Putnam
California
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-98
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "There is one type of staid, secure bond fund that has been overlooked
amid the global scramble for safety, and that is now emerging as the best
bargain in the bond market: municipal bond funds."
-- The Wall Street Journal, October 5, 1998
* "In the current global economic environment, we believe one of the most
important features of Putnam California Tax Exempt Income Fund's portfolio
is its emphasis on the highest state credit quality."
-- Leslie J. Burke, fund manager
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
22 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The Golden State did not escape the effects of the world's volatile market
environment during the year ended September 30, 1998, as the management
team of Putnam California Tax Exempt Income Fund can attest. California's
economy was still robust enough to deliver a state government budget
surplus. Business nevertheless began to feel the effects of a drop-off in
exports to Asia toward the end of the period.
Heavy demand for municipal bonds made the search for securities that meet
the fund's exacting selection criteria more challenging than ever. A
strategy of focusing on intermediate-term bonds and searching out
attractive refunding opportunities helped maintain price stability while
meeting the fund's objective of providing high current income consistent
with preservation of capital.
I am pleased to introduce Leslie J. Burke as your fund's new manager.
Leslie joined Putnam in 1992 as a credit analyst in the Tax Exempt Bond
Group, specializing in the health-care industry and general obligation
bonds. She has 12 years of investment experience. In the following report,
Leslie reviews fiscal '98 results and discusses prospects for the months
ahead.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 18, 1998
Report from the Fund Manager
Leslie J. Burke
Throughout Putnam California Tax Exempt Income Fund's 1998 fiscal year, we
pursued the fund's objective of seeking high current income while making
low price volatility a priority. In addition to emphasizing quality, we
kept the portfolio's duration on the low side, buying long-term municipal
bonds but using Treasury futures to bring the portfolio's duration back
into the neutral range.
During the recent drop in interest rates, this strategy caused the fund's
performance to lag that of other municipal bond funds that were using a
higher risk/reward approach. We believe our strategy is in keeping with
the fund's emphasis on high levels of tax-free income with preservation of
capital, especially during this volatile period. For the 12 months ended
September 30, 1998, the fund's class A shares provided a total return of
7.75% at net asset value and 2.68% at public offering price. Results for
other classes of shares and performance details for longer periods appear
on pages 9 and 10.
* STRENGTHS AND WEAKNESSES IN CALIFORNIA'S ECONOMY
The California economy remains on solid economic ground, both in absolute
terms and in relation to the economies of other states. After years of
large deficits, California is expected to close 1998 with a surplus of
$1.7 billion to carry into 1999. However, rapidly contracting exports to
Asia could jeopardize future growth. Trade with Asia declined 8% in the
first quarter of 1998 and an additional 12% in the second quarter.
California has relatively little trade with the strongest international
markets (those in Europe) and significant exposure to negative or
no-growth economies.
Nevertheless, California state general obligation (GO) bonds were recently
upgraded -- something we have been anticipating for about two years. Since
the fund has a large position in GOs, this positive change may mean that
the fund has generated the maximum gain from this position and that it may
be time to reallocate these assets to areas with more price appreciation
potential.
Several fund holdings have benefited from the strength of the California
economy. For example, the fund holds bonds issued to finance two
high-profile toll roads, the San Joaquin and Foothills. Now that these
roads are up and running in a strong economic environment, the turnpike
authority's solid credit footing allows refunding of these issues. San
Joaquin was refunded this year and Foothills will likely follow suit.
While we viewed these holdings favorably at the end of the fiscal period,
all portfolio holdings are subject to review and adjustment in accordance
with the fund's investment strategy and may vary in the future.
* FUND SEEKS TO BENEFIT FROM FLIGHT TO QUALITY
In the current economic environment, we believe one of the most important
features of the fund's portfolio is its emphasis on the highest credit
quality. Throughout fiscal 1998, an unprecedented string of international
events -- including financial chaos in the Pacific Rim, currency
devaluations and defaults in Russia, and most recently, plunging markets
in Latin America -- triggered market volatility. The world markets are
facing a potential global liquidity crisis and declining exports are
affecting U.S. corporate profits. Investors have responded by seeking
high-quality fixed-income investments, chiefly U.S. Treasury bonds.
[GRAPHIC OMITTED: horizontal bar chart of TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Water and sewerage 19.0%
Utilities 10.5%
Transportation 9.8%
Health care 8.8%
Education 4.8%
Footnote reads:
*Based on net assets as of 9/30/98. Holdings will vary over time.
Foreign demand for U.S. Treasuries has driven up prices and depressed
yields. But foreign investors do not gain from the tax-exempt benefit of
U.S. municipals, and thus the municipal market has not participated in the
rally. Moreover, domestic investors have had difficulty looking beyond
Treasuries. Although high-quality municipal bonds are also a safe haven,
until recently this huge market has been overlooked. With Treasury bond
prices at new highs, investors are beginning to realize the exceptional
investment opportunities that quality municipal bonds provide, and we
believe our focus on high-quality bonds is positioning your fund to
benefit from this trend.
* FED EASES RATES TO SUPPORT MARKETS
Against this backdrop of global economic turmoil and faced with questions
about prominent Wall Street companies involved in bailouts, the Federal
Reserve Board recently eased interest rates just before the end of the
fund's fiscal year. As a result, the yield on the benchmark 30-year
Treasuries fell to 4.84%, the lowest level for long-term bonds since the
late 1960s.
In the past, the Fed has rarely made just one move. Rate adjustments tend
to occur slowly, following a carefully orchestrated program. Therefore,
while the timing came as a surprise, the Fed's move to cut rates by
another quarter point in mid October was not unexpected in its continuing
effort to support the economy and stabilize the markets.
* TAXABLE MARKETS OFTEN FORECAST MUNICIPAL MARKET TRENDS
The municipal market maintains a relatively low profile, and events within
it rarely make financial headlines. In the past few months, this has been
an advantage; compared with other securities, municipal bonds have been
less volatile. However, we have found that trends in taxable markets often
forecast developments in the municipal bond markets and we plan our
strategies accordingly.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
Ba -- 1.7%
Baa -- 9.9%
A -- 12.4%
Aa -- 12.8%
B -- 1.3%
VMGI -- 0.3%
Aaa -- 61.6%
Footnote reads:
*As a percentage of market value as of 9/30/98. 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.
One particularly important trend recently has been an increase in quality
spreads. Typically lower-rated bond issuers must offer much higher yields
to attract investors. The spread differential is influenced, in part, by
broad market trends. In uncertain times, the difference in yields between
higher- and lower-quality bonds tends to widen.
As developments in Asian economies slowed earnings and corporate profits
for many companies, we began to notice wider spreads in the taxable
markets. The municipal markets began to follow suit this fall. Initially
this trend was most visible in such corporate municipal bond issuers as
industrial development bonds, which are most sensitive to corporate
profits. By late September, spreads in the municipal health-care sector
also began to widen, likely influenced by the bankruptcy of a high-profile
hospital in Pennsylvania.
The pace of trading has been slow so far, and investors are growing
cautious. In time, this may lead to buying opportunities in the
health-care sector, but for the moment we are looking for opportunities in
higher-quality municipal bonds.
* INVESTMENT STRATEGIES FOR COPING WITH VOLATILE MARKETS
In an effort to maximize income and minimize price fluctuation, we have
been moving toward a more bulleted portfolio, concentrating on holdings in
the intermediate range (5 to 12 years). We believe the best values and the
best opportunities for appreciation are likely to occur in this part of
the yield curve.
Another effective strategy has been our use of inverse floating rate
bonds, which produce above-average income streams by splitting a bond into
two pieces, one short-term and one long-term. The fund earns whatever the
long-term piece brings in, minus earnings from the short-term piece. For
example, if the yield curve becomes steeper, as it did at the end of the
fiscal year, the fund takes in 6%, pays out 2%, and nets 4%.
* CAUTION AND CALL PROTECTION DRIVE STRATEGY FOR FISCAL '99
One goal we believe is important as we adjust the portfolio is to secure
more call protection, especially in light of declining interest rates.
Currently the supply of municipal bonds in California is low relative to
demand, so it is a seller's market; therefore, our opportunity to purchase
bonds with the kind of features we want for the fund is rather limited. At
some point, possibly toward year's end, we expect to see a pickup in new
issues. As supply expands, we will work directly with underwriters to
structure more call protection into the offerings that interest us.
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 9/30/98, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. Putnam
California Tax Exempt Income Fund is designed for investors seeking high
current income free from federal and California income taxes, consistent
with capital preservation.
TOTAL RETURN FOR PERIODS ENDED 9/30/98
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 7.75% 2.68% 7.05% 2.05% 7.43% 3.96%
- ------------------------------------------------------------------------------
5 years 32.84 26.60 28.59 26.60 30.71 26.48
Annual average 5.84 4.83 5.16 4.83 5.50 4.81
- ------------------------------------------------------------------------------
10 years 117.66 107.32 101.30 101.30 109.03 102.26
Annual average 8.09 7.56 7.25 7.25 7.65 7.30
- ------------------------------------------------------------------------------
Life of fund 264.39 247.07 221.73 221.73 240.52 229.44
Annual average 8.75 8.40 7.87 7.87 8.27 8.04
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/98
Lehman Bros.
Municipal Bond Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 8.72% 1.36%
- ------------------------------------------------------------------------------
5 years 36.38 12.61
Annual average 6.40 2.40
- ------------------------------------------------------------------------------
10 years 123.12 36.39
Annual average 8.36 3.15
- ------------------------------------------------------------------------------
Life of fund 283.20 65.72
Annual average 9.10 3.33
- ------------------------------------------------------------------------------
Past performance is not indicative of future results. Returns for class A
and class M shares reflect the current maximum initial sales charges of
4.75% and 3.25%, respectively. Class B share returns for the 1-, 5-, and
10-year (where available) and life-of-fund periods reflect the applicable
contingent deferred sales charge (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 expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV. 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.
This performance information does not reflect any market volatility that
may have occurred since the date of the information. As a result, more
recent returns may be more or less than those shown.
[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
9/30/88
Lehman Brothers
Fund's class A Municipal Bond Consumer Price
Date shares at POP Index Index
9/30/88 9,525 10,000 10,000
9/30/89 10,442 10,868 10,434
9/30/90 11,043 11,607 11,077
9/30/91 12,446 13,137 11,452
9/30/92 13,733 14,510 11,795
9/30/93 15,605 16,358 12,112
9/30/94 15,053 15,962 12,470
9/30/95 16,568 17,748 12,787
9/30/96 17,697 18,820 13,171
9/30/97 19,240 20,520 13,454
9/30/98 $20,732 $22,312 $13,639
Footnote reads:
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 $20,130 and no contingent deferred sales charges would
apply; a $10,000 investment in the fund's class M shares would have been
valued at $20,903 ($20,226 at public offering price). See first page of
performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 12 12 12
- ------------------------------------------------------------------------------
Income $0.434485 $0.376936 $0.407673
- ------------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------------
Long-term 0.030000 0.030000 0.030000
- ------------------------------------------------------------------------------
Short-term 0.011000 0.011000 0.011000
- ------------------------------------------------------------------------------
Total $0.475485 $0.417936 $0.448673
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/97 $8.71 $9.14 $8.70 $8.70 $8.99
- ------------------------------------------------------------------------------
9/30/98 8.89 9.33 8.88 8.88 9.18
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate2 4.71% 4.49% 4.07% 4.41% 4.27%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.60 8.19 7.42 8.06 7.79
- ------------------------------------------------------------------------------
Current 30-day SEC yield4 3.99 3.80 3.32 3.68 3.56
- ------------------------------------------------------------------------------
Taxable equivalent3 7.28 6.94 6.06 6.72 6.50
- ------------------------------------------------------------------------------
1Capital 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.
2Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
3Assumes maximum 45.22% combined federal and state tax rate. Results for
investors subject to lower tax rates would not be as advantageous.
4Based only on investment income, calculated using SEC guidelines.
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 charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
*Formerly Putnam Diversified Income Trust II
+Formerly Putnam Federal Income Trust
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
**An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Report of independent accountants
For the fiscal year ended September 30, 1998
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, 1998, 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, 1998 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 11, 1998
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1998
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FHA Insd. -- Federal Housing Administration Insured
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
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (99.1%) (a)
PRINCIPAL AMOUNT RATINGS(RAT) VALUE
California (97.9%)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Abag Fin.Auth.(Non-Profit Corps) COP
(Episcopal Homes Foundation)
$ 7,500,000 5 1/8s, 7/1/18 A- $ 7,565,625
4,000,000 5 1/8s, 7/1/13 A- 4,060,000
16,000,000 Anaheim, IF COP, MBIA, 8.87s, 7/16/23 Aaa 20,300,000
24,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA, 9.03s,
12/28/18 Aaa 32,040,000
10,000,000 Anaheim, Pub. Fin. Auth. Rev. Bonds
(Pub. Improvements), Ser. A, FSA, 5s, 3/1/37 Aaa 10,012,500
30,275,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Med. Ctr.), Ser. A, 6.55s, 12/1/22 A+ 34,097,219
10,000,000 Beverly Hills, COP (Civic Ctr. Impt.),
6 3/4s, 6/1/19 AA- 10,389,700
15,745,000 CA Edl. Fac. Auth. Rev. Bonds
(U. of Southern CA), Ser. B, 6 3/4s, 10/1/15 AA 16,594,915
CA Hlth. Fac. Auth. Rev. Bonds
2,000,000 (Summit Med. Ctr.), Ser. A, 7.6s, 5/1/15 Baa3 2,089,540
12,335,000 (Summit Med. Ctr.), Ser. B, 7.6s, 5/1/15 Baa3 12,887,238
9,000,000 (CedarKnoll), Ser. B, 7 1/2s, 8/1/20 A+ 9,798,750
7,175,000 (Summit Med. Ctr.), Ser. B, 7 1/2s, 5/1/09 Baa3 7,492,135
10,000,000 (Mercy Hlth. Syst.), Ser. C, MBIA, 7 1/4s,
7/1/15 (SEG) Aaa 10,467,400
21,000,000 (Catholic Healthcare West.), Ser. A, AMBAC,
5s, 7/1/21 Aaa 20,973,750
35,385,000 CA Hlth. Fac. Fin. Auth. IFB, stepped-coupon,
Ser. B, MBIA, 4.62s, (5s, 1/1/99), 7/1/14 (STP) AAA 35,960,006
14,300,000 CA Housing Fin. Agcy. IFB, FHA Insd., 8.945s,
8/1/23 Aa2 16,874,000
10,290,000 CA Poll. Control Fin. Auth. Solid Waste Disp.
Rev. Bonds (Keller Canyon Landfill Co.),
6 7/8s, 11/1/27 A3 11,293,275
38,525,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
(Jt. Pwrs. Agcy.), Ser. B, MBIA, 8.1s, 3/1/18 Aaa 39,272,000
CA State G.O. Bonds
37,100,000 FRB, 8.3s, 9/1/12
(acquired 7/11/96, cost $36,543,500) (RES) A1 52,032,750
10,000,000 AMBAC, 6 1/2s, 9/1/06 Aaa 11,762,500
24,365,000 6s, 2/1/10 A1 28,293,856
16,365,000 6s, 10/1/08 A1 18,983,400
14,700,000 6s, 2/1/08 A1 16,923,375
16,545,000 AMBAC, 5 1/2s, 4/1/11 Aaa 18,509,719
36,570,000 5 1/2s, 10/1/07 A1 40,958,400
26,570,000 5 1/2s, 10/1/06 A1 29,525,913
10,000,000 (Veterans), Ser. BH, 5.4s, 12/1/14 A1 10,262,500
10,000,000 (Veterans), Ser. BH, 5.35s, 12/1/13 A1 10,262,500
10,000,000 (Veterans), Ser. BH, 5 1/4s, 12/1/12 Aaa 10,300,000
20,800,000 Ser. 33, MBIA, zero %, 10/1/11 A1 11,804,000
60,000,000 Ser. 27, MBIA, zero %, 9/1/11 A1 34,200,000
25,500,000 CA State Rev. Bonds, FGIC, 8s, 11/1/07 Aaa 32,225,625
CA State Dept. Wtr. Res.
24,200,000 IFB (Central Valley), 9.882s, 12/1/12
(acquired 11/27/92, cost $25,593,859) (RES) Aa2 37,933,500
15,530,000 Rev. Bonds (Central Valley), 5s, 12/1/29 Aa2 15,568,825
25,000,000 Rev. Bonds, Ser. O, MBIA, 4 3/4s, 12/1/29 Aaa 24,468,750
CA State Pub. Wks. Board Lease Rev. Bonds
7,205,000 (CA Cmnty. Colleges), Ser. A, 5 1/2s, 12/1/09 A2 8,006,556
6,000,000 (Regents U. CA), Ser. A, 5 1/4s, 12/1/09 AA3 6,592,500
6,000,000 (Regents U. CA), Ser. A, 5 1/4s, 12/1/07 AA3 6,615,000
6,555,000 (Libr. & Courts Annex), Ser. A, 5s, 5/1/18 A2 6,555,000
CA State Pub. Wks. Board Lease Rev. Bonds
20,690,000 (U. of CA), Ser. A, 7s, 9/1/15 Aaa 22,396,925
24,000,000 (Dept. of Corrections-State Prisons),
Ser. A, 7s, 9/1/09 Aaa 25,980,000
28,000,000 (Dept. of Corrections-State Prisons),
Ser. A, MBIA, 6 1/2s, 9/1/17 Aaa 34,510,000
59,000,000 (Dept. of Corrections-State Prisons),
Ser. A, 6.43s, 9/1/19 A+ 64,752,500
10,105,000 Ser. A, AMBAC, 5.8s, 1/1/13 Aaa 11,229,181
33,500,000 (Dept. of Corrections-State Prisons),
Ser. A, AMBAC, 5s, 12/1/19 Aaa 34,588,750
18,000,000 CA State U. IFB, AMBAC, 8.443s, 11/1/21
(acquired 3/2/92, cost $19,013,580) (RES) Aaa 21,060,000
10,000,000 CA Statewide Cmnty. Dev. Auth. COP
(Childrens Hosp.), MBIA, 4 3/4s, 6/1/21 Aaa 9,750,000
600,000 CA Statewide Cmnty. Dev. Auth. VRDN
(Barton Memorial Hosp.), 3.8s, 12/1/09 VMIG1 600,000
CA Statewide Cmntys. Dev. Auth. Apt.
Dev. Rev. Bonds (Irvine Apt. Cmntys.)
12,500,000 Ser. A-4, 5 1/4s, 5/15/25 Baa2 12,843,750
20,000,000 Ser. A-3, 5.1s, 5/15/25 Baa2 20,550,000
5,000,000 Ser. A, 5.05s, 5/15/25 Baa2 5,118,750
30,000,000 Ser. A-2, 4.9s, 5/15/25 Baa2 30,712,500
600,000 CA Statewide Cmntys. Dev. Corp. VRDN
(Karcher Ppty.), Ser. C, 3.4s, 12/1/19 VMIG1 600,000
14,000,000 Castaic Lake, Wtr. Agcy. COP (Wtr. Syst. Impt.),
MBIA, 7 1/8s, 8/1/16 Aaa 15,155,000
32,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds,
AMBAC, 5 3/4s, 8/1/22 Aaa 34,400,000
Commerce Redev. Agcy. Rev. Bonds (No. 1),
Ser. 91-A
8,845,000 7 1/4s, 8/1/21 BBB- 9,486,263
68,280,000 zero %, 8/1/21 BBB- 20,825,400
Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G
36,915,000 MBIA, 5s, 10/1/26 Aaa 37,007,288
45,000,000 MBIA, 5s, 10/1/24 Aaa 45,112,500
35,000,000 Contra Costa, Home Mtge. Fin. Auth. Rev. Bonds,
MBIA, zero %, 9/1/17 Aaa 13,125,000
10,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 B-/P 12,050,000
19,000,000 Delano, COP (Delano Regl. Med. Ctr.),
5.6s, 1/1/26 BBB- 19,142,500
15,000,000 Duarte, COP (City of Hope Med. Ctr.),
6 1/8s, 4/1/13 Baa1 15,937,500
23,850,000 East Bay, Muni. Util. Dist. Rev. Bonds
(Wastewater Treatment), FGIC, 4 3/4s, 6/1/21 AAA 23,432,625
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 8/15/17 Aaa 12,400,781
Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(CA Toll Roads), Ser. A
34,150,000 6 1/2s, 1/1/32 Baa 37,863,813
38,875,000 6s, 1/1/34 Baa 41,985,000
31,945,000 5s, 1/1/35 Baa 31,226,238
11,460,000 Fresno, Unified Sch. Dist. COP, 7 1/4s, 3/1/07 A3 12,548,700
500,000 Indio, Multi-Fam. Rev. Bonds VRDN (Carreon),
Ser. A, 3.7s, 8/1/26
(Redlands Federal Bank LOC) A-1+ 500,000
3,400,000 Irvine Ranch, Wtr. Dist. VRDN
(Cons. Bds.), 2.5s, 10/1/05 A-1+ 3,400,000
10,000,000 Kern, Cmnty College Dist. COP, MBIA, 5s, 1/1/25 Aaa 10,025,000
10,510,000 Kern, High School Dist. G. O., Ser. 14,
MBIA, 9.184s, 2/1/13
(acquired 6/29/98,cost $14,071,159)(RES) Aaa 14,950,475
600,000 Kings Cnty., Multi-Fam. Hsg. VRDN
(Edgewater Isle Apts), Ser. A, 3.25s, 6/1/07 VMIG1 600,000
Los Angeles Cnty., CA Pub. Wks. Fin.
Auth. Rev Bonds, Ser. A
7,000,000 AMBAC, 5 1/2s, 10/1/10 Aaa 7,787,500
8,000,000 AMBAC, 5 1/2s, 10/1/09 Aaa 8,930,000
9,000,000 AMBAC, 5 1/2s, 10/1/08 Aaa 10,113,750
100,000 Los Angeles Cnty., Cmnt. Dev. Comm. IF COP
(Willowbrook), 3.75, 11/1/15 A+ 100,000
15,000,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr.
Auth. Rev. Bonds, Ser. A, MBIA, 7 1/4s, 9/15/30 Aa3 16,256,250
12,150,000 Los Angeles Cnty., Metro. Trans. Auth. Sales
Tax Rev. Bonds, Ser. A (2nd Ser.),
AMBAC, 5s, 7/1/25 Aaa 12,180,375
15,235,000 Los Angeles Cnty., Pub. Wks. Fin. Auth.
Rev. Bonds, Ser. A, MBIA, 5 3/4s, 9/1/07 Aaa 17,520,250
13,000,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 13,016,250
21,530,000 Los Angeles, Bldg. Auth. Rev. Bonds
(CA Dept. Gen Svcs.), Ser. A, MBIA,
5 5/8s, 5/1/11 Aaa 24,355,813
2,200,000 Los Angeles, Cmnty. Redev. Agcy. Multi-Fam.
VRDN (Promenade Towers), 3 1/2s, 4/1/09
(Barclays Bank LOC) VMIG1 2,200,000
Los Angeles, Convention & Exhibition
Ctr. Auth. Lease
37,465,000 COP, 9s, 12/1/20 Aaa 49,641,125
19,300,000 IFB, MBIA, 6.8541s, 8/15/18
(acquired 9/15/94, cost $21,610,242) (RES) Aaa 20,626,875
Los Angeles, Dept. of Wtr. & Pwr. Rev. Bonds
9,305,000 7 3/8s, 2/1/29 AA 9,589,826
11,000,000 (Waterworks), 7s, 2/15/22 Aa 11,347,050
51,200,000 (Electric Plant), Ser. Issue II, 6.8s, 6/1/31 Aa3 55,872,000
38,205,000 (Electric Plant), Ser. Issue II, 6 3/4s, 12/15/29 Aa3 40,163,006
25,000,000 Los Angeles, Harbor Dept. Rev. Bonds, 7.6s,
10/1/18 AAA 32,718,750
15,715,000 Los Angeles, Metro. Trans. Auth. Sales Tax
Rev. Bonds, Ser. A, AMBAC, 5 1/2s, 7/1/08 Aaa 17,541,869
26,235,000 Los Angeles, Pension Auth. COP, Ser. A,
MBIA, 6.9s, 6/30/08 Aaa 32,236,256
2,500,000 Los Angeles, Uni. School Dist. G. O. Bonds,
Ser. B, FGIC, 5 3/8s, 7/1/12 Aaa 2,706,250
Los Angeles, Uni. School Dist. G. O. Bonds, Ser. B
6,380,000 FGIC, 5 3/8s, 7/1/14 Aaa 6,810,650
7,455,000 FGIC, 5 3/8s, 7/1/13 Aaa 8,014,125
8,785,000 FGIC, 5 3/8s, 7/1/11 Aaa 9,597,613
25,000,000 FGIC, 5s, 7/1/23 Aaa 25,093,750
34,700,000 Los Angeles, Wastewater Syst. IFB, 9.036s, 6/1/19 Aaa 41,596,625
Los Angeles, Wastewater Syst. Rev. Bonds
17,150,000 Ser. B, 7.15s, 6/1/20 AAA 18,479,125
20,105,000 Ser. A, 7s, 2/1/20 Aaa 21,411,825
50,000,000 Ser. 91-5, AMBAC, 6.519s, 6/1/21 Aaa 52,175,500
15,000,000 Ser. G, MBIA, 5s, 6/1/28 Aaa 15,056,250
7,775,000 Los Angeles, Wtr Dept. & Pwr. Rev. Bonds,
7.4s, 9/1/25 Aa 8,219,963
Metropolitan Wtr. Dist G. O. Bonds
2,500,000 Ser. A, 5 1/4s, 3/1/13 Aaa 2,659,375
4,000,000 Ser. A, 5 1/4s, 3/1/14 Aaa 4,225,000
20,000,000 Metropolitan Wtr. Dist. IFB
(Southern CA Waterwks.), 8.58s, 8/10/18 Aa3 25,975,000
Metropolitan Wtr. Dist. Rev Bonds
22,600,000 (Southern California Waterwks.), 5.95s, 8/5/22 Aa2 24,662,250
10,000,000 Ser. A, 5 1/2s, 7/1/10 Aa2 11,062,500
15,425,000 Ser. A., 5s, 7/1/37 Aa2 15,463,563
20,375,000 Ser. A., 5s, 7/1/30 Aaa 20,425,938
33,755,000 (Southern CA Waterwks.), Ser. C, 5s, 7/1/27 Aa2 33,839,388
53,745,000 Ser. A., 5s, 7/1/26 Aa2 53,946,544
15,000,000 (Southern CA Waterwks.), Ser. B, MBIA,
4 3/4s, 7/1/21 Aaa 14,737,500
8,275,000 Modesto, Dist. Fin. Auth. Rev. Bonds, Ser. A,
MBIA, 5 3/4s, 10/1/10 Aaa 9,350,750
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 5s, 12/1/13 Aaa 17,264,000
Northern CA Pwr. Agcy. Rev. Bonds
11,645,000 (Geothermal), Ser. A, AMBAC, 5.8s, 7/1/09 Aaa 13,304,413
5,780,000 (Hydroelectric), Ser. A, MBIA, 5 1/4s, 7/1/12 AAA 6,199,050
5,440,000 (Hydroelectric), Ser. A, MBIA, 5 1/4s, 7/1/11 AAA 5,888,800
Northern CA Pwr. Agcy. Multi. Cap. Fac. Rev. Bonds IF
4,770,000 9.877s, 8/1/17 Aaa 5,771,700
3,620,000 9.877s, 8/1/17 Aaa 4,515,950
5,395,000 9.192s, 8/1/25 Aaa 6,534,694
4,105,000 6.538s, 8/1/25 Aaa 5,120,988
Oakland CA, Bldg., Auth. Rev. Bonds
6,540,000 AMBAC, 5 1/2s, 4/1/13 Aaa 7,112,250
6,295,000 AMBAC, 5 1/2s, 4/1/12 Aaa 6,916,631
700,000 Oakland, COP VRDN (Cap. Equip.), 3.8s,
12/1/15 (National Westminster Bank (LOC)) VMIG1/P 700,000
14,800,000 Oakland, Redev. Agcy. Rev. Bonds, MBIA,
5.95s, 9/1/19 Aaa 15,780,500
Orange Cnty., COP, Ser. A
14,520,000 MBIA, 6s, 7/1/26 Aaa 16,226,100
25,285,000 MBIA, 6s, 7/1/07 Aaa 28,951,325
1,600,000 Orange Cnty., Apt. Dev. VRDN (Harbor Pointe),
Ser. D, 3.5s, 12/1/06 VMIG1 1,600,000
600,000 Orange Cnty., Hsg. Auth. Dev. VRDN
(Village Niguel), Ser. AA, 3.7s, 12/1/08 VMIG1 600,000
Orange Cnty., Local Trans. Auth. Rev. Bonds, Ser. A
5,000,000 MBIA, 5 1/2s, 2/15/09 Aaa 5,543,750
8,000,000 MBIA, 5 1/2s, 2/15/08 Aaa 8,870,000
7,845,000 MBIA, 5 1/2s, 2/15/07 Aaa 8,698,144
Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management)
10,000,000 7 7/8s, 12/1/13 BBB 10,272,000
4,180,000 7 7/8s, 12/1/07 BBB 4,293,696
4,850,000 Orange Cnty., Sanitation Dists. VRDN
(Ref. Nos. 1-3, 5-7 & 11), AMBAC, 4s, 8/1/16 A-1+ 4,850,000
Orange Cnty., Trans. Auth. Sales Tax Rev.
Bonds, Ser. A
11,445,000 5.7s, 2/15/11 Aaa 12,961,463
11,700,000 5.7s, 2/15/10 Aaa 13,221,000
13,960,000 5.7s, 2/15/09 Aaa 15,722,450
8,210,000 5.7s, 2/15/08 Aaa 9,225,988
16,830,000 Orange Cnty., Wtr. Dist. COP, Ser. A, 5s, 8/15/18 Aa 16,830,000
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev. Bonds
(Cent. City Revitalization), Ser. A, 6 1/2s, 9/1/16 BBB 13,883,250
31,850,000 Palm Desert, Fin. Auth. Tax Alloc. IFB, MBIA,
8.585s, 4/1/22 Aaa 38,220,000
1,900,000 Palm Springs Cmnty. Redev. Agcy. COP VRDN
(Headquarters Hotel 10), 3.75s, 12/1/14
(Citibank LOC) A-1+ 1,900,000
24,855,000 Pasadena, Cap. Impt. IF COP, AMBAC, 3.43s,
2/1/14 Aaa 27,029,813
2,000,000 Pasadena, VRDN COP (Rose Bowl Impt.), 2.75s,
12/1/16 (Canadian Imperial Bank LOC) VMIG1 2,000,000
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds, Ser. B
5,440,000 6 3/4s, 9/2/17 BBB/P 5,895,600
8,390,000 6.6s, 9/2/08 BBB/P 9,176,563
4,530,000 6 1/2s, 9/2/04 BBB/P 5,039,625
7,565,000 6 1/8s, 9/2/02 BBB/P 8,066,181
10,000,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. CC, MBIA,
5 1/2s, 7/1/08 Aaa 11,150,000
44,000,000 Rancho Cucamonga, Wtr. Dist. Fin. Auth.
Rev. Bonds, AMBAC, 6.427s, 8/17/21 Aaa 48,015,000
7,095,000 Rancho, Redev. Agcy. Tax Alloc. Rev. Bonds
(Rancho Redev.), MBIA, 6 3/4s, 9/1/20 Aaa 7,463,514
10,400,000 Redding, Elec. Syst. Rev. Bonds, MBIA, 8.70s,
7/8/22 Aaa 14,950,000
1,400,000 Riverside Cnty., Hsg. Auth. Multi-Fam. Rev. Bonds
VRDN (Mtn. View Apts.), Ser. A, 3.45s, 8/1/25
(Redlands Federal Savings & Loan LOC) A-1+ 1,400,000
12,725,000 Sacramento City Fin. Auth. Lease Rev. Bonds,
Ser. A, AMBAC, 5 3/8s, 11/1/14 Aaa 13,965,688
23,510,000 Sacramento Cnty., Arpt. Syst. Rev. Bonds,
Ser. A, FGIC, 5s, 7/1/26 Aaa 23,598,163
Sacramento, Muni. Util. Dist. Elec.
27,000,000 IFB, FGIC, 9.071s, 8/15/18 Aaa 32,265,000
12,000,000 Rev. Bonds, Ser. A, MBIA, 6 1/4s, 8/15/10 Aaa 14,235,000
15,800,000 San Diego Cnty., COP, AMBAC, 5 1/4s, 9/1/06 Aaa 17,064,000
21,400,000 San Diego Cnty., IF COP, MBIA, 6.363s, 11/18/19 Aaa 22,898,000
San Diego Cnty., Wtr. Auth. COP, Ser. A
5,000,000 5 3/4s, 5/1/11 Aa3 5,693,750
9,500,000 5 1/4s, 5/1/07 Aa3 10,378,750
San Diego Cnty., Wtr. Auth. IF COP
20,000,000 Ser. 91-B, MBIA, 8.02s, 4/8/21 Aaa 26,750,000
28,350,000 Ser. B, MBIA, 8.67s, 4/21/11 Aaa 39,690,000
3,740,000 San Diego, Single Fam. Mtge. Rev. Bonds,
zero % 8/1/16 A3 687,225
30,000,000 San Diego, Conv. Ctr. Expansion Fing Auth.
Lease Rev. Bonds, Ser. A, 4 3/4s, 4/1/28 Aaa 29,400,000
2,100,000 San Diego, Hsg. Auth. Multi-Fam. Hsg. VRDN
(Carmel Del Mar Apts.), Ser. A, 3.5s, 12/1/15 A-1 2,100,000
29,350,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 29,423,375
11,000,000 San Diego, Regl. Bldg. Auth. Lease COP,
MBIA, 6.9s, 5/1/23 Aaa 11,687,500
14,100,000 San Diego, Regl. Bldg. Auth. Lease COP,
MBIA, 5.65s, 5/1/13 Aaa 15,087,000
San Francisco, City & Cnty. G.O. Bonds, Ser. 1
32,300,000 FGIC, 5 3/4s, 6/15/07 AAA 36,660,500
30,470,000 FGIC, 5 3/4s, 6/15/06 Aaa 34,278,750
San Francisco, Rapid Transit Dist. Sales Tax
Rev. Bonds
10,000,000 5 1/2s, 7/1/09 Aa3 11,187,500
10,000,000 AMBAC, 5s, 7/1/28 Aaa 10,037,500
600,000 San Francisco, City & Cnty. Redev. Agy.
Multi-Fam. VRDN, LOC (Fillmore Ctr),
Ser. A-1, 3.3s, 12/1/17 A-1+ 600,000
San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds
34,125,000 5s, 1/1/33 BBB- 33,357,188
77,825,000 Sr. Lien, 6 3/4s, 1/1/32 Aaa 88,428,656
29,100,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev), MBIA, 4 3/4s, 8/1/24 Aaa 28,554,375
San Marcos, Pub. Fac. Auth. Rev. Bonds
2,000,000 5.8s, 9/1/27 BB-/P 2,040,000
1,635,000 5.8s, 9/1/18 BB-/P 1,675,875
3,000,000 5 1/2s, 9/1/10 BB-/P 3,093,750
40,000,000 San Mateo Cnty., Jt. Pwr. Fin. Auth. Rev. Bonds,
FSA, 5 3/4s, 7/15/29 Aaa 42,850,000
10,000,000 Santa Clara, CA Elec. Rev. Bonds, Ser. A,
AMBAC, 5s, 7/1/27 AAA 10,037,500
35,600,000 Santa Clara, Wtr. Dist. Rev. Bonds, FGIC,
5 3/4s, 2/1/15 Aaa 38,270,000
7,525,000 Sierra View, Health Care Dist. Rev. Bonds LOC,
5.4s, 7/1/22 BBB- 7,440,344
2,100,000 Simi Valley, Multi-Fam Hsg. VRDN, LOC, Ser. A,
3.5s, 7/1/23 VMIG1 2,100,000
45,200,000 South Orange Cnty., Pub. Fin. Auth. Rev. Bonds,
FGIC, 5 1/2s, 8/15/15 Aaa 48,025,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
5,465,000 (Southern transmission), Ser. A, MBIA,
5 1/4s, 7/1/11 Aaa 5,915,863
42,690,000 (Mead Adelanto), Ser. A, AMBAC, 4 7/8s,
7/1/20 Aaa 42,636,638
3,000,000 Stockton, Cmnty. Fac. Dist. Spl. Tax. Rev. Bonds
(Mello Roos-Weston Ranch), Ser. A, 5.8s,
9/1/14 BB-/P 3,041,250
1,800,000 Stockton, Multi-Fam. Hsg. VRDN
(Mariners Pointe Assoc.), Ser. A, 3.55s, 9/1/18 A-1+ 1,800,000
Thousand Oaks, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1)
21,775,000 6 7/8s, 9/1/24 B/P 23,789,188
33,515,000 Zero %, 9/1/14 B/P 12,903,275
40,462,000 U. of CA Rev. Bonds
(UCSD Med. Ctr. Satellite Med. Fac.),
7.9s, 12/1/19 A/P 42,737,988
59,400,000 U. of CA Hosp. IFB, 6.744s, 9/1/16 Aaa 67,567,500
10,195,000 U. of CA Hosp. Med. Center Rev. Bonds,
AMBAC, 5.7s, 7/1/11 Aaa 11,278,219
10,000,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB+/P 11,112,500
1,700,000 Vallejo, Hsg. Auth. VRDN, 3.45s, 1/1/08 VMIG1 1,700,000
36,945,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 40,085,314
--------------
3,652,818,152
Puerto Rico (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
$ 9,010,000 Commonwealth of PR, G.O. Bonds, MBIA, 5 3/4s,
7/1/11 Aaa $ 10,305,188
Commonwealth of PR, Pub. Impt G.O. Bonds
8,500,000 FSA, 5 1/2s, 7/1/11 AAA 9,520,000
5,000,000 FSA, 5 1/2s, 7/1/10 AAA 5,600,000
7,215,000 FSA, 5 1/2s, 7/1/09 AAA 8,080,800
10,000,000 Commonwealth of PR,. Infrastructure Fin. Auth.
Rev. Bonds, Ser. A, AMBAC, 5 1/2s, 7/1/08 Aaa 11,150,000
--------------
44,655,988
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,282,192,922) (b) $3,697,474,140
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,729,849,547.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1998, 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, 1998. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of
independent accountants.
(b) The aggregate identified cost on a tax basis is $3,284,325,722, resulting in gross unrealized appreciation and
depreciation of $413,150,425 and $2,007, respectively, or net unrealized appreciation of $413,148,418.
(STP) The interest rate and date shown parenthetically represent the new interest rate to be paid and the date the
fund will begin receiving interest at this rate.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at September 30, 1998 was $146,603,600 or 3.9% of net assets.
(SEG) A portion of this security was pledged and segregated with the custodian to cover margin requirements for
futures contracts at September 30, 1998.
The rates shown on Floating Rate Bonds (FRB) are the current interest rates shown at September 30, 1998, 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, 1998.
The fund had the following industry group concentrations greater than 10% at September 30, 1998 (as a
percentage of net assets):
Water and sewerage 19.0%
Utilities 10.5
The fund had the following insurance concentrations greater than 10% at September 30, 1998 (as a percentage of
net assets):
MBIA 24.0%
AMBAC 13.8
<CAPTION>
- ------------------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1998
Unrealized
Aggregate Face Expiration Appreciation/
Total Value Value Date (Depreciation)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Bond Index (Short) $25,675,000 $25,149,794 Dec - 98 $(525,206)
US. Treasury Bond (Short) 388,095,750 372,454,649 Dec - 98 (15,641,101)
- ------------------------------------------------------------------------------------------
$(16,166,307)
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1998
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,282,192,922) (Note 1) $3,697,474,140
- -----------------------------------------------------------------------------------------------
Interest and other receivables 49,449,561
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 8,372,000
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 5,068,793
- -----------------------------------------------------------------------------------------------
Total assets 3,760,364,494
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for subcustodian (Note 2) 900,278
- -----------------------------------------------------------------------------------------------
Payable for variation margin 4,351,250
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,572,013
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 7,700,400
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,358,870
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,144,339
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 317,483
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 53,114
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 8,240
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,990,280
- -----------------------------------------------------------------------------------------------
Other accrued expenses 118,680
- -----------------------------------------------------------------------------------------------
Total liabilities 30,514,947
- -----------------------------------------------------------------------------------------------
Net assets $3,729,849,547
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,340,596,564
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 9,723,882
- -----------------------------------------------------------------------------------------------
Accumulated distributions in excess of
net realized gains on investments (Note 1) (19,585,810)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 399,114,911
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,729,849,547
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,073,177,679 divided by 345,773,716 shares) $8.89
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.89)* $9.33
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($641,686,169 divided by 72,266,390 shares)** $8.88
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($14,985,699 divided by 1,687,518 shares) $8.88
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.88)*** $9.18
- -----------------------------------------------------------------------------------------------
* 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, 1998
<S> <C>
Tax exempt interest income: $213,987,145
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,454,584
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,770,202
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 54,074
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 31,471
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 6,119,526
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,123,170
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 68,026
- -----------------------------------------------------------------------------------------------
Reports to shareholders 56,538
- -----------------------------------------------------------------------------------------------
Auditing 72,449
- -----------------------------------------------------------------------------------------------
Legal 110,796
- -----------------------------------------------------------------------------------------------
Postage 151,876
- -----------------------------------------------------------------------------------------------
Other 318,945
- -----------------------------------------------------------------------------------------------
Total expenses 32,331,657
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (490,105)
- -----------------------------------------------------------------------------------------------
Net expenses 31,841,552
- -----------------------------------------------------------------------------------------------
Net investment income 182,145,593
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 43,606,804
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (34,352,817)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the year 80,739,975
- -----------------------------------------------------------------------------------------------
Net gain on investments 89,993,962
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $272,139,555
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 182,145,593 $ 187,384,459
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 9,253,987 26,253,212
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 80,739,975 87,775,330
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 272,139,555 301,413,001
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (151,806,061) (162,697,410)
- ---------------------------------------------------------------------------------------------------------------
Class B (25,903,310) (24,724,436)
- ---------------------------------------------------------------------------------------------------------------
Class M (631,945) (591,240)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (14,439,035) (7,788,953)
- ---------------------------------------------------------------------------------------------------------------
Class B (2,752,005) (1,298,602)
- ---------------------------------------------------------------------------------------------------------------
Class M (60,933) (27,148)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (21,698,752) (98,622,941)
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 54,847,514 5,662,271
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,675,002,033 3,669,339,762
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed
net investment income of $9,723,882 and
$3,787,434, respectively) $3,729,849,547 $3,675,002,033
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.71 $8.46 $8.37 $8.09 $8.92
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .44(c) .44 .47 .48 .50
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 .28 .09 .31 (.81)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .65 .72 .56 .79 (.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.43) (.45) (.47) (.48)** (.50)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.03) (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.47) (.51) (.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.89 $8.71 $8.46 $8.37 $8.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.75 8.71 6.81 10.07 (3.53)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,073,178 $3,087,795 $3,149,797 $3,168,277 $3,260,769
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77 .74 .74 .74 .68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 5.06 5.20 5.60 5.86 5.86
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.88 23.51 29.47 47.73 21.06
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.70 $8.45 $8.37 $8.08 $8.91
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39(c) .39 .42 .42 .45
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .21 .27 .07 .32 (.81)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .60 .66 .49 .74 (.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.38) (.39) (.41) (.42)** (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- -- (.02)
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.41) (.41) (.45) (.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.88 $8.70 $8.45 $8.37 $8.08
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.05 8.02 5.99 9.47 (4.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $641,686 $573,309 $510,394 $416,367 $349,609
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.42 1.39 1.39 1.39 1.32
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.41 4.54 4.94 5.17 5.16
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.88 23.51 29.47 47.73 21.06
- ------------------------------------------------------------------------------------------------------------------------------------
+ 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $8.70 $8.45 $8.36 $8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .41(c) .42 .45 .29
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .22 .27 .08 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .63 .69 .53 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.41) (.42) (.44) (.30)**
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.44) (.44) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.88 $8.70 $8.45 $8.36
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 7.43 8.39 6.48 6.56*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $14,986 $13,898 $9,149 $4,108
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.07 1.04 1.04 .69*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.76 4.92 5.24 3.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.88 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).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during
the period.
</TABLE>
Notes to financial statements
September 30, 1998
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 8 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 6 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 may invest 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 year ended
September 30, 1998 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
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 temporary and
permanent differences of losses on wash sale transactions, foreign
currency gains and losses, dividends payable, market discount, realized
straddle loss deferrals, and Sec. 1256 futures marked-to market.
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,
1998, the fund reclassified $2,132,171 to increase undistributed net
investment income and $126 to increase paid-in-capital, with an increase
to accumulated net realized losses of $2,132,297. 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 Any premium
resulting from the purchase of securities in excess of maturity value is
amortized on a yield-to-maturity basis. 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, stepped-coupon bonds and payment in kind bonds
are accreted according to the yield-to-maturity basis.
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.
As part of the subcustodian contract between the subcustodian bank and
Putnam Fiduciary Trust Company (PFTC), a 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, 1998 the payable to the
subcustodian bank represents the amount due for cash advance for the
settlement of a security purchased.
The fund reimburses Putnam Management an allocated amount 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, 1998, fund expenses were reduced by
$490,105 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.
Each Trustee of the fund receives an annual Trustee fee, of which $1,920
has been allocated to the fund, 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, 1998, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $249,428 and $4,697 from the
sale of class A and class M shares, respectively and $1,095,191 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, 1998, Putnam Mutual Funds
Corp., acting as underwriter received $51,565 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended September 30, 1998, purchases and sales of
investment securities other than short-term investments aggregated
$1,116,780,565 and $1,129,726,424, respectively. Purchases and sales of
short-term municipal obligations aggregated $888,289,970 and $927,790,210,
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, 1998, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended
September 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 27,255,104 $238,598,726
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,363,957 82,108,906
- -----------------------------------------------------------------------------
36,619,061 320,707,632
Shares
repurchased (45,556,769) (398,786,047)
- -----------------------------------------------------------------------------
Net decrease (8,937,708) $(78,078,415)
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 13,991,389 $122,518,926
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,829,737 16,028,898
- -----------------------------------------------------------------------------
15,821,126 138,547,824
Shares
repurchased (9,479,611) (82,954,732)
- -----------------------------------------------------------------------------
Net increase 6,341,515 $ 55,593,092
- -----------------------------------------------------------------------------
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, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 640,409 $5,607,163
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 57,444 503,211
- -----------------------------------------------------------------------------
697,853 6,110,374
Shares
repurchased (608,320) (5,323,803)
- -----------------------------------------------------------------------------
Net increase 89,533 $ 786,571
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $12,789,486 as capital gain, for its taxable year ended
September 30, 1998.
The fund has designated 99% 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 1999 will show the tax status of all
distributions paid to your account in calendar 1998.
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Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Brett C. Browchuk
Vice President
Leslie J. Burke
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
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PUTNAM
INVESTMENTS
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AN045 47023 11/98
