As filed with the Securities and Exchange Commission on
December 29 , 1995
Registration No.
33-63873
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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
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 1 /
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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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<PAGE>
It is proposed that this Registration Statement become effective
immediately upon filing pursuant to Rule 485 (b).
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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<PAGE>
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
<PAGE>
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.
<PAGE>
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 30 .
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.
<PAGE>
Table of Contents
A Message from the Chairman
1
Notice of Shareholder meeting
3
Combined Prospectus/Proxy Statement
4
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.
<PAGE>
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 or disapproval 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 would combine two funds that
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 in a
significantly larger Fund with greater economies
of scale that may result in lower expenses over the
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 call your financial advisor .
Sincerely yours,
(signature of George Putnam)
George Putnam, Chairman
<PAGE>
PUTNAM CALIFORNIA INTERMEDIATE TAX EXEMPT 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 or disapproving 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 7 .
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 Donald S. Perkins
Hans H. Estin George Putnam, III
John A. Hill Eli Shapiro
Elizabeth T. Kennan A.J.C. Smith
Lawrence J. Lasser W. Nicholas Thorndike
Robert E. Patterson
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 22 , 1995
<PAGE>
Prospectus/Proxy Statement
December 22 , 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
A -1
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
of the assets of the Intermediate Fund to the Income Fund
in exchange for Class A and Class B shares 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, the 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, 1995 (the "Annual Report"). The
Prospectus and the 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 and the Intermediate Fund , dated February
1, 1995, as revised October 9, 1995 ;
(ii) 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 ;
(iii) a Statement of Additional Information dated
December 1 , 1995, relating to the proposed
merger .
For a free copy of any of the above , 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.
<PAGE>
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 by 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 to
its shareholders , 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, less the
value of the liabilities attributable to such Class A and
Class B shares 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
in a significantly larger Fund with greater
economies of scale that may result in lower expenses over
the longer-term.
<PAGE>
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 income 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 similar constraint on portfolio
dollar-weighted average maturity, except to the extent
required by its investment policies.
Generally, the Income Fund's portfolio can be expected to
have a higher portfolio dollar-weighted average maturity and
duration, and therefore is likely to experience greater
fluctuations in the value in response to changes in interest
rates, than the Intermediate Fund's portfolio. However, the
yields on securities with longer maturities and durations
are also generally higher. See "Risk Factors - Investments
in longer-term fixed income securities" on page 16. As of
November 30, 1995, the average dollar-weighted portfolio
maturities of the Income Fund and the Intermediate Fund were
10.63 years and 8.25 years, respectively, and the average
dollar-weighted portfolio durations of the Funds were 8.4
years and 5.8 years, respectively. The thirty-day yields at
net asset value for the Funds at November 30, 1995 were as
follows: Income Fund - Class A - 5.26% and Class B - 4.58%;
Intermediate Fund - Class A - 3.94% and Class B - 3.34%.
(The yields for the Intermediate Fund show the effect of an
expense limitation currently in effect. In the abscence of
the expense limitation, these yields would have been 3.18%
for Class A and 2.59% for Class B.)
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 normally invests at
least 80% of its net assets in California Tax Exempt
Securities except when 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 are limited to
securities rated not lower than the five highest grades by
Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's ("S&P") , and, in the case of the
Intermediate Fund, Fitch Investors Services, Inc.
("Fitch") , 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% --
Neither Fund will purchase a California Tax Exempt Security
rated Ba by Moody's, BB by S&P and, in the case of the
Intermediate Fund, BB by Fitch, or, if unrated, determined to be
of comparable quality, if, as a result, more than 25% of a Fund's
total assets would be of that quality.
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 hold a portion of their assets in cash or
money market instruments. Both Funds may also 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 Intermediate Fund
did not pay management fees for the past fiscal
year due to a voluntary expense limitation
currently in effect. In addition, Putnam management assumed
certain of the Intermediate Fund's other expenses pursuant to
this voluntary expenses limitation . In the absence of the
expense limitation, management fees and other expenses for
the Intermediate Fund would be significantly higher than
management fees and other expenses for the Income Fund .
This difference in expense levels results largely from the
relative sizes of the two Funds; as of September 30, 1995, the
Intermediate Fund had net assets of approximately $10.49 million,
whereas the Income Fund had approximate net assets of $3.59
billion .
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.
Front-end sales charges and contingent deffered sales charges
("CDSC") are higher for the Income Fund than they are for the
Intermediate Fund , but do not apply to shares to be received
in the proposed merger.
The following table summarizes your maximum transaction
costs from investing in the Funds, and expenses that the Funds
incurred in the past fiscal year. Based on the expenses for the
Income Fund for the past fiscal year, the merger would not affect
the expenses for that Fund . 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 0.00%++ 0.15% 0.70%++
0.85%++
Class B 0.00%++ 0.75% 0.70%++
1.45%++
Income
Fund
Class A 0.45% 0.20% 0.09% 0.74%
Class B 0.45% 0.85% 0.09% 1.39%
* 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."
++ 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, other expenses and total fund operating expenses
for the Intermediate Fund reflect a voluntary expense limitation
currently in effect through March 7, 1996. In the absence of the
expense limitation, management fees for the Intermediate Fund
would have been 0.60% for Class A and Class B shares and total
fund operating expenses for the Intermediate Fund would have been
1.88% for Class A shares and 2.48% for Class B shares. The
expenses shown in the table do not reflect the application of
credits related to brokerage services and expense offset
arrangements that reduce certain fund expenses. After giving
effect to these credits, total fund operating expenses were 0.65%
and 1.25%, respectively, for Class A and Class B shares of the
Intermediate Fund and 0.68% and 1.33%, respectively, for Class A
and Class B shares of the Income Fund. The 12b-1 fees shown in
the table reflect the amount to which the Trustees currently
limit payments under each Fund's Class A and Class B Distribution
Plans.
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. The proposed merger will not
change the expenses shown for the Income Fund. The higher
front-end sales charge and CDSC schedule applicable to the Income
Fund, which would not apply to Merger Shares, are reflected in
the Examples.
1 3 5 10
year years years years
Intermediate
Fund
Class A $41 $59 $78 $134
Class B $45 $66 $79
$157***
Class B (no redemption) $15 $46
$79 $157***
Income
Fund
Class A $55 $70 $87
$135
Class B $64 $74 $96
$149***
Class B (no redemption) $14 $44
$76 $149***
*** 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 above and described in the Prospectus, the Funds
determine the 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
now in effect 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 schedules 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 hold at the time of the
merger . 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 , including
increased sensitivity to changes in interest rates . A more
detailed description of certain risks associated with an
investment in the Income Fund is contained in the
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.
Thus, the value of the Income Fund's portfolio will likely be
more sensitive to changes in interest rates than the Intermediate
Fund's portfolio. This interest rate "volatility" is typically
measured by a portfolio's average dollar-weighted duration, and,
to a lesser extent, its average dollar-weighted maturity.
Whereas maturity measures only the period time until the last
payment of interest or principal on a security, duration measures
the timing of all payments of interest and principal to be
received on a security, based on their present values, and is
therefore a more accurate measure of a securities volatility. As
a general rule, a 1% increase or decrease in interest rates will
result in approximately a 1% decrease or increase, respectively,
in the value of a security for each year of duration. For
example, a 1% increase in interest rates will result in
approximately a 5% decrease in the value of a security having a
five-year duration. As of November 30, 1995, the average dollar-
weighted portfolio durations of the Income Fund and the
Intermediate Fund were 8.4 years and 5.6 years, respectively.
Consequently, the net asset value of the Income Fund will
typically increase or decrease to a greater degree in response to
changes in interest rates than the securities of the Intermediate
Fund.
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." 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.
The Income Fund may also 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. This concentration in a
particular market segment 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 without limit in
securities representing interests in California tax-exempt
securities, known as "inverse floating
obligations " or "residual interest bonds ."
These obligations pay interest rates that vary inversely
with 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 inverse floating
obligations or residual interest bonds will typically decline
as short-term market interest rates increase and increase as
short-term market rates decline.
These securities have the effect of providing a degree of
investment leverage . The values of these securities will
generally fluctuate more widely in response to changes in
market interest rates (typically twice as much) than the
values of fixed-rate long-term securities .
As a result, the market values of inverse floating obligations
or residual interest bonds will generally be more volatile
than the market values of fixed-rate tax-exempt
securities.
As of November 30, 1995, the Income Fund had 9.93% of its net
assets invested in inverse floating obligations, while the
Intermediate Fund had no assets invested in such 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, as with the Intermediate
Fund, 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 may
default on its obligation.
<PAGE>
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 combined Prospectus/Proxy Statement and the enclosed
form of proxy are being mailed to shareholders on or about
December 29 , 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 1,259,008
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 Intermediate
Fund and the Income Fund pursuant to an Agreement and Plan
of Reorganization between the Funds, dated as of December
1 , 1995 (the "Agreement"), a copy of which is attached to
this Prospectus/Proxy Statement as Exhibit A.
<PAGE>
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 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
both series of the 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 over the longer-
term would realize a decrease in overall expenses due to the
greater economies of scale associated with owning
shares of the Income Fund, a significantly larger Fund with
similar investment objectives and policies. These
economies of scale may not have an immedaite impact on
Intermediate Fund shareholders due principally to the voluntary
expense limitation currently in effect for the Intermediate Fund
through March 7, 1996 (the scheduled date of the shareholders'
meeting to vote on the merger). In the absence of the voluntary
expense limitation, total fund operating expenses for the
Intermediate Fund would likely be significantly higher than
those for the Income Fund.
Without the expense limitation in effect through Marhc 7, 1996,
total fund operating expenses for Class A and Class B shares
of the Intermediate Fund for the 1995 fiscal year would have
been 1.88% and 2.48% , respectively, compared to 1995
fiscal year total fund operating expenses of 0.74% and
1.39% for Class A and Class B shares of the Income Fund ,
respectively . The lower overall expenses projected over
the longer-term 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 $10.49 million for the
Intermediate Fund on that date.
There can be no assurance that Putnam Management will
continue the voluntary expense limitation for the
Intermediate Fund if the merger is not approved by
shareholders . As a result , Intermediate Fund shareholders
should consider the expenses of both Funds absent the
voluntary expense limitation when deciding when 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. The greater investment
flexibility of the Income Fund, given its substantial asset
size, 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 .
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 .
In order to lessen the impact of the transaction on the
Intermediate Fund's net asset value, Putnam Management will
absorb the costs of the transaction to the extent that
they exceed 0.25% of the Intermediate Fund's net
asset value . However, to the extent that any payment by
either 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 described below , 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 any CDSC 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 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 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. 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 table shows the
capitalization of the Funds as of September 30,
1995 , and on a pro forma combined basis ,
giving effect to the proposed acquisition of assets at net asset
value , as of that date :
(UNAUDITED)
Income Intermediate Pro Forma
Fund 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
+Intermediate Fund assets reflect proxy-related costs.
* Pro forma combined 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, 1995 (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,
the following persons owned beneficially 5% or more of the
outstanding shares of the Intermediate Fund :
Class A Shares
Harriet A. Kostic
301 Tampalpais Avenue
Mill Valley, CA 94941-1084
50,552.040 shares or 6.50% of the shares
B.C. McCabe Jr.
3150 Reanon Court
Reno, NV 89509
184,283.495 shares or 23.71% of the shares
Class B Shares
William M. Raymond, Trustee for the
Clifford Willis Trust
Attn Dick Walker 200
2001 Financial Way
Glendora, CA 91741-4602
34,033.941 shares or 7.00% of the shares
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 Trust 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. <PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is
made as of
December 1 , 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
of 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 , previously furnished to the Intermediate
Fund, and any amendment or supplement thereto or any
superseding prospectus or statement of additional information in
respect thereof in effect prior to the Exchange Date, which will
be furnished to the Intermediate Fund (collectively, the "Fund
Prospectus") does not and will not, as of the relevant
date 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 Income Fund makes no representation or
warranty as to any information in the Fund Prospectus that does
not specifically relate to the Income Fund .
(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) complies 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) 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; 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 or requested to be 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 Fund Prospectus, does not and will not contain as of
the relevant 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 ;
provided however, that the Intermediate Fund makes no
representation or warranty as to any information in the Fund
Prospectus that does not specifically relate to the Intermediate
Fund .
(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 Trust'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 or required to be 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 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
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 has cooperated
with the other, and each has furnished 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
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 the Trust's 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 on
behalf of the Intermediate Fund by the Trust'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 Trust on
behalf of 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 Trust'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 Trust's Agreement and
Declaration of Trust, Bylaws or then-current Registration
Statement, such counsel may rely upon a certificate of an officer
of the Trust 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 Trust on behalf 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 Trust's Agreement and Declaration of
Trust, pursuant to the procedures customarily utilized by the
Income Fund in valuing its assets and issuing its shares.
(s) That the Trust on behalf of the Intermediate Fund shall
have executed and delivered to the Income Fund an instrument of
transfer dated as of the Exchange Date pursuant to which the
Intermediate Fund will assign, transfer and convey all of the
assets and other property to the Income Fund at the Valuation
Time in connection with the transactions contemplated by this
Agreement.
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 the Trust's 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 Trust on behalf of 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
on behalf of the Income Fund by the Trust'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 on behalf
of the Income Fund by the Trust 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 and on belaf of the Intermediate Fund by
the Trust , 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 Trust'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 Trust'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
Trust 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 or on behalf of 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 trustees, terminate this
Agreement, and the Intermediate Fund or the Income Fund, after
consultation with counsel and by consent of their
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 July 31, 1996 , 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 TAX EXEMPT INCOME
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. A copy 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 by
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
/s/ Charles E. Porter
By:___________________________
Executive Vice President
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
on behalf of Putnam California Tax Exempt
Income Fund
/s/ Charles E. Porter
By:___________________________
Executive Vice President
<PAGE>
PUTNAMINVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Toll-free 1-800-225-1581<PAGE>
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 Putnam
California Tax Exempt Income Trust
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<PAGE>
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
<PAGE>
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 the proposal ,
please call 1-800-225-1581.
<PAGE>
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
December 22, 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
December 22 , 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.
<PAGE>
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.
<PAGE>
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 -- Incorporated by
reference to Registrant's Initial Registration Statement
of the N-14.
11. Opinion of Ropes & Gray, including consent --
Incorporated by reference to Registrant's Initial
Registration Statement of the N-14.
12. Opinion of Ropes & Gray as to Tax Matters --
Incorporated by reference to Registrant's Initial
Registration Statement of the N-14.
<PAGE>
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
1 .
15. Not applicable
16. Power of Attorney -- Incorporated by reference
to Registrant's Initial Registration Statement of the N-
14.
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.
- - - - - - - - - - - - - - - - - - - -
<PAGE>
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 Post-Effective Amendment No.
1 to 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 certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule
485(b) under the securities Act of 1933 and 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 29th day of
December , 1995.
PUTNAM CALIFORNIA TAX EXEMPT INCOME TRUST
By: Gordon H. Silver, Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 1 to this Registration
Statement on Form N-14 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;
Senior 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
December 29, 1995
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1
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.
33-63873) of our report dated November 13, 1995, relating to the
financial statements and financial highlights appearing in the
September 30, 1995 Annual Report of Putnam California Tax Exempt
Income Fund, and our report dated November 9, 1995, relating to
the financial statements and financial highlights appearing in
the September 30, 1995 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
December 26, 1995
