Putnam
California
Tax Exempt
Income Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
Perhaps the best way to look at the fiscal 1999 performance of Putnam
California Tax Exempt Income Fund -- and the rest of the bond market, for
that matter -- is to focus on the opportunities that should lie in the
wake of the bond market's second worst year on record. Rising interest
rates have pulled bond yields higher, but in so doing they have driven
prices lower. The result has been subdued total returns across the board,
even though your fund outperformed most other funds in investment
category. Please see page 5 for Lipper rankings.
On the brighter side, municipal bonds are now yielding almost 97% as much
as taxable bonds with attractive tax implications, especially for
higher-income investors. David Hamlin, your fund's manager, took advantage
of this situation during the fiscal year. But he was not looking only at
the current income stream. He was also focusing on the attractive prices
of some issues with solid credentials -- and the potentially positive
effect on the portfolio that an upswing in the bond market would have.
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
Report from the Fund Manager
David E. Hamlin
No matter which way interest rates are trending, the management team of
Putnam California Tax Exempt Income Fund works to provide you with a
durable income stream, a stable dividend, and superior risk-adjusted
returns. During the 12 months ended September 30, 1999, we had to adjust
our strategies in response to a market environment that was almost the
reverse of the preceding year's. The California market is of unusually
high quality and your fund's portfolio is a large one, so the shift in our
strategy has been gradual.
Total return for 12 months ended 9/30/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
-2.01% -6.62% -2.65% -7.28% -2.96% -3.88% -2.31% -5.50%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance calculation
methods begin on page 7.
Rising interest rates during the past 12 months created a difficult market
environment for bond investors generally, but they also created
opportunities. As fiscal 1999 began, we had already started to shift your
fund's portfolio from a relatively defensive position, with an average
duration of around six years, to a more aggressive position as interest
rates began to climb. By the end of this year, we had extended the average
maturity to approximately eight years to lock in high yields, and we were
continuing to look for opportunities to invest in higher-yielding
lower-rated securities.
Meanwhile, California municipalities that had rushed to finance new
projects while interest rates were low tabled plans for new issues as
rates rose, diminishing supply. But demand increased in the course of the
year, as investors turned to municipal bonds in search of shelter from
squalls in other capital markets. This shift in the supply/demand equation
continues to have a positive effect on the price of some of the bonds in
your fund's portfolio. At the same time, the yield spread between lower-
and higher-rated issues began to widen, making it more worthwhile to reach
for higher rates from lower-rated or unrated securities.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Water and sewer 16.2%
Health care 11.6%
Transportation 10.0%
State G.O. bonds 8.2%
Utilities 4.6%
Footnote reads:
*Based on net assets as of 9/30/99. Holdings will vary over time.
* FUND RESTRUCTURED TO PURSUE HIGHER RETURNS
The idea of investing in a lower-rated or unrated security may sound
risky, but these issues present some of the best opportunities for
investors who have the time and resources to do a lot of careful research.
At Putnam, we do our own evaluation of every issue that might be
considered for the portfolio -- low-rated, high-rated, or not rated -- so
everything your fund owns has been carefully scrutinized. Most important,
every rating is subject to change, up or down.
Foothill/Eastern Transit Corridor bonds are not new to your fund's
portfolio, but they illustrate the type of situation we seek. When we
initially invested in the Foothill issue, there was nothing there but the
need for a new road. The road was completed 14 months ahead of schedule
and actual usage is ahead of projections. Our original holdings were
prerefunded last spring and we invested in some of the new Foothill
issues. As a result of the prerefunding, the bonds were upgraded to
investment grade, setting up a win/win situation for all participants.
While these holdings, as well as others discussed in this report, were
viewed favorably at the end of the period, all holdings are subject to
review and adjustment in accordance with the fund's investment strategy
and may vary in the future.
[GRAPHIC OMITTED: pie chart CREDIT QUALITY OVERVIEW]
CREDIT QUALITY OVERVIEW
AA/Aa -- 14.0%
A -- 4.4%
BBB/Baa -- 11.3%
BB/Ba -- 1.9%
VMIG1 -- 0.1%
B -- 1.3%
AAA/Aaa -- 67.0%
Footnote reads:
As a percentage of market value as of 9/30/99. A bond rated BBB/Baa or
higher is considered investment grade. Percentages may include unrated
bonds considered by Putnam Management to be of comparable quality. Ratings
will vary over time.
It is also important to understand why some securities do not have
ratings. First, rating agencies have a finite amount of time and
resources. They cannot rate everything, and they cannot be constantly
vigilant for every factor that might affect the rating, either positively
or negatively. Second, some issuers elect not to be rated. Irvine Company,
for example, is a premier land developer in southern California that has
not pursued the rating agencies to request a rating. We have met and
talked with management, performed our own credit analysis, and actually
visited the sites this developer owns. We are satisfied that the company
is well financed and highly disciplined. Bonds issued to fund two Irvine
projects are in your fund's portfolio now and we have personally visited
and evaluated both sites.
* LAND-SECURED AND HEALTH-CARE FINANCINGS PROVIDE ATTRACTIVE RETURNS
Irvine is not the only developer represented in the fund's portfolio.
Land-secured financing issues are one of two types of lower-rated credits
we have focused on during the year. Developers issue municipal bonds
secured by land they own with the promise or expectation that housing or
shopping malls will be built on the land. Income from the sale of houses
or lease of space in malls is used to pay the interest on the bonds.
California provides a lot of attractive opportunities in this market, but
it is labor intensive for us. We personally inspect the sites and study
each one's potential -- including its proximity to major roads, and
businesses and the possible impact of competing developments. Among the
development issues you will notice in the portfolio are special tax bonds
issued to finance Northern Natomas Community Facility in Sacramento. That
issue has a 5.7% coupon, which is an attractive yield, and the Sacramento
area is rapidly growing with a diverse economy.
Thousands of projects are financed by just two types of bonds
Municipal bonds are the most important means of financing thousands of
different public projects, but surprisingly there are only two basic types
of bonds. General obligation bonds (GOs), secured by the full faith and
credit of the city or town, are repaid by either a limited or an unlimited
tax on property. Cities and towns usually issue general obligation bonds
for school, park, or public building projects. The voters in a community
must approve each issue of general obligation bonds.
Revenue bonds, on the other hand, are secured by fees derived from tolls,
charges, or rents paid by the users of the facility. Highways, bridges, and
water and sewage treatment plants are typical projects financed or improved
by revenue bond proceeds. Industrial revenue bonds are issued through an
industrial development authority to finance projects for a private user
(usually a corporation), which also guarantees repayment of the principal
and interest. Hospital, dormitory, airport, and housing projects are
commonly financed with industrial revenue bonds.
The other area of opportunity in higher-rated securities is in the
health-care area. Selectivity is crucial because hospitals are going
through some difficult times as a result of legislation enacted several
years ago. However, the fund holds Duarte Hospital bonds issued by the
City of Hope Medical Center. Duarte Hospital is a national cancer center
with a high success rate in a difficult surgical specialty. These bonds
were prerefunded in 1998 and we subsequently bought bonds from the new
issue. We also recently participated in a public financing for Airforce
Village West, a retirement community adjacent to March Air Force Base in
Riverside, California. We consider it a health-care issue, since the
community offers a continuum of services, including retirement homes and
assisted living.
* CALIFORNIA ECONOMY IS ROBUST AND DIVERSIFIED
A strong economy is important for municipal bond investors because the
ability of municipalities to pay back their loans is based on state and
local revenues. Therefore, we have been encouraged to observe that the
California economy is becoming more diverse. Military cutbacks in the
1990s hurt southern California in particular, but today there is a great
deal of high-technology business, and tourism and agriculture remain
strong. The economic crisis in Asia, a major market for the state, proved
to be a small blip on California's radar screen during the year and our
current outlook is optimistic. At this point, we believe that even if
interest rates were to continue to rise, slowing the economy, California
would still be in solid financial shape. The state has invested in its
infrastructure, has upgraded systems, and has ample reserves.
Putnam California Tax Exempt Income Fund's class A shares were ranked in
the top 25% by Lipper for the one-year period ended September 30, 1999.
The fund ranked 20 out of 98 California municipal bond funds ranked.
Past performance is not indicative of future results. For the 5- and
10-year periods ended 9/30/99, the fund ranked 32 out of 66 (48%) and 15
out of 32 (46%), respectively. Lipper is an industry research firm whose
rankings are based on total return performance, vary over time, and do not
reflect the effects of sales charges. Performance of other share classes
will vary.
Even if interest rates increase further, we believe we have insulated the
fund by increasing its emphasis on lower-rated issues and extending
maturities. As always, however, we have relied on our credit analysis and
fundamental research to focus your fund's investments to select the
strongest opportunities.
Although the Federal Reserve Board did not raise rates in October, it has
declared a bias toward tightening rates at the first signs that inflation
may be rekindled. Even so, we believe this bias is already reflected in
bond prices, which should clear the way for a calmer market. We believe we
have put last year's difficulties to work successfully for Putnam
California Tax Exempt Income Fund's shareholders in the coming year. Our
efforts to boost yield by extending maturities and investments in
situations that our research indicates are well-financed projects with
strong potential should reward shareholders in fiscal 2000 and beyond.
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 9/30/99, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/99
Class A Class B Class C Class M
(inception dates) (4/29/83) (1/4/93) (7/26/99) (2/14/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year -2.01% -6.62% -2.65% -7.28% -2.96% -3.88% -2.31% -5.50%
- ---------------------------------------------------------------------------------------------
5 years 34.96 28.60 30.61 28.61 29.40 29.40 32.62 28.35
Annual average 6.18 5.16 5.49 5.16 5.29 5.29 5.81 5.12
- ---------------------------------------------------------------------------------------------
10 years 94.57 85.32 80.25 80.25 79.18 79.18 87.20 81.10
Annual average 6.88 6.36 6.07 6.07 6.01 6.01 6.47 6.12
- ---------------------------------------------------------------------------------------------
Life of fund 257.08 240.11 213.21 213.21 212.17 212.17 232.66 221.84
Annual average 8.06 7.74 7.20 7.20 7.18 7.18 7.59 7.38
- ---------------------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 9/30/99
Lehman Brothers
Municipal Consumer
Bond Index price index
- -------------------------------------------------------------------------
1 year 0.70% 2.75%
- -------------------------------------------------------------------------
5 years 38.78 12.38
Annual average 6.77 2.36
- -------------------------------------------------------------------------
10 years 103.85 34.32
Annual average 7.38 2.99
- -------------------------------------------------------------------------
Life of fund 280.51 70.28
Annual average 8.48 3.30
- -------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C 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.
[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 9/30/89
Lehman Brothers
Fund's class A Municipal Bond Consumer price
Date shares at POP Index index
9/30/89 9,525 10,000 10,000
9/30/90 10,073 10,680 10,616
9/30/91 11,353 12,088 10,976
9/30/92 12,543 13,351 11,304
9/30/93 14,188 15,053 11,608
9/30/94 13,733 14,689 11,952
9/30/95 15,115 16,333 12,256
9/30/96 16,145 17,320 12,624
9/30/97 17,552 18,884 12,896
9/30/98 18,911 20,529 13,072
9/30/99 $18,532 $20,385 $13,432
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 and class C shares
would have been valued at $18,025 and $17,918, respectively and no
contingent deferred sales charges would apply; a $10,000 investment in the
fund's class M shares would have been valued at $18,720 ($18,110 at public
offering price).
</TABLE>
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
Class A Class B Class C Class M
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 12 12 3 12
- --------------------------------------------------------------------------------------
Income $0.424433 $0.367911 $0.065590 $0.397783
- --------------------------------------------------------------------------------------
Capital gains1
Long-term 0.040100 0.040100 -- 0.040100
- --------------------------------------------------------------------------------------
Short-term 0.006900 0.006900 -- 0.006900
- --------------------------------------------------------------------------------------
Total $0.471433 $0.414911 $0.065590 $0.444783
- --------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- --------------------------------------------------------------------------------------
9/30/98 $8.89 $9.33 $8.88 $ -- $8.88 $9.18
- --------------------------------------------------------------------------------------
7/26/99* -- -- -- 8.47 -- --
- --------------------------------------------------------------------------------------
9/30/99 8.25 8.66 8.24 8.26 8.24 8.52
- --------------------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------------------
Current dividend rate2 5.13% 4.89% 4.48% 4.32% 4.86% 4.70%
- --------------------------------------------------------------------------------------
Taxable equivalent3 9.36 8.93 8.18 7.89 8.87 8.58
- --------------------------------------------------------------------------------------
Current 30-day SEC yield4 4.68 4.46 4.03 3.78 4.39 4.24
- --------------------------------------------------------------------------------------
Taxable equivalent3 8.54 8.14 7.36 6.90 8.01 7.74
- --------------------------------------------------------------------------------------
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.
*Inception date of Class C shares.
</TABLE>
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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 4.75% maximum 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 or C shares and assumes redemption at the end of
the period. Your fund's class B 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. The CDSC for class C shares is 1% for one year after
purchase.
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.
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A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
The Board of Trustees and Shareholders of
Putnam California Tax Exempt Income Fund
We have audited the accompanying statement of assets and liabilities of
Putnam California Tax Exempt Income Fund, including the fund's portfolio,
as of September 30, 1999, and the related statement of operations,
statement of changes in net assets and financial highlights for the year
or period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year
ended September 30, 1998 and the financial highlights for each of the
years or periods in the four-year period ended September 30, 1998 were
audited by other auditors whose report dated November 11, 1998 expressed
an unqualified opinion on that financial statement and those financial
highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1999 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam California Tax Exempt Income Fund as of September 30, 1999, the
results of its operations, changes in its net assets and financial
highlights for the year or period then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
Boston, Massachusetts
November 10, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
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 Bond
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 (98.7%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
California (97.2%) (a)
- --------------------------------------------------------------------------------------------------------------------------
Alameda, Corridor Trans. Auth. Rev. Bonds, Ser. A
$ 9,500,000 5 1/4s, 10/1/21 Aaa $ 9,036,875
10,195,000 5 1/8s, 10/1/14 Aaa 9,940,125
21,425,000 4 3/4s, 10/1/25 Aaa 18,345,156
16,000,000 Anaheim, IF COP, MBIA, 8.87s, 7/16/23 Aaa 17,120,000
24,000,000 Anaheim, Pub. Fin. Auth. IFB, MBIA, 9.242s, 12/28/18 Aaa 27,150,000
10,000,000 Anaheim, Pub. Fin. Auth. Rev. Bonds
(Pub. Improvements), Ser. A, FSA, 5s, 3/1/37 Aaa 8,800,000
30,275,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates Med. Ctr.),
Ser. A, 6.55s, 12/1/22 A2 33,037,594
Brentwood, Infrastructure Auth. Rev. Bonds, Ser. 94-1
5,965,000 5 5/8s, 9/2/29 BB/P 5,472,888
2,485,000 5.6s, 9/2/19 BB/P 2,317,263
20,000,000 CA Edl. Fac. Auth. Rev. Bonds (U. of Southern CA),
Ser. C, 5 1/8s, 10/1/28 AA 18,250,000
CA Hlth. Fac. Auth. Rev. Bonds
9,000,000 (CedarKnoll), Ser. B, 7 1/2s, 8/1/20 A+/P 9,462,060
21,000,000 (Catholic Healthcare West.), Ser. A,
AMBAC, 5s, 7/1/21 Aaa 19,031,250
12,500,000 (INSD-Sutter Hlth.), Ser. A, 5.35s, 8/15/28 Aaa 11,796,875
35,385,000 CA Hlth. Fac. Fin. Auth. IFB, Ser. B, MBIA,
4.625s, 7/1/14 Aaa 33,350,363
14,200,000 CA Housing Fin. Agcy. IFB, FHA Insd., 8.945s, 8/1/23 Aa2 15,566,750
3,250,000 CA Poll. Control Fin. Auth. Rev. Bonds
(Southern CA Edison Co.), Ser. C, MBIA,
5.55s, 9/1/31 Aaa 3,099,688
10,290,000 CA Poll. Control Fin. Auth. Solid Waste Disp.
Rev. Bonds (Keller Canyon Landfill Co.),
6 7/8s, 11/1/27 BB- 10,508,663
37,685,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
(Jt. Pwrs. Agcy.), Ser. B, MBIA, 8.1s, 3/1/18 Aaa 38,150,410
CA State G.O. Bonds
37,100,000 FRB, 8.751s, 9/1/12 (acquired 7/11/96,
cost $36,543,500) (RES) AA- 44,149,000
10,000,000 AMBAC, 6 1/2s, 9/1/06 Aaa 11,200,000
24,365,000 6s, 2/1/10 AA- 26,436,025
16,365,000 6s, 10/1/08 AA- 17,878,763
14,700,000 6s, 2/1/08 AA- 15,986,250
16,545,000 AMBAC, 5 1/2s, 4/1/11 AA- 17,186,119
10,000,000 (Veterans), Ser. BH, 5.4s, 12/1/14 AA- 9,800,000
10,000,000 (Veterans), Ser. BH, 5.35s, 12/1/13 AA- 9,837,500
10,000,000 (Veterans), Ser. BH, 5 1/4s, 12/1/12 Aaa 9,837,500
10,000,000 4 3/4s, 2/1/29 Aaa 8,475,000
20,800,000 Ser. 33, MBIA, zero %, 10/1/11 AAA 11,102,000
60,000,000 Ser. 27, MBIA, zero %, 9/1/11 A1 32,175,000
25,500,000 CA State Rev. Bonds, FGIC, 8s, 11/1/07 Aaa 30,313,125
24,200,000 CA State Dept. Wtr. Resources IFB (Central Valley),
10.122s, 12/1/12 (acquired 11/27/92,
cost $2,198,104) (RES) Aa2 32,276,750
25,000,000 CA State Dept. Wtr. Resources Rev. Bonds, Ser. O,
MBIA, 4 3/4s, 12/1/29 Aaa 21,156,250
CA State Pub. Wks. Board Lease Rev. Bonds
7,205,000 (CA Cmnty. Colleges), Ser. A, 5 1/2s, 12/1/09 A1 7,538,231
6,000,000 (Regents U. CA), Ser. A, 5 1/4s, 12/1/09 Aa3 6,202,500
6,000,000 (Regents U. CA), Ser. A, 5 1/4s, 12/1/07 Aa3 6,285,000
6,555,000 (Libr. & Courts Annex), Ser. A, 5s, 5/1/18 A1 5,997,825
CA State Pub. Wks. Board Lease Rev. Bonds
20,690,000 (U. of CA), Ser. A, 7s, 9/1/15 (acquired 10/25/90,
cost $19,800,107) (RES) Aaa 21,745,397
24,000,000 (Dept. of Corrections-State Prisons),
Ser. A, 7s, 9/1/09 Aaa 25,224,240
28,000,000 (Dept. of Corrections-State Prisons), Ser. A,
MBIA, 6 1/2s, 9/1/17 Aaa 31,255,000
59,000,000 (Dept. of Corrections-State Prisons), Ser. A,
6.43s, 9/1/19 Aaa 62,466,250
10,105,000 Ser. A, AMBAC, 5.8s, 1/1/13 (SEG) Aaa 10,534,463
33,500,000 (Dept. of Corrections-State Prisons), Ser. A,
AMBAC, 5s, 12/1/19 Aaa 30,736,250
18,000,000 CA State U. IFB, AMBAC, 8.443s, 11/1/21
(acquired 3/2/92, cost $19,013,580) (RES) Aaa 19,889,280
CA Statewide Cmnty. Dev. Auth. COP
15,000,000 (The Internext Group), 5 3/8s, 4/1/30 BBB 13,293,750
10,000,000 (Childrens Hosp.), MBIA, 4 3/4s, 6/1/21 Aaa 8,675,000
CA Statewide Cmnty. Dev. Auth. Multi-Fam.
Rev. Bonds
5,000,000 (Equity Res. Hsg.), Ser. B, 5.2s, 12/1/29 A3 4,906,250
6,000,000 (Archstone/Pelican Hsg.), 5.3s, 6/1/29 BBB+ 5,925,000
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 11,921,875
20,000,000 Ser. A-3, 5.1s, 5/15/25 Baa2 19,100,000
8,000,000 Capistrano, U. School Dist. Cmnty. Fac. Special
Tax Bonds (Ladera), 5 3/4s, 9/1/29 BB-/P 7,570,000
14,000,000 Castaic Lake, Wtr. Agcy. COP (Wtr. Syst. Impt.),
MBIA, 7 1/8s, 8/1/16 Aaa 14,688,380
32,000,000 Chino Basin, Regl. Fin. Auth. Rev. Bonds, AMBAC,
5 3/4s, 8/1/22 Aaa 32,400,000
4,425,000 Chula Vista Special Tax Bonds (Cmnty. Facs.
Dist. No. 97-3), 6.05s, 9/1/29 AAA 4,325,438
Commerce Redev. Agcy. Rev. Bonds (No. 1), Ser. 91-A
8,845,000 7 1/4s, 8/1/21 BBB- 9,530,488
68,280,000 zero %, 8/1/21 BBB- 17,752,800
12,000,000 Contra Costa Cnty., COP (Merrrithew
Memorial Hosp.), MBIA, 5 3/8s, 11/1/17 Aaa 11,715,000
Contra Costa, Wtr. Dist. Rev. Bonds, Ser. G
36,915,000 MBIA, 5s, 10/1/26 Aaa 33,038,925
41,500,000 MBIA, 5s, 10/1/24 Aaa 37,401,875
35,000,000 Contra Costa, Home Mtge. Fin. Auth. Rev. Bonds,
MBIA, zero %, 9/1/17 Aaa 12,031,250
10,000,000 Corona, COP (Vista Hosp. Syst.), Ser. B,
9 1/2s, 7/1/20 (acquired 10/23/92,
cost $10,000,000) (RES) B-/P 10,000,000
19,000,000 Delano, COP (Delano Regl. Med. Ctr.),
5.6s, 1/1/26 BBB- 17,266,250
Duarte, COP
15,000,000 (City of Hope Med. Ctr.), 6 1/8s, 4/1/13 AAA 16,237,500
15,000,000 Ser. A, 5 1/4s, 4/1/31 BBB+ 13,125,000
7,500,000 Ser. A, 5 1/4s, 4/1/24 BBB 6,693,750
31,650,000 East Bay, Muni. Util. Rev. Bonds, MBIA, 4 3/4s, 6/1/28 Aaa 26,862,938
23,850,000 East Bay, Muni. Util. Dist. Rev. Bonds (Wastewater
Treatment), FGIC, 4 3/4s, 6/1/21 Aaa 20,838,938
10,725,000 El Camino, Hosp. Dist. Rev. Bonds, Ser. A, AMBAC,
6 1/4s, 8/15/17 Aaa 11,045,570
Foothill/Eastern Trans. Corridor Agcy.
(CA Toll Roads) Rev. Bonds
34,150,000 Ser. A, 6 1/2s, 1/1/32 Baa3 38,034,563
38,875,000 Ser. A, 6s, 1/1/34 Baa3 42,130,781
19,000,000 5 3/4s, 1/15/40 BBB- 18,145,000
7,850,000 MBIA, 5 1/2s, 1/15/09 AAA 8,242,500
8,945,000 MBIA, 5 1/2s, 1/15/08 AAA 9,448,156
5,000,000 MBIA, 5 3/8s, 1/15/14 AAA 5,000,000
31,945,000 Ser. A, 5s, 1/1/35 Baa3 27,832,081
11,460,000 Fresno, Unified Sch. Dist. COP, 7 1/4s, 3/1/07 A3 12,104,625
Irvine, Impt. Special Assmnt. Bonds
2,750,000 (Assmt. Dist. No. 97-17), 6s, 9/2/23 BB/P 2,698,438
1,000,000 (Assmt. Dist. No. 94-13), 6s, 9/2/22 BB/P 971,250
2,000,000 (Assmt. Dist. No. 94-13), 5 7/8s, 9/2/17 BB/P 1,942,500
5,000,000 (Assmt. Dist. No. 97-17), 5 7/8s, 9/2/17 BB/P 4,906,250
10,510,000 Kern, High School Dist. G.O. Bonds, Ser. 14,
MBIA, 9.184s, 2/1/13 (acquired 6/29/98,
cost $14,124,599) (RES) Aaa 12,454,350
Los Angeles Cnty., CA Pub. Wks. Fin. Auth.
Rev Bonds, Ser. A, AMBAC
7,000,000 5 1/2s, 10/1/10 Aaa 7,297,500
8,000,000 5 1/2s, 10/1/09 Aaa 8,410,000
9,000,000 5 1/2s, 10/1/08 Aaa 9,540,000
Los Angeles Cnty., Metro. Trans. Auth.
Sales Tax Rev. Bonds
12,150,000 Ser. A, (2nd Ser.), AMBAC, 5s, 7/1/25 Aaa 10,919,813
6,765,000 Ser. A, (1st Tier-Prop A), FSA, 5s, 7/1/15 Aaa 6,443,663
8,000,000 Los Angeles Cnty., Metropolitan Trans. Auth.
Rev. Bonds, Ser. B, FSA, 4 3/4s, 7/1/28 Aaa 6,790,000
15,235,000 Los Angeles Cnty., Pub. Wks. Fin. Auth. Rev. Bonds,
Ser. A, MBIA, 5 3/4s, 9/1/07 Aaa 16,434,756
13,000,000 Los Angeles Cnty., Sanitation Dist. Fin. Auth.
Rev. Bonds (Capital), Ser. A, MBIA, 5s, 10/1/23 Aaa 11,748,750
21,530,000 Los Angeles, Bldg. Auth. Rev. Bonds (CA Dept.
Gen Svcs.), Ser. A, MBIA, 5 5/8s, 5/1/11 Aaa 22,606,500
Los Angeles, Convention & Exhibition Ctr.
Auth. Lease
37,465,000 COP, 9s, 12/1/20 Aaa 46,690,756
19,300,000 IFB, MBIA, 7.101s, 8/15/18 (acquired 9/15/94,
cost $21,610,242) (RES) Aaa 18,335,000
Los Angeles, Dept. of Wtr. & Pwr. Rev. Bonds
5,605,000 (Waterworks), 7s, 2/15/22 AA 5,724,499
51,200,000 (Electric Plant), Ser. Issue II, 6.8s, 6/1/31 Aa3 54,208,000
38,205,000 (Electric Plant), Ser. Issue II, 6 3/4s, 12/15/29 Aa3 39,166,620
25,000,000 Los Angeles, Harbor Dept. Rev. Bonds, 7.6s, 10/1/18 AAA 30,224,250
15,715,000 Los Angeles, Metro. Trans. Auth. Sales Tax Rev.
Bonds, Ser. A, AMBAC, 5 1/2s, 7/1/08 Aaa 16,638,256
26,235,000 Los Angeles, Pension Auth. COP, Ser. A, MBIA,
6.9s, 6/30/08 Aaa 30,203,044
Los Angeles, Uni. School Dist. G.O. Bonds,
Ser. B, FGIC
6,380,000 5 3/8s, 7/1/14 Aaa 6,380,000
7,455,000 5 3/8s, 7/1/13 Aaa 7,520,231
5,500,000 5 3/8s, 7/1/12 Aaa 5,596,250
8,785,000 5 3/8s, 7/1/11 Aaa 9,015,606
34,700,000 Los Angeles, Wastewater Syst. IFB, 9.08s, 6/1/19
(acquired 12/4/97, cost $34,083,081) (RES) Aaa 40,121,875
Los Angeles, Wastewater Syst. Rev. Bonds
17,150,000 Ser. B, 7.15s, 6/1/20 AAA/P 17,895,511
20,105,000 Ser. A, 7s, 2/1/20 AAA 20,729,461
Metropolitan Wtr. Dist G.O. Bonds
4,000,000 Ser. A, 5 1/4s, 3/1/14 Aaa 3,980,000
2,500,000 Ser. A, 5 1/4s, 3/1/13 Aaa 2,509,375
20,000,000 Metropolitan Wtr. Dist. IFB (Southern CA
Waterwks.), 6.905s, 8/10/18 Aa2 21,025,000
Metropolitan Wtr. Dist. Rev. Bonds
22,600,000 (Southern California Waterwks.), 5.95s, 8/5/22 Aa2 24,069,000
10,000,000 Ser. A, 5 1/2s, 7/1/10 Aa2 10,437,500
26,255,000 (Southern CA Waterwks.), Ser. C, 5s, 7/1/27 Aa2 23,465,406
33,445,000 Ser. A., 5s, 7/1/26 Aa2 29,933,275
15,000,000 (Southern CA Waterwks.), Ser. B, MBIA,
4 3/4s, 7/1/21 Aaa 13,106,250
8,275,000 Modesto, Dist. Fin. Auth. Rev. Bonds, Ser. A, MBIA,
5 3/4s, 10/1/10 Aaa 8,781,844
10,350,000 Modesto, Irr Dist. Fin. Auth. Rev. Bonds (Domestic
Wtr. Project), Ser. D, AMBAC, 4 3/4s, 9/1/22 Aaa 8,978,625
16,600,000 Mount Diablo, Hosp. Dist. Rev. Bonds, Ser. A,
AMBAC, 5s, 12/1/13 Aaa 16,081,250
Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB, MBIA
4,945,000 9.446s, 8/1/25 Aaa 5,668,206
6,265,000 9.446s, 8/1/25, Prefunded Aaa 7,283,063
Northern CA Pwr. Agcy. Multi. Cap. Fac. Rev. Bonds IF
4,770,000 9.877s, 8/1/17 Aaa 5,467,613
3,620,000 9.877s, 8/1/17, Prerefunded Aaa 4,208,250
Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds, Ser. A,
AMBAC
3,925,000 5.8s, 7/1/09 Aaa 4,194,844
7,720,000 5.8s, 7/1/09, Unrefunded Aaa 8,279,700
Northern CA Pwr. Agcy. Rev. Bonds (Hydroelectric),
Ser. A, MBIA
5,780,000 5 1/4s, 7/1/12 Aaa 5,823,350
5,440,000 5 1/4s, 7/1/11 Aaa 5,521,600
Oakland CA, Bldg., Auth. Rev. Bonds, AMBAC
6,540,000 5 1/2s, 4/1/13 Aaa 6,662,625
6,295,000 5 1/2s, 4/1/12 Aaa 6,468,113
14,800,000 Oakland, Redev. Agcy. Rev. Bonds, MBIA, 5.95s, 9/1/19 Aaa 15,225,500
Orange Cnty., COP, Ser. A,MBIA
14,520,000 6s, 7/1/26 Aaa 14,973,750
25,285,000 6s, 7/1/07 Aaa 27,655,469
1,600,000 Orange Cnty., Apt. Dev. VRDN (Harbor Pointe),
Ser. D, 3.7s, 12/1/06 VMIG1 1,600,000
Orange Cnty., Local Trans. Auth. Rev. Bonds,
Ser. A. MBIA
5,000,000 5 1/2s, 2/15/09 Aaa 5,256,250
8,000,000 5 1/2s, 2/15/08 Aaa 8,450,000
7,845,000 5 1/2s, 2/15/07 Aaa 8,305,894
Orange Cnty., Trans. Auth. Sales Tax Rev. Bonds,
Ser. A
11,445,000 5.7s, 2/15/11 Aaa 12,074,475
11,700,000 5.7s, 2/15/10 Aaa 12,416,625
13,960,000 5.7s, 2/15/09 Aaa 14,867,400
8,210,000 5.7s, 2/15/08 Aaa 8,784,700
16,830,000 Orange Cnty., Wtr. Dist. COP, Ser. A, 5s, 8/15/18 AA 15,567,750
12,840,000 Oxnard, Redev. Agcy. Tax Alloc. Rev. Bonds
(Cent. City Revitalization), Ser. A, 6 1/2s, 9/1/16 BBB 13,193,100
31,850,000 Palm Desert, Fin. Auth. Tax Alloc. IFB, MBIA,
6.368s, 4/1/22 Aaa 34,477,625
24,855,000 Pasadena, Cap. Impt. IF COP, AMBAC, 5.35s, 2/1/14 Aaa 25,289,963
Pleasanton, Jt. Pwr. Fin. Auth. Rev. Bonds, Ser. B
5,395,000 6 3/4s, 9/2/17 BBB/P 5,570,338
8,330,000 6.6s, 9/2/08 BBB/P 8,694,438
4,505,000 6 1/2s, 9/2/04 BBB/P 4,775,300
5,620,000 6 1/8s, 9/2/02 BBB/P 5,823,725
10,000,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. CC, MBIA,
5 1/2s, 7/1/08 Aaa 10,525,000
44,000,000 Rancho Cucamonga, Wtr. Dist. Fin. Auth.
Rev. Bonds, AMBAC, 6.427s, 8/17/21 Aaa 46,475,000
10,400,000 Redding, Elec. Syst. Rev. Bonds, MBIA,
10.018s, 7/8/22 Aaa 12,103,000
8,000,000 Redlands, Redev. Agcy. Tax Alloc. Bonds, Ser. A,
MBIA, 4 3/4s, 8/1/21 Aaa 6,980,000
1,600,000 Riverside Cnty., Hsg. Auth. Multi-Fam. Rev. Bonds
VRDN (Mtn. View Apts.), Ser. A, 3.7s, 8/1/25 A-1+ 1,600,000
11,795,000 Riverside Cnty., Pub. Fin. Auth. Impt. Special
Assmt. Bonds (Rancho Village), Ser. B,
6 1/4s, 9/2/13 BBB 11,514,869
4,250,000 Riverside Cnty., Pub. Fin. Auth. COP, 5.8s, 5/15/29 BBB- 4,058,750
5,000,000 Sacramento, Special Tax Bonds (Northern Natomas
Cmnty. Fac.), Ser. 4-A, 5.7s, 9/1/23 BB/P 4,731,250
12,725,000 Sacramento, City Fin. Auth. Lease Rev. Bonds, Ser. A,
AMBAC, 5 3/8s, 11/1/14 Aaa 12,788,625
Sacramento, Muni. Util. Dist. Elec.
27,000,000 IFB, FGIC, 9.477s, 8/15/18 Aaa 29,261,250
12,000,000 Rev. Bonds, Ser. A, MBIA, 6 1/4s, 8/15/10 Aaa 13,260,000
San Diego Cnty., COP
4,000,000 (Burnham Institute), 6 1/4s, 9/1/29 Baa3 4,035,000
15,800,000 AMBAC, 5 1/4s, 9/1/06 Aaa 16,274,000
10,000,000 (Downtown Courthouse), AMBAC, 4 1/2s, 5/1/23 Aaa 8,312,500
21,400,000 San Diego Cnty., IF COP, MBIA, 8.02s, 11/18/19 Aaa 22,256,000
San Diego Cnty., Wtr. Auth. COP, Ser. A
5,000,000 5 3/4s, 5/1/11 Aa3 5,306,250
9,500,000 5 1/4s, 5/1/07 Aa3 9,927,500
12,000,000 FGIC, 5s, 5/1/14 Aaa 11,550,000
San Diego Cnty., Wtr. Auth. IF COP
20,000,000 Ser. 91-B, MBIA, 8.63s, 4/8/21 Aaa 24,425,000
28,350,000 Ser. B, MBIA, 8.63s, 4/21/11 Aaa 34,338,938
1,400,000 San Diego, Single Fam. Mtge. Rev. Bonds
zero%, 8/1/16 A3 281,750
32,770,000 San Diego, Conv. Ctr. Expansion Fin. Auth. Lease
Rev. Bonds, Ser. A, 4 3/4s, 4/1/28 Aaa 27,854,500
15,350,000 San Diego, Pub. Fac. Fin. Auth. Swr. Rev. Bonds,
FGIC, 5s, 5/15/25 Aaa 13,795,813
San Diego, Regl. Bldg. Auth. Lease COP, MBIA
11,000,000 6.9s, 5/1/23 Aaa 11,013,750
14,100,000 6.85s, 5/1/13 Aaa 14,364,375
10,000,000 San Diego, Wtr. Util. Rev. Bonds, FGIC, 4 3/4s, 8/1/28 Aaa 8,487,500
San Francisco, City & Cnty. Arpt. Comm. Intl. Arpt.
Rev. Bonds, Ser. 22
3,670,000 AMBAC, 5 1/4s, 5/1/13 Aaa 3,601,188
3,490,000 AMBAC, 5 1/4s, 5/1/12 Aaa 3,459,463
3,315,000 AMBAC, 5 1/4s, 5/1/11 Aaa 3,315,000
15,000,000 FSA, 4 3/4s, 5/1/29 AAA 12,712,500
32,300,000 San Francisco, City & Cnty. G.O. Bonds, Ser. 1,
FGIC, 5 3/4s, 6/15/07 Aaa 34,803,250
10,000,000 San Francisco, Rapid Transit Dist. Sales Tax Rev.
Bonds, 5 1/2s, 7/1/09 Aa3 10,525,000
10,000,000 San Francisco, State Bldg. Auth. Lease Rev. Bonds
(San Francisco Civic Ctr. Complex), Ser. A,
AMBAC, 5 1/4s, 12/1/21 Aaa 9,512,500
San Joaquin Cnty., COP (General Hosp.)
5,790,000 5 1/4s, 9/1/14 Aaa 5,688,675
5,040,000 5 1/4s, 9/1/13 Aaa 5,008,500
5,250,000 5 1/4s, 9/1/12 Aaa 5,269,688
San Joaquin Hills, Trans. Corridor Agcy.
Toll Rd. Rev. Bonds
34,125,000 5s, 1/1/33 Baa3 29,219,531
77,825,000 Sr. Lien, 6 3/4s, 1/1/32 Aaa 85,412,938
10,000,000 Ser. A, MBIA, 5 1/4s, 1/15/30 Aaa 9,325,000
8,000,000 San Jose, Multi-Fam. Hsg. Rev. Bonds
(Gardens Apts.), Ser. A, FNMA Coll., 5s, 1/1/32 AAA 7,590,000
29,100,000 San Jose, Redev. Agcy. Tax Alloc. Rev. Bonds
(Merged Area Redev), MBIA, 4 3/4s, 8/1/24 Aaa 25,026,000
San Marcos, Pub. Fac. Auth. Rev. Bonds
3,000,000 5.8s, 9/1/27 BB-/P 2,816,250
1,635,000 5.8s, 9/1/18 BB-/P 1,563,469
3,000,000 5 1/2s, 9/1/10 BB-/P 2,876,250
40,000,000 San Mateo Cnty., Jt. Pwr. Fin. Auth. Rev. Bonds,
FSA, 5 3/4s, 7/15/29 Aaa 42,750,000
5,000,000 Santa Ana, COP (City Hall Expansion), FSA,
4.7s, 1/1/28 Aaa 4,212,500
35,600,000 Santa Clara, Wtr. Dist. Rev. Bonds, FGIC,
5 3/4s, 2/1/15 Aaa 36,757,000
7,525,000 Sierra View, Health Care Dist. Rev. Bonds LOC,
5.4s, 7/1/22 BBB- 6,697,250
45,200,000 South Orange Cnty., Pub. Fin. Auth. Rev. Bonds,
FGIC, 5 1/2s, 8/15/15 Aaa 46,104,000
Southern CA Pub. Pwr. Auth. Rev. Bonds
5,465,000 (Southern transmission), Ser. A, MBIA,
5 1/4s, 7/1/11 Aaa 5,546,975
42,690,000 (Mead Adelanto), Ser. A, AMBAC, 4 7/8s, 7/1/20 Aaa 38,154,188
3,000,000 Stockton, Cmnty. Fac. Dist. Spl. Tax. Rev. Bonds
(Mello Roos-Weston Ranch), Ser. A, 5.8s, 9/1/14 BB+/P 2,921,250
Thousand Oaks, Cmnty. Fac. Dist. Special Tax
Rev. Bonds (No. 94-1)
21,775,000 6 7/8s, 9/1/24 (acquired 5/20/96,
cost $20,629,226) (RES) B/P 22,346,594
33,000,000 zero %, 9/1/14 (acquired 3/2/95, cost
$7,339,860) (RES) B/P 12,127,500
39,727,000 U. of CA Rev. Bonds (UCSD Med. Ctr.
Satellite Med. Fac.), 7.9s, 12/1/19 A-/P 40,658,995
59,400,000 U. of CA Hosp. IFB, 6.744s, 9/1/16 Aaa 64,597,500
10,195,000 U. of CA Hosp. Med. Center Rev. Bonds,
AMBAC, 5.7s, 7/1/11 Aaa 10,641,031
10,000,000 Vallejo, COP (Marine World Foundation),
7.2s, 2/1/26 BB+/P 10,800,000
36,945,000 Valley Hlth. Syst. COP, 6 7/8s, 5/15/23 BBB- 37,776,250
6,885,000 Valley Hlth. Syst. Hosp. Rev. Bonds, Ser. A,
6 1/2s, 5/15/15 BBB- 6,979,667
--------------
3,292,280,203
Puerto Rico (1.5%) (a)
- --------------------------------------------------------------------------------------------------------------------------
9,010,000 Cnmwlth. of PR, G.O. Bonds, MBIA, 5 3/4s, 7/1/11 AAA/P 9,606,913
Cmnwlth. of PR, Pub. Impt. G.O. Bonds, FSA
8,500,000 5 1/2s, 7/1/11 Aaa 8,871,875
5,000,000 5 1/2s, 7/1/10 Aaa 5,250,000
7,215,000 5 1/2s, 7/1/09 Aaa 7,575,750
10,000,000 Cmnwlth. of PR, Infrastructrure Fin. Auth. Rev.
Bonds, Ser. A, AMBAC, 5 1/2s, 7/1/08 Aaa 10,525,000
10,000,000 PR Elec. Pwr. Auth. Rev. Bonds, Ser. AA, MBIA,
5 3/8s, 7/1/27 Aaa 9,612,500
--------------
51,442,038
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $3,198,761,714) (b) $3,343,722,241
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,387,405,775.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1999 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, 1999. 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 $3,200,539,749, resulting in gross unrealized appreciation and
depreciation of $198,734,683 and $55,552,191, respectively, or net unrealized appreciation of $143,182,492.
(RES) Restricted, excluding 144A securities, as to public resale. The total market value of restricted securities held at
September 30, 1999 was $154,771,905 or 4.6% 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, 1999.
The rates shown on IFB and IF COP, which are securities paying interest rates that vary inversely to changes in the
market interest rates, FRB's and VRDN's are the current interest rates at September 30, 1999.
The fund had the following industry group concentrations greater than 10% at September 30, 1999 (as a percentage of
net assets):
Water and sewer 16.2%
Health care 11.6
Transportation 10.0
The fund had the following insurance concentrations greater than 10% at September 30,1999 (as a percentage of net
assets):
MBIA 25.5%
AMBAC 12.6
- -------------------------------------------------------------------------------
Futures Contracts Outstanding at September 30, 1999
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- -------------------------------------------------------------------------------
Muni Bond
Index (Long) $18,750,969 $18,700,580 Dec-99 $50,389
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $3,198,761,714) (Note 1) $3,343,722,241
- -----------------------------------------------------------------------------------------------
Cash 461,056
- -----------------------------------------------------------------------------------------------
Interest and other receivables 44,964,671
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 16,059,900
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,754,020
- -----------------------------------------------------------------------------------------------
Receivable for variation margin 88,719
- -----------------------------------------------------------------------------------------------
Total assets 3,407,050,607
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 7,482,716
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,903,007
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,924,402
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 296,876
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 46,563
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 7,618
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,870,833
- -----------------------------------------------------------------------------------------------
Other accrued expenses 112,817
- -----------------------------------------------------------------------------------------------
Total liabilities 19,644,832
- -----------------------------------------------------------------------------------------------
Net assets $3,387,405,775
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $3,268,236,104
- -----------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,129,933
- -----------------------------------------------------------------------------------------------
Distributions in excess of net realized gains on investments (Note 1) (29,971,178)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 145,010,916
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,387,405,775
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($2,754,624,011 divided by 333,852,637 shares) $8.25
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/95.25 of $8.25)* $8.66
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($616,446,261 divided by 74,788,839 shares)** $8.24
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($1,017,510 divided by 123,167 shares)** $8.26
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($15,317,993 divided by 1,858,756 shares) $8.24
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.75 of $8.24)*** $8.52
- -----------------------------------------------------------------------------------------------
* 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, 1999
<S> <C>
Tax exempt interest income: $203,614,592
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 16,251,531
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,433,636
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 49,335
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 30,102
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 5,921,778
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,502,229
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 574
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 85,730
- -----------------------------------------------------------------------------------------------
Reports to shareholders 75,120
- -----------------------------------------------------------------------------------------------
Registration fees 75
- -----------------------------------------------------------------------------------------------
Auditing 32,580
- -----------------------------------------------------------------------------------------------
Legal 60,752
- -----------------------------------------------------------------------------------------------
Postage 148,450
- -----------------------------------------------------------------------------------------------
Other 558,232
- -----------------------------------------------------------------------------------------------
Total expenses 32,150,124
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (242,028)
- -----------------------------------------------------------------------------------------------
Net expenses 31,908,096
- -----------------------------------------------------------------------------------------------
Net investment income 171,706,496
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 9,520,434
- -----------------------------------------------------------------------------------------------
Net realized loss on futures contracts (Note 1) (230,378)
- -----------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures during the year (254,103,995)
- -----------------------------------------------------------------------------------------------
Net loss on investments (244,813,939)
- -----------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(73,107,443)
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 171,706,496 $ 182,145,593
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 9,290,056 9,253,987
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (254,103,995) 80,739,975
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (73,107,443) 272,139,555
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (145,190,669) (151,806,061)
- ---------------------------------------------------------------------------------------------------------------
Class B (27,516,818) (25,903,310)
- ---------------------------------------------------------------------------------------------------------------
Class C (2,056) --
- ---------------------------------------------------------------------------------------------------------------
Class M (810,742) (631,945)
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (16,229,723) (14,439,035)
- ---------------------------------------------------------------------------------------------------------------
Class B (3,456,456) (2,752,005)
- ---------------------------------------------------------------------------------------------------------------
Class M (84,929) (60,933)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (76,044,936) (21,698,752)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (342,443,772) 54,847,514
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 3,729,849,547 3,675,002,033
- ---------------------------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $4,129,933 and $9,723,882, respectively) $3,387,405,775 $3,729,849,547
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.89 $8.71 $8.46 $8.37 $8.09
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .42(c) .44(c) .44 .47 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.59) .21 .28 .09 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.17) .65 .72 .56 .79
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.42) (.43) (.45) (.47) (.48)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.05) (.04) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.47) (.47) (.47) (.47) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.25 $8.89 $8.71 $8.46 $8.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.01) 7.75 8.71 6.81 10.07
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $2,754,624 $3,073,178 $3,087,795 $3,149,797 $3,168,277
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77 .77 .74 .74 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.85 5.06 5.20 5.60 5.86
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.91 30.88 23.51 29.47 47.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.88 $8.70 $8.45 $8.37 $8.08
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .36(c) .39(c) .39 .42 .42
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.58) .21 .27 .07 .32
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.22) .60 .66 .49 .74
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.37) (.38) (.39) (.41) (.42)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.05) (.04) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- (.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.42) (.41) (.41) (.45)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.24 $8.88 $8.70 $8.45 $8.37
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.65) 7.05 8.02 5.99 9.47
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $616,446 $641,686 $573,309 $510,394 $416,367
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.42 1.42 1.39 1.39 1.39
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.21 4.41 4.54 4.94 5.17
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.91 30.88 23.51 29.47 47.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 26, 1999+
operating performance to September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.47
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .04(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.14)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (1.70)*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,018
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .29*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .81*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.91
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
</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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $8.88 $8.70 $8.45 $8.36 $8.13
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .38(c) .41(c) .42 .45 .29
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.57) .22 .27 .08 .24
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.19) .63 .69 .53 .53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.40) (.41) (.42) (.44) (.30)(d)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.05) (.04) (.02) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
In excess of net realized
gain on investments -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.45) (.44) (.44) (.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.24 $8.88 $8.70 $8.45 $8.36
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (2.31) 7.43 8.39 6.48 6.56*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $15,318 $14,986 $13,898 $9,149 $4,108
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.07 1.07 1.04 1.04 .69*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 4.56 4.76 4.92 5.24 3.52*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 13.91 30.88 23.51 29.47 47.73
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (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.
(d) Distributions in excess of net investment income amounted to less than $0.01 per share for each class.
</TABLE>
Notes to financial statements
September 30, 1999
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, class C and class M shares. The fund
began offering class C shares on July 26, 1999. 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 C shares are
subject to the same fees and expenses as class B shares, except that class
C shares have a one year 1.00% contingent deferred sales charge and do not
convert to class A shares. Class M shares are sold with a maximum front
end sales charge of 3.25% and pay an ongoing distribution fee that is
higher than class A shares but lower than class B and class C 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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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). Gains or losses on securities sold are determined on
the identified cost basis. 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. 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 and 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 year months
ended September 30, 1999, 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, post-October
loss deferrals, dividends payable, current year straddle loss deferrals
and Sec. 1256 futures marked to market and accretion/amortization
adjustments. 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, 1999, the fund reclassified $3,780,160 to decrease
undistributed net investment income and $3,684,476 to increase
paid-in-capital, with a decrease of distributions in excess of net
realized gains on investments of $95,684. 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.
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 year ended September 30, 1999, fund expenses were reduced by
$242,028 under expense offset arrangements with PFTC and brokerage service
arrangements. 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 $2,712
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
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, class C 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%,
1.00% and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund to an annual rate of 0.20%, 0.85%, 1.00% and 0.50% of
the average net assets attributable to class A, class B, class C and class
M shares respectively.
For the year ended September 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $232,131 and $3,293 from the
sale of class A and class M shares, respectively and received $1,290,270
and no monies in contingent deferred sales charges from redemptions of
class B and class C shares. A deferred sales charge of up to 1% is
assessed on certain redemptions of class A shares. For the year ended
September 30, 1999, Putnam Mutual Funds Corp., acting as underwriter
received $25,044 on class A redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 1999, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $500,386,503 and $585,357,648, respectively. Purchases and
sales of short-term municipal obligations aggregated $337,885,000 and
$347,535,000 respectively.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 34,043,617 $ 294,035,932
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,287,889 80,283,664
- -----------------------------------------------------------------------------
43,331,506 374,319,596
Shares
repurchased (55,252,585) (475,786,481)
- -----------------------------------------------------------------------------
Net decrease (11,921,079) $(101,466,885)
- -----------------------------------------------------------------------------
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, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 12,340,402 $107,145,509
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,050,990 17,706,479
- -----------------------------------------------------------------------------
14,391,392 124,851,988
Shares
repurchased (11,868,943) (101,944,941)
- -----------------------------------------------------------------------------
Net increase 2,522,449 $ 22,907,047
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
For the period July 26, 1999
(commencement of operations)
to September 30, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 123,087 $1,018,164
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 198 1,636
- -----------------------------------------------------------------------------
123,285 1,019,800
Shares
repurchased (118) (979)
- -----------------------------------------------------------------------------
Net increase 123,167 $1,018,821
- -----------------------------------------------------------------------------
Year ended September 30, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 15,730,155 $134,521,486
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 71,587 617,194
- -----------------------------------------------------------------------------
15,801,742 135,138,680
Shares
repurchased (15,630,504) (133,642,599)
- -----------------------------------------------------------------------------
Net increase 171,238 $ 1,496,081
- -----------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------
Note 5 (Unaudited)
Change in independent accountants
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent auditor and voted to appoint KPMG LLP for the
fund's fiscal year ended September 30, 1999. During the two previous
fiscal years, PricewaterhouseCoopers LLP audit reports contained no
adverse opinion or disclaimer of opinion; nor were its reports qualified
or modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audits for the two previous fiscal years
and through July 14, 1999, there were no disagreements between the fund
and PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the Fund
hereby designates $4,121,373 as capital gain, for its taxable year ended
September 30, 1999.
The fund has designated 98.95% 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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity 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
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
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
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
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
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
ASSET ALLOCATION 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
[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 not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change or
termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at the
then-current net asset value, which may be more or less than the original
cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a helpful
Putnam representative. To learn more about Putnam, visit our Web site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund, contact
your financial advisor or call our toll-free number.
1-800-225-1581
*DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
Fund information
WEB SITE
www.putnaminv.com
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
KPMG LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
David E. Hamlin
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
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' Web site: 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
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BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN045 56141 027/337/677 11/99
