Putnam
California
Tax Exempt
Income Fund
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Putnam California Tax Exempt Income Fund has found other ways to
keep making money. . . . [Manager Bill] Reeves' goal is to find multiple
opportunities -- including yield-curve and credit plays."
-- Morningstar Mutual Funds, November 30, 1997
* "California's economy now shows increasing strength. The state
projects 6.3% personal income growth versus 5.3% growth for the nation."
-- Standard & Poor's CreditWeek Municipal, February 23, 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
19 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[Copyright] Karsh, Ottawa
Dear Shareholder:
The financial troubles in Asia continued to dominate the capital markets
during the first half of Putnam California Tax Exempt Income Fund's fiscal
year, pushing aside worries that the continued strength in the U.S. economy
would have inflationary implications. The rush of funds to the safety of the
U.S. bond market did drive yields on most bonds, including municipals, lower
- -- and their prices higher.
The Federal Reserve Board kept close watch on these events as you might
expect. But in the end, the Fed remained on the sidelines, apparently content
that the economic engine was still sufficiently under control.
In this environment, Fund Manager William Reeves continued to focus on
maintaining a high level of current tax-free income, consistent with capital
preservation. In the following report, Bill discusses his strategy during the
six months ended March 31, 1998, and looks at prospects for the fiscal year's
second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Manager
William H. Reeves
California municipal bondholders have continued to enjoy ideal investment
conditions -- increasing economic strength, minimal inflation, and stable
interest rates. Putnam California Tax Exempt Income Fund capitalized on this
environment, emphasizing attractive, durable levels of tax-exempt income,
credit-driven opportunity, and high standards of quality. For the six months
ended March 31, 1998, your fund's class A shares generated a total return of
3.51% at net asset value (-1.36% at public offering price). Results for
class B and class M shares, as well as performance details for longer periods,
can be found on page 8.
* ONGOING FAVORABLE TRENDS
The nation's steady economic growth, accompanied by low inflation, continued
to set the stage for a positive atmosphere in the tax-exempt market over the
past six months. Interest rates moved within a narrow range and sustained
historically low levels. The economy's strong performance generated higher tax
revenues, strengthening municipal balance sheets and helping to generate the
first federal budget surplus in nearly 30 years.
In California, the investment climate for municipal bonds was characterized by
economic growth that outpaced that of the nation, by continued improvement in
the state's financial operations, and by favorable supply and demand factors.
While the Asian situation slowed the state's economy, the impact thus far has
been minimal and has been offset largely by trade expansion with Canada and
Mexico as well as by benefits associated with NAFTA. Employment remained
strong -- the number of California jobs has surpassed levels reached prior to
the state's recession in the early 1990s. Employment in the aerospace industry
is back to an all-time high and other sectors such as entertainment,
construction, high technology, and agriculture continue to improve.
* STRATEGY SEEKS TO MAXIMIZE INCOME AND TOTAL RETURN
In this environment, we emphasized relative value and credit selection and
de-emphasized interest-rate management. The low interest rate, minimal
inflation atmosphere that has stimulated economic growth and spurred
employment has also created a double-edged sword for income-oriented
investors. As interest rates have fallen, building and sustaining attractive
levels of portfolio income have become an increasingly greater challenge. Our
investment strategy focused on meeting this challenge. A common theme was to
improve call protection. By investing in bonds with long call dates, we
secured the bond's income stream for the longest period possible before the
bonds could be called away from the portfolio by the bond's issuer.
The yields on lower-rated bonds moved closer to those of higher-rated bonds
during the reporting period, continuing the trend investors call spread
compression. Because lower-rated bonds offered little additional yield
compared to their higher-rated counterparts, in our opinion, higher-rated
bonds most often provided better relative value. We continued to invest nearly
two thirds of the fund in bonds rated Aaa.
There are exceptions to every rule, however, and such was the case with a bond
that represented credit-driven opportunity. One of the top-performing bonds
during the period was issued by the city of Vallejo for Marine World
Foundation. This bond has recently strengthened as a credit and benefited from
spread compression. When our research team discovered this project,
uncertainties regarding the development of management plans had driven some
investors away from participation. Recognizing potential difficulties, our
research team looked closer and after intense investigation and analysis,
became confident that plans would proceed as expected. We invested in the
project. The project's new management team later injected a substantial amount
of equity for Marine World Foundation to undergo extensive improvements and
expansion. Through our in-depth research, the portfolio secured an attractive
7.20% coupon, an improving credit and attractive price appreciation.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Water and sewerage 23.1%
Utilities 12.9%
Transportation 12.6%
Health care 10.4%
Education 4.0%
Footnote reads:
*Based on net assets as of 3/31/98. Holdings will vary over time.
While we emphasized quality and credit selection, we maintained a conservative
interest-rate posture. Interest rates moved within a narrow range, providing
less opportunity to benefit from the price appreciation associated with
falling long-term interest rates. Also, we are cautious regarding their
direction over the longer term. The Asian situation has had a dramatic impact
on interest rates around the world, keeping interest rates in the United
States particularly low. We believe these same factors may cause them to fall
somewhat lower over the near term. However, in light of the historically low
levels to which they have fallen and the strength of the economy, we believe
that over the longer term, the odds favor higher interest rates. With this
scenario, our strategies have been designed to focus on income and make the
fund less sensitive to interest-rate changes.
* FAVORABLE OUTLOOK FOR CALIFORNIA MUNICIPAL BONDS
Looking ahead, we believe that many of the favorable trends that have pushed
California municipal bond prices higher will continue. We expect ongoing
strength in employment and the California economy to breed solid income growth
and steady demand for tax-exempt bonds. We also anticipate a more balanced
supply and demand picture as we head farther into 1998. During the year's
first quarter -- typically a slow period for new supply -- California bond
issuance rose to $8 billion as municipalities accelerated financings to take
advantage of low interest rates. We believe this heavy supply will moderate as
we head into the second quarter, lending support to bond prices.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW*
A - 11.3%
Aa - 11.9%
Aaa - 56.7%
Short-term - 5.5%
Ba - 4.8%
Baa - 9.8%
Footnote reads:
*As a percentage of market value as of 3/31/98. 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.
We also believe in the long-term value that an income-oriented investment
provides to a well-rounded portfolio. This is particularly true in light of
the high taxable-equivalent yields that municipal bonds currently offer.
Historically generating 84% of the yield of a U.S. Treasury bond with a
similar maturity, Aaa-insured municipal bond yields now produce 90% of the
yield of their taxable counterparts. This taxable yield becomes particularly
attractive in a higher tax state, such as California. Furthermore, real
interest rates -- or the rate received by the investor when inflation is
removed -- also remain high by historical standards because inflation
continues to be so low.
We are optimistic regarding trends and new possibilities for credit-driven
opportunity for California municipal bondholders and look forward to taking
advantage of this potential over the second half of fiscal 1998.
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 3/31/98, 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 3/31/98
Class A Class B Class M
(inception date) (4/29/83) (1/4/93) (2/14/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 3.51% -1.36% 3.18% -1.83% 3.36% 0.02%
- ------------------------------------------------------------------------------
1 year 10.47 5.19 9.76 4.76 10.14 6.58
- ------------------------------------------------------------------------------
5 years 36.59 30.06 32.17 30.17 34.24 29.90
Annual average 6.43 5.40 5.74 5.41 6.07 5.37
- ------------------------------------------------------------------------------
10 years 121.86 111.32 104.91 104.91 112.84 105.91
Annual average 8.29 7.77 7.44 7.44 7.85 7.49
- ------------------------------------------------------------------------------
Life of fund 250.06 233.42 210.08 210.08 227.62 216.96
Annual Average 8.76 8.41 7.88 7.88 8.28 8.04
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 3/31/98
Lehman Bros.
Municipal Bond Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 3.89% 0.62%
- ------------------------------------------------------------------------------
1 year 10.72 1.38
- ------------------------------------------------------------------------------
5 years 39.15 12.95
Annual average 6.83 2.47
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10 years 122.94 39.23
Annual average 8.35 3.37
- ------------------------------------------------------------------------------
Life of fund 266.21 64.50
Annual average 9.09 3.39
- ------------------------------------------------------------------------------
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 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 3/31/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 6 6 6
- ------------------------------------------------------------------------------
Income $0.221507 $0.192783 $0.208117
- ------------------------------------------------------------------------------
Capital gains1
- ------------------------------------------------------------------------------
Long-term 0.030 0.030 0.030
- ------------------------------------------------------------------------------
Short-term 0.011 0.011 0.011
- ------------------------------------------------------------------------------
Total $0.262507 $0.233783 $0.249117
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
9/30/97 $8.71 $9.14 $8.70 $8.70 $8.99
- ------------------------------------------------------------------------------
3/31/98 8.75 9.19 8.74 8.74 9.03
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend
rate2 4.84% 4.61% 4.19% 4.54% 4.39%
- ------------------------------------------------------------------------------
Taxable equivalent3 8.84 8.42 7.65 8.29 8.01
- ------------------------------------------------------------------------------
Current 30-day SEC
yield4 4.68 4.46 4.01 4.38 4.23
- ------------------------------------------------------------------------------
Taxable equivalent3 8.54 8.14 7.32 8.00 7.72
- ------------------------------------------------------------------------------
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.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
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
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corporation
VR COP - Variable Rate Certificate of Participation
VRDN - Variable Rate Demand
MUNICIPAL BONDS AND NOTES (100.2%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
California (98.8%)
- ------------------------------------------------------------------------------------------------------------
$16,000,000 Anaheim, IF COP, MBIA, 8.87s, 7/16/23 Aaa $19,580,000
24,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA, 9.242s,
12/28/18 Aaa 30,450,000
30,275,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa 33,832,313
10,000,000 Beverly Hills, COP (Civic Ctr. Impt.),
6 3/4s, 6/1/19 AA- 10,450,000
CA Edl. Fac. Auth. Rev. Bonds
15,745,000 (U. of Southern CA), Ser. B, 6 3/4s, 10/1/15 Aa3 16,709,381
8,000,000 (Stanford U.), Ser. O, 5 1/8s, 1/1/31 Aaa 7,720,000
CA Hlth. Fac. Auth. Rev. Bonds
2,000,000 (Summit Med. Ctr.), Ser. A, 7.6s, 5/1/15 Baa 2,118,920
12,335,000 (Summit Med. Ctr.), Ser. B, 7.6s, 5/1/15 Baa 13,068,439
9,000,000 (CedarKnoll), Ser. B, 7 1/2s, 8/1/20 A+ 9,742,500
7,590,000 (Summit Med. Ctr.), Ser. B, 7 1/2s, 5/1/09 Baa 8,033,408
10,000,000 (Mercy Hlth. Syst.), Ser. C, MBIA, 7 1/4s, 7/1/15 # Aaa 10,600,000
21,000,000 (Catholic Healthcare West.), Ser. A, AMBAC,
5s, 7/1/21 Aaa 20,291,250
7,400,000 CA Hlth. Fac. Auth. VRDN (Sutter Hlth.), Ser. A,
3.8s, 3/1/20 (Morgan Guaranty Tr. (LOC)) VMIG1 7,400,000
35,385,000 CA Hlth. Fac. Fin. Auth. IFB, stepped-coupon,
Ser. B, MBIA, 4.625s, (5s, 1/1/99), 7/1/14 ++ AAA 34,633,069
14,350,000 CA Housing Fin. Agcy. IFB, FHA Insd.,
8.945s, 8/1/23 Aa 16,753,625
CA Poll. Control Fin. Auth. VRDN
1,100,000 (Southern CA Edison), Ser. A, 3.9s, 2/28/08 VMIG1 1,100,000
2,000,000 (Southern CA Edison), Ser. B, 3.9s, 2/28/08 VMIG1 2,000,000
1,700,000 (Pacific Gas & Elec.), Ser. F, 3.7s, 11/1/26
(Banque Nationale Paris (LOC)) A1 1,700,000
10,290,000 CA Poll. Control Fin. Auth. Solid Waste Disp.
Rev. Bonds (Keller Canyon Landfill Co.),
6 7/8s, 11/1/27 A 11,357,588
38,525,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
(Jt. Pwrs. Agcy.), Ser. B, MBIA, 8.1s, 3/1/18 Aaa 40,055,984
6,500,000 CA Special Dist. Fin. Auth. COP, Ser. A,
8 1/2s, 7/1/18 Baa 6,686,940
74,200,000 CA State FRB, 6.119s, 9/1/12 A1 84,309,750
CA State G.O. Bonds
10,000,000 AMBAC, 6 1/2s, 9/1/06 Aaa 11,562,500
24,365,000 6s, 2/1/10 A1 27,410,625
16,365,000 6s, 10/1/08 A1 18,451,538
14,700,000 6s, 2/1/08 A1 16,464,000
16,545,000 AMBAC, 5 1/2s, 4/1/11 Aaa 17,827,238
36,570,000 5 1/2s, 10/1/07 A1 39,769,875
26,570,000 5 1/2s, 10/1/06 A1 28,762,025
10,000,000 (Veterans), Ser. BH, 5.4s, 12/1/14 A1 10,025,000
10,000,000 (Veterans), Ser. BH, 5.35s, 12/1/13 A1 10,025,000
10,000,000 (Veterans), Ser. BH, 5 1/4s, 12/1/12 Aaa 10,087,500
25,460,000 MBIA, 5s, 11/1/22 Aaa 24,759,850
20,800,000 Ser. 33, MBIA, zero %, 10/1/11 A1 10,868,000
60,000,000 Ser. 27, MBIA, zero %, 9/1/11 A1 31,500,000
25,500,000 CA State Rev. Bonds, FGIC, 8s, 11/1/07 Aaa 31,779,375
24,200,000 CA State Dept. Wtr. Resources IFB
(Central Valley), 10.122s, 12/1/12
(acquired 10/23/97, cost $25,632,450) [DBL. DAGGER] Aa2 36,027,750
25,000,000 CA State Dept. Wtr. Resources Rev. Bonds
Ser. O, MBIA, 4 3/4s, 12/1/29 Aaa 23,250,000
CA State Econ. Dev. Fin. Auth. VRDN
2,300,000 (KQED, Inc.), 3.4s, 4/1/20 A+ 2,300,000
1,900,000 (Volk Enterprises), 3.35s, 6/1/21 A-1+ 1,900,000
CA State Pub. Wks. Board Lease Rev. Bonds
20,690,000 (U. of CA), Ser. A, 7s, 9/1/15 Aaa 22,500,375
24,000,000 (Dept. of Corrections-State Prisons),
Ser. A, 7s, 9/1/09 Aaa 26,100,000
28,000,000 (Dept. of Corrections-State Prisons), Ser. A,
MBIA, 6 1/2s, 9/1/17 Aaa 33,355,000
59,000,000 (Dept. of Corrections-State Prisons), Ser. A,
6.48s, 9/1/19 Aaa 64,752,500
10,105,000 Ser. A, AMBAC, 5.8s, 1/1/13 Aaa 10,888,137
33,500,000 (Dept. of Corrections-State Prisons), Ser. A,
AMBAC, 5s, 12/1/19 Aaa 33,081,250
18,000,000 CA State U. IFB, AMBAC, 9.883s, 11/1/21
(acquired 10/30/97, cost $18,428,834) [DBL. DAGGER] Aaa 21,172,500
CA Statewide Cmnty. Dev. Auth. COP
10,000,000 (Childrens Hosp.), MBIA, 4 3/4s, 6/1/21 Aaa 9,337,500
10,000,000 (Northern CA Retired Officers),
VR COP 4.1s, 6/1/26 VMIG1 10,000,000
14,000,000 Castaic Lake, Wtr. Agcy. COP (Wtr. Syst. Impt.),
MBIA, 7 1/8s, 8/1/16 Aaa 15,242,500
32,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds, AMBAC,
5 3/4s, 8/1/22 Aaa 33,880,000
Commerce Redev. Agcy. Rev. Bonds (No. 1),
Ser. 91-A
8,845,000 7 1/4s, 8/1/21 BBB- 9,453,094
68,280,000 zero %, 8/1/1921 BBB- 18,862,350
35,000,000 Contra Costa, Home Mtge. Fin. Auth. Rev. Bonds,
MBIA, zero % 9/1/17 Aaa 12,512,500
Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G, MBIA,
36,915,000 5s, 10/1/26 Aaa 35,807,550
45,000,000 5s, 10/1/24 Aaa 43,706,250
10,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 B/P 11,975,000
15,000,000 Duarte, COP (City of Hope Med. Ctr.),
6 1/8s, 4/1/13 Baa1 15,768,750
23,850,000 East Bay, Muni. Util. Dist. Rev. Bonds (Wastewtr.
Treatment), FGIC, 4 3/4s, 6/1/21 Aaa 22,419,000
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A, AMBAC,
6 1/4s, 8/15/17 Aaa 12,132,656
Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(CA Toll Roads), Ser. A,
34,150,000 6 1/2s, 1/1/32 Baa 36,924,688
38,875,000 6s, 1/1/34 Baa 40,430,000
31,945,000 5s, 1/1/35 Baa 29,509,194
11,460,000 Fresno, Unified Sch. Dist. COP, 7 1/4s, 3/1/07 A3 12,606,000
Indio, Multi-Fam. VRDN
1,900,000 (Carreon), Ser. A, 3.45s, 8/1/26
(Redlands Federal Bank (LOC)) A-1 1,900,000
2,285,000 (Western Federal Savings), 3.45s, 6/1/05
(Wells Fargo & Co. (LOC)) A-1 2,285,000
Irvine, Impt. Bd. VRDN
17,000,000 (Assmt. Dist. No. 97-16), 3.235s, 9/2/22 VMIG1 17,000,000
16,200,000 (Assmt. Dist. No. 94-13), 3s, 9/2/22 VMIG1 16,200,000
Irvine Ranch, Wtr. Dist. VRDN
7,400,000 (Dist. Nos. 105-250-290), 3.8s, 8/1/16 VMIG1 7,400,000
8,600,000 (Cons. Bonds), Ser. B, 3.75s, 10/1/09 A-1+ 8,600,000
6,400,000 2.83s, 1/1/21 VMIG1 6,400,000
6,600,000 2s, 9/1/06 VMIG1 6,600,000
8,500,000 Irvine Ranch, Wtr. Dist. VR COP (Cap. Impt.),
3.8s, 8/1/16 VMIG1 8,500,000
Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy.
Rev. Bonds (Issue II)
61,500,000 FNMA Coll., 8 1/4s, 8/15/23 A+ 62,413,890
23,000,000 8.2s, 8/15/08 A+ 23,337,640
2,000,000 Kings Cnty., Multi-Fam. Hsg. VRDN
(Edgewater Isle Apts), Ser. A, 3.4s, 6/1/07 VMIG1 2,000,000
6,000,000 Local Govt. Fin. Joint Pwr. Auth. Rev. Bonds
(Anaheim Redev. Agcy.), Ser. A, 8.2s, 9/1/15 AAA/P 6,229,380
Los Angeles Cnty., CA Pub. Wks. Fin. Auth.
Rev Bonds, Ser. A, AMBAC,
7,000,000 5 1/2s, 10/1/10 Aaa 7,498,750
8,000,000 5 1/2s, 10/1/09 Aaa 8,600,000
9,000,000 5 1/2s, 10/1/08 Aaa 9,742,500
1,500,000 Los Angeles Cnty., Cmnt. Dev. Comm. IF COP
(Willowbrook), 3.4s, 11/1/15 A+ 1,500,000
15,000,000 Los Angeles Cnty., Dept. Wtr. & Elec. Pwr. Auth.
Rev. Bonds, Ser. A, MBIA, 7 1/4s, 9/15/30 Aa3 16,387,500
12,150,000 Los Angeles Cnty., Metro. Trans. Auth. Sales Tax
Rev. Bonds, Ser. A (2nd Ser.), AMBAC, 5s, 7/1/25 Aaa 11,800,688
26,235,000 Los Angeles Cnty., Pension Authority COP, Ser. A,
6.9s, 6/30/08 Aaa 31,482,000
15,235,000 Los Angeles Cnty., Pub. Wks. Fin. Auth. Rev. Bonds
Ser. A, MBIA, 5 3/4s, 9/1/07 Aaa 16,739,456
13,000,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth. Rev.
Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 12,545,000
21,530,000 Los Angeles, Bldg. Auth. Rev. Bonds (CA Dept.
Gen Svcs.), Ser. A, MBIA, 5 5/8s, 5/1/11 Aaa 23,521,525
37,465,000 Los Angeles, Convention & Exhibition Ctr. Auth.
Lease COP, 9s, 12/1/20 Aaa 48,985,488
19,300,000 Los Angeles, Convention & Exhibition Ctr. Auth.
Lease IFB, MBIA, 7.022s, 8/15/18
(acquired 9/15/94, cost $14,332,566) [DBL. DAGGER] Aaa 19,734,250
Los Angeles, Dept. of Wtr. & Pwr. Rev. Bonds
9,305,000 7 3/8s, 2/1/29 Aa 9,721,864
11,000,000 (Wtrwks), 7s, 2/15/22 Aa3 11,507,540
51,200,000 (Electric Plant), Ser. Issue II, 6.8s, 6/1/31 Aa 56,064,000
38,205,000 (Electric Plant), Ser. Issue II, 6 3/4s, 12/15/29 Aa 40,449,544
25,000,000 Los Angeles, Harbor Dept. Rev. Bonds
7.6s, 10/1/18 AAA 32,031,250
Los Angeles, Metro. Trans. Auth. Sales Tax Rev.
Bonds, Ser. A
15,715,000 AMBAC, 5 1/2s, 7/1/08 Aaa 16,991,844
45,000,000 FGIC, 5s, 7/1/21 Aaa 43,481,250
34,700,000 Los Angeles, Wastewtr. Syst. IFB, 9.036s, 6/1/19
(acquired 12/4/97, cost $34,083,081) [DBL. DAGGER] Aaa 40,946,000
Los Angeles, Wastewtr. Syst. Rev. Bonds
17,150,000 Ser. B, 7.15s, 6/1/20 AAA 18,586,313
20,105,000 Ser. A, 7s, 2/1/20 Aaa 21,562,613
50,000,000 Ser. 91-5, AMBAC, 6.519s, 6/1/21 Aaa 52,812,500
7,775,000 Los Angeles, Wtr Dept. & Pwr. Rev. Bonds
7.4s, 9/1/25 Aa3 8,299,812
20,000,000 Metropolitan Wtr. Dist. IFB
(Southern CA Wtrwks.), 7.503s, 8/10/18 Aa2 23,500,000
Metropolitan Wtr. Dist. Rev Bonds
22,600,000 (Southern CA Wtrwks.), 5.95s, 8/5/22 Aa2 23,588,750
10,000,000 Ser. A, 5 1/2s, 7/1/10 Aa2 10,712,500
10,000,000 Ser. A., 5s, 7/1/37 Aa2 9,600,000
20,375,000 Ser. A., 5s, 7/1/30 AAA 19,738,281
43,755,000 (Southern CA Wtrwks.), Ser. C, 5s, 7/1/27 Aa 42,387,656
53,745,000 Ser. A., 5s, 7/1/26 Aa2 52,065,469
15,000,000 (Southern CA Wtrwks.), Ser. B, MBIA,
4 3/4s, 7/1/21 Aaa 14,100,000
8,275,000 Modesto, Dist. Fin. Auth. Rev. Bonds, Ser. A, MBIA,
5 3/4s, 10/1/10 Aaa 8,988,719
400,000 Moorpark, Multi-Fam. VRDN (LeClub Apartments),
Ser. A, 3.55s, 11/1/15 A-1+ 400,000
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 5s, 12/1/13 Aaa 16,268,000
Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB
8,450,000 9.116s, 8/15/17 Aaa 10,140,000
9,500,000 MBIA, 9.116s, 8/1/25 Aaa 11,400,000
17,000,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds
(Hydro. Elec. Project No. 1), Ser. B-1, MBIA, 8s,
7/1/24 AAA 17,180,200
Oakland, CA Bldg., Auth. Rev. Bonds, AMBAC,
6,540,000 5 1/2s, 4/1/13 Aaa 6,834,300
6,295,000 5 1/2s, 4/1/12 Aaa 6,601,881
3,615,000 Oakland, VRDN (Cap. Equip.), 3.7s, 12/1/15
(National Westminister Bank (LOC)) VMIG1/P 3,615,000
14,800,000 Oakland, Redev. Agcy. Rev. Bonds, MBIA,
5.95s, 9/1/19 Aaa 15,632,500
Orange Cnty., COP, Ser. A, MBIA,
14,520,000 6s, 7/1/26 Aaa 15,736,050
25,285,000 6s, 7/1/07 Aaa 28,224,381
Orange Cnty., Apt. Dev. VRDN
1,600,000 Ser. U, 3.4s, 11/1/09 VMIG1 1,600,000
100,000 (Vintage Woods), Ser. E, 3.9s, 11/1/08 VMIG1 100,000
2,100,000 (Park Ridge), Ser. I, 3.4s, 11/1/08 VMIG1 2,100,000
1,600,000 (Harbor Pointe), Ser. D, 3.4s, 12/1/06 VMIG1 1,600,000
1,290,000 Orange Cnty., Hsg. Auth. Dev. VRDN
(Village Niguel), Ser. AA, 3.45s, 12/1/08 VMIG1 1,290,000
Orange Cnty., Local Trans. Auth. Rev. Bonds,
Ser. A, MBIA,
5,000,000 5 1/2s, 2/15/09 Aaa 5,381,250
8,000,000 5 1/2s, 2/15/08 Aaa 8,630,000
7,845,000 5 1/2s, 2/15/07 Aaa 8,443,181
Orange Cnty., Pub. Fac. Corp. COP
(Solid Waste Management)
10,000,000 7 7/8s, 12/1/13 Baa 10,471,400
4,180,000 7 7/8s, 12/1/07 Baa 4,377,045
Orange Cnty., Sanitation Dist. VR COP
19,660,000 (Nos. 1-3, 5-7, 11, 13 & 14), 4.6s, 8/1/15 VMIG1 19,660,000
19,950,000 (Nos. 1-2-3-6-7 & 11), Ser. C, FGIC, 1.7s, 8/1/17 VMIG1 19,950,000
Orange Cnty., Trans. Auth. Sales Tax
Rev. Bonds, Ser. A
11,445,000 5.7s, 2/15/11 Aaa 12,517,969
11,700,000 5.7s, 2/15/10 Aaa 12,811,500
13,960,000 5.7s, 2/15/09 Aaa 15,268,750
8,210,000 5.7s, 2/15/08 Aaa 8,989,950
16,830,000 Orange Cnty., Wtr. Dist. COP, Ser. A, 5s, 8/15/18 Aa 16,367,175
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev. Bonds
(Cent. City Revitalization), Ser. A, 6 1/2s, 9/1/16 BBB 13,578,300
31,850,000 Palm Desert, Fin. Auth. Tax Alloc. IFB, MBIA,
8.655s, 4/1/22 Aaa 38,060,750
24,855,000 Pasadena, Cap. Impt. IF COP, AMBAC, 3.43s, 2/1/14 Aaa 24,606,450
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds, Ser. B
5,520,000 6 3/4s, 9/2/17 BBB-/P 5,899,500
8,500,000 6.6s, 9/2/08 BBB-/P 9,063,125
4,580,000 6 1/2s, 9/2/04 BBB-/P 4,957,850
9,335,000 6 1/8s, 9/2/02 BBB-/P 9,801,750
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 7,520,700
10,400,000 Redding, Elec. Syst., MBIA, 10.018s, 7/8/22 Aaa 13,962,000
1,600,000 Riverside Cnty., Hsg. Auth. Multi-Fam. Rev. Bonds
VRDN (Mtn. View Apts.), Ser. A, 3.4s, 8/1/25
(Redlands Federal Savings & Loan (LOC)) A-1+ 1,600,000
27,000,000 Sacramento, Muni. Util. Dist. Elec. IFB, FGIC,
8.422s, 8/15/18 Aaa 31,758,750
Sacramento, Muni. Util. Dist. Elec. Rev. Bonds
34,835,000 Ser. V, 7 7/8s, 8/15/16 Aaa 36,063,282
12,000,000 Ser. A, MBIA, 6 1/4s, 8/15/10 Aaa 13,890,000
2,000,000 San Bernardino Cnty., Multi-Fam. VRDN
(Woodview Apts.), Ser. I, 3.45s, 4/1/07 VMIG1 2,000,000
3,900,000 San Bernardino Cnty., Multi-Fam. Hsg. VRDN
4.05s, 11/1/05 VMIG1 3,900,000
15,800,000 San Diego Cnty., COP, AMBAC, 5 1/4s, 9/1/06 MIG2/P 16,669,000
21,400,000 San Diego Cnty., IF COP, MBIA, 6.363s, 11/18/19 Aaa 22,844,500
San Diego Cnty., Wtr. Auth. COP, Ser. A
5,000,000 5 3/4s, 5/1/11 Aa3 5,487,500
9,500,000 5 1/4s, 5/1/07 Aa3 10,058,125
San Diego Cnty., Wtr. Auth. IF COP
28,350,000 Ser. B, MBIA, 9.269s, 4/21/11 Aaa 37,173,938
20,000,000 Ser. 91-B, MBIA, 8.67s, 4/8/21 Aaa 25,900,000
San Diego, Hsg. Auth. VRDN
1,500,000 (Flores), 3.45s, 6/1/05 (Swiss Bank (LOC)) A-1+ 1,500,000
2,600,000 (Carmel Del Mar Apts.), Ser. A, 3.4s, 12/1/15 A-1+ 2,600,000
29,350,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds
FGIC, 5s, 5/15/25 Aaa 28,359,438
6,365,000 San Diego, Single Fam. Mtge. Rev. Bonds,
zero % 8/1/16 A3 1,113,875
San Diego, Regl. Bldg. Auth. Lease COP
stepped-coupon, MBIA
11,000,000 6.9s, (5.65s, 5/1/98), 5/1/23 ++ Aaa 11,536,250
14,100,000 6.85s, (5/65, 5/2/98), 5/1/13 ++ Aaa 14,787,375
San Francisco, City & Cnty. G.O. Bonds, Ser. 1, FGIC
32,300,000 5 3/4s, 6/15/07 Aaa 35,570,375
30,470,000 5 3/4s, 6/15/06 Aaa 33,478,912
San Francisco, Rapid Transit Dist. Sales Tax
Rev. Bonds
10,000,000 5 1/2s, 7/1/09 Aa3 10,850,000
10,000,000 AMBAC, 5s, 7/1/28 Aaa 9,700,000
1,200,000 San Jacinto, U. School Dist. VR COP, 3.4s, 9/1/27 VMIG1 1,200,000
San Joaquin Hills, Trans. Corridor Agcy. Toll Road
Rev. Bonds
34,125,000 5s, 1/1/33 BBB- 31,992,188
77,825,000 sr. lien, 6 3/4s, 1/1/32 BB+/P 87,747,688
29,100,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev), MBIA, 4 3/4s, 8/1/24 Aaa 27,244,875
40,000,000 San Mateo Cnty., Jt. Pwr. Fin. Auth. Rev. Bonds
FSA, 5 3/4s, 7/15/29 Aaa 42,000,000
35,600,000 Santa Clara, Wtr. Dist. Rev. Bonds, FGIC,
5 3/4s, 2/1/15 Aaa 37,558,000
45,200,000 South Orange Cnty., Pub. Fin. Auth. Rev. Bonds
FGIC, 5 1/2s, 8/15/15 Aaa 46,895,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
14,200,000 FGIC, 5.35s, 7/1/12 Aaa 14,679,250
42,690,000 (Mead Adelanto), Ser. A, AMBAC, 4 7/8s, 7/1/20 Aaa 40,875,675
1,800,000 Stockton, Multi-Fam. Hsg. VRDN
(Mariners Pointe Assoc.), Ser. A, 3.45s, 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 BB+/P 23,571,438
33,515,000 zero %, 9/1/2014 BB+/P 12,107,294
40,462,000 U. of CA Rev. Bonds (UCSD Med. Ctr. Satellite
Med. Fac.), 7.9s, 12/1/19
(acquired 2/28/89, cost $40,863,220) [DBL. DAGGER] BBB/P 43,243,763
59,400,000 U. of CA Hosp. IFB, 6.744s, 9/1/16 Aaa 67,344,750
10,195,000 U. of CA Hosp. Med. Center Rev. Bonds
AMBAC, 5.7s, 7/1/11 Aaa 10,985,112
2,100,000 Upland, Multi-Fam. Hsg. Auth. VRDN
(Village Green), 3.8s, 9/1/10 VMIG1 2,100,000
10,000,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB+/P 10,950,000
5,200,000 Vallejo, Hsg. Auth. VRDN, 3.45s, 1/1/08 VMIG1 5,200,000
36,945,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BB+/P 40,085,325
2,600,000 Vista, Multi-Fam. Hsg. VRDN, 3.45s, 5/1/05
(Swiss Bank (LOC)) A-1+ 2,600,000
--------------
3,622,396,844
Puerto Rico (1.4%)
- ------------------------------------------------------------------------------------------------------------
$10,000,000 Cmnwlth. of PR, Elec. Pwr. Auth. Rev. Bonds
Ser. CC, 5 1/2s, 7/1/08 Baa1 $10,750,000
7,000,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN, 3 3/8s,
12/1/15 VMIG1 7,000,000
1,000,000 Cmnwlth. of PR, Hwy. & Trans. Auth. VRDN
Ser. X, 3 3/8s, 7/1/99 VMIG1 1,000,000
10,000,000 Cnmwlth. of PR, Infrastructrure Fin. Auth. Rev.
Bonds, Ser. A, AMBAC, 5 1/2s, 7/1/08 Aaa 10,887,500
Cnmwlth. of PR, Pub. Impt G.O. Bonds, FSA
8,500,000 5 1/2s, 7/1/11 AAA 9,254,375
5,000,000 5 1/2s, 7/1/10 AAA 5,425,000
7,215,000 5 1/2s, 7/1/09 AAA 7,819,251
--------------
$ 52,136,126
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,334,138,703) *** $3,674,532,970
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $3,665,588,761.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 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
March 31, 1998. 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 March 31, 1998 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 56.5% 0.2%
AA/Aa 11.8 -
A/A 11.4 -
BBB/Baa 7.8 2.0
BB/Ba - 4.8
B/B - 0.3
Caa/CCC - -
Ca/CC - -
C - -
D - -
A-1/VMIGI 4.8 0.1
A-1/VMIG2 - 0.5
---- ----
92.3% 7.9%
*** The aggregate identified cost on a tax basis is $3,336,271,503, resulting in gross unrealized appreciation and
depreciation of $341,126,074 and $2,864,607, respectively, or net unrealize appreciation of $338,261,467.
++ 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.
[DBL. DAGGER] Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities
held at March 31, 1998 was $161,124,263 or 4.4% of net assets.
# A portion of this security was pledged and segregated with the custodian to cover margin requirements for futures
contracts at March 31, 1998.
144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional
buyers.
The rate shown on Floating Rate Bonds (FRB) are the current interest rates shown at March 31, 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, VR COP's and VRDN's are the current interest rates at March 31,1998.
The fund had the following industry group concentrations greater than 10% at March 31, 1998 (as a percentage of net
assets):
Water & Sewer 23.1%
Utilities 12.9
Transportation 12.6
Healthcare 10.4
The fund had the following insurance concentrations greater than 10% at March 31, 1998 (as a percentage of
net assets):
MBIA 21.1%
AMBAC 11.2
<CAPTION>
- ------------------------------------------------------------------------------------------
Futures Contracts Outstanding at March 31, 1998 (Unaudited)
Total Unrealized
Value Value Date Appreciation
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds (short) $286,435,500 $286,625,661 6/20/98 $190,161
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,334,138,703) (Note 1) $3,674,532,970
- ---------------------------------------------------------------------------------------------------
Cash 953,202
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 47,758,484
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,974,634
- ---------------------------------------------------------------------------------------------------
Total assets 3,726,219,290
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for variation margin 1,116,563
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,176,237
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 41,204,283
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,658,570
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,081,249
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 171,486
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 53,599
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,956
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,973,457
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 187,129
- ---------------------------------------------------------------------------------------------------
Total liabilities 60,630,529
- ---------------------------------------------------------------------------------------------------
Net assets $3,665,588,761
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,333,045,890
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 3,219,845
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (11,261,402)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 340,584,428
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,665,588,761
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($3,047,257,134 divided by 348,174,757 shares) $8.75
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.75)* $9.19
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($605,386,012 divided by 69,240,274 shares)** $8.74
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($12,945,615 divided by 1,480,519 shares) $8.74
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.74)*** $9.03
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Tax exempt interest income: $106,431,234
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 8,229,536
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,793,497
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 27,506
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,691
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 3,076,932
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 2,499,526
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 33,438
- --------------------------------------------------------------------------------------------------
Reports to shareholders 28,925
- --------------------------------------------------------------------------------------------------
Auditing 37,302
- --------------------------------------------------------------------------------------------------
Legal 80,360
- --------------------------------------------------------------------------------------------------
Postage 70,117
- --------------------------------------------------------------------------------------------------
Other 79,586
- --------------------------------------------------------------------------------------------------
Total expenses 15,972,416
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (311,631)
- --------------------------------------------------------------------------------------------------
Net expenses 15,660,785
- --------------------------------------------------------------------------------------------------
Net investment income 90,770,449
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 32,004,587
- --------------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (16,558,489)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and futures during the period 22,209,492
- --------------------------------------------------------------------------------------------------
Net gain on investments 37,655,590
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $128,426,039
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $90,770,449 $187,384,459
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 15,446,098 26,253,212
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 22,209,492 87,775,330
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 128,426,039 301,413,001
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (78,046,819) (162,697,410)
- ----------------------------------------------------------------------------------------------------------------------
Class B (12,972,732) (24,724,436)
- ----------------------------------------------------------------------------------------------------------------------
Class M (318,487) (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) (29,249,300) (98,622,941)
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (9,413,272) 5,662,271
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 3,675,002,033 3,669,339,762
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $3,219,845 and
$3,787,434, respectively) $3,665,588,761 $3,675,002,033
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.71 $8.46 $8.37 $8.09 $8.92 $8.39
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .44 .47 .48 .50 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .08 .28 .09 .31 (.81) .57
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .30 .72 .56 .79 (.31) 1.10
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.45) (.47) (.48)** (.50) (.53)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.03) (.02) (.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.26) (.47) (.47) (.51) (.52) (.57)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.75 $8.71 $8.46 $8.37 $8.09 $8.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.51* 8.71 6.81 10.07 (3.53) 13.63
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,047,257 $3,087,795 $3,149,797 $3,168,277 $3,260,769 $3,600,182
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .38* .74 .74 .74 .68 .69
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.51* 5.20 5.60 5.86 5.86 6.16
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Jan. 4, 1993+
operating performance (Unaudited) Year ended September 30 to Sept. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.70 $8.45 $8.37 $8.08 $8.91 $8.37
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .39 .42 .42 .45 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .08 .27 .07 .32 (.81) .55
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .27 .66 .49 .74 (.36) .87
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.39) (.41) (.42)** (.45) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- -- (.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- (.03) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.23) (.41) (.41) (.45) (.47) (.33)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.74 $8.70 $8.45 $8.37 $8.08 $8.91
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.18* 8.02 5.99 9.47 (4.15) 10.51*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $605,386 $573,309 $510,394 $416,367 $349,609 $209,657
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .71* 1.39 1.39 1.39 1.32 1.00*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.18* 4.54 4.94 5.17 5.16 3.68*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.58* 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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share March 31 Feb. 14, 1995+
operating performance (Unaudited) 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 .21 .42 .45 .29
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .08 .27 .08 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .29 .69 .53 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.21) (.42) (.44) (.30)**
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.04) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.44) (.44) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.74 $8.70 $8.45 $8.36
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.36* 8.39 6.48 6.56*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,946 $13,898 $9,149 $4,108
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .53* 1.04 1.04 .69*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.36* 4.92 5.24 3.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.58* 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
March 31, 1998 (Unaudited)
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.
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. When
the contract is closed, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed. Realized gains and losses on purchased
options are included in realized gains on losses on investment securities.
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 six months ended March 31, 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. 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.
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, 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.
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 Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by
$311,631 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 $2,030 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 six months ended March 31, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $116,274 and $1,763 from the sale of
class A and class M shares, respectively and $484,884 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 six
months ended March 31, 1998, Putnam Mutual Funds Corp., acting as underwriter
received $39,984 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1998, purchases and sales of investment
securities other than short-term municipal investments aggregated $673,432,118
and $776,480,886, respectively. Purchases and sales of short-term municipal
obligations aggregated $513,865,000 and $438,900,000, 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 March 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 11,060,336 $96,829,881
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5,312,912 46,573,700
- ------------------------------------------------------------
16,373,248 143,403,581
Shares
repurchased (22,909,915) (200,673,630)
- ------------------------------------------------------------
Net decrease (6,536,667) $(57,270,049)
- ------------------------------------------------------------
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)
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 6,357,648 $55,665,375
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,021,938 8,948,791
- ------------------------------------------------------------
7,379,586 64,614,166
Shares
repurchased (4,064,187) (35,572,967)
- ------------------------------------------------------------
Net increase 3,315,399 $29,041,199
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
March 31, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 235,345 $2,061,644
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 32,561 285,130
- ------------------------------------------------------------
267,906 2,346,774
Shares
repurchased (385,372) (3,367,224)
- ------------------------------------------------------------
Net decrease (117,466) $(1,020,450)
- ------------------------------------------------------------
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
- ------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation 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
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
Strategic Income Fund *
High Quality Bond Fund +
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred 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
LIFESTAGESM 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.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
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
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
William J. Curtin
Vice President
Blake E. Anderson
Vice President
William H. Reeves
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
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
SA045 42040 027/337/677 5/98
