive certificates for Merger Shares, exchange Merger Shares
for shares of other investment companies managed by Putnam
Management, or pledge or redeem Merger Shares until those
certificates for Intermediate Fund shares have been surrendered,
or, in the case of lost certificates, an adequate surety bond has
been posted.
If a shareholder is not for that reason permitted to receive cash
dividends or other distributions on Merger Shares, the Income
Fund will pay all such dividends and distributions in additional
shares, notwithstanding any election the shareholder may have
made previously to receive dividends and distributions on
Intermediate Fund shares in cash.
8. Do the procedures for purchasing, redeeming and exchanging
shares of the two Funds differ?
No. The procedures for purchasing and redeeming shares of the
Intermediate Fund and the shares of the Income Fund, and for
exchanging such shares of each Fund for shares of other Putnam
funds, are identical. As indicated above in the discussion of
fees and expenses, however, the two funds have different front-
end sales charges, CDSC schedule and 12b-1 fees.
The Intermediate Fund currently offers two classes of shares and
the Income Fund currently offers three classes of shares. Shares
of both Funds may be purchased either through investment dealers
which have sales agreements with Putnam Mutual Funds Corp.
("Putnam Mutual Funds") or directly through Putnam Mutual Funds
at prices based on net asset value, plus varying sales charges,
depending on the class and number of shares purchased.
Reinvestment of distributions by the Funds are made at net asset
value for all classes of shares.
Shares of both Funds may be redeemed any day the New York Stock
Exchange is open at their net asset value next determined either
directly to a Fund or through an investment dealer.
Shares of both Funds may be exchanged after a ten-day holding
period for shares of the same class of certain other Putnam
funds.
9. How will I be notified of the outcome of the merger?
If the proposed merger is approved by shareholders, you will
receive confirmation after the reorganization is completed,
indicating your new account number. If the merger is not
approved, shareholders will be notified, and the results of the
meeting will be provided in the next annual report of the
Intermediate Fund.
10. Will the number of shares I own change?
Yes, but the total value of the shares of the Income Fund you
receive will be equal in value to the total value of the shares
of the Intermediate Fund that you are exchanging. Even though
the net asset value per share of each Fund is different, the
total value of a shareholder's holdings will not change as a
result of the merger.
Risk factors
What are the principal risk factors associated with an investment
in the Income Fund, and how do they compare with those for the
Intermediate Fund?
Because the Funds share similar investment objectives and
policies, the risks of an investment in the Income Fund described
below are similar to the risks of an investment in the
Intermediate Fund, except the risks associated with investments
by the Income Fund in longer-term securities. A more detailed
description of certain risks associated with an investment in the
Income Fund is contained in the Income Fund Prospectus.
Investments in longer-term fixed-income securities. As with the
Intermediate Fund, the Income Fund invests in fixed-income
securities, although it invests primarily in longer-term fixed-
income securities. The values of fixed-income securities
fluctuate in response to changes in interest rates. Thus, a
decrease in interest rates will generally result in an increase
in the value of such securities. Conversely, during periods of
rising interest rates, the value of the Fund's assets will
generally decline. These fluctuations have been generally
smaller for intermediate-term securities than for securities with
longer maturities.
Lower-rated securities. Like the Intermediate Fund, the Income
Fund may invest in lower-rated fixed-income securities (rated
below BBB/Baa) which are commonly known as "junk bonds". The
Fund will not purchase a security rated BB, or if unrated,
determined to be comparable quality, and will not purchase a
security rated below Ba by Moody's or BB by S&P or, if unrated,
determined by Putnam Management to be of comparable quality, if
as a result, more than 25% of the fund's assets would be of that
quality. Like those of other fixed-income securities, the values
of lower-rated fixed-income securities fluctuate in response to
changes in interest rates, although the value of the Fund's
assets invested in lower-rated securities will generally
fluctuate more than those invested in higher-rated securities.
Securities in the lower rating categories may, depending on their
rating, have large uncertainties or major risk exposure to
adverse conditions.
Concentration on California Tax Exempt Securities. Like the
Intermediate Fund, since the Income Fund invests primarily in
California Tax exempt Securities, the performance of the Fund may
be especially affected by factors pertaining to the California
economy and other factors specifically affecting the ability of
issuers of such securities to meet their obligations. As a
result, the value of the Fund's shares may fluctuate more widely
than the value of shares of a portfolio investing in securities
relating to a number of different states. The ability of
California state, county or local governments to meet their
obligations may depend on a variety of factors, including the
availability of tax and other revenues, general economic,
political or demographic conditions, constitutional and statutory
restrictions on raising revenue, and insufficient federal, state
and local aid to issuers.
Although the Income Fund may not invest more than 25% of its
assets in any one industry, it may invest more than 25% of its
assets in a broader segment of the California Tax Exempt
Securities market, such as revenue obligations of health care
facilities or housing agencies. If Putnam Management
concentrates the Fund's investments in a particular market
segment, it increases the Fund's exposure to economic, business,
political and other developments that generally may adversely
affect California Tax Exempt Securities in that market segment.
Inverse floating obligations.
Like the Intermediate Fund, the Income Fund may invest in
securities representing interests in California Tax Exempt
Securities, known as "inverse floating obligations" or "residual
interest bonds," which pay interest rates that vary inversely to
changes in the interest rates of specified short-term tax exempt
securities or an index of short-term tax exempt securities. The
interest rates on these securities will typically decline as
short-term market interest rates increase and increase as short-
term market rates decline. Such securities have the effect of
providing a degree of investment leverage, since they will
generally increase or decrease in value in response to changes in
market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt
securities increase or decrease in response to such changes. As
a result, the market values of these securities will generally be
more volatile than the market value of fixed-rate California Tax
Exempt Securities.
Options and futures transactions. As with the Intermediate Fund,
the ability of the Income Fund to engage in options and futures
transactions involves certain risks, including the risks that the
Income Fund will be unable at times to close out such positions,
that such transactions may not accomplish their purpose because
of imperfect market correlations, or that Putnam Management may
not forecast market movements correctly.
Other investment practices. Finally, to the extent that the
Income Fund exercises its ability to engage in certain investment
practices, such as repurchase agreements, it may be delayed in
recovering or unable to recover its collateral in the event of
default by the other party. In purchasing securities for future
delivery, the Fund runs the risk of a decline in the value of
such securities before the settlement date and the risk that the
other party should default on its obligation.
Introduction
This Prospectus/Proxy Statement is furnished in connection with
the proposed reorganization of the Intermediate Fund by the
transfer of all of its assets and liabilities to the Income Fund
for shares of the Income Fund and the solicitation of proxies by
and on behalf of the Trustees of the Trust for the Intermediate
Fund for use at the Meeting of Shareholders. The Meeting is to
be held on March 7, 1996 at 2:00 p.m. at One Post Office Square,
8th Floor, Boston, Massachusetts. The Notice of the Meeting, the
Proxy and the combined Prospectus/Proxy Statement and the
enclosed form of proxy are being mailed to shareholders on or
about December , 1995.
Any shareholder giving a proxy has the power to revoke it by mail
(addressed to the Trust's Clerk at the principal office of the
Intermediate Fund, One Post Office Square, Boston, Massachusetts
02109) or in person at the Meeting, by executing a superseding
proxy, or by submitting a notice of revocation to the
Intermediate Fund. All properly executed proxies received in
time for the Meeting will be voted as specified in the proxy, or,
if no specification is made, FOR the proposal (set forth in
Proposal 1 of the Notice of Meeting) to implement the
reorganization of the Intermediate Fund by the transfer of all of
its assets to the Income Fund in exchange for the Merger Shares
and the assumption by the Income Fund of all of the liabilities
of the Intermediate Fund.
At September 30, 1995, there were outstanding 1.26 million shares
of beneficial interest of the Intermediate Fund. Only
shareholders of record on December 8, 1995 will be entitled to
notice of and to vote at the Meeting. Each share is entitled to
one vote, with fractional shares voting proportionally.
The Trustees of the Trust know of no matters other than those set
forth herein to be brought before the Meeting. If, however, any
other matters properly come before the Meeting, it is the
Trustees' intention that proxies will be voted on such matters in
accordance with the judgment of the persons named in the enclosed
form of proxy.
Proposal regarding approval or disapproval of Agreement and Plan
of Reorganization
The shareholders of the Intermediate Fund are being asked to
approve or disapprove a merger between the Income Fund and the
Intermediate Fund pursuant to an Agreement and Plan of
Reorganization between the Funds, dated as of November , 1995
(the "Agreement"), a copy of which is attached to this
Prospectus/Proxy Statement as Exhibit A.
The Agreement provides, among other things, for the transfer of
all of the assets of the Intermediate Fund to the Income Fund in
exchange for the assumption by the Income Fund of all of the
liabilities of the Intermediate Fund and for the Class A and
Class B Merger Shares, the number of which will be calculated
based on the value of the net assets attributable to the Class A
and Class B shares of the Intermediate Fund acquired by the
Income Fund and the net asset value per Class A and Class B share
of the Income Fund, all as more fully described below under
"Information about the reorganization."
After receipt of the Merger Shares, the Intermediate Fund will
cause the Class A Merger Shares to be distributed to its Class A
shareholders and the Class B Merger Shares to be distributed to
its Class B shareholders, in complete liquidation of the
Intermediate Fund, and the legal existence of the Intermediate
Fund as a separate series of the Trust will be terminated. Each
shareholder of the Intermediate Fund will receive a number of
full and fractional Class A or Class B Merger Shares equal in
value at the date of the exchange to the aggregate value of the
shareholder's Intermediate Fund shares.
Prior to the date of the transfer (the "Exchange Date"), the
Intermediate Fund will declare a distribution to shareholders
which, together with all previous distributions, will have the
effect of distributing to shareholders all of its investment
company taxable income (computed without regard to the deduction
for dividends paid) and net realized capital gains, if any,
through the Exchange Date.
The Trustees of the Intermediate Fund have voted unanimously to
approve the proposed transaction and to recommend that
shareholders also approve the transaction. The affirmative vote
of two-thirds (66 2/3%) of the outstanding shares of beneficial
interest of the Intermediate Fund that are entitled to be voted
at the Meeting is necessary for the consummation of the proposed
transaction.
In the event that this proposal is not approved by the
shareholders of the Intermediate Fund, the Intermediate Fund will
continue to be managed as a separate fund in accordance with its
current investment objectives and policies, and the Trustees may
consider such alternatives as may be in the best interests of its
shareholders.
Background and reasons for the proposed reorganization
The Trustees of the Trust, including all Trustees who are not
"interested persons" of the Trust, have determined that the
reorganization would be in the best interests of each Fund's
shareholders, and that the interests of existing shareholders of
each of the Funds would not be diluted as a result of effecting
the reorganization. The Trustees have unanimously approved the
proposed reorganization and have recommended its approval by
shareholders. The Income Fund and the Intermediate Fund are
series of Putnam California Tax Exempt Income Trust and
consequently have the same Trustees.
The principal reasons why the Trustees are recommending the
reorganization are:
Economies of scale. Putnam Managment believes that if the merger
takes place, Intermediate Fund shareholders would realize a
decrease in overall expenses due to the economies of scale
associated with operating a fund the size of the Income Fund.
These economies of scale are expected to result in an immedaite
decrease in annual expenses for Intermediate Fund shareholders
with the potential for a greater decrease in annual expenses over
the longer-term. Intermediate Fund shareholders will be able to
realize this decrease in expenses while owning shares of the
Income Fund, a fund with identical investment objectives and
similar investment policies. As shown in the expense table,
estimated total fund operating expenses for the Class A and Class
B shares of the Intermediate Fund, after giving effect to the
expense limitation, were 0.94% and 1.54%, respectively, compared
to total fund operating expenses of 0.75% and 1.40%,
respectively, for the Income Fund for the 1994 fiscal year. The
lower overall expenses for the Income Fund are due to
efficiencies associated with operating a fund the size of the
Income Fund, which had net assets of $3.59 billion on September
30, 1995, compared to net assets of $10.50 million for the
Intermediate Fund on that date.
It is expected that these economies of scale also will result in
a further decrease in expenses for Intermediate Fund
shareholders. Putnam Management projects that without the
expense limitation in effect through March 7, 1996, total annual
expenses for the Class A and Class B shares of the Intermediate
Fund would be 1.22% and 1.82%, respectively. Because there can
be no assurance that Putnam Management will continue the expense
limitation if the merger is not approved by shareholders and
since the expense limitation may be removed at any time at the
request of Putnam Management with the consent of the Trustees,
Intermediate Fund shareholders also should consider the expenses
of both Funds absent the expense limitation when deciding whether
to approve the merger.
Increased Investment Flexibility. Putnam Management believes
that the proposed merger will provide Intermediate Fund
shareholders with the opportunity to own shares of a mutual fund
with greater investment flexibility than the Intermediate Fund
given its small size. Because of its substantial asset size, the
Income Fund has the ability to invest in a wider array of
investments than the Intermediate Fund. This investment
flexibility also allows the Income Fund to diversify its
investments by enabling it to invest in the securities of a
greater number of issuers.
Putnam Management does not believe that the Intermediate Fund has
reached (or is likely to reach in the near future) a sufficient
net asset level to achieve investment flexibility comparable to
the Income Fund. Putnam Management believes that the primary
reason for the Intermediate Fund's failure to grow to a
significant size is the low investor demand for intermediate-term
bond funds like the Intermediate Fund. Putnam Management
believes that bond fund investors have been concerned principally
with yield, with volatility being only a secondary consideration.
As a result, investor demand for longer-term bond funds has been
greater that the demand for intermediate-term bond funds, whose
lower yields have made them less attractive. Putnam Management
does not expect a shift in the current preference for higher
yields over lower risk in the near future, making it unlikely
that the Intermediate Fund will achieve a significant asset level
in that time.
Ability to Exchange an Investment in the Intermediate Fund for an
Investment in the Income Fund Without Recognition of Gain or Loss
for Federal Income Tax Purposes. If a shareholder in the
Intermediate Fund were to redeem an investment in the
Intermediate Fund in order to invest in the Income Fund or
another investment product, gain or loss would be recognized by
that shareholder for federal income tax purposes upon the
redemption of those shares. If the Intermediate Fund were
liquidated or were reorganized in a taxable reorganization, the
transaction would likely result in a taxable event for
shareholders. By contrast, the proposed merger will permit the
Intermediate Fund's shareholders to exchange their investment in
the Intermediate Fund for an investment in the Income Fund
without recognition of gain or loss for federal income tax
purposes. After the merger, shareholders will be free to redeem
any or all of the Income Fund shares at net asset value at any
time, at which point a taxable gain or loss would be recognized.
Information about the reorganization
Agreement and Plan of Reorganization. The proposed Agreement and
Plan of Reorganization provides that the Income Fund will acquire
all of the assets of the Intermediate Fund in exchange for the
assumption by the Income Fund of all of the liabilities of the
Intermediate Fund and for the issuance of Class A and Class B
Merger Shares all as of the Exchange Date (defined in the
Agreement to be the next full business day following the
Valuation Time, which is defined in the Agreement as 4:00 p.m.
Boston time on March 10, 1996 or such other date as may be agreed
upon by the parties). The following discussion of the Agreement
is qualified in its entirety by the full text of the Agreement,
which is attached as Exhibit A to this Prospectus/Proxy
Statement.
The Intermediate Fund will sell all of its assets to the Income
Fund, and in exchange, the Income Fund will assume all of the
liabilities of the Intermediate Fund and deliver to the
Intermediate Fund (i) a number of full and fractional Class A
Merger Shares having an aggregate net asset value equal to the
value of assets of the Intermediate Fund attributable to its
Class A shares, less the value of the liabilities of the
Intermediate Fund assumed by the Income Fund attributable to such
Class A shares and (ii) a number of full and fractional Class B
Merger Shares having a net asset value equal to the value of
assets of the Intermediate Fund attributable to its Class B
shares, less the value of the liabilities of the Intermediate
Fund assumed by the Income Fund attributable to such Class B
shares, respectively.
Immediately following the Exchange Date, the Intermediate Fund
will distribute pro rata to its shareholders of record as of the
close of business on the Exchange Date the full and fractional
Merger Shares received by the Intermediate Fund, with Class A
Merger Shares being distributed to holders of Class A shares of
the Intermediate Fund and Class B Merger Shares being distributed
to holders of Class B shares of the Intermediate Fund. As a
result of the proposed transaction, each holder of Class A and
Class B shares of the Intermediate Fund will receive a number of
Class A and Class B Merger Shares equal in aggregate value at the
Exchange Date to the value of the Class A and Class B shares,
respectively, of the Intermediate Fund held by the shareholder.
This distribution will be accomplished by the establishment of
accounts on the share records of the Income Fund in the name of
such Intermediate Fund shareholders, each account representing
the respective number of full and fractional Class A or Class B
Merger Shares due such shareholder. New certificates for Merger
Shares will be issued only upon written request.
The Trustees of the Trust have determined that the interests of
the Intermediate Fund's shareholders will not be diluted as a
result of the transactions contemplated by the reorganization,
and the Trustees have determined that the proposed reorganization
is in the best interests of each Fund.
The consummation of the reorganization is subject to the
conditions set forth in the Agreement. The Agreement may be
terminated and the reorganization abandoned at any time, before
or after approval by the shareholders, prior to the Exchange Date
by mutual consent of the Income Fund and the Intermediate Fund
or, if any condition set forth in the Agreement has not been
fulfilled and has not been waived by the party entitled to its
benefits, by such party.
All fees and expenses, including legal and accounting expenses,
portfolio transfer taxes (if any) or other similar expenses
incurred in connection with the consummation of the transactions
contemplated by the Agreement will be allocated ratably between
the two Funds in proportion to their net assets as of the day of
the transfer, except that the costs of proxy materials and proxy
solicitations will be borne by the Intermediate Fund. The
estimated fees and expenses for the transaction are $79,000, but
only to the extent that such fees and expenses exceed 0.25% of
the Intermediate Fund's net asset value on a per share basis.
However, to the extent that any payment by the Income Fund of
such fees or expenses would result in the disqualification of the
Income Fund or the Intermediate Fund as a "regulated investment
company" within the meaning of Section 851 of the Internal
Revenue Code of 1986, as amended (the "Code"), such fees and
expenses will be paid directly by the party incurring them.
Description of the Merger Shares. Full and fractional Merger
Shares will be issued to the Intermediate Fund's shareholders in
accordance with the procedure under the Agreement as described
above. The Merger Shares are Class A and Class B shares of the
Income Fund. Investors purchasing Class A shares pay a sales
charge at the time of purchase, but Intermediate Fund
shareholders receiving Class A Merger Shares in the merger will
not pay a sales charge on such shares. Class A shares of the
Income Fund generally are not subject to redemption fees and such
shares are subject to a 12b-1 fee at the annual rate of 0.20% of
the Fund's average daily net assets attributable to Class A
shares. Class B shares of the Income Fund are sold without a
sales charge, but are subject to a CDSC of up to 5% if redeemed
within six years of purchase. For purposes of determining the
CDSC payable on redemption of Class B Merger Shares received by
holders of Class B shares of the Intermediate Fund, as well as
the conversion date of such shares, such shares will be treated
as having been acquired as of the dates such shareholders
originally acquired their Class B shares of the Intermediate Fund
and the schedule for determining the CDSC for the Intermediate
Fund shares will be used. Class B shares are also subject to a
12b-1 fee at the annual rate of 0.85% of the Fund's average daily
net assets attributable to Class B shares. Class B shares will
automatically convert to Class A shares, based on relative net
asset value, approximately eight years after purchase.
In connection with the sale of Class B shares, Putnam Mutual
Funds pays commissions to broker-dealers from its own assets that
it expects to recover over time through the receipt of
distribution fees in connection with its Class B shares and the
receipt of contingent deferred sales charges on Class B shares.
The total amount of such commissions paid by Putnam Mutual Funds
with respect to the Intermediate Fund before the consummation of
the proposed reorganization will likely exceed the amounts
recovered by Putnam Mutual Funds by that time. Such uncovered
amounts do not represent a liability of the Intermediate Fund
and, consequently, the Income Fund will not assume any such
liability in connection with the consummation of the
reorganization. However, to the extent Putnam Mutual Funds has
not fully recovered such commissions before the consummation of
the proposed reorganization, it is anticipated that the Trustees
of the Income Fund will consider such unrecovered amounts, among
other factors, in determining whether to continue payments of
distribution fees in the future with respect to Class B shares of
the Income Fund.
Each of the Merger Shares will be fully paid and nonassessable
when issued, will be transferable without restriction, and will
have no preemptive or conversion rights, except that Class B
Merger Shares will have the conversion rights specified above.
The Agreement and Declaration of Trust of the Trust permits the
Income Fund to divide its shares, without shareholder approval,
into two or more series of shares representing separate
investment portfolios and to further divide any such series,
without shareholder approval, into two or more classes of shares
having such preferences and special or relative rights and
privileges as the Trustees may determine. The Income Fund's
shares are currently divided into four classes, three of which,
Class A, Class B, and Class M shares, are currently being
offered. Only Class A and Class B shares of the Income Fund will
be distributed in connection with the merger.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of
the Income Fund. The shareholders of the Intermediate Fund are
currently subject to this same shareholder liability. However,
the Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Income Fund and requires
that notice of such disclaimer be given in each agreement,
obligation, or instrument entered into or executed by the Trust
on behalf of the Income Fund or the Trustees. The Agreement and
Declaration of Trust provides for indemnification out of Fund
property for all loss and expense of any shareholder held
personally liable for the obligations of the Income Fund. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the
Income Fund would be unable to meet its obligations. The
likelihood of such circumstances is remote. The shareholders of
the Intermediate Fund are currently subject to this same risk of
shareholder liability.
Federal income tax consequences. As a condition to the
Intermediate Fund's obligation to consummate the reorganization,
the Intermediate Fund will receive an opinion from Ropes & Gray,
counsel to the Funds, to the effect that, on the basis of the
existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), current administrative rules and court
decisions, for federal income tax purposes:
(i) under Section 361 of the Code, no gain or loss will be
recognized by the Intermediate Fund as a result of the
reorganization,
(ii) under Section 354 of the Code, no gain or loss will be
recognized by shareholders of the Intermediate Fund on the
distribution of Merger Shares to them in exchange for their
shares of the Intermediate Fund,
(iii) under Section 358 of the Code, the tax basis of the
Merger Shares that the Intermediate Fund's shareholders
receive in place of their Intermediate Fund shares will be
the same as the basis of the Intermediate Fund shares
exchanged, and
(iv) under Section 1223(1) of the Code, a shareholder's
holding period for the Merger Shares received pursuant to
the Agreement will be determined by including the holding
period for the Intermediate Fund shares exchanged for the
Merger Shares, provided that the shareholder held the
Intermediate Fund shares as a capital asset.
Capitalization. The following tables show the capitalization of
the Income Fund and the Intermediate Fund as of September 30,
1995 and on a pro forma basis as of that date, giving effect to
the proposed acquisition of assets at net asset value:
(UNAUDITED)
Pro Forma
Income Fund Intermediate Fund Combined*
Net assets
(000's omitted)
Class A $3,168,276 $6,460 $3,174,689
Class B $416,367 $4,004 $420,365
Shares outstanding
(000's omitted)
Class A 378,321 777 379,093
Class B 49,768 482 50,246
Net asset value
per share
Class A $8.37 $8.31 $8.37
Class B $8.37 $8.31 $8.37
* Pro Forma net assets reflect legal and accounting merger-
related costs.
THE TRUSTEES OF PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST,
INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMEND
APPROVAL OF THE AGREEMENT.
Voting information
Required vote. Proxies are being solicited from the Intermediate
Fund's shareholders by the Trustees of Putnam California Tax
Exempt Income Trust for the Meeting of Shareholders to be held on
March 7, 1996 at 2:00 p.m. (the "Meeting"), at One Post Office
Square, 8th Floor, Boston, Massachusetts, or at such later time
made necessary by adjournment. Unless revoked, all valid proxies
will be voted in accordance with the specification thereon or, in
the absence of specifications, FOR approval of the Agreement and
Plan of Reorganization. The transactions contemplated by the
Agreement and Plan of Reorganization will be consummated only if
approved by the affirmative vote of the holders of at least two-
thirds (66 2/3%) of the outstanding shares of the Intermediate
Fund that are entitled to vote thereon at the Meeting.
Record date, quorum and method of tabulation. Shareholders of
record of the Intermediate Fund at the close of business on
December 8, 1996 (the "record date") will be entitled to vote at
the Meeting or any adjournment thereof. The holders of 30% of
the shares of the Intermediate Fund outstanding at the close of
business on the record date present in person or represented by
proxy will constitute a quorum for the Meeting; however, as noted
above, the affirmative vote of at least two-thirds (66 2/3%) of
the shares outstanding at the close of business on the record
date is necessary to approve the merger. Shareholders are
entitled to one vote for each share held, with fractional shares
voting proportionally.
Votes cast by proxy or in person at the meeting will be counted
by persons appointed by the Intermediate Fund as tellers for the
meeting. The tellers will count the total number of votes cast
"for" approval of the proposal for purposes of determining
whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions
and "broker non-votes" (i.e., shares held by brokers or nominees
as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on
a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a
quorum. Abstentions and broker non-votes have the effect of a
negative vote on the proposal.
As of September 30, 1995, the officers and Trustees of the
Intermediate Fund as a group beneficially owned less than 1% of
the outstanding shares of the Intermediate Fund. At September
30, 1995, to the best of the knowledge of the Intermediate Fund,
no person owned beneficially 5% or more of the outstanding shares
of the Intermediate Fund.
The votes of the shareholders of the Income Fund are not being
solicited, since their approval or consent is not necessary for
this transaction. As of September 30, 1995, the officers and
Trustees of the Income Fund as a group beneficially owned less
than 1% of the outstanding shares of the Income Fund. At
September 30, 1995, to the best of the knowledge of the Income
Fund, no person beneficially owned 5% or more of the outstanding
shares of the Income Fund.
Solicitation of proxies. In addition to soliciting proxies by
mail, Trustees of the Intermediate Fund and employees of Putnam
Management, Putnam Fiduciary Trust Company and Putnam Mutual
Funds may solicit proxies in person or by telephone. The
Intermediate Fund may also arrange to have votes recorded by
telephone. The telephonic voting procedure is designed to
authenticate shareholders' identities, to allow shareholders to
authorize the voting of their shares in accordance with their
instructions and to confirm that their instructions have been
properly recorded. The Intermediate Fund has been advised by
counsel that these procedures are consistent with the
requirements of applicable law. If these procedures were subject
to a successful legal challenge, such votes would not be counted
at the Meeting. The Intermediate Fund is unaware of any such
challenge at this time. Shareholders would be called at the
phone number Putnam Investments has in its records for their
accounts, and would be asked for the Social Security numbers or
other identifying information. The shareholders would then be
given an opportunity to authorize their proxies to vote their
shares in accordance with their instructions. To ensure that the
shareholders' instructions have been recorded correctly, they
will also receive a confirmation of their instructions in the
mail. A special toll-free number will be available in case the
information in the confirmation is incorrect.
Persons holding shares as nominees will upon request be
reimbursed for their reasonable expenses in soliciting
instructions from their principals. The Intermediate Fund has
retained at its expense D.F. King & Co. Inc., 77 Water Street,
New York, NY 10005, to aid in the solicitation of instructions
for nominee and registered accounts, for a fee not to exceed
$2,500 plus reasonable out-of-pocket expenses for mailing and
phone costs.
Revocation of proxies. Proxies, including proxies given by
telephone, may be revoked at any time before they are voted by a
written revocation received by the Clerk of the Intermediate
Fund, by properly executing a later-dated proxy or by attending
the Meeting and voting in person.
Adjournment. If sufficient votes in favor of the proposal are not
received by the time scheduled for the Meeting, the persons named
as proxies may propose adjournments of the Meeting for a period
or periods of not more than 60 days in the aggregate to permit
further solicitation of proxies. Any adjournment will require
the affirmative vote of a majority of the votes cast on the
question in person or by proxy at the session of the Meeting to
be adjourned. The persons named as proxies will vote in favor of
such adjournment those proxies which they are entitled to vote in
favor of the proposal. They will vote against any such
adjournment those proxies required to be voted against the
proposal. The Intermediate Fund pays the costs of any additional
solicitation and of any adjourned session.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
made as of November , 1995 in Boston, Massachusetts, by and
between Putnam California Tax Exempt Income Fund (the "Income
Fund"), and Putnam California Intermediate Tax Exempt Fund (the
"Intermediate Fund"). Each of the Income Fund and the
Intermediate Fund is a series of shares of beneficial interest of
Putnam California Tax Exempt Income Trust, a Massachusetts
business trust (the "Trust").
PLAN OF REORGANIZATION
(a) The Intermediate Fund will sell, assign, convey, transfer
and deliver to the Income Fund on the Exchange Date (as defined
in Section 6) all of its properties and assets existing at the
Valuation Time (as defined in Section 3(c) hereof). In
consideration therefor, the Income Fund shall, on the Exchange
Date, assume all of the liabilities of the Intermediate Fund
existing at the Valuation Time and deliver to the Intermediate
Fund, (i) a number of full and fractional Class A shares of
beneficial interest of the Income Fund (the "Class A Merger
Shares") having an aggregate net asset value equal to the value
of the assets of the Intermediate Fund attributable to Class A
shares of the Intermediate Fund transferred to the Income Fund on
such date less the value of the liabilities of the Intermediate
Fund attributable to Class A shares of the Intermediate Fund
assumed by the Income Fund on such date, and (ii) a number of
full and fractional Class B shares of beneficial interest of the
Income Fund (the "Class B Merger Shares") having an aggregate net
asset value equal to the value of the assets of the Intermediate
Fund attributable to Class B shares of the Intermediate Fund
transferred to the Income Fund on such date less the value of the
liabilities of the Intermediate Fund attributable to Class B
shares of the Intermediate Fund assumed by the Income Fund on
that date. The Class A Merger Shares and the Class B Merger
Shares shall be referred to collectively as the "Merger Shares."
It is intended that the reorganization described in this Plan
shall be a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1986, as amended
(the "Code").
(b) Upon consummation of the transactions described in paragraph
(a) of this Agreement, the Intermediate Fund shall distribute in
complete liquidation to its Class A and Class B shareholders of
record as of the Exchange Date Class A and Class B Merger Shares,
each shareholder being entitled to receive that proportion of
such Class A or B Merger Shares which the number of Class A or
Class B shares of beneficial interest of the Intermediate Fund
held by such shareholder bears to the number of such Class A or
Class B shares of the Intermediate Fund outstanding on such date.
Certificates representing the Merger Shares will be issued only
if the shareholder so requests.
AGREEMENT
The Income Fund and the Intermediate Fund agree as follows:
1. Representations and Warranties of the Income Fund. The Income
Fund represents and warrants to and agrees with the Intermediate
Fund that:
(a) The Income Fund is a series of shares of beneficial interest
in the Trust, a business trust duly established and validly
existing under the laws of The Commonwealth of Massachusetts and
has power to own all of its properties and assets and to carry
out its obligations under this Agreement. The Trust is not
required to qualify as a foreign association in any jurisdiction.
Each of the Trust and the Income Fund has all necessary federal,
state and local authorizations to carry on its business as now
being conducted and to carry out this Agreement.
(b) The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management
investment company, and such registration has not been revoked or
rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statements of
operations, and statements of changes in net assets and schedule
of investments (indicating their market values) of the Income
Fund for the fiscal year ended September 30, 1995, such
statements and schedule having been audited by Price Waterhouse,
LLP, independent accountants, have been furnished to the
Intermediate Fund. Such statements of assets and liabilities and
schedule fairly present the financial position of the Income Fund
as of September 30, 1995 and said statements of operations and
changes in net assets fairly reflect the results of its
operations and changes in net assets for the period covered
thereby in conformity with generally accepted accounting
principles.
(d) The prospectus and statement of additional information dated
February 1, 1995 (the "Income Fund Prospectus"), previously
furnished to the Intermediate Fund, will not of such date and
does not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Income Fund,
threatened against the Trust or the Income Fund which assert
liability on the part of the Income Fund.
(f) The Income Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown as
belonging to it on its statement of assets and liabilities as of
September 30, 1995 and those incurred in the ordinary course of
the Income Fund's business as an investment company since
September 30, 1995.
(g) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Income Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933,
as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act"), the 1940 Act, state securities or
blue sky laws (which term as used herein shall include the laws
of the District of Columbia and of Puerto Rico) or the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "H-S-R Act").
(h) The registration statement (the "Registration Statement")
filed with the Securities and Exchange Commission (the
"Commission") by the Trust on behalf of the Income Fund on Form N-
14 relating to the Merger Shares issuable hereunder, and the
proxy statement of the Intermediate Fund included therein (the
"Proxy Statement"), on the effective date of the Registration
Statement (i) will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and
(ii) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and at
the time of the shareholders' meeting referred to in Section 7(a)
and at the Exchange Date, the prospectus contained in the
Registration Statement of which the Proxy Statement is a part
(the "Prospectus"), as amended or supplemented by any amendments
or supplements filed with the Commission by the Intermediate
Fund, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that none of the representations and
warranties in this subsection shall apply to statements in or
omissions from the Registration Statement, the Prospectus or the
Proxy Statement made in reliance upon and in conformity with
information furnished by the Intermediate Fund for use in the
Registration Statement, the Prospectus or the Proxy Statement.
(i) There are no material contracts outstanding to which the
Income Fund is a party, other than as disclosed in the
Registration Statement, the Prospectus, or the Proxy Statement.
(j) All of the issued and outstanding shares of beneficial
interest of the Income Fund have been offered for sale and sold
in conformity with all applicable federal securities laws.
(k) The Income Fund is and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company"
under Sections 851 and 852 of the Code.
(l) The issuance of the Merger Shares pursuant to this Agreement
will be in compliance with all applicable federal securities
laws.
(m) The Merger Shares to be issued to the Intermediate Fund have
been duly authorized and, when issued and delivered pursuant to
this Agreement, will be legally and validly issued and will be
fully paid and nonassessable by the Income Fund, and no
shareholder of the Income Fund will have any preemptive right of
subscription or purchase in respect thereof.
2. Representations and Warranties of the Intermediate Fund. The
Intermediate Fund represents and warrants to and agrees with the
Income Fund that:
(a) The Intermediate Fund is a series of shares of beneficial
interest of the Trust, a business trust duly established and
validly existing under the laws of The Commonwealth of
Massachusetts and has power to carry on its business as it is now
being conducted and to carry out this Agreement. The Trust is
not required to qualify as a foreign association in any
jurisdiction. Each of the Trust and the Intermediate Fund has
all necessary federal, state and local authorizations to own all
of its properties and assets and to carry on its business as now
being conducted and to carry out this Agreement.
(b) The Trust is registered under the 1940 Act as an open-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) A statement of assets and liabilities, statement of
operations, and statement of changes in net assets and schedule
of investments (indicating their market values) of the
Intermediate Fund for the fiscal year ended September 30 1995,
such statements and schedule having been audited by Price
Waterhouse LLP, independent accountants, will be furnished to the
Income Fund. Such statements of assets and liabilities and
schedule fairly present the financial position of the
Intermediate Fund as of September 30, 1995, and said statements
of operations and changes in net assets fairly reflect the
results of its operations and changes in financial position for
the periods covered thereby in conformity with generally accepted
accounting principles.
(d) The prospectus and statement of additional information dated
February 1, 1995, previously furnished to the Income Fund, did
not contain as of their date any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(e) There are no material legal, administrative or other
proceedings pending or, to the knowledge of the Intermediate
Fund, threatened against the Trust or the Intermediate Fund which
assert liability or may, if successfully prosecuted to their
conclusion, result in liability on the part of the Intermediate
Fund, other than as have been disclosed in the Prospectus.
(f) There are no material contracts outstanding to which the
Intermediate Fund is a party, other than as will be disclosed in
the Proxy Statement.
(g) The Intermediate Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown on the
Intermediate Fund's statement of assets and liabilities as of
September 30, 1995 referred to above and those incurred in the
ordinary course of the business of the Intermediate Fund as an
investment company since such date. Prior to the Exchange Date,
the Intermediate Fund will advise the Income Fund of all material
liabilities, contingent or otherwise, incurred by it subsequent
to September 30, 1995, whether or not incurred in the ordinary
course of business.
(h) As used in this Agreement, the term "Investments" shall mean
the Intermediate Fund's investments shown on the schedule of its
investments as of September 30, 1995 referred to in Section 2(c)
hereof, as supplemented with such changes as the Intermediate
Fund shall make, and changes resulting from stock dividends,
stock split-ups, mergers and similar corporate actions.
(i) The Intermediate Fund has filed or will file all federal and
state tax returns which, to the knowledge of the Intermediate
Fund's officers, are required to be filed by the Intermediate
Fund and has paid or will pay all federal and state taxes shown
to be due on said returns or on any assessments received by the
Intermediate Fund. All tax liabilities of the Intermediate Fund
have been adequately provided for on its books, and to the
knowledge of the Intermediate Fund, no tax deficiency or
liability of the Intermediate Fund has been asserted, and no
question with respect thereto has been raised, by the Internal
Revenue Service or by any state or local tax authority for taxes
in excess of those already paid.
(j) At both the Valuation Time (as defined in Section 3(c)) and
the Exchange Date, the Intermediate Fund will have full right,
power and authority to sell, assign, transfer and deliver the
Investments and any other assets and liabilities of the
Intermediate Fund to be transferred to the Income Fund pursuant
to this Agreement. At the Exchange Date, subject only to the
delivery of the Investments and any such other assets and
liabilities as contemplated by this Agreement, the Income Fund
will acquire the Investments and any such other assets and
liabilities subject to no encumbrances, liens or security
interests whatsoever and without any restrictions upon the
transfer thereof.
(k) No registration under the 1933 Act of any of the Investments
would be required if they were, as of the time of such transfer,
the subject of a public distribution by either of the Income Fund
or the Intermediate Fund, except as previously disclosed to the
Income Fund by the Intermediate Fund.
(l) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Intermediate Fund of the transactions contemplated by this
Agreement, except such as may be required under the 1933 Act, the
1934 Act, the 1940 Act, state securities or blue sky laws or the
H-S-R Act.
(m) The Registration Statement, the Prospectus and the Proxy
Statement, on the Effective Date of the Registration Statement
and insofar as they do not relate to the Income Fund (i) will
comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; and at the time of the shareholders' meeting referred
to in Section 7(a) below and on the Exchange Date, the
Prospectus, as amended or supplemented by any amendments or
supplements filed with the Commission by the Income Fund, will
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading; provided, however,
that the representations and warranties in this subsection shall
apply only to statements of fact relating to the Intermediate
Fund contained in the Registration Statement, the Prospectus or
the Proxy Statement, or omissions to state in any thereof a
material fact relating to the Intermediate Fund, as such
Registration Statement, Prospectus and Proxy Statement shall be
furnished to the Intermediate Fund in definitive form as soon as
practicable following effectiveness of the Registration Statement
and before any public distribution of the Prospectus or Proxy
Statement.
(n) The Intermediate Fund is and will at all times through the
Exchange Date qualify for taxation as a "regulated investment
company" under Sections 851 and 852 of the Code.
(o) At the Exchange Date, the Intermediate Fund will have sold
such of its assets, if any, as necessary to assure that, after
giving effect to the acquisition of the assets of the
Intermediate Fund pursuant to this Agreement, the Income Fund
will remain in compliance with its mandatory investment
restrictions as are set forth in the Income Fund Prospectus
previously furnished to the Intermediate Fund.
3. Reorganization. (a) Subject to the requisite approval of the
shareholders of the Intermediate Fund and to the other terms and
conditions contained herein (including the Intermediate Fund's
obligation to distribute to its shareholders all of its
investment company taxable income and net capital gain as
described in Section 8(m) hereof), the Intermediate Fund agrees
to sell, assign, convey, transfer and deliver to the Income Fund,
and the Income Fund agrees to acquire from the Intermediate Fund,
on the Exchange Date all of the Investments and all of the cash
and other properties and assets of the Intermediate Fund, whether
accrued or contingent (including cash received by the
Intermediate Fund upon the liquidation by the Intermediate Fund
of any investments purchased by the Intermediate Fund after
September 30, 1995 and designated by the Income Fund as being
unsuitable for it to acquire), in exchange for that number of
Merger Shares provided for in Section 4 and the assumption by the
Income Fund of all of the liabilities of the Intermediate Fund,
whether accrued or contingent, existing at the Valuation Time.
Pursuant to this Agreement, the Intermediate Fund will, as soon
as practicable after the Exchange Date, distribute all of the
Class A and Class B Merger Shares received by it to the Class A
and Class B shareholders, respectively, of the Intermediate Fund
in complete liquidation of the Intermediate Fund.
(b) The Intermediate Fund will pay or cause to be paid to the
Income Fund any interest, cash or such dividends, rights and
other payments received by it on or after the Exchange Date with
respect to the Investments and other properties and assets of the
Intermediate Fund, whether accrued or contingent, received by it
on or after the Exchange Date. Any such distribution shall be
deemed included in the assets transferred to the Income Fund at
the Exchange Date and shall not be separately valued unless the
securities in respect of which such distribution is made shall
have gone "ex" such distribution prior to the Valuation Time, in
which case any such distribution which remains unpaid at the
Exchange Date shall be included in the determination of the value
of the assets of the Intermediate Fund acquired by the Income
Fund.
(c) The Valuation Time shall be 4:00 p.m. Boston time on
March 10, 1996 or such earlier or later day as may be mutually
agreed upon in writing by the parties hereto (the "Valuation
Time").
4. Exchange Date; Valuation Time. On the Exchange Date, the
Income Fund will deliver to the Intermediate Fund (i) a number of
full and fractional Class A Merger Shares having an aggregate net
asset value equal to the value of assets of the Intermediate Fund
attributable to Class A shares of the Intermediate Fund
transferred to the Income Fund on such date less the value of the
liabilities of the Intermediate Fund attributable to the Class A
shares of the Intermediate Fund assumed by the Income Fund on
that date, and (ii) a number of full and fractional Class B
Merger Shares having an aggregate net asset value equal to the
value of the assets of the Intermediate Fund attributable to
Class B shares of the Intermediate Fund transferred to the Income
Fund on such date less the value of the liabilities of the
Intermediate Fund attributable to Class B shares of the
Intermediate Fund assumed by the Income Fund on that date,
determined as hereafter provided in this Section 4.
(a) The net asset value of the Merger Shares to be delivered to
the Intermediate Fund, the value of the assets attributable to
the Class A and Class B shares of the Intermediate Fund and the
value of the liabilities attributable to the Class A and B shares
of the Intermediate Fund to be assumed by the Income Fund shall
in each case be determined as of the Valuation Time.
(b) The net asset value of the Class A and Class B Merger Shares
shall be computed in the manner set forth in the current Income
Fund Prospectus. The value of the assets and liabilities of the
Class A and Class B shares of the Intermediate Fund shall be
determined by the Income Fund, in cooperation with the
Intermediate Fund, pursuant to procedures which the Income Fund
would use in determining the fair market value of the Income
Fund's assets and liabilities.
(c) No adjustment shall be made in the net asset value of either
the Intermediate Fund or the Income Fund to take into account
differences in realized and unrealized gains and losses.
(d) The Income Fund shall issue the Merger Shares to the
Intermediate Fund in two certificates registered in the name of
the Intermediate Fund, one for Class A Merger Shares and one for
Class B Merger Shares (excluding any fractional shares). The
Intermediate Fund shall distribute the Class A Merger Shares to
the Class A shareholders of the Intermediate Fund by redelivering
such certificates to the Income Fund's transfer agent which will
as soon as practicable set up open accounts for each Class A
Intermediate Fund shareholder in accordance with written
instructions furnished by the Intermediate Fund. The
Intermediate Fund shall distribute the Class B Merger Shares to
the Class B shareholders of the Intermediate Fund by redelivering
such certificates to the Income Fund's transfer agent which will
as soon as practicable set up open accounts for each Class B
Intermediate Fund shareholder in accordance with written
instructions furnished by the Intermediate Fund. With respect to
any Intermediate Fund shareholder holding share certificates as
of the Exchange Date, the Income Fund will not permit such
shareholder to receive dividends and other distributions on the
Merger Shares (although such dividends and other distributions
shall be credited to the account of such shareholder), receive
certificates representing the Merger Shares, exchange the Merger
Shares credited to such shareholder's account for shares of other
investment companies managed by Putnam Investment Management,
Inc. ("Putnam"), or pledge or redeem such Merger Shares until
notified by the Intermediate Fund or the shareholder's agent that
such shareholder has surrendered his or her outstanding
Intermediate Fund certificates or, in the event of lost, stolen,
or destroyed certificates, posted adequate bond. In the event
that a shareholder shall not be permitted to receive dividends
and other distributions on the Merger Shares as provided in the
preceding sentence, the Income Fund shall pay any such dividends
or distributions in additional Merger Shares, notwithstanding any
election such shareholder shall have made previously with respect
to the payment, in cash or otherwise, of dividends and
distributions on shares of the Intermediate Fund. The
Intermediate Fund will, at its expense, request the shareholders
of the Intermediate Fund to surrender their outstanding
Intermediate Fund certificates, or post adequate bond, as the
case may be.
(e) The Income Fund shall assume all liabilities of the
Intermediate Fund, whether accrued or contingent, in connection
with the acquisition of assets and subsequent dissolution of the
Intermediate Fund or otherwise.
5. Expenses, Fees, etc. (a) All fees and expenses, including
legal and accounting expenses, portfolio transfer taxes (if any)
or other similar expenses incurred in connection with the
consummation by the Intermediate Fund and the Income Fund of the
transactions contemplated by this Agreement will be allocated
ratably between the Income Fund and the Intermediate Fund in
proportion to their net assets as of the Valuation Time, except
that the costs of proxy materials and proxy solicitation will be
borne by the Intermediate Fund; provided, however, that such
expenses will in any event be paid by the party directly
incurring such expenses if and to the extent that the payment by
the other party of such expenses would result in the
disqualification of the Income Fund or the Intermediate Fund, as
the case may be, as a "regulated investment company" within the
meaning of Section 851 of the Code.
(b) In the event the transactions contemplated by this Agreement
are not consummated by reason of the Income Fund's being either
unwilling or unable to go forward (other than by reason of the
nonfulfillment or failure of any condition to the Income Fund's
obligations referred to in Section 7(a) or Section 8) the Income
Fund shall pay directly all reasonable fees and expenses incurred
by the Intermediate Fund in connection with such transactions,
including, without limitation, legal, accounting and filing fees.
(c) In the event the transactions contemplated by this Agreement
are not consummated by reason of the Intermediate Fund's being
either unwilling or unable to go forward (other than by reason of
the nonfulfillment or failure of any condition to the
Intermediate Fund's obligations referred to in Section 7(a) or
Section 9) the Intermediate Fund shall pay directly all
reasonable fees and expenses incurred by the Income Fund in
connection with such transactions, including without limitation
legal, accounting and filing fees.
(d) In the event the transactions contemplated by this Agreement
are not consummated for any reason other than (i) the Income
Fund's or the Intermediate Fund's being either unwilling or
unable to go forward or (ii) the nonfulfillment or failure of any
condition to the Income Fund's or the Intermediate Fund's
obligations referred to in Section 7(a), Section 8 or Section 9
of this Agreement, then each of the Income Fund and the
Intermediate Fund shall bear all of its own expenses incurred in
connection with such transactions.
(e) Notwithstanding any other provisions of this Agreement, if
for any reason the transactions contemplated by this Agreement
are not consummated, no party shall be liable to the other party
for any damages resulting therefrom, including without limitation
consequential damages, except as specifically set forth above.
6. Exchange Date. Delivery of the assets of the Intermediate
Fund to be transferred, assumption of the liabilities of the
Intermediate Fund to be assumed and the delivery of the Merger
Shares to be issued shall be made at the offices of Ropes & Gray,
One International Place, Boston, Massachusetts, at 10:00 A.M. on
the next full business day following the Valuation Time, or at
such other time and date agreed to by the Income Fund and the
Intermediate Fund, the date and time upon which such delivery is
to take place being referred to herein as the "Exchange Date."
7. Meeting of Shareholders; Dissolution. (a) The Intermediate
Fund agrees to call a meeting of its shareholders as soon as is
practicable after the effective date of the Registration
Statement for the purpose of considering the sale of all of its
assets to and the assumption of all of its liabilities by the
Income Fund as herein provided, adopting this Agreement, and
authorizing the liquidation and dissolution of the Intermediate
Fund.
(b) The Intermediate Fund agrees that the liquidation and
dissolution of the Intermediate Fund will be effected in the
manner provided in the Agreement and Declaration of Trust of the
Trust in accordance with applicable law and that on and after the
Exchange Date, the Intermediate Fund shall not conduct any
business except in connection with its liquidation and
dissolution.
(c) The Income Fund has, after the preparation and delivery to
the Income Fund by the Intermediate Fund of a preliminary version
of the Proxy Statement which was satisfactory to the Income Fund
and to Ropes & Gray for inclusion in the Registration Statement,
filed the Registration Statement with the Commission. Each of
the Intermediate Fund and the Income Fund will cooperate with the
other, and each will furnish to the other the information
relating to itself required by the 1933 Act, the 1934 Act and the
1940 Act and the rules and regulations thereunder to be set forth
in the Registration Statement, including the Prospectus and the
Proxy Statement.
8. Conditions to the Income Fund's Obligations. The obligations
of the Income Fund hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of at least two-thirds (66 2/3%)
of the outstanding shares of beneficial interest of the
Intermediate Fund entitled to vote.
(b) That the Intermediate Fund shall have furnished to the
Income Fund a statement of the Intermediate Fund's assets and
liabilities, with values determined as provided in Section 4 of
this Agreement, together with a list of Investments with their
respective tax costs, all as of the Valuation Time, certified on
the Intermediate Fund's behalf by its President (or any Vice
President) and Treasurer, and a certificate of both such
officers, dated the Exchange Date, that there has been no
material adverse change in the financial position of the
Intermediate Fund since September 30, 1995 other than changes in
the Investments and other assets and properties since that date
or changes in the market value of the Investments and other
assets of the Intermediate Fund, or changes due to dividends paid
or losses from operations.
(c) That the Intermediate Fund shall have furnished to the
Income Fund a statement, dated the Exchange Date, signed by the
Intermediate Fund's President (or any Vice President) and
Treasurer certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of the
Intermediate Fund made in this Agreement are true and correct in
all material respects as if made at and as of such dates and the
Intermediate Fund has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to such dates.
(d) That the Intermediate Fund shall have delivered to the
Income Fund a letter from Price Waterhouse LLP dated the Exchange
Date stating that such firm has employed certain procedures
whereby it has obtained schedules of the tax provisions and
qualifying tests for regulated investment companies as prepared
by Putnam Fiduciary Trust Company ("PFTC") for the fiscal year
ended September 30, 1995 and for the fiscal period from October
1, 1995 to the Exchange Date (the latter period) based on
unaudited data) and that, in the course of such procedures,
nothing came to their attention which caused them to believe that
the Intermediate Fund would not qualify as a regulated investment
company for federal, state, or local income tax purposes or for
federal excise tax purposes under Section 4982 of the Code, for
the period from October 1, 1995 to the Exchange Date.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That the Income Fund shall have received an opinion of Ropes
& Gray, in form satisfactory to the Income Fund and dated the
Exchange Date, to the effect that (i) the Trust is a business
trust duly established and validly existing under the laws of The
Commonwealth of Massachusetts, and, to the knowledge of such
counsel, is not required to qualify to do business as a foreign
association in any jurisdiction, (ii) the Intermediate Fund is a
duly established and validly existing series of shares of
beneficial interest of the Trust, (iii) this Agreement has been
duly authorized, executed, and delivered by the Intermediate Fund
and, assuming that the Registration Statement, the Prospectus and
the Proxy Statement comply with the 1933 Act, the 1934 Act and
the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by the Income Fund, is a valid and
binding obligation of the Intermediate Fund, (iv) the
Intermediate Fund has power to sell, assign, convey, transfer and
deliver the assets contemplated hereby and, upon consummation of
the transactions contemplated hereby in accordance with the terms
of this Agreement, the Intermediate Fund will have duly sold,
assigned, conveyed, transferred and delivered such assets to the
Income Fund, (v) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby
will not, violate the Intermediate Fund's Agreement and
Declaration of Trust, as amended, or any provision of any
agreement known to such counsel to which the Intermediate Fund is
a party or by which it is bound, and (vi) no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the Intermediate Fund of the
transactions contemplated hereby, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and
such as may be required under state securities or blue sky laws
and the H-S-R Act, it being understood that with respect to
investment restrictions as contained in the Intermediate Fund's
Agreement and Declaration of Trust, Bylaws or then-current
Registration Statement, such counsel may rely upon a certificate
of an officer of the Intermediate Fund whose responsibility it is
to advise the Intermediate Fund with respect to such matters.
(g) That the Income Fund shall have received an opinion of Ropes
& Gray, in form satisfactory to the Income Fund, with respect to
the matters specified in Section 9(f) of this Agreement, and such
other matters as the Income Fund may reasonably deem necessary or
desirable.
(h) That the Income Fund shall have received an opinion of Ropes
& Gray dated the Exchange Date (which opinion would be based upon
certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) no gain or loss
will be recognized by the Income Fund upon receipt of the
Investments transferred to the Income Fund pursuant to this
Agreement in exchange for the Merger Shares, (ii) the basis to
the Income Fund of the Investments will be the same as the basis
of the Investments in the hands of the Intermediate Fund
immediately prior to such exchange, and (iii) the Income Fund's
holding periods with respect to the Investments will include the
respective periods for which the Investments were held by the
Intermediate Fund.
(i) That the assets of the Intermediate Fund to be acquired by
the Income Fund will include no assets which the Income Fund, by
reason of charter limitations or of investment restrictions
disclosed in the Income Fund Prospectus in effect on the Exchange
Date, may not properly acquire.
(j) That the Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Trust or the Income Fund, threatened by the Commission.
(k) That the Income Fund shall have received from the
Commission, any relevant state securities administrator, the
Federal Trade Commission (the "FTC") and the Department of
Justice (the "Department") such order or orders as Ropes & Gray
deems reasonably necessary or desirable under the 1933 Act, the
1934 Act, the 1940 Act, any applicable state securities or blue
sky laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
(l) That all proceedings taken by the Intermediate Fund in
connection with the transactions contemplated by this Agreement
and all documents incidental thereto shall be satisfactory in
form and substance to the Income Fund and Ropes & Gray.
(m) That, prior to the Exchange Date, the Intermediate Fund
shall have declared a dividend or dividends which, together with
all previous such dividends, shall have the effect of
distributing to the shareholders of the Intermediate Fund all of
the Intermediate Fund's investment company taxable income for its
taxable years ending on or after September 30, 1995 and on or
prior to the Exchange Date (computed without regard to any
deduction for dividends paid), and all of its net capital gain
realized in each of its taxable years ending on or after
September 30, 1995 and on or prior to the Exchange Date.
(n) That the Intermediate Fund shall have furnished to the
Income Fund a certificate, signed by the President (or any Vice
President) and the Treasurer of the Intermediate Fund, as to the
tax cost to the Intermediate Fund of the securities delivered to
the Income Fund pursuant to this Agreement, together with any
such other evidence as to such tax cost as the Income Fund may
reasonably request.
(o) That the Intermediate Fund's custodian shall have delivered
to the Income Fund a certificate identifying all of the assets of
the Intermediate Fund held by such custodian as of the Valuation
Time.
(p) That the Intermediate Fund's transfer agent shall have
provided to the Income Fund (i) the originals or true copies of
all of the records of the Intermediate Fund in the possession of
such transfer agent as of the Exchange Date, (ii) a certificate
setting forth the number of shares of the Intermediate Fund
outstanding as of the Valuation Time, and (iii) the name and
address of each holder of record of any such shares and the
number of shares held of record by each such shareholder.
(q) That all of the issued and outstanding shares of beneficial
interest of the Intermediate Fund shall have been offered for
sale and sold in conformity with all applicable state securities
or blue sky laws and, to the extent that any audit of the records
of the Intermediate Fund or its transfer agent by the Income Fund
or its agents shall have revealed otherwise, either (i) the
Intermediate Fund shall have taken all actions that in the
opinion of the Income Fund or its counsel are necessary to remedy
any prior failure on the part of the Intermediate Fund to have
offered for sale and sold such shares in conformity with such
laws or (ii) the Intermediate Fund shall have furnished (or
caused to be furnished) surety, or deposited (or caused to be
deposited) assets in escrow, for the benefit of the Income Fund
in amounts sufficient and upon terms satisfactory, in the opinion
of the Income Fund or its counsel, to indemnify the Income Fund
against any expense, loss, claim, damage or liability whatsoever
that may be asserted or threatened by reason of such failure on
the part of the Intermediate Fund to have offered and sold such
shares in conformity with such laws.
(r) That the Income Fund shall have received from Price
Waterhouse LLP a letter addressed to the Income Fund dated as of
the Exchange Date satisfactory in form and substance to the
Income Fund to the effect that, on the basis of limited
procedures agreed upon by the Income Fund and described in such
letter (but not an examination in accordance with generally
accepted auditing standards), as of the Valuation Time the value
of the assets of the Intermediate Fund to be exchanged for the
Merger Shares has been determined in accordance with the
provisions of the Income Fund's Agreement and Declaration of
Trust, pursuant to the procedures customarily utilized by the
Income Fund in valuing its assets and issuing its shares.
9. Conditions to the Intermediate Fund's Obligations. The
obligations of the Intermediate Fund hereunder shall be subject
to the following conditions:
(a) That this Agreement shall have been adopted and the
transactions contemplated hereby shall have been approved by the
affirmative vote of the holders of at least two-thirds (66 2/3%)
of the outstanding shares of beneficial interest of the
Intermediate Fund entitled to vote.
(b) That the Income Fund shall have furnished to the
Intermediate Fund a statement of the Income Fund's net assets,
together with a list of portfolio holdings with values determined
as provided in Section 4, all as of the Valuation Time, certified
on the Income Fund's behalf by its President (or any Vice
President) and Treasurer (or any Assistant Treasurer), and a
certificate of both such officers, dated the Exchange Date, to
the effect that as of the Valuation Time and as of the Exchange
Date there has been no material adverse change in the financial
position of the Income Fund since September 30, 1995, other than
changes in its portfolio securities since that date, changes in
the market value of its portfolio securities, changes due to net
redemptions, dividends paid or losses from operations.
(c) That the Income Fund shall have executed and delivered to
the Intermediate Fund an Assumption of Liabilities dated as of
the Exchange Date pursuant to which the Income Fund will assume
all of the liabilities of the Intermediate Fund existing at the
Valuation Time in connection with the transactions contemplated
by this Agreement.
(d) That the Income Fund shall have furnished to the
Intermediate Fund a statement, dated the Exchange Date, signed by
the Income Fund's President (or any Vice President) and Treasurer
(or any Assistant Treasurer) certifying that as of the Valuation
Time and as of the Exchange Date all representations and
warranties of the Income Fund made in this Agreement are true and
correct in all material respects as if made at and as of such
dates, and that the Income Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to each of such dates.
(e) That there shall not be any material litigation pending or
threatened with respect to the matters by this Agreement.
(f) That the Intermediate Fund shall have received an opinion of
Ropes & Gray, in form satisfactory to the Intermediate Fund and
dated the Exchange Date, to the effect that (i) the Trust is an
unincorporated voluntary association duly established and validly
existing in conformity with the laws of The Commonwealth of
Massachusetts, and, to the knowledge of such counsel, is not
required to qualify to do business as a foreign association in
any jurisdiction except as may be required by state securities or
blue sky laws, (ii) the Income Fund is a duly established and
validly existing series of shares of beneficial interest of the
Trust, (iii) the Merger Shares to be delivered to the
Intermediate Fund as provided for by this Agreement are duly
authorized and upon such delivery will be validly issued and will
be fully paid and nonassessable by the Income Fund and no
shareholder of the Income Fund has any preemptive right to
subscription or purchase in respect thereof, (iv) this Agreement
has been duly authorized, executed and delivered by the Income
Fund and, assuming that the Prospectus, the Registration
Statement and the Proxy Statement comply with the 1933 Act, the
1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by the Intermediate
Fund, is a valid and binding obligation of the Income Fund, (v)
the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not,
violate the Income Fund's Agreement and Declaration of Trust, as
amended, or By-laws, or any provision of any agreement known to
such counsel to which the Income Fund is a party or by which it
is bound, it being understood that with respect to investment
restrictions as contained in the Income Fund's Agreement and
Declaration of Trust, as amended, By-Laws or then-current
prospectus or statement of additional information, such counsel
may rely upon a certificate of an officer of the Income Fund
whose responsibility it is to advise the Income Fund with respect
to such matters, (vi) no consent, approval, authorization or
order of any court or governmental authority is required for the
consummation by the Income Fund of the transactions contemplated
herein, except such as have been obtained under the 1933 Act, the
1934 Act and the 1940 Act and such as may be required under state
securities or blue sky laws, and (vii) the Registration Statement
has become effective under the 1933 Act, and to the best of the
knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act.
(g) That the Intermediate Fund shall have received an opinion of
Ropes & Gray dated the Exchange Date (which opinion would be
based upon certain factual representations and subject to certain
qualifications), to the effect that, on the basis of the existing
provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) no gain or loss
will be recognized by the Intermediate Fund or its shareholders
upon the transfer of the Investments to the Income Fund and the
assumption by the Income Fund of the liabilities of the
Intermediate Fund, or upon the distribution of the Merger Shares
by the Intermediate Fund to its shareholders, pursuant to this
Agreement, (ii) the basis of the Merger Shares an Intermediate
Fund shareholder receives in connection with the transaction will
be the same as the basis of his or her Intermediate Fund shares
exchanged therefor, and (iii) an Intermediate Fund shareholder's
holding period for his or her Merger Shares will be determined by
including the period for which he or she held the Intermediate
Fund shares exchanged therefor.
(h) That all proceedings taken by the Income Fund in connection
with the transactions contemplated by this Agreement and all
documents incidental thereto shall be satisfactory in form and
substance to the Intermediate Fund and Ropes & Gray.
(i) That the Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such
effectiveness shall have been instituted or, to the knowledge of
the Income Fund, threatened by the Commission.
(j) That the Intermediate Fund shall have received from the
Commission, any relevant state securities administrator, the FTC
and the Department such order or orders as Ropes & Gray deems
reasonably necessary or desirable under the 1933 Act, the 1934
Act, the 1940 Act, any applicable state securities or blue sky
laws and the H-S-R Act in connection with the transactions
contemplated hereby, and that all such orders shall be in full
force and effect.
10. Indemnification. (a) The Intermediate Fund will indemnify
and hold harmless, out of the assets of the Intermediate Fund but
no other assets, the Income Fund, its trustees and its officers
(for purposes of this subparagraph, the "Indemnified Parties")
against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by
any one or more of the Indemnified Parties in connection with,
arising out of, or resulting from any claim, action, suit or
proceeding in which any one or more of the Indemnified Parties
may be involved or with which any one or more of the Indemnified
Parties may be threatened by reason of any untrue statement or
alleged untrue statement of a material fact relating to the
Intermediate Fund contained in the Registration Statement, the
Prospectus or the Proxy Statement or any amendment or supplement
to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a
material fact relating to the Intermediate Fund required to be
stated therein or necessary to make the statements relating to
the Intermediate Fund therein not misleading, including, without
limitation, any amounts paid by any one or more of the
Indemnified Parties in a reasonable compromise or settlement of
any such claim, action, suit or proceeding, or threatened claim,
action, suit or proceeding made with the consent of the
Intermediate Fund. The Indemnified Parties will notify the
Intermediate Fund in writing within ten days after the receipt by
any one or more of the Indemnified Parties of any notice of legal
process or any suit brought against or claim made against such
Indemnified Party as to any matters covered by this Section
10(a). The Intermediate Fund shall be entitled to participate at
its own expense in the defense of any claim, action, suit or
proceeding covered by this Section 10(a), or, if it so elects, to
assume at its expense by counsel satisfactory to the Indemnified
Parties the defense of any such claim, action, suit or
proceeding, and if the Intermediate Fund elects to assume such
defense, the Indemnified Parties shall be entitled to participate
in the defense of any such claim, action, suit or proceeding at
their expense. The Intermediate Fund's obligation under this
Section 10(a) to indemnify and hold harmless the Indemnified
Parties shall constitute a guarantee of payment so that the
Intermediate Fund will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by it
under this Section 10(a) without the necessity of the Indemnified
Parties' first paying the same.
(b) The Income Fund will indemnify and hold harmless, out of the
assets of the Income Fund but no other assets, the Intermediate
Fund, its trustees and its officers (for purposes of this
subparagraph, the "Indemnified Parties") against any and all
expenses, losses, claims, damages and liabilities at any time
imposed upon or reasonably incurred by any one or more of the
Indemnified Parties in connection with, arising out of, or
resulting from any claim, action, suit or proceeding in which any
one or more of the Indemnified Parties may be involved or with
which any one or more of the Indemnified Parties may be
threatened by reason of any untrue statement or alleged untrue
statement of a material fact relating to the Income Fund
contained in the Registration Statement, the Prospectus or the
Proxy Statement, or any amendment or supplement to any thereof,
or arising out of, or based upon, the omission or alleged
omission to state in any of the foregoing a material fact
relating to the Income Fund required to be stated therein or
necessary to make the statements relating to the Income Fund
therein not misleading, including without limitation any amounts
paid by any one or more of the Indemnified Parties in a
reasonable compromise or settlement of any such claim, action,
suit or proceeding, or threatened claim, action, suit or
proceeding made with the consent of the Income Fund. The
Indemnified Parties will notify the Income Fund in writing within
ten days after the receipt by any one or more of the Indemnified
Parties of any notice of legal process or any suit brought
against or claim made against such Indemnified Party as to any
matters covered by this Section 10(b). The Income Fund shall be
entitled to participate at its own expense in the defense of any
claim, action, suit or proceeding covered by this Section 10(b),
or, if it so elects, to assume at its expense by counsel
satisfactory to the Indemnified Parties the defense of any such
claim, action, suit or proceeding, and, if the Income Fund elects
to assume such defense, the Indemnified Parties shall be entitled
to participate in the defense of any such claim, action, suit or
proceeding at their own expense. The Income Fund's obligation
under this Section 10(b) to indemnify and hold harmless the
Indemnified Parties shall constitute a guarantee of payment so
that the Income Fund will pay in the first instance any expenses,
losses, claims, damages and liabilities required to be paid by it
under this Section 10(b) without the necessity of the Indemnified
Parties' first paying the same.
11. No Broker, etc. Each of the Intermediate Fund and the
Income Fund represents that there is no person who has dealt with
it who by reason of such dealings is entitled to any broker's or
finder's or other similar fee or commission arising out of the
transactions contemplated by this Agreement.
12. Termination. The Intermediate Fund and the Income Fund may,
by mutual consent of their respective trustees, terminate this
Agreement, and the Intermediate Fund or the Income Fund, after
consultation with counsel and by consent of their respective
trustees or an officer authorized by such trustees, may waive any
condition to their respective obligations hereunder. If the
transactions contemplated by this Agreement have not been
substantially completed by June 30, 1995, this Agreement shall
automatically terminate on that date unless a later date is
agreed to by the Intermediate Fund and the Income Fund.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the
Income Fund will, in connection with the issuance of any Merger
Shares to any person who at the time of the transaction
contemplated hereby is deemed to be an affiliate of a party to
the transaction pursuant to Rule 145(c), cause to be affixed upon
the certificates issued to such person (if any) a legend as
follows:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT TO PUTNAM CALIFORNIA TAX EXEMPT INCOME
FUND OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION
OF COUNSEL REASONABLY SATISFACTORY TO PUTNAM CALIFORNIA
INTERMEDIATE TAX EXEMPT FUND SUCH REGISTRATION IS NOT
REQUIRED."
and, further, the Income Fund will issue stop transfer
instructions to the Income Fund's transfer agent with respect to
such shares. The Intermediate Fund will provide the Income Fund
on the Exchange Date with the name of any Intermediate Fund
shareholder who is to the knowledge of the Intermediate Fund an
affiliate of the Intermediate Fund on such date.
14. Covenants, etc. Deemed Material. All covenants, agreements,
representations and warranties made under this Agreement and any
certificates delivered pursuant to this Agreement shall be deemed
to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their
behalf.
15. Sole Agreement; Amendments. This Agreement supersedes all
previous correspondence and oral communications between the
parties regarding the subject matter hereof, constitutes the only
understanding with respect to such subject matter, may not be
changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by
the laws of The Commonwealth of Massachusetts.
16. Agreement and Declaration of Trust. Copies of the Agreement
and Declaration of Trust of the Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf
of the Trustees of the Trust on behalf of the Intermediate Fund
and the Income Fund, respectively, as Trustees and not
individually and that the obligations of this instrument are not
binding upon any of the Trustees or officers of the Trust or
shareholders of the Intermediate Fund or the Income Fund
individually but are binding only upon the assets and property of
the Intermediate Fund and the Income Fund, respectively.
This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be
an original.
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
on behalf of the Putnam California Intermediate
Tax Exempt
Fund
By:___________________________
Executive Vice President
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
on behalf of Putnam California Tax Exempt Income
Fund
By:___________________________
Executive Vice President
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581
PUTNAM INVESTMENTS (LOGO)
This is your PROXY CARD.
Please vote this proxy, sign it below, and return it promptly in
the envelope provided.
Your vote is important.
Please fold at perforation before detaching
- -----------------------------------------------------------------
Proxy for a meeting of shareholders, March 7, 1996, for Putnam
California Intermediate Tax Exempt Fund.
This proxy is solicited on behalf of the Trustees of the fund.
The undersigned shareholder hereby appoints George Putnam, Hans
H. Estin, and Robert E. Patterson, and each of them separately,
proxies, with power of substitution, and hereby authorizes them
to represent and to vote, as designated below, at the meeting of
shareholders of Putnam California Intermediate Tax Exempt Fund on
March 7, 1996, at 2:00 p.m., Boston time, and at any adjournments
thereof, all of the shares of the fund that the undersigned
shareholder would be entitled to vote if personally present.
PLEASE BE SURE TO SIGN AND DATE
THIS PROXY.
Please sign your name exactly as
it appears on this card. If you
are a joint owner, each of you
should sign. When signing as
executor, administrator, attorney,
trustee, or guardian, or as
custodian for a minor, please give
your full title as such. If you
are signing for a corporation,
please sign the full corporate
name and indicate the signer's
office. If you are a partner,
sign the partnership name.
----------------------------------
Shareholder sign here Date
- ----------------------------------
Co-owner sign here Date
HAS YOUR ADDRESS CHANGED?
Please use this form to notify us of any change in address or
telephone number or to provide us with your comments. Detach
this form from the proxy ballot and return it with your signed
proxy in the enclosed envelope.
- -----------------------------------------------------------------
Street
- -----------------------------------------------------------------
City State Zip
- -----------------------------------------------------------------
Telephone
DO YOU HAVE ANY COMMENTS?
- -----------------------------------------------------------------
- -----------------------------------------------------------------
DEAR SHAREHOLDER:
Your vote is important. Please help us to eliminate the expense
of follow-up mailings by signing and returning this proxy as soon
as possible. A postage-paid envelope is enclosed for your
convenience.
THANK YOU!
- -----------------------------------------------------------------
Please fold at perforation before detaching
If you complete and sign the proxy, we'll vote it exactly as you
tell us. If you simply sign the proxy, it will be voted FOR
Proposal 1. The Proxies will also be authorized to vote upon
such other matters that may come before the meeting.
THE TRUSTEES RECOMMEND A VOTE FOR THE PROPOSAL LISTED BELOW:
Please mark your choices X in blue or black ink.
1. Approval of the Agreement and Plan of Reorganization
providing for the transfer of all of the assets of Putnam
California Intermediate Tax Exempt Fund (the "Fund") to
Putnam California Tax Exempt Income Fund (the "Income
Fund") in exchange for shares of the Income Fund and the
assumption by the Income Fund of all of the liabilities of
the Fund, and the distribution of such shares to the
shareholders of the Fund in liquidation of the Fund.
FOR AGAINST ABSTAIN
[box] [box] [box]
Note: If you have questions on any of the proposals, please call
1-800-225-1581.
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
November , 1995
This Statement of Additional Information contains material which
may be of interest to investors but which is not included in the
Prospectus/Proxy Statement (the "Prospectus") of Putnam
California Tax Exempt Income Fund (the "Income Fund") dated
November , 1995 relating to the sale of all or substantially all
of the assets of Putnam California Intermediate Tax Exempt Fund
(the "Intermediate Fund") to the Income Fund. The Income Fund's
Statement of Additional Information dated February 1, 1995, as
revised October 9, 1995 and the Intermediate Fund's Statement of
Additional Information dated February 1, 1995, as revised October
9, 1995 have been filed with the Securities and Exchange
Commission and are incorporated herein by reference. This
Statement is not a Prospectus and is authorized for distribution
only when it accompanies or follows delivery of the Prospectus.
This Statement should be read in conjunction with the Prospectus.
Investors may obtain a free copy of the Prospectus or either or
both of the Statements of Additional Information by writing
Putnam Investor Services, One Post Office Square, Boston, MA
02109 or by calling 1-800-225-1581.
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS
Price Waterhouse LLP are the independent accountants for the
Intermediate Fund and the Income Fund, providing audit services,
tax return review and other tax consulting services and
assistance and consultation in connection with the review of
various Securities and Exchange Commission filings for the Funds.
The following documents are incorporated by reference into this
Statement of Additional Information: (1) the Report of
Independent Accountants and financial statements included in the
Intermediate Fund's Annual Report for the fiscal year ended
September 30, 1994, filed electronically on December 6, 1994
(File No. 811-3630), (ii) the unaudited financial statements
included in the Intermediate Fund's Semiannual Report for the six
months ended March 31, 1995, filed electronically on May 18, 1995
(File No. 811-3630), (iii) the Report of Independent Accountants
and financial statements included in the Income Fund's Annual
Report for the fiscal year ended September 30, 1994, filed
electronically on December 12, 1994 (File No. 811-3630), and (iv)
the unaudited financial statements included in the Income Fund's
Semiannual Report for the six months ended March 31, 1995, filed
electronically on June 2, 1995 (File No. 811-3630). The audited
financial statements incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional
Information have been so included and incorporated in reliance
upon the reports of Price Waterhouse LLP, given on their
authority as experts in auditing and accounting.
PUTNAM CALIFORNIA TAX EXEMPT INCOME FUND
FORM N-14
PART C
OTHER INFORMATION
Item 15. Indemnification
The information required by this item is incorporated herein by
reference to the Registrant's Initial Registration Statement on
Form N-1A under the Securities Act of 1933 (File No. 2-81011) and
the Investment Company Act of 1940 (File No. 811-3630).
Item 16. Exhibits
1. Agreement and Declaration of Trust, as
amended May 6, 1994 -- Incorporated by reference
to Post-Effective Amendment No. 17 to the
Registrant's Registration Statement on Form N-1A.
2. By-Laws, as amended April 8, 1994 --
Incorporated by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
3a. Copy of Class A specimen share certificate --
Incorporated by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
3b. Copy of Class B specimen share certificate --
Incorporated by reference to Pre-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
4. Agreement and Plan of Reorganization --
constitutes Exhibit A included in Part A hereof.
5a. Portions of Agreement and Declaration of
Trust Relating to Shareholders' Rights --
Incorporated by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
5b. Portions of By-Laws Relating to Shareholders'
Rights -- Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
6. Copy of Management Contract dated July 11,
1991 -- Incorporated by reference to Post-
Effective Amendment No. 12 to the Registrant's
Registration Statement on Form N-1A.
7a. Copy of Distributor's Contract dated May 6,
1994 --Incorporated by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
7b. Copy of Specimen Dealer Sales Contract --
Incorporated by reference to Post-Effective
Amendment No. 17 to the Registrant's Registration
Statement on Form N-1A.
7c. Copy of Specimen Financial Institution Sales
Contract -- Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
8. Not applicable.
9. Copy of Custodian Agreement with Putnam
Fiduciary Trust Company dated May 3, 1991, as
amended July 13, 1992 -- Incorporated by reference
to Post-Effective Amendment No. 14 to the
Registrant's Registration Statement on Form N-1A.
10a. Copy of Class A Distribution Plan and
Agreement -- Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
10b. Copy of Class B Distribution Plan and
Agreement -- Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
10c. Copy of Class M Distribution Plan and
Agreement -- Incorporated by reference to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A.
10d. Copy of Rule 18f-3 Plan -- Exhibit 1.
11. Opinion of Ropes & Gray, including consent --
Exhibit 2.
12. Opinion of Ropes & Gray as to Tax Matters --
Exhibit 3.
13. Copy of Investor Servicing Agreement dated
June 3, 1991 with Putnam Fiduciary Trust Company -
- Incorporated by reference to Post-Effective
Amendment No. 12 to the Registrant's Registration
Statement on Form N-1A.
14. Consent of Independent Accountants -- Exhibit 4.
15. Not applicable
16. Power of Attorney -- Exhibit 5.
17. Copy of Registrant's Declaration under Rule
24f-2 -- Incorporated by reference to Post-
Effective Amendment No. 18 to the Registrant's
Registration Statement on Form N-1A.
Item 17. Undertakings
(a) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this Registration Statement by
any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Act, the
reoffering prospectus will contain the information called
for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
(b) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (a) above will be filed as a part
of an amendment to this Registration Statement and will not
be used until the amendment is effective, and that, in
determining any liability under the Act, each post-effective
amendment shall be deemed to be a new Registration Statement
for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial
bona fide offering of them.
- - - - - - - - - - - - - - - - - - - -
NOTICE
A copy of the Agreement and Declaration of Trust, as amended, of
Putnam California Tax Exempt Income Trust, is on file with the
Secretary of State of The Commonwealth of Massachusetts, and
notice is hereby given that this Registration Statement has been
executed on behalf of the Registrant by an officer of the
Registrant as an officer and not individually, and the
obligations of or arising out of this Registration Statement are
not binding upon any of the Trustees, officers, or shareholders
of the Registrant individually, but are binding only upon the
assets and property of the Registrant.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston and The Commonwealth of
Massachusetts on the 1st day of November, 1995.
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Signature Title
George Putnam President and Chairman of the Trustees;
Principal Executive Officer; Trustee
William F. Pounds Vice Chairman and Trustee
John D. Hughes Principal Financial Officer; Vice
President; Treasurer
Paul G. Bucuvalas Principal Accounting Officer; Assistant
Treasurer
Jameson Adkins Baxter Trustee
Hans H. Estin Trustee
John A. Hill Trustee
Elizabeth T. Kennan Trustee
Lawrence J. Lasser Trustee
Robert E. Patterson Trustee
Donald S. Perkins Trustee
George Putnam, III Trustee
Eli Shapiro Trustee
A.J.C. Smith Trustee
W. Nicholas Thorndike Trustee
By: Gordon H. Silver, as
Attorney-in-Fact
November 1, 1995
<PAGE>
PUTNAM FUNDS
Plan pursuant to Rule 18f-3(D) under the
Investment Company act of 1940
Effective July 1, 1995*
Each of the open-end investment companies managed by Putnam
Investment Management, Inc. (each a "Fund" and, together, the
"Funds") may from time to time issue one or more of the following
classes of shares: Class A shares, Class B shares, Class C
shares, Class M shares and Class Y shares. Each class is subject
to such investment minimums and other conditions of eligibility
as are set forth in the Funds' registration statements as from
time to time in effect. The differences in expenses among these
classes of shares, and the conversion and exchange features of
each class of shares, are set forth below in this Plan. Except
as noted below, expenses are allocated among the classes of
shares of each Fund based upon the net assets of each Fund
attributable to shares of each class. This Plan is subject to
change, to the extent permitted by law and by the Agreement and
Declaration of Trust and By-laws of each Fund, by action of the
Trustees of each Fund.
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*The Funds have been offering multiple classes of shares,
prior to the effectiveness of this Plan, pursuant to an exemptive
order of the Securities and Exchange Commission. This Plan is
intended to permit the Funds to offer multiple classes of shares
pursuant to Rule 18f-3 under the Investment Company Act of 1940,
without any change in the arrangements and expense allocations
that have previously been approved by the Trustees of each Fund
under such order of exemption.
<PAGE>
CLASS A SHARES
DISTRIBUTION AND SERVICE FEES
Class A shares pay distribution and service fees pursuant to
plans (the "Class A Plans") adopted pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "1940 Act"). Class A
shares also bear any costs associated with obtaining shareholder
approval of the Class A Plans (or an amendment to a Class A
Plan). Pursuant to the Class A Plans, Class A shares may pay up
to 0.35% of the relevant Fund's average net assets attributable
to the Class A shares* (which percentage may be less for certain
Funds, as described in the Funds' registration statements as from
time to time in effect). Amounts payable under the Class A Plans
are subject to such further limitations as the Trustees may from
time to time determine and as set forth in the registration
statement of each Fund as from time to time in effect.
CONVERSION FEATURES
Class A shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class A shares of any Fund may be exchanged, at the holder's
option, for Class A shares of any other Fund that offers Class A
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class A shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any contingent deferred sales charge (a
"CDSC") will include the holding period of the shares exchanged,
and will be calculated using the schedule of any Fund into or
from which shares have been exchanged that would result in the
highest CDSC applicable to such Class A shares.
- ---------------------------
*Class A shares of Putnam Diversified Equity Trust may pay
up to 0.65% of average net assets attributable to Class A shares.
<PAGE>
INITIAL SALES CHARGE
Class A shares are offered at a public offering price that
is equal to their net asset value ("NAV") plus a sales charge of
up to 5.75% of the public offering price (which maximum may be
less for certain Funds, as described in each Fund's registration
statement as from time to time in effect). The sales charges on
Class A shares are subject to reduction or waiver as permitted by
Rule 22d-1 under the 1940 Act and as described in the Funds'
registration statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Purchases of Class A shares of $1 million or more that are
redeemed within one or two years of purchase are subject to a
CDSC of 1.00% and 0.50%, respectively, of either the purchase
price or the NAV of the shares redeemed, whichever is less.
Class A shares are not otherwise subject to a CDSC.
The CDSC on Class A shares is subject to reduction or waiver
in certain circumstances, as permitted by Rule 6c-10 under the
1940 Act and as described in the Funds' registration statements
as from time to time in effect.
CLASS B SHARES
DISTRIBUTION AND SERVICE FEES
Class B shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class B Plans"). Class B shares also bear any costs associated
with obtaining shareholder approval of the Class B Plans (or an
amendment to a Class B Plan). Pursuant to the Class B Plans,
Class B shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to Class B shares (which percentage may
be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class B Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class B shares automatically convert to Class A shares of
the same Fund at the end of the month eight years after purchase
(or such earlier date as the Trustees of a Fund may authorize),
except that Class B shares purchased through the reinvestment of
dividends and other distributions on Class B shares convert to
Class A shares at the same time as the shares with respect to
which they were purchased are converted and Class B shares
acquired by the exchange of Class B shares of another Fund will
convert to Class A shares based on the time of the initial
purchase.
EXCHANGE FEATURES
Class B shares of any Fund may be exchanged, at the holder's
option, for Class B shares of any other Fund that offers Class B
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class B shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class B shares.
INITIAL SALES CHARGE
Class B shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class B shares that are redeemed within 6 years of purchase
are subject to a CDSC of up to 5.00% of either the purchase price
or the NAV of the shares redeemed, whichever is less (which
period may be shorter and which percentage may be less for
certain Funds, as described in the Funds' registration statements
as from time to time in effect); such percentage declines the
longer the shares are held, as described in the Funds'
registration statements as from time to time in effect. Class B
shares purchased with reinvested dividends or capital gains are
not subject to a CDSC.
The CDSC on Class B shares is subject to reduction or waiver
in certain circumstances, as permitted by Rule 6c-10 under the
1940 Act and as described in the Funds' registration statements
as from time to time in effect.
CLASS C SHARES
DISTRIBUTION AND SERVICE FEES
Class C shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class C Plans"). Class C shares also bear any costs associated
with obtaining shareholder approval of the Class C Plans (or an
amendment to a Class C Plan). Pursuant to the Class C Plans,
Class C shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to the Class C shares (which percentage
may be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class C Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class C shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class C shares of any Fund may be exchanged, at the holder's
option, for Class C shares of any other Fund that offers Class C
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class C shares of such other Fund
are available to residents of the relevant state. The holding
period for determining any CDSC will include the holding period
of the shares exchanged, and will be calculated using the
schedule of any Fund into or from which shares have been
exchanged that would result in the highest CDSC applicable to
such Class C shares.
<PAGE>
INITIAL SALES CHARGE
Class C shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class C shares are subject to a 1.00% CDSC if the shares are
redeemed within one year of purchase. The CDSC on Class C shares
is subject to reduction or waiver in certain circumstances, as
permitted by Rule 6c-10 under the 1940 Act and as described in
the Funds' registration statements as from time to time in
effect.
CLASS M SHARES
DISTRIBUTION AND SERVICE FEES
Class M shares pay distribution and service fees pursuant to
plans adopted pursuant to Rule 12b-1 under the 1940 Act (the
"Class M Plans"). Class M shares also bear any costs associated
with obtaining shareholder approval of the Class M Plans (or an
amendment to a Class M Plan). Pursuant to the Class M Plans,
Class M shares may pay up to 1.00% of the relevant Fund's average
net assets attributable to Class M shares (which percentage may
be less for certain Funds, as described in the Funds'
registration statements as from time to time in effect). Amounts
payable under the Class M Plans are subject to such further
limitations as the Trustees may from time to time determine and
as set forth in the registration statement of each Fund as from
time to time in effect.
CONVERSION FEATURES
Class M shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class M shares of any Fund may be exchanged, at the holder's
option, for Class M shares of any other Fund that offers Class M
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class M shares of such other Fund
are available to residents of the relevant state.
INITIAL SALES CHARGE
Class M shares are offered at a public offering price that
is equal to their NAV plus a sales charge of up to 3.50% of the
public offering price (which maximum may be less for certain
Funds, as described in each Fund's registration statement as from
time to time in effect). The sales charges on Class M shares are
subject to reduction or waiver as permitted by Rule 22d-1 under
the 1940 Act and as described in the Funds' registration
statements as from time to time in effect.
CONTINGENT DEFERRED SALES CHARGE
Class M shares are not subject to any CDSC.
CLASS Y SHARES
DISTRIBUTION AND SERVICE FEES
Class Y shares do not pay a distribution fee.
CONVERSION FEATURES
Class Y shares do not convert to any other class of shares.
EXCHANGE FEATURES
Class Y shares of any Fund may be exchanged, at the holder's
option, for Class Y shares of any other Fund that offers Class Y
shares without the payment of a sales charge beginning 15 days
after purchase, provided that Class Y shares of such other Fund
are available to residents of the relevant state, and further
provided that shares of such other Fund are available through the
relevant employer's plan.
<PAGE>
INITIAL SALES CHARGE
Class Y shares are offered at their NAV, without an initial
sales charge.
CONTINGENT DEFERRED SALES CHARGE
Class Y shares are not subject to any CDSC.
s:\shared\boiler\newfunds\nf-69
Ropes & Gray
One International Place
Boston, Massachusetts 02110
October 31, 1995
Putnam California Tax Exempt Income Trust
Putnam California Tax Exempt Income Fund
One Post Office Square
Boston, Massachusetts 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam California Tax
Exempt Income Fund (the "Fund"), a series of Putnam
California Tax Exempt Income Trust (the "Trust"), in
connection with the Registration Statement of the Trust on
Form N-14 (the "Registration Statement"), under the
Securities Act of 1933, as amended (the "Act"), relating to
the proposed combination of the Fund with Putnam California
Intermediate Tax Exempt Fund (the "Intermediate Fund"), and
the issuance of shares of the Fund in connection therewith
(the "Shares"), all in accordance with the terms of a
proposed Agreement and Plan of Reorganization between the
Fund and the Intermediate Fund substantially in the form
filed as an exhibit to the Registration Statement.
We have examined the Trust's Agreement and Declaration
of Trust on file in the office of the Secretary of State of
The Commonwealth of Massachusetts and the Clerk of the City
of Boston and the Trust's By-Laws, as amended, and are
familiar with the actions taken by the Trustees of the Trust
in connection with the issuance and sale of the Shares. We
have also examined such other documents and records as we
have deemed necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Trust is a duly organized and validly existing
unincorporated association under the laws of The
Commonwealth of Massachusetts and is authorized to issue an
unlimited number of its shares of beneficial interest.
2. The Shares have been duly authorized and, when
issued in accordance with the Agreement, will be validly
issued, fully paid and nonassessable by the Fund.
The Trust is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Trust.
However, the Agreement and Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust
and requires that notice of such disclaimer be given in each
note, bond, contract, instrument, certificate, or
undertaking entered into or executed by the Trust or its
Trustees. The Agreement and Declaration of Trust provides
for indemnification out of the property of the Trust for all
loss and expense of any shareholder of the Trust held
personally liable solely by reason of his being or having
been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of being a shareholder
is limited to circumstances in which the Trust itself would
be unable to meet its obligations.
We understand that this opinion is to be used in
connection with the registration of the Shares for offering
and sale pursuant to the Act. We consent to the filing of
this opinion with and as part of the Registration Statement
and to the references to our firm in the related prospectus
under the caption "Information about the reorganization --
Federal income tax consequences."
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
California Tax Exempt Income Fund -6- October
31, 1995
California Intermediate Tax Exempt Fund
4049492.01
October 31, 1995
Putnam California Tax Exempt Income Fund
c/o The Putnam Funds
One Post Office Square
Boston, MA 02109
Putnam California Intermediate Tax Exempt Fund
c/o The Putnam Funds
One Post Office Square
Boston, MA 02109
Ladies and Gentlemen:
We have acted as counsel to Putnam California Tax Exempt
Income Fund, a Massachusetts business trust (the "Acquiring
Fund") and Putnam California Intermediate Tax Exempt Fund, a
Massachusetts business trust (the "Target Fund") in connection
with a proposed Agreement and Plan of Reorganization (the
"Agreement"), between the Acquiring Fund and the Target Fund
substantially in the form filed as an exhibit to the Registration
Statement filed with the Securities and Exchange Commission on
October 31, 1995 (the "Registration Statement"). The Agreement
describes a proposed transaction (the "Transaction") to occur on
a date to be agreed upon by Acquiring Fund and Target Fund (the
"Exchange Date"), pursuant to which Acquiring Fund will acquire
substantially all of the assets of Target Fund in exchange for
shares of beneficial interest in Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by Acquiring Fund of all of the
liabilities of Target Fund following which the Acquiring Fund
Shares received by Target Fund will be distributed by Target Fund
to its shareholders in liquidation and termination of Target
Fund. This opinion as to certain federal income tax consequences
of the Transaction is furnished to you pursuant to Sections 8(h)
and 9(g) of the Agreement. Capitalized terms not defined herein
are defined in the Agreement.
Target Fund is registered under the Investment Company Act
of 1940, as amended (the "1940 Act") as an open-end management
investment company. Shares of Target Fund are redeemable at net
asset value at each shareholder's option. Target Fund has
elected to be a regulated investment company for federal income
tax purposes under Section 851 of the Internal Revenue Code of
1986, as amended (the "Code").
Acquiring Fund is registered under the 1940 Act as an open-
end management investment company. Shares of Acquiring Fund are
redeemable at net asset value at each shareholder's option.
Acquiring Fund has elected to be a regulated investment company
for federal income tax purposes under Section 851 of the Code.
For purposes of this opinion, we have considered the
Agreement, the Registration Statement (including the items
incorporated by reference therein), and such other items as we
have deemed necessary to render this opinion. In addition, you
have represented to us the following facts, occurrences and
information upon which you have indicated we may rely in
rendering this opinion (whether or not contained or reflected in
the documents and items referred to above):
Target Fund will transfer to Acquiring Fund all of
its assets, and Acquiring Fund will assume all of the liabilities
of Target Fund as of the Exchange Date.
The fair market value of the Acquiring Fund Shares
received by each Target Fund shareholder will be approximately
equal to the fair market value of the Target Fund shares
surrendered in exchange therefor. The Target Fund shareholders
will receive no consideration other than Acquiring Fund Shares
(which may include fractional shares) in exchange for their
shares of beneficial interest in Target Fund (the "Target Fund
Shares").
None of the compensation received by any shareholder-
employees of Target Fund, if any, will be separate consideration
for, or allocable to, any of their Target Fund Shares; none of
the Acquiring Fund Shares received by any Target Fund shareholder-
employees will be separate consideration for, or allocable to,
any employment; and the compensation paid to any Acquiring Fund
or Target Fund shareholder-employees, if any, will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar
services.
There is no plan or intention by any Target Fund
shareholder who owns 5% or more of the total outstanding Target
Fund Shares, and to the best of the knowledge of the management
of Target Fund, there is no plan or intention on the part of the
remaining Target Fund shareholders to sell, exchange, or
otherwise dispose of a number of Acquiring Fund Shares received
in the Transaction that would reduce Target Fund shareholders'
ownership of Acquiring Fund Shares to a number of Acquiring Fund
Shares having a value, as of the date of the Transaction, of less
than 50 percent of the value of all of the formerly outstanding
Target Fund Shares as of the same date. For purposes of this
representation, Acquiring Fund Shares or Target Fund Shares
surrendered by Target Fund shareholders in redemption or
otherwise disposed of, where such dispositions, if any, appear to
be initiated by Target Fund shareholders in connection with or as
a result of the Agreement or the Transaction, will be treated as
outstanding Target Fund shares on the date of the Transaction.
Acquiring Fund has no plan or intention to reacquire any
of the Acquiring Fund Shares issued in the Transaction, except
for Acquiring Fund Shares reacquired in the ordinary course of
its business as an open-end investment company.
Acquiring Fund will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by Target Fund
immediately prior to the Transaction. For purposes of this
representation, (a) amounts paid by Target Fund, out of the
assets of Target Fund, to Target Fund shareholders in redemption
of Target Fund Shares, where such redemptions, if any, appear to
be initiated by Target Fund shareholders in connection with or as
a result of the Agreement or the Transaction, (b) amounts used by
Target Fund to pay expenses of the Transaction, and (c) amounts
used to effect all redemptions and distributions (except for
regular, normal dividends declared and paid in order to ensure
Target Fund's continued qualification as a regulated investment
company and to avoid fund-level tax) made by Target Fund
immediately preceding the transfer will be included as assets of
Target Fund held immediately prior to the Transaction. Further,
for purposes of this representation, the amounts, if any, that
Acquiring Fund pays after the Transaction to Acquiring Fund
shareholders who are former Target Fund shareholders in
redemption of Acquiring Fund Shares received in exchange for
Target Fund Shares, where such redemptions, if any, appear to be
initiated by such shareholders in connection with or as a result
of the Agreement or the Transaction, will be considered to be
assets of Target Fund that were not transferred to Acquiring
Fund.
The fair market value of the assets transferred to
Acquiring Fund by Target Fund will equal or exceed the sum of the
liabilities to be assumed by Acquiring Fund.
Following the Transaction, Acquiring Fund will continue to
use a substantial portion (in this case, at least 50%) of the
historic business assets of Target Fund. Specifically, Acquiring
Fund will use such significant portion of Target Fund's historic
business assets in its business by continuing to hold at least
such portion of the total assets transferred to it by Target
Fund. In making this determination, dispositions made in the
ordinary course of Acquiring Fund's business as an open-end
investment company (i.e., dispositions resulting from investment
decisions made after the Transaction on the basis of investment
considerations independent of the Transaction) shall not be taken
into account.
Acquiring Fund has no plan or intention to sell or
otherwise dispose of any of the assets received from Target Fund
except for dispositions made in the ordinary course of Acquiring
Fund's business as an open-end investment company (i.e.,
dispositions resulting from investment decisions made after the
Transaction on the basis of investment considerations independent
of the Transaction).
The liabilities of Target Fund to be assumed by Acquiring
Fund were incurred by Target Fund in the ordinary course of its
business and are associated with the assets transferred to
Acquiring Fund. For purposes of this paragraph, expenses of the
Transaction are not treated as liabilities.
All fees and expenses incurred by Target Fund and/or
Acquiring Fund as a direct result of the Agreement or the
Transaction will be allocated ratably between the two funds in
proportion to their net assets as of the Valuation Time, except
that (a) the costs of proxy materials and proxy solicitation will
be borne by Target Fund, and (b) such fees and expenses will be
paid by the party directly incurring such expenses if and to the
extent that payment by the other party would result in the
disqualification of Acquiring Fund or Target Fund, as the case
may be, as a "regulated investment company" within the meaning of
Section 851 of the Code. All such fees and expenses incurred and
borne by either of Acquiring Fund and Target Fund shall be solely
and directly related to the Transaction and shall be paid
directly by Acquiring Fund or Target Fund, as the case may be, to
the relevant providers of services or other payees, in accordance
with the principles set forth in Rev. Rul. 73-54, 1973-1 C.B.
187.
Target Fund shareholders will pay their respective expenses,
if any, incurred in connection with the Transaction.
For federal income tax purposes, Target Fund qualifies as
a regulated investment company, and the provisions of Sections
851 through 855 of the Code apply to Target Fund for its current
taxable year beginning October 1, 1995 and will continue to apply
to it through the Exchange Date.
In that regard, Target Fund will declare to Target Fund
shareholders of record on or prior to the Exchange Date a
dividend or dividends which together with all previous such
dividends shall have the effect of distributing all of Target
Fund's investment company taxable income (see Code Section 852)
for both the taxable year ending September 30, 1995 and the short
taxable year of Target Fund beginning on October 1, 1995 and
ending on the Exchange Date (computed in each case without regard
to any deduction for dividends paid) and all of the net capital
gain realized in Target Fund's taxable year ending September 30,
1995 and in its short taxable year beginning on October 1, 1995
and ending on the Exchange Date (after reduction for any capital
loss carryover). Such dividends will be made to ensure continued
qualification of Target Fund as a regulated investment company
for tax purposes and to eliminate fund-level tax.
Not more than 25% of the value of Target Fund's total
assets is invested in the stock and securities of any one issuer
and not more than 50% of the value of Target Fund's total assets
is invested in the stock and securities of five or fewer issuers.
For federal income tax purposes, Acquiring Fund qualifies
as a regulated investment company, and the provisions of Sections
851 through 855 of the Code apply to Acquiring Fund for its
current taxable year beginning October 1, 1995 and will continue
to apply to it through the Exchange Date.
Not more than 25% of the value of Acquiring Fund's total
assets is invested in the stock and securities of any one issuer
and not more than 50% of the value of Acquiring Fund's total
assets is invested in the stock and securities of five or fewer
issuers.
Acquiring Fund does not own, directly or indirectly, nor
has it owned during the past five years, directly or indirectly,
any Target Fund Shares.
There is no intercorporate indebtedness existing between
Target Fund and Acquiring Fund.
Target Fund will distribute the Acquiring Fund Shares it
receives in the Transaction to its shareholders as provided in
the Agreement.
Target Fund is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
Based on the foregoing representations and our review of the
documents and items referred to above, we are of the opinion that
for federal income tax purposes:
(i) No gain or loss will be recognized by Acquiring Fund
upon the receipt of the assets of Target Fund in exchange
for Acquiring Fund Shares and the assumption by Acquiring
Fund of the liabilities of Target Fund;
(ii) The basis in the hands of Acquiring Fund of the assets
of Target Fund transferred to Acquiring Fund in the
Transaction will be the same as the basis of such assets in
the hands of Target Fund immediately prior to the transfer;
(iii) The holding periods of the assets of Target Fund in the
hands of Acquiring Fund will include the periods during
which such assets were held by Target Fund;
(iv) No gain or loss will be recognized by Target Fund upon
the transfer of Target Fund's assets to Acquiring Fund in
exchange for Acquiring Fund Shares and the assumption by
Acquiring Fund of the liabilities of Target Fund, or upon
the distribution of Acquiring Fund Shares by Target Fund to
its shareholders in liquidation;
(v) No gain or loss will be recognized by the Target Fund
shareholders upon the exchange of their Target Fund Shares
for Acquiring Fund Shares;
(vi) The basis of Acquiring Fund Shares a Target Fund
shareholder receives in connection with the Transaction will
be the same as the basis of his or her Target Fund Shares
exchanged therefor; and
(vii) A Target Fund shareholder's holding period for his or
her Acquiring Fund Shares will be determined by including
the period for which he or she held the Target Fund Shares
exchanged therefor, provided that he or she held such Target
Fund shares as capital assets.
Very truly yours,
/s/ Ropes & Gray
Ropes & Gray
4049492.01
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of
Putnam California Tax Exempt Income Trust
Putnam California Tax Exempt Income Fund
Putnam California Intermediate Tax Exempt Fund
We hereby consent to the incorporation by reference in the
Prospectus/Proxy Statement and Statement of Additional
Information constituting parts of this Registration
Statement of Putnam California Tax Exempt Income Trust on
Form N-14 (File No. 2-81011) of our report dated November
15, 1994, relating to the financial statements and financial
highlights appearing in the September 30, 1994 Annual Report
of Putnam California Tax Exempt Income Fund, and our report
dated November 14, 1994, relating to the financial
statements and financial highlights appearing in the
September 30, 1994 Annual Report of Putnam California
Intermediate Tax Exempt Fund, which financial statements and
financial highlights are also incorporated by reference into
the Registration Statement. We also consent to the
references to us under the heading "Independent Accountants
and Financial Statements" in the Statement of Additional
Information and in clauses 1(c), 2(c), 8(d) and 8(r) of
Exhibit A to the Prospectus/Proxy Statement. We also
consent to the references to us under the headings
"Financial Highlights" and "Independent Accountants and
Financial Statements" in the Prospectus and Statement of
Additional Information which are also incorporated by
reference into the Registration Statement.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 31, 1995
POWER OF ATTORNEY
We, the undersigned Officers and Trustees of Putnam
California Tax Exempt Income Fund, hereby severally constitute
and appoint George Putnam, Charles E. Porter, Gordon H. Silver,
Edward A. Benjamin, Timothy W. Diggins and John W. Gerstmayr, and
each of them singly, our true and lawful attorneys, with full
power to them and each of them, to sign for us, and in our names
and in the capacities indicated below, the Registration Statement
on Form N-14 of Putnam California Tax Exempt Income Trust on
behalf of Putnam California Tax Exempt Income Fund and any and
all amendments (including post-effective amendments) to said
Registration Statement and to file the same with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto our said
attorneys, and each of them acting alone, full power and
authority to do and perform each and every act and thing
requisite or necessary to be done in the premises, as fully to
all intents and purposes as he or she might or could do in
person, and hereby ratify and confirm all that said attorneys or
any of them may lawfully do or cause to be done by virtue
thereof.
WITNESS our hands and common seal on the date set forth
below.
Signature Title Date
/s/ George Putnam
- --------------------- Principal Executive October 5, 1995
George Putnam Officer; President
and Chairman of the
Trustees
/s/ John D. Hughes
- --------------------- Principal Financial October 5, 1995
John D. Hughes Officer; Treasurer
/s/ Paul G. Bucuvalas
- -------------------- Principal Accounting
Paul G. Bucuvalas Officer; Assistant October 5, 1995
Treasurer
/s/ Jameson A. Baxter
- --------------------- Trustee October 5, 1995
Jameson A. Baxter
/s/ Hans H. Estin
- --------------------- Trustee October 5, 1995
Hans H. Estin
/s/ John A. Hill
- --------------------- Trustee October 5, 1995
John A. Hill
/s/ Elizabeth T. Kennan
- --------------------- Trustee October 5, 1995
Elizabeth T. Kennan
/s/ Lawrence J. Lasser
- --------------------- Trustee October 5, 1995
Lawrence J. Lasser
/s/ Robert E. Patterson
- --------------------- Trustee October 5, 1995
Robert E. Patterson
/s/ Donald S. Perkins
- --------------------- Trustee October 5, 1995
Donald S. Perkins
/s/ William F. Pounds
- --------------------- Trustee October 5, 1995
William F. Pounds
/s/ George Putnam, III
- --------------------- Trustee October 5, 1995
George Putnam, III
/s/ Eli Shapiro
- --------------------- Trustee October 5, 1995
Eli Shapiro
/s/ A.J.C. Smith
- --------------------- Trustee October 5, 1995
A.J.C. Smith
/s/ W. Nicholas Thorndike
- --------------------- Trustee October 5, 1995
W. Nicholas Thorndike
a0tnf.34C
