Putnam
California
Tax Exempt
Income Fund
ANNUAL REPORT
September 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Manager William Reeves starts from an income orientation, but also
places a lot of emphasis on providing good total returns and keeping risk
in check. He keeps a large weighting in high-yielding mid- to high-grade
issues that won't display too much interest-rate sensitivity."
-- Morningstar Mutual Funds, August 1, 1997
* "[Municipal bond funds] are more liquid than actual munis. And you
get access to a manager who may be able to play the credit-rating changes
of a locality to your advantage."
-- Fortune, August 18, 1997
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
12 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The municipal bond market maintained a demeanor of relative calm during Putnam
California Tax Exempt Income Fund's fiscal year with investors still willing
to absorb virtually all of the new offerings presented to them. Even so, a
palpable undercurrent of concern persisted that the still-vibrant economy
would finally heat inflation to the flash point.
In deference to the market's mood, Fund Manager William Reeves maintained a
slightly defensive portfolio position, which he regarded as worthwhile
insurance against any real or imagined threat that might affect the market.
Nevertheless, the fund was able to end the period with a total return just
below the benchmark.
As he explains in the following report, Bill currently expects to keep his
strategy in place during the new fiscal year. He also discusses in detail the
fund's performance during fiscal 1997.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 19, 1997
Report from the Fund Manager
William H. Reeves
The Golden State earned its name for California tax-exempt bond investors over
the past year. A robust economy and sound fiscal health resulted in improving
credit conditions and increased investor demand for the state's municipal
bonds. Such a positive environment certainly contributed to Putnam California
Tax Exempt Income Fund's performance for fiscal 1997.
We believe our focus on quality and income and our re-positioning of the
portfolio to reduce interest-rate sensitivity also played key roles. Your
fund's class A shares generated a total return of 8.71% at net asset value
(3.57% at public offering price) for the 12 months ended September 30, 1997.
Results for class B and class M shares as well as performance details for
longer periods can be found on pages 8 and 9.
* SUNNY CLIMATE PREVAILS FOR CALIFORNIA BONDS
Throughout the fiscal year, California municipal bond investors benefited from
a favorable economic and interest-rate climate at the national, state, and
local levels. Nationally moderate-to-strong economic growth was accompanied by
low inflation. Although there have been short periods of interest-rate
fluctuations, on a broader scale they have moved within a well-defined trading
range. In addition, the fact that the economy continued to expand without
significant inflationary pressures created a positive atmosphere in the
fixed-income market during the year.
From a credit standpoint, California has staged a significant turnaround over
events of the past few years, having both pulled out of a protracted economic
downturn and erased a large budget deficit. Growth across the state's diverse
economy has enhanced its fiscal health and revenues from the entertainment,
tourism, banking, and high-technology industries, among others, have flowed
into state and local tax coffers. As a result of this improvement, California
now has a balanced budget and its municipal bonds have enjoyed increasingly
widespread demand from a nationally diverse group of investors.
* INCREASED DEMAND AND DIMINISHED SUPPLY BOOST PRICES
While demand for California municipal bonds rose over the past year, supply
declined. The state's need to finance debt fell as tax revenues rose.
Furthermore California voters passed Proposition 218, an ordinance that
requires voters' approval by a two-thirds majority of any new taxes or fees.
Prior to passage of Proposition 218, the state and its localities could
unilaterally impose an increase in fees and charges. The need for voters'
approval has delayed the process of funding and appears to have curbed new
issuance to some extent. While we are watchful for any negative credit
implications that may arise from Proposition 218, this combination of strong
demand and reduced supply over the past year pushed the state's municipal bond
prices higher than those of many alternatives. During that time, California
municipal bond investors held one of the best-performing asset classes within
the tax-exempt sector.
* CONTINUED EMPHASIS ON QUALITY
We continued to emphasize bonds that offered high quality and generous income,
most recently concentrating on those in the 15-year maturity range. While the
fund always has had an orientation toward quality, we believe that
higher-rated bonds recently have provided greater relative value than their
higher-yielding lower-rated siblings. This is because the taxable and
tax-exempt markets experienced spread compression over the past year. This
phenomenon occurs when the prices of lower-rated bonds rise -- and yields fall
- -- faster than their higher-rated counterparts. As investors stretched for
yield in a low interest-rate environment, this is exactly what happened. In
addition, because of the healthy economy, many investors seemed to have felt
comfortable taking on additional credit risk and bid up prices of lower-rated
bonds.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Water and Sewerage 22.2%
Utilities 14.3%
Transportation 10.3%
Health care 8.2%
Education 6.6%
Footnote reads:
*Based on net assets as of 9/30/97. Holdings will vary over time.
As prices rose, yields fell -- to the point that we believed the yields on
lower-rated bonds often did not compensate investors for the additional credit
risk they incurred. With this in mind, your fund built a sizable position in
California general obligation bonds that both benefited from spread
compression and represented solid and improving credit.
* PURSUIT OF SELECTIVE CREDIT OPPORTUNITIES ADDS APPRECIATION POTENTIAL
As always, we remained on the lookout for selective credit opportunities, for
example, situations in which a bond issue might be a candidate for price
appreciation because of the issuer's improving credit or the possibility of a
prerefunding. Such was the case with San Joaquin Hills Transportation Corridor
Agency toll road revenue bonds, a 3.3% position in the portfolio as of
September 30, 1997. In a prerefunding, the issuer floats a second bond to pay
off an earlier one at its first call date. Proceeds from the new issue are
invested in top-quality instruments, such as U.S. Treasuries, which are
pledged to pay off the older debt. Because of the safety of principal
represented by the pledged securities, a prerefunding improves the credit
quality -- and often increases the prices -- of the older bonds.
* OUTLOOK: STATE'S STRENGTH APPEARS LIKELY TO CONTINUE
We believe California municipal bond investors will continue to benefit for
some time from many of the trends we have witnessed over the past 12 months.
From a credit standpoint, the state's economy, regarded as the seventh largest
in the world, remains strong. As it expands, tax revenues should continue to
build, continuing to improve California's fiscal situation. We believe this as
well as the existence of Proposition 218 should keep the issuance of new debt
well under control.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A 5.6%
Aa 10.2%
Aaa 65.7%
Short term 2.6%
B 0.3%
Ba 5.6%
Baa 10.0%
Footnote reads:
*As a percentage of market value as of 9/30/97. A bond rated Baa or higher
is considered investment grade. All ratings reflect Moody's descriptions,
unless noted otherwise; percentages may include unrated bonds considered
by Putnam Management to be of comparable quality. Ratings will vary over
time.
We also look for the national economy to continue to grow at a moderate pace.
While inflation has remained well contained, we are cautious that the ongoing
economic expansion will eventually increase upward pressure on prices. With
this scenario in mind, we will maintain an orientation toward quality and
income. We also intend to keep our focus on bonds with 15-year maturities,
since that part of the yield curve currently provides attractive relative
yield and bonds with 15-year maturities tend to experience less sensitivity to
interest-rate changes than those with longer maturities. As always, we will
stay alert for situations that we believe offer unique opportunities for price
appreciation outside these parameters, particularly in the areas of credit
improvement and prerefunding.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 9/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam California Tax Exempt Income Fund is designed for
investors seeking high current income free from federal and California
personal income taxes, consistent with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
Class A Class B Class M
(inception date) (4/29/83) (1/4/93) (2/14/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 8.71% 3.57% 8.02% 3.02% 8.39% 4.92%
- ------------------------------------------------------------------------------
5 years 40.11 33.43 34.96 32.96 37.64 33.08
Annual average 6.98 5.94 6.18 5.86 6.60 5.88
- ------------------------------------------------------------------------------
10 years 133.73 122.63 115.73 115.73 124.03 116.74
Annual average 8.86 8.33 7.99 7.99 8.40 8.04
- ------------------------------------------------------------------------------
Life of fund 238.20 222.12 200.54 200.54 216.99 206.67
Annual average 8.82 8.45 7.93 7.93 8.33 8.08
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/97
Lehman Bros.
Municipal Bond Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 9.03% 2.15%
- ------------------------------------------------------------------------------
5 years 41.44 14.08
Annual average 7.18 2.67
- ------------------------------------------------------------------------------
10 years 131.87 40.17
Annual average 8.77 3.43
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 4.75% for class A shares and 3.25% for class M shares.
One-, five-, and ten-year (when available) and life of class returns for
class B shares reflect the applicable contingent deferred sales charges
(CDSC), which is 5% in the first year, declines to 1% in the sixth year,
and is eliminated thereafter. Returns shown for class B and class M shares
for periods prior to their inception are derived from the historical
performance of class A shares, adjusted to reflect both the initial sales
charge or CDSC, if any, currently applicable to each class and, in the
case of class B and class M shares, the higher operating costs applicable
to such shares. All returns assume reinvestment of distributions at NAV
and represent past performance; they do not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 9/30/87
Lehman Bros. Municipal Bond Index $23,187
Fund's class A shares at POP $22,263
Consumer Price Index $14,017
Fund's Lehman Bros. Consumer
Class A shares Municipal Price
at POP Bond Index Index
============== =========== ========
9/30/87 9526 10000 10000
9/30/88 11022 11298 10417
9/30/89 12083 12279 10870
9/30/90 12778 13114 11539
9/30/91 14403 14843 11930
9/30/92 15892 16394 12287
9/30/93 18059 18484 12617
9/30/94 17421 18037 12991
9/30/95 19175 20255 13322
9/30/96 20481 21267 13722
9/30/97 22263 23187 14017
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $21,573 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$22,403 at net asset value ($21,674 at public offering price).
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.445522 $0.389443 $0.419177
- ------------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------------
Long-term 0.021000 0.021000 0.021000
- ------------------------------------------------------------------------------
Short-term -- -- --
- ------------------------------------------------------------------------------
Total $0.466522 $0.410443 $0.440177
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/96 $8.46 $8.88 $8.45 $8.45 $8.73
- ------------------------------------------------------------------------------
9/30/97 8.71 9.14 8.70 8.70 8.99
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 5.14% 4.90% 4.49% 4.84% 4.68%
- ------------------------------------------------------------------------------
Taxable equivalent3 9.38 8.94 8.20 8.84 8.54
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 4.89 4.66 4.24 4.58 4.43
- ------------------------------------------------------------------------------
Taxable equivalent3 8.93 8.51 7.74 8.36 8.09
- ------------------------------------------------------------------------------
1 Capital gains, if any, are taxable for federal and, in most cases, state
tax purposes. For some investors, investment income may also be subject to
the federal alternative minimum tax. Investment income may be subject to
state and local taxes.
2 Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
3 Assumes maximum 45.22% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4 Based only on net investment income, calculated using SEC guidelines.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 4.75% sales charge for class A
shares and 3.25% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Lehman Brothers Municipal Bond Index is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in the
fund, and may pose different risks than the fund. Securities in the fund
do not match those in the indexes and performance of the fund will differ.
It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
To the Trustees and Shareholders of
Putnam California Tax Exempt Income Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings), and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Putnam California Tax Exempt Income Fund (the "fund") at September
30, 1997, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at September 30,
1997 by correspondence with the custodian and the application of alternative
auditing procedures where investments purchased were not yet received by the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 12, 1997
Portfolio of investments owned
September 30, 1997
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
FNMA Coll. -- Federal National Mortgage Association Collateralized
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IFB -- Inverse Floating Rate Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
MBIA -- Municipal Bond Investors Assurance Corporation
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (99.4%) *
PRINCIPAL AMOUNT RATINGS** VALUE
California (99.1%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$32,000,000 Anaheim, IF COP, MBIA, 6.2s, 7/16/23 Aaa $ 34,680,000
48,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA, 6.45s, 12/28/18 Aaa 53,340,000
30,275,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates
Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa 33,983,688
10,000,000 Beverly Hills, COP (Civic Ctr. Impt.), 6 3/4s, 6/1/19 AA 10,537,500
34,600,000 CA Cmnty. Dev. Auth. Rev. Bonds
(United Airlines), Ser. A, 5.7s, 10/1/33 Baa 34,210,750
15,745,000 CA Edl. Fac. Auth. Rev. Bonds (U. of Southern
CA), Ser. B, 6 3/4s, 10/1/15 Aa 16,709,381
CA Hlth. Fac. Auth. Rev. Bonds
10,795,000 (Valley Presbyterian Hosp.), Ser. A, 9s, 5/1/12 BBB 10,821,664
2,000,000 (Summit Med. Ctr.), Ser. A, 7.6s, 5/1/15 Baa 2,150,000
12,335,000 (Summit Med. Ctr.), Ser. B, 7.6s, 5/1/15 Baa 13,260,125
9,000,000 (Cedar Knoll), Ser. B, 7 1/2s, 8/1/20 A 9,765,000
7,590,000 (Summit Med. Ctr.), Ser. B, 7 1/2s, 5/1/09 Baa 8,149,763
10,000,000 (Mercy Hlth. Syst.), Ser. C, MBIA, 7 1/4s,
7/1/15 # Aaa 10,737,500
21,000,000 (Catholic Healthcare West.), Ser. A, AMBAC,
5s, 7/1/21 Aaa 19,845,000
35,385,000 CA Hlth. Fac. Fin. Auth. IFB, stepped-coupon,
Ser. B, MBIA, 4.625s, (5s, 1/1/99), 7/1/14 ++ AAA 33,350,363
28,800,000 CA Hsg. Fin. Agcy. IFB, FHA Insd., 6.456s, 8/1/23 Aa 30,708,000
39,295,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
(Jt. Pwrs. Agcy.), Ser. B, MBIA, 8.1s, 3/1/18 Aaa 40,844,795
25,000,000 CA School Cash Reserve Program Auth.
VRDN, Ser. A, 4 3/4s, 7/2/98 VMIG1 25,164,500
6,500,000 CA Special Dist. Fin. Auth. COP, Ser. A,
8 1/2s, 7/1/18 A/P 6,791,590
74,200,000 CA State FRB, 6.119s, 9/1/12 A 83,011,250
CA State G.O. Bonds
10,000,000 AMBAC, 6 1/2s, 9/1/06 Aaa 11,500,000
5,850,000 MBIA, 6.3s, 9/1/08 Aaa 6,669,000
CA State G.O. Bonds
16,545,000 AMBAC, 5 1/2s, 4/1/11 Aaa 17,558,381
25,460,000 MBIA, 5s, 11/1/22 Aaa 24,123,350
20,800,000 Ser. 33, MBIA, zero%, 10/1/11 Aaa 10,244,000
60,000,000 Ser. 27, MBIA, zero%, 9/1/11 Aaa 29,625,000
25,500,000 CA State Rev. Bonds, FGIC, 8s, 11/1/07 Aaa 31,715,625
CA State Dept. Wtr. Resources Rev. Bonds
48,400,000 (Central Valley), 6.93s, 12/1/12 Aa 57,838,000
2,700,000 Ser. T, 5 1/2s, 12/1/08 ## Aa 2,875,500
25,000,000 Ser. O, MBIA, 4 3/4s, 12/1/29 Aaa 22,500,000
CA State Econ. Dev. Fin. Auth. VRDN
1,900,000 (Volk Enterprises), 3.9s, 6/1/21 VMIG1 1,900,000
2,500,000 (KQED, Inc.), 3.7s, 4/1/20 VMIG1 2,500,000
CA State Pub. Wks. Board Lease Rev. Bonds
(Dept. of Corrections-State Prisons), Ser. A
24,000,000 7s, 9/1/09 Aaa 26,400,000
59,000,000 6 1/2s, 9/1/19 Aaa 64,678,750
28,000,000 MBIA, 6 1/2s, 9/1/17 Aaa 32,445,000
33,500,000 AMBAC, 5s, 12/1/19 Aaa 32,369,375
20,690,000 CA State Pub. Wks. Board Lease Rev. Bonds
(U. of CA), Ser. A, 7s, 9/1/15 Aaa 22,759,000
36,000,000 CA State U. IFB, AMBAC, 6.797s, 11/1/21 Aaa 39,420,000
10,000,000 CA Statewide Cmnty. Dev. Auth. COP
(Childrens Hosp.), MBIA, 4 3/4s, 6/1/21 Aaa 9,062,500
600,000 CA Statewide Cmnty. Dev. Auth. VRDN
(Barton Memorial Hosp.), 3.7s, 12/1/09 VMIG1 600,000
14,000,000 Castaic Lake, Wtr. Agcy. COP (Wtr. Syst. Impt.),
MBIA, 7 1/8s, 8/1/16 Aaa 15,417,500
1,100,000 Chico, Multi-Fam. Hsg. Auth. VRDN
(Ceres Plaza), Ser. A, 3.4s, 5/1/13 VMIG1 1,100,000
32,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds,
AMBAC, 5 3/4s, 8/1/22 Aaa 32,960,000
Commerce Redev. Agcy. Rev. Bonds
(No. 1), Ser. 91-A
8,845,000 7 1/4s, 8/1/21 BBB 9,430,981
68,280,000 zero%, 8/1/21 BBB 17,240,700
35,000,000 Contra Costa, Home Mtge. Fin. Auth.
Rev. Bonds, MBIA, zero%, 9/1/17 Aaa 11,593,750
Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G, MBIA
36,915,000 5s, 10/1/26 Aaa 34,976,963
41,500,000 5s, 10/1/24 Aaa 39,373,125
10,000,000 Corona, COP (Vista Hosp. Syst.),
Ser. B, 9 1/2s, 7/1/20 B/P 11,425,000
15,000,000 Duarte, COP (City of Hope Med. Ctr.),
6 1/8s, 4/1/13 Baa 15,562,500
23,850,000 East Bay, Muni. Util. Dist. Rev. Bonds
(Wastewater Treatment), FGIC, 4 3/4s, 6/1/21 Aaa 21,763,125
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 8/15/17 Aaa 11,194,219
Foothill/Eastern Trans. Corridor Agcy.
Rev. Bonds (CA Toll Roads), Ser. A
34,150,000 6 1/2s, 1/1/32 Baa 36,583,188
38,875,000 6s, 1/1/34 Baa 40,089,844
31,945,000 5s, 1/1/35 Baa 29,030,019
11,460,000 Fresno, Unified Sch. Dist. COP, 7 1/4s, 3/1/07 A 12,462,750
100,000 Fullerton, Indl. Dev. Auth. VRDN, 4s, 12/1/04 VMIG1 100,000
235,000 Indio, Multi-Fam. Hsg. VRDN (Western Federal
Savings), 4s, 6/1/05 VMIG1 235,000
60,000 Irvine, Special Assmt. VRDN (Dist. No. 89-10),
3.65s, 9/2/15 VMIG1 60,000
Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy. Rev. Bonds
61,500,000 (Issue II), FNMA Coll., 8 1/4s, 8/15/23 A 63,672,795
23,000,000 (Issue II), 8.2s, 8/15/08 A 23,812,820
25,010,000 (Issue I), 7 7/8s, 2/15/23 AAA/P 25,351,637
1,590,000 Irvine, VRDN (Irvine East Co.), 3.2s, 12/1/05 VMIG1 1,590,000
3,005,000 Kings Cnty., Multi.-Fam. Hsg. VRDN (Edgewater
Isle Apts.), Ser. A, 4s, 6/1/07 VMIG1 3,005,000
4,000,000 Lancaster, Redev. Agcy. VRDN (Woodcreek
Garden Apts.), 3.5s, 10/1/07 VMIG1 4,000,000
6,000,000 Local Govt. Fin. Joint Pwr. Auth. Rev. Bonds
(Anaheim Redev. Agcy.), Ser. A, 8.2s, 9/1/15 AAA/P 6,358,200
21,530,000 Los Angeles, Bldg. Auth. Rev. Bonds (CA Dept.
Gen Svcs.), Ser. A, MBIA, 5 5/8s, 5/1/11 AAA 23,064,013
2,200,000 Los Angeles Cnty., Cmnt. Dev. Comm. IF COP
(Willowbrook), 4s, 11/1/15 A 2,200,000
37,465,000 Los Angeles, Convention & Exhibition Ctr.
Auth. Lease COP 9s, 12/1/20 Aaa 49,406,969
19,300,000 Los Angeles, Convention & Exhibition Ctr.
Auth. Lease IFB, MBIA, 6.509s, 8/15/18
(acquired 9/15/94, cost $21,610,242) [DBL. DAGGERS] Aaa 19,275,875
19,600,000 Los Angeles, Convention & Exhibition Ctr. Auth.
Lease Rev. Bonds, Ser. A, MBIA, 5 3/8s, 8/15/18 Aaa 19,453,000
7,775,000 Los Angeles, Dept. of Wtr. & Pwr. Rev. Bonds
7.4s, 9/1/25 Aa 8,397,000
9,305,000 7 3/8s, 2/1/29 Aa 9,840,038
15,000,000 Ser. A, MBIA, 7 1/4s, 9/15/30 Aa 16,443,750
11,000,000 (Electric Plant), Issue III, 7s, 2/15/22 Aa 11,646,250
51,200,000 (Electric Plant), Issue II, 6.8s, 6/1/31 Aa 56,128,000
38,205,000 (Electric Plant), Issue II, 6 3/4s, 12/15/29 Aa 40,736,081
25,000,000 (Electric Plant), Issue II, FGIC, 5.4s, 11/15/31 Aaa 24,781,250
17,760,000 (Electric Plant), Issue II, MBIA, 5 1/4s, 11/15/26 Aaa 17,338,200
25,000,000 Los Angeles, Harbor Dept. Rev. Bonds,
7.6s, 10/1/18 Aaa 31,843,750
24,340,000 Los Angeles, Hlth. Fac. Auth. Lease Rev. Bonds
(Olive View Med. Ctr.), 7 1/2s, 3/1/08 AAA/P 25,196,525
Los Angeles, Metro. Trans. Auth. Sales
Tax Rev. Bonds
28,470,000 Ser. B, AMBAC, 5 1/4s, 7/1/23 Aaa 27,829,425
12,150,000 Ser. A, AMBAC, 5s, 7/1/25 Aaa 11,527,313
70,000,000 Ser. A, FGIC, 5s, 7/1/21 Aaa 66,150,000
26,235,000 Los Angeles, Pension Auth. COP, Ser. A,
6.9s, 6/30/08 AAA 31,186,856
Los Angeles, Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital)
14,865,000 MBIA, 5 1/4s, 10/1/19 Aaa 14,567,700
13,000,000 Ser. A, MBIA, 5s, 10/1/23 Aaa 12,268,750
27,250,000 Los Angeles, State Bldg. Auth. Lease
Rev. Bonds (State Dept. General Svcs.),
Ser. A, 7 1/2s, 3/1/11 Aaa 28,214,923
69,400,000 Los Angeles, Wastewtr. Syst. IFB, 6.127s, 6/1/19 Aaa 75,212,250
Los Angeles, Wastewtr. Syst. Rev. Bonds
17,150,000 Ser. B, 7.15s, 6/1/20 Aaa 18,843,563
20,105,000 Ser. A, 7s, 2/1/20 Aaa 21,839,056
50,000,000 Ser. 91-5, AMBAC, 6.519s, 6/1/21 Aaa 53,375,000
15,235,000 Los Angeles Cnty., Pub. Wks. Fin. Auth.
Rev. Bonds, Ser. A, MBIA, 5 3/4s, 9/1/07 Aaa 16,625,194
Metropolitan Wtr. Dist. Rev. Bonds
(Southern CA Waterwks.)
22,600,000 5.95s, 8/5/22 Aa 23,278,000
40,000,000 5.606s, 8/14/18 Aa 42,800,000
30,255,000 Ser. C, 5s, 7/1/27 AA 28,590,975
15,000,000 Ser. B, MBIA, 4 3/4s, 7/1/21 Aaa 13,725,000
2,500,000 Moorpark, Multi-Fam. VRDN (Le Club Apts.),
Ser. A, 3.9s, 11/1/15 VMIG1 2,500,000
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds,
Ser. A, AMBAC, 5s, 12/1/13 Aaa 15,977,500
Northern CA Pwr. Agcy. Multi. Cap. Facs. IFB
16,900,000 8.564s, 8/15/17 Aaa 18,526,625
19,000,000 6.396s, 9/2/25 Aaa 20,805,000
17,000,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
(Hydro. Elec. No. 1), Ser. B-1, MBIA, 8s, 7/1/24 AAA 17,542,980
14,800,000 Oakland, Redev. Agcy. Rev. Bonds, MBIA,
5.95s, 9/1/19 Aaa 15,392,000
Orange Cnty., COP, Ser. A, MBIA
14,520,000 6s, 7/1/26 Aaa 15,391,200
25,285,000 6s, 7/1/07 Aaa 28,034,744
Orange Cnty., Arpt. Dev. VRDN
2,000,000 Ser. U, 3 1/2s, 11/1/09 VMIG1 2,000,000
2,900,000 (Vintage Woods), Ser. E, 3 3/4s, 11/1/08 VMIG1 2,900,000
1,100,000 (Park Ridge), Ser. I, 3 1/4s, 11/1/08 VMIG1 1,100,000
2,400,000 (Yorba Linda), Ser. D, 3 3/4s, 4/1/06 VMIG1 2,400,000
4,800,000 (Harbor Pointe), Ser. D, 3.4s, 12/1/06 VMIG1 4,800,000
2,290,000 Orange Cnty., Hsg. Auth. Dev. VRDN
(Village Niguel), Ser. AA, 3.65s, 12/1/08 VMIG1 2,290,000
Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management)
10,000,000 7 7/8s, 12/1/13 BBB 10,487,500
4,180,000 7 7/8s, 12/1/07 BBB 4,383,775
Orange Cnty., Trans. Auth. Sales Tax
Rev. Bonds, Ser. A
11,445,000 5.7s, 2/15/11 Aaa 12,331,988
11,700,000 5.7s, 2/15/10 Aaa 12,621,375
13,960,000 5.7s, 2/15/09 Aaa 15,111,700
8,210,000 5.7s, 2/15/08 Aaa 8,907,850
16,830,000 Orange Cnty., Wtr. Dist. COP, Ser. A, 5s, 8/15/18 Aa 15,841,238
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev. Bonds
(Cent. City Revitalization), Ser. A, 6 1/2s, 9/1/16 BBB 13,401,750
Palm Desert, Fin. Auth. Tax Alloc. Rev. Bonds, MBIA
18,000,000 6.368s, 4/1/22 Aaa 18,990,000
45,700,000 6.088s, 4/1/22 Aaa 49,298,875
24,855,000 Pasadena, Cap. Impt. IF COP, AMBAC,
3.43s, 2/1/14 Aaa 24,264,694
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds, Ser. B
5,730,000 6 3/4s, 9/2/17 BBB/P 6,066,638
8,785,000 6.6s, 9/2/08 BBB/P 9,334,063
4,705,000 6 1/2s, 9/2/04 BBB/P 5,057,875
9,590,000 6 1/8s, 9/2/02 BBB/P 10,057,513
44,000,000 Rancho Cucamonga, Wtr. Dist. Fin. Auth.
Rev. Bonds, AMBAC, 6.427s, 8/17/21 Aaa 48,235,000
7,095,000 Rancho, Redev. Agcy. Tax Alloc. Rev. Bonds
(Rancho Redev.), MBIA, 6 3/4s, 9/1/20 Aaa 7,600,519
20,800,000 Redding, Elec. Syst. Rev. Bonds, MBIA, 6s, 7/1/22 Aaa 23,686,000
Riverside Cnty., VRDN
705,000 (Corr. Fac. Impt.), Ser. D, 3.7s, 12/1/15 VMIG1 705,000
400,000 (Public Impt.), Ser. A, 3.7s, 12/1/15 VMIG1 400,000
16,610,000 Sacramento Cnty., Hsg. Auth. Multi-Fam.
Rev. Bonds, Ser. 85-2 (Issue II),
FNMA Coll., zero%, 11/1/97 Aaa 16,506,686
14,355,000 Sacramento Cnty., Santn. Dist. Fin. Auth.
Rev. Bonds (Sewer Impt.), MBIA,
4 3/4s, 12/1/23 Aaa 13,027,163
Sacramento, Muni. Util. Rev Bonds, Ser. L
6,000,000 MBIA, 5s, 7/1/01 Aaa 6,187,500
7,650,000 AMBAC, 5s, 7/1/00 Aaa 7,850,813
50,000,000 Sacramento, Muni. Util. Dist. Elec. IFB,
FGIC, 6.16s, 8/15/18 Aaa 52,937,500
Sacramento, Muni. Util. Dist. Elec. Rev. Bonds
34,835,000 Ser. V, 7 7/8s, 8/15/16 Aaa 36,767,646
5,930,000 Ser. V, 7 1/2s, 8/15/18 Aaa 6,125,216
$12,000,000 Ser. A, MBIA, 6 1/4s, 8/15/10 Aaa 13,650,000
2,500,000 San Bernardino Cnty., VRDN, 4s, 7/1/15 VMIG1 2,500,000
San Diego, Hsg. Auth. Multi-Fam. Hsg. VRDN
300,000 (Carmel Del Mar Apts.), Ser. A, 4s, 12/1/15 VMIG1 300,000
$500,000 (Paseo Apartments), Ser. A, 4s, 8/1/15 VMIG1 500,000
29,350,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 27,845,813
San Diego, Regl. Bldg. Auth. Lease COP,
stepped-coupon, MBIA
11,000,000 6.9s, (5.65s, 5/1/98), 5/1/23 ++ Aaa 11,343,750
14,100,000 6.85s, (5.65s, 5/1/98), 5/1/13 ++ Aaa 14,575,875
8,165,000 San Diego, Single Fam. Hsg. Mtge.
Rev. Bonds, zero%, 8/1/16 A 1,357,431
11,520,000 San Diego, Swr. Rev. Bonds, Ser. A,
AMBAC, 5s, 5/15/23 Aaa 10,872,000
2,000,000 San Diego, TRAN, 4 1/2s, 9/30/98 VMIG1 2,012,880
21,400,000 San Diego Cnty., IF COP, MBIA, 6.363s, 11/18/19 Aaa 22,577,000
15,800,000 San Diego Cnty., COP, AMBAC, 5 1/4s, 9/1/06 VMIG2/P 16,491,250
San Diego Cnty., Wtr. Auth. COP, Ser. B
40,000,000 6.3s, 4/8/21 Aaa 43,650,000
56,300,000 6.16s, 4/21/11 Aaa 63,970,875
San Diego Cnty., Wtr. Auth. IF COP, Ser. B, MBIA
200,000 9.105s, 4/21/11 Aaa 259,750
200,000 3.215s, 4/21/11 Aaa 200,000
2,500,000 San Dimas, Redev. Agcy. IF COP (Diversified
Shopping), 3 1/2s, 12/1/05 VMIG1 2,500,000
San Joaquin Hills, Trans. Corridor Agcy.
Toll Rd. Rev. Bonds
77,825,000 Sr. lien, 6 3/4s, 1/1/32 BB/P 87,844,969
34,125,000 5s, 1/1/33 BB/P 31,309,688
San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev.), MBIA
7,150,000 5s, 8/1/20 Aaa 6,810,375
29,100,000 4 3/4s, 8/1/24 Aaa 26,590,125
40,000,000 San Mateo Cnty., Jt. Pwr. Fin. Auth. Rev. Bonds,
FSA, 5 3/4s, 7/15/29 Aaa 40,950,000
4,600,000 Santa Ana, U. School Dist. IF COP, 3.9s, 7/1/15 VMIG1 4,600,000
35,600,000 Santa Clara Cnty., Wtr. Dist. Rev. Bonds,
FGIC, 5 3/4s, 2/1/15 Aaa 37,024,000
45,200,000 South Orange Cnty., Pub. Fin. Auth. Rev. Bonds,
FGIC, 5 1/2s, 8/15/15 Aaa 45,821,500
30,130,000 South Tahoe, Jt. Pwr. Fin. Auth. Rev. Bonds
(Tahoe Redev., Area 1-A), 7.2s, 10/1/23 Aaa 34,536,513
Southern CA Pub. Pwr. Auth. Rev. Bonds
14,200,000 FGIC, 5.35s, 7/1/12 Aaa 14,359,750
42,690,000 (Mead Adelanto), Ser. A, AMBAC, 4 7/8s, 7/1/20 Aaa 39,434,888
5,000,000 Southern CA Pub. Pwr. Auth. VRDN
(Transmission), AMBAC, 3.95s, 7/1/19 VMIG1 5,000,000
Thousand Oaks, Cmnty. Fac. Dist. Special
Tax Rev. Bonds (No. 94-1)
21,775,000 6 7/8s, 9/1/24 BB/P 23,272,031
33,515,000 zero%, 9/1/14 BB/P 11,520,781
U. of CA Rev. Bonds
41,147,000 (UCSD Med. Ctr. Satellite Med. Fac.),
7.9s, 12/1/19 BBB/P 44,284,446
59,400,000 (Multi-Purpose), 6 7/8s, 9/1/16 Aaa 67,270,500
13,000,000 (Multi-Purpose), Ser. C, AMBAC, 4 7/8s, 9/1/19 Aaa 12,106,250
1,900,000 Upland, Multi-Fam. Hsg. Auth. VRDN
(Village Green), 2.15s, 9/1/10 VMIG1 1,900,000
10,000,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB/P 10,700,000
36,945,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB/P 39,207,881
1,000,000 West Basin, Muni. Wtr. Dist. IF COP
(Recycled Wtr. Phase II), Ser. C, 3.95s, 8/1/27 VMIG1 1,000,000
--------------
$3,641,014,419
Puerto Rico (0.3%)
- ------------------------------------------------------------------------------------------------------------
10,000,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds,
Ser. CC, 5 1/2s, 7/1/08 Baa 10,525,000
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,329,392,108) *** $3,651,539,419
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of
$3,675,002,033.
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
September 30, 1997 for the securities listed. Ratings are
generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the
ratings do not necessarily represent what the agencies would
ascribe to these securities at September 30, 1997. Securities
rated by Putnam are indicated by "/P" and are not publicly
rated.
The table below shows the percentage of the fund's investment
on September 30, 1997 in securities assigned to various rating
categories by Moody's and Standard & Poor's and in unrated
securities determined by Putnam Management to be of
comparable quality.
Unrated securities
Rated securities of comparable quality,
as a percentage of as a percentage of
Rating fund's net assets fund's net assets
====== ================== ======================
AAA/Aaa 63.8% 1.6%
AA/Aa 10.1 --
A/A 5.3 0.2
BBB/Baa 7.9 2.0
BB/Ba -- 5.6
B/B -- 0.3
Caa/CCC -- --
Ca/CC -- --
C -- --
A-1/VMIGI 2.2 --
A-2/VMIG2 -- 0.4
==== ====
89.3% 10.1%
Ratings are not covered by the Report of independent accountants.
*** The aggregate identified cost on a tax basis is
$3,331,524,908, resulting in gross unrealized appreciation
and depreciation of $321,620,526 and $1,606,015, respectively,
or net unrealized appreciation of $320,014,511.
++ The interest rate and date shown parenthetically represent
the new interest rate to be paid and the date the fund will
begin receiving interest income at this rate.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
September 30, 1997 was $19,275,875 or 0.5% of net assets.
# A portion of this security was pledged and segregated with
the custodian to cover margin requirements for futures contracts
'at September 30, 1997.
## When-issued securities (See Note 1).
The rate shown on Floating Rate Bonds are the current interest
rates shown at September 30, 1997, which are subject to change
based on the terms of the security.
The rates shown on IFB and IF COP, which are securities paying
interest rates that vary inversely to changes in the market
interest rates, and VRDN's are the current interest rates at
September 30, 1997.
The fund had the following industry group concentrations
greater than 10% at September 30, 1997 (as a percentage of
net assets):
Water and sewerage 22.2%
Utilities 14.3
Transportation 10.3
The fund had the following insurance concentrations greater
than 10% at September 30, 1997 (as a percentage of net assets):
MBIA 23.2%
AMBAC 11.9
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1997
(aggregate face value $239,448,407)
Aggregate Face Expiration Unrealized
Total Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
U.S.Treasury Bonds (short) $200,935,219 $197,272,813 Dec 97 $(3,662,406)
Municipal Bond Index (long) 42,065,625 42,175,594 Dec 97 (109,969)
- ----------------------------------------------------------------------------------------
$(3,772,375)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,329,392,108) (Note 1) $3,651,539,419
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 43,763,541
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,261,670
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 30,000
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 427,281
- ---------------------------------------------------------------------------------------------------
Total assets 3,698,021,911
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable to subcustodian (Note 2) 928,945
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,801,096
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 2,862,860
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,787,123
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,160,745
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 300,355
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 52,449
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,523
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,981,827
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 135,955
- ---------------------------------------------------------------------------------------------------
Total liabilities 23,019,878
- ---------------------------------------------------------------------------------------------------
Net assets $3,675,002,033
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,362,295,190
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,787,434
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (9,455,527)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 318,374,936
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,675,002,033
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,087,795,172 divided by 354,711,424 shares) $8.71
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.71)* $9.14
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($573,309,243 divided by 65,924,875 shares)** $8.70
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($13,897,618 divided by 1,597,985 shares)*** $8.70
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.70)* $8.99
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $25,000. On sales of $25,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
*** On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1997
<S> <C>
Tax exempt interest income: $217,044,546
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,441,116
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 2,578,897
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 96,571
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 34,575
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,231,560
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,611,489
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 64,935
- --------------------------------------------------------------------------------------------------
Reports to shareholders 57,839
- --------------------------------------------------------------------------------------------------
Auditing 67,350
- --------------------------------------------------------------------------------------------------
Legal 159,661
- --------------------------------------------------------------------------------------------------
Postage 161,174
- --------------------------------------------------------------------------------------------------
Other 156,489
- --------------------------------------------------------------------------------------------------
Total expenses 30,661,656
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,001,569)
- --------------------------------------------------------------------------------------------------
Net expenses 29,660,087
- --------------------------------------------------------------------------------------------------
Net investment income 187,384,459
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 22,647,707
- --------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 3,605,505
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 87,775,330
- --------------------------------------------------------------------------------------------------
Net gain on investments 114,028,542
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $301,413,001
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
--------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ------------------------------------------------------------------------------------------------------------
Operations:
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 187,384,459 $ 201,920,831
- ------------------------------------------------------------------------------------------------------------
Net realized gain on investments 26,253,212 31,619,858
- ------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 87,775,330 2,237,252
- ------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 301,413,001 235,777,941
Distributions to shareholders:
- ------------------------------------------------------------------------------------------------------------
From net investment income
Class A (162,697,410) (176,564,618)
- ------------------------------------------------------------------------------------------------------------
Class B (24,724,436) (22,679,219)
- ------------------------------------------------------------------------------------------------------------
Class M (591,240) (313,339)
- ------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (7,788,953) --
- ------------------------------------------------------------------------------------------------------------
Class B (1,298,602) --
- ------------------------------------------------------------------------------------------------------------
Class M (27,148) --
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) (98,622,941) 44,366,900
- ------------------------------------------------------------------------------------------------------------
Total increase in net assets 5,662,271 80,587,665
Net assets
- ------------------------------------------------------------------------------------------------------------
Beginning of year 3,669,339,762 3,588,752,097
- ------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $3,787,434 and $725,102, respectively) $3,675,002,033 $3,669,339,762
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.46 $8.37 $8.09 $8.92 $8.39
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .44 .47 .48 .50 .53
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .28 .09 .31 (.81) .57
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations .72 .56 .79 (.31) 1.10
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.47) (.48)** (.50) (.53)
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.03) (.02) (.04)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.51) (.52) (.57)
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.71 $8.46 $8.37 $8.09 $8.92
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.71 6.81 10.07 (3.53) 13.63
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,087,795 $3,149,797 $3,168,277 $3,260,769 $3,600,182
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .74 .74 .74 .68 .69
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.20 5.60 5.86 5.86 6.16
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 23.51 29.47 47.73 21.06 22.95
- ------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
** Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------
For the period
Per-share Jan. 4, 1993+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.45 $8.37 $8.08 $8.91 $8.37
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .39 .42 .42 .45 .32
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .07 .32 (.81) .55
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations .66 .49 .74 (.36) .87
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net
investment income (.39) (.41) (.42)** (.45) (.33)
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.02) -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- (.03) -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.41) (.45) (.47) (.33)
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.45 $8.37 $8.08 $8.91
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.02 5.99 9.47 (4.15) 10.51*
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $573,309 $510,394 $416,367 $349,609 $209,657
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.39 1.39 1.39 1.32 1.00*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.54 4.94 5.17 5.16 3.68*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 23.51 29.47 47.73 21.06 22.95
- ------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
** Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------
For the period
Per-share Feb. 14, 1995+
operating performance Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $8.45 $8.36 $8.13
- ------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------
Net investment income .42 .45 .29
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .27 .08 .24
- ------------------------------------------------------------------------------------------------------------
Total from
investment operations .69 .53 .53
- ------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.44) (.30)**
- ------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.02) -- --
- ------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- --
- ------------------------------------------------------------------------------------------------------------
Total distributions (.44) (.44) (.30)
- ------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.70 $8.45 $8.36
- ------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 8.39 6.48 6.56 *
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,898 $9,149 $4,108
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.04 1.04 .69*
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.92 5.24 3.52*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 23.51 29.47 47.73
- ------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
** Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the periods ended September 30, 1995 and thereafter,
includes amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts (Note 2).
</TABLE>
Notes to financial statements
September 30, 1997
Note 1
Significant accounting policies
Putnam California Tax Exempt Income Fund (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks as high a level of current
income exempt from federal income tax and California personal income tax as
Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager,
a wholly-owned subsidiary of Putnam Investments, Inc., believes is consistent
with preservation of capital by investing primarily in a diversified portfolio
of longer-term California tax exempt securities.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 4.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.25% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which uses
information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. The fair value of
restricted securities is determined by Putnam Management following procedures
approved by the Trustees, and such valuations and procedures are reviewed
periodically by the Trustees.
B) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Securities
purchased or sold on a (when-issued or forward commitment or delayed delivery)
basis may be settled a month or more after the trade date; interest income is
accrued based on the terms of the security. Losses may arise due to changes in
the market value of the underlying securities or if the counterparty does not
perform under the contract.
C) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund owns
or expects to purchase. The fund may also write options on securities it owns
or in which it invests to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparty to the contract is unable to perform.
Futures contracts are valued at the quoted daily settlement prices established
by the exchange on which they trade. Exchange traded options are valued at the
last sale price, or if no sales are reported, the last bid price for purchased
options and the last ask price for written options. Options traded
over-the-counter are valued using prices supplied by dealers.
D) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the period ended September 30, 1997, the
fund had no borrowings against the line of credit.
E) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
F) Distributions to shareholders Income dividends are recorded daily by the
fund and are distributed monthly. Capital gain distributions if any, are
recorded on the ex-dividend date and paid at least annually. The amount and
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences include treatment of realized and
unrealized gains and losses on certain futures contracts, losses on wash sale
transactions and market discount. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations. For the year
ended September 30, 1997, the fund reclassified $3,690,959 to increase
undistributed net investment income and $1,754,829 to decrease
paid-in-capital, with an increase to accumulated net realized loss on
investments of $1,936,130. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
G) Amortization of bond premium and accretion of bond discount The premium in
excess of the call price, if any, is amortized to the call date; thereafter,
the remaining excess premium is amortized to maturity. Discounts on zero
coupon bonds, original issue discount and stepped-coupon bonds are accreted
according to the effective yield method.
Note 2
Management fee,
administrative services
and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.60% of the first $500 million of
average net assets, 0.50% of the next $500 million, 0.45% of the next $500
million, 0.40% of the next $5 billion, 0.375% of the next $5 billion, 0.355%
of the next $5 billion, 0.34% of the next $5 billion, and 0.33% thereafter.
Prior to January 20, 1997, any amount over $1.5 billion was based on 0.40%.
As part of the custodian contract between the subcustodian bank and Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc., the subcustodian bank has a lien on the securities of the
fund to the extent permitted by the fund's investment restrictions to cover
any advances made by the subcustodian bank for the settlement of securities
purchased by the fund. At September 30, 1997, the payable to the subcustodian
bank represents the amount due for cash advanced for the settlement of a
security purchased.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended September 30, 1997, fund expenses were reduced by
$1,001,569 under expense offset arrangements with PFTC. Investor servicing and
custodian fees reported in the Statement of operations exclude these credits.
The fund could have invested a portion of the assets utilized in connection
with the expense offset arrangements in an income producing asset if it had
not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $2,513 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing shares
of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds
Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the average net assets
attributable to class A, class B and class M shares, respectively. The
Trustees currently limit payment by the fund to an annual rate of 0.20%, 0.85%
and 0.50% of the average net assets attributable to class A, class B and class
M shares, respectively.
For the year ended September 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $276,816 and $3,965 from the sale of
class A and class M shares, respectively and $1,183,010 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the year
ended September 30, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $23,970 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended September 30, 1997, purchases and sales of investment
securities other than short-term municipal investments aggregated $802,181,533
and $984,796,898, respectively. Purchases and sales of short-term municipal
obligations aggregated $1,320,797,000 and $1,274,837,000, respectively. In
determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Note 4
Capital shares
At September 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
September 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 48,492,660 $413,297,883
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,686,673 82,813,805
- ------------------------------------------------------------
58,179,333 496,111,688
Shares
repurchased (75,728,580) (646,361,357)
- ------------------------------------------------------------
Net decrease (17,549,247) $(150,249,669)
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 50,772,082 $429,970,384
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,044,390 85,217,229
- ------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam California
Intermediate Tax
Exempt Fund 647,033 5,467,429
- ------------------------------------------------------------
61,463,505 520,655,042
Shares
repurchased (67,524,053) (571,318,861)
- ------------------------------------------------------------
Net decrease (6,060,548) $ (50,663,819)
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 12,689,684 $108,106,716
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,666,892 14,238,614
- ------------------------------------------------------------
14,356,576 122,345,330
Shares
repurchased (8,812,073) (75,125,179)
- ------------------------------------------------------------
Net increase 5,544,503 $ 47,220,151
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 16,422,370 $139,117,687
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,417,502 12,003,753
- ------------------------------------------------------------
Shares issued in
connection with
the merger of
Putnam California
Intermediate Tax
Exempt Fund 449,999 3,797,994
- ------------------------------------------------------------
18,289,871 154,919,434
Shares
repurchased (7,677,551) (64,914,177)
- ------------------------------------------------------------
Net increase 10,612,320 $ 90,005,257
- ------------------------------------------------------------
Year ended
September 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 839,662 $7,166,156
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,343 413,194
- ------------------------------------------------------------
888,005 7,579,350
Shares
repurchased (372,169) (3,172,773)
- ------------------------------------------------------------
Net increase 515,836 $4,406,577
- ------------------------------------------------------------
Year ended
September 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 1,194,539 $10,194,808
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 24,130 203,830
- ------------------------------------------------------------
1,218,669 10,398,638
Shares
repurchased (627,733) (5,373,176)
- ------------------------------------------------------------
Net increase 590,936 $ 5,025,462
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, the fund hereby
designatres $21,450,413 as capital gain for its taxable year ending
September 30, 1997.
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
William H. Reeves
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam California Tax
Exempt Income Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll free: 1-800-225-1581. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution; are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency;
and involve risk, including the possible loss of the principal amount
invested.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
AN045-36842 11/97
