Putnam
California
Tax Exempt
Money Market
Fund
ANNUAL REPORT
September 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "With California's economic and fiscal outlook improving, we have
positioned the fund to benefit from growing investment opportunities
while simultaneously exercising appropriate caution on individual
security selection."
-- Lindsey C. Strong, Manager
Putnam Money Market Fund
* "Total assets in money funds...reached $856.7 billion at the end of
August, according to IBC/Financial Data in Ashland, MA, surpassing for
the first time the $806.4 billion that the Investment Company Institute,
the Washington trade group, counted in bond/income funds."
-- The New York Times, September 29, 1996
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
13 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Unsettled fixed-income markets and uncertainty over the course of short-
term interest rates provided most of the challenges for Fund Manager
Lindsey Strong throughout Putnam California Tax Exempt Money Market
Fund's fiscal year that ended on September 30, 1996. By continually
adjusting the average maturity of the portfolio and maintaining the
fund's conservative strategy of investing in high-quality short-term
investments, she was able to deliver another year of competitive
performance while maintaining a stable net asset value.
As your fund moves into fiscal 1997, Lindsey sees a continuation of this
general environment in prospect, especially as the nation and California
adjust to the results of the November elections. In the report that
follows, Lindsey discusses in detail the driving forces behind your
fund's fiscal 1996 performance and her outlook for the fiscal year
ahead.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
November 20, 1996
Report from the Fund Manager
Lindsey C. Strong
In the annual period ended September 30, 1996, Putnam California Tax
Exempt Money Market Fund once again provided shareholders with a
competitive total return while focusing on capital preservation and
maintaining a stable $1.00 share price. The fund's conservative
investment strategy, which emphasizes superior quality tax-exempt short-
term instruments and the pursuit of current income, served it well
during the year's environment of continued economic strength, slightly
higher interest rates, and diminished inflationary expectations.
* ECONOMIC STRENGTH WITHOUT INFLATION
Economic strength continued throughout the annual period, although
certain indicators showed some softening as September drew to a close.
Unemployment figures stayed low, while retail sales, home and vehicle
sales, and consumer confidence remained relatively robust. At the same
time, inflationary pressures did not materialize, despite ongoing market
worries to the contrary. The Federal Reserve Board did not raise short-
term interest rates in September as many had expected, believing that
the economy would soon slow enough on its own. In fact, over the summer,
demand did seem to be tapering a bit, as retail sales growth edged
lower, exports softened, and home sales came off their earlier peaks.
* CALIFORNIA FISCAL AND ECONOMIC IMPROVEMENT CONTINUES
The California economy also continued to rise throughout the period. The
positive business climate noted in the semiannual report has continued
to improve. This additional economic strength, in turn, is increasing
investment opportunities for the fund. With business activity improving,
unemployment declining, and home building on the upswing, the state's
municipal bonds have become increasingly attractive to investors. The
fiscal situations of many local municipalities are also improving,
although others remain somewhat tenuous. Accordingly, our investment
strategy remained exceptionally conservative, and we continued to
measure the credit quality of individual securities against the highest
possible standards.
Improvements in the California economy notwithstanding, considerable
investor uncertainty remains with respect to the strength of the
nation's economy, the potential for inflation, and the possibility of a
Fed interest-rate increase. Given this unclear picture, your portfolio
remained in a flexible position throughout the annual period. This meant
keeping portfolio duration relatively neutral -- rather than short or
long -- in order to be ready to take advantage of incrementally higher
yields, should interest rates begin to rise. Throughout the period, we
continued to seek out securities offering strong value and solid yield.
* SEASONAL SUPPLY SURGE COINCIDES WITH INCREASINGLY CREDIT-CONSCIOUS
ENVIRONMENT
The supply of municipal securities fluctuates broadly according to
seasonal patterns throughout the year. Typically, June and July are
months of heavier tax-exempt securities issuance, and this year was no
exception. Demand, however, assumed a rather cautious tone during this
annual period, as buyers exhibited renewed enthusiasm for the most
conservative money market investments. Essentially, most market
participants are getting back to basics, eschewing the derivative
investments that were once such popular income vehicles and scrutinizing
the credit quality of even those securities once thought to be above
question.
Your fund has always maintained extremely strict standards for high
quality and liquidity in the securities it purchases. In this time of
interest-rate uncertainty and increased credit consciousness, we have
redoubled efforts to find well-valued tax-exempt securities that meet
our criteria. We continue to concentrate the fund's holdings in variable
rate demand notes (VRDNs) and municipal commercial paper from large top-
quality issuers. VRDNs are instruments that can be redeemed on short
notice. They pay variable interest rates that reset at daily, weekly, or
monthly intervals. They are helpful in managing the fund's average
maturity and liquidity. Commercial paper is a type of security issued by
a municipality to finance capital or operating needs.
Currently, the majority of your fund's investments are insured or backed
by bank letters of credit. The insurance and letters of credit guarantee
that the short-term debt (money market instruments) in which your fund
invests will be paid within a certain period. These features add a
significant measure of quality assurance even to those issues rated in
the highest categories by nationally recognized rating services, making
many of our holdings among the highest quality available. We intend to
maintain the portfolio's high percentage of insured and bank-backed
securities going forward or even expand it should appropriate investment
opportunities arise.
* FAVORABLE ENVIRONMENT FORECAST FOR CALIFORNIA BONDS; NATIONAL OUTLOOK
MORE CONSERVATIVE
We are cautiously optimistic about prospects for the municipal bond
market in California. The Golden State's economic and fiscal situations
seem to be on an upswing, and this bodes well for investors in municipal
securities. The national perspective, however, is a bit more uncertain.
It would appear that economic growth has begun to moderate while
inflationary pressures remain subdued. After expecting the Fed to raise
interest rates, many market participants even see the possibility of an
ease in rates should the economy slow significantly. Given these mixed
signals, we expect the market to remain somewhat unsettled over the near
term. We believe the portfolio's neutral duration and concentration in
superior quality issues should continue to serve shareholders well by
enabling the fund to maintain its stable share price and income stream
amid this challenging environment.
The views expressed throughout the report are exclusively those of
Putnam Management and are not meant as investment advice. Although the
described holdings were viewed favorably as of 9/30/96, there is no
guarantee the fund will continue to hold these securities in the future.
PERFORMANCE COMPARISONS (9/30/96)
Current After-tax
return* return
- ---------------------------------------------------------------------
Passbook savings account 2.01% 1.08%
- --------------------------------------------------------------------
Taxable money market fund 7-day yield 4.86 2.61
- --------------------------------------------------------------------
3-month certificate of deposit 4.04 2.17
- --------------------------------------------------------------------
Putnam California Tax Exempt Money
Market Fund (7-day yield) 2.96 2.96
- --------------------------------------------------------------------
The net asset value of money market mutual funds is uninsured and
designed to be fixed, while distributions vary daily. Investment returns
will fluctuate. The principal value on passbook savings and bank CDs are
generally insured up to certain limits by state and federal agencies.
CDs, unlike stocks which incur more risk, offer a fixed rate of return.
Unlike money market funds, early withdrawals from bank CDs may be
subject to substantial penalties. After-tax return assumes a 46.24%
maximum combined federal and state income tax rate.
*Sources: Bank of Boston (passbook savings), IBC/Donaghue's Money Fund
Report (taxable money market fund 7-day yield), Bank Rate Monitor (3-
month CDs).
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam California Tax Exempt Money Market Fund is designed for
investors seeking current income exempt from federal and state income
tax, consistent with capital preservation, stable principal and
liquidity.
This section provides, at a glance, information about your fund's
performance. 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.
TOTAL RETURN FOR PERIODS ENDED 9/30/96
Lipper California
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- -----------------------------------------------------------------------
1 year 2.74% 2.96% 3.00%
- -----------------------------------------------------------------------
5 years 12.62 14.15 15.02
Annual average 2.40 2.68 2.84
- -----------------------------------------------------------------------
Life of fund (10/26/87) 36.20 38.41 36.86
Annual average 3.52 3.71 3.58
- -----------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data represent past
results and are not indicative of future returns. Investment returns
will fluctuate. An investment in the fund is neither insured nor
guaranteed by the U.S. government. There can be no assurance that the
fund will be able to maintain a stable net asset value of $1.00 per
share. The fund's holdings do not match those in the Lipper Average.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/96
- ------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------
Income $0.027018
- ------------------------------------------------------------------------
Total $0.027018
- ------------------------------------------------------------------------
Current return
End of period
- ------------------------------------------------------------------------
Current 7-day yield1 2.96%
- ------------------------------------------------------------------------
Taxable equivalent2 5.51
- ------------------------------------------------------------------------
Current 30-day yield1 2.76
- ------------------------------------------------------------------------
Taxable equivalent2 5.13
- ------------------------------------------------------------------------
1The 7-day and 30-day yields are the two most common gauges for
measuring money market mutual fund performance.
2Assumes maximum 46.24% combined federal and state tax rate. Results
for investors subject to lower tax rates would not be as advantageous.
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.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares.
COMPARATIVE BENCHMARKS
Lipper California Tax Exempt Money Market Fund Average, used for
performance comparison purposes, is an arithmetic average of the total
return of all California tax exempt money market mutual funds tracked by
Lipper Analytical Services. Lipper is an independent rating organization
for the mutual fund industry. Lipper rankings vary for other periods.
The fund's holdings do not match those in the Lipper Average.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the fiscal year ended September 30, 1996
To the Trustees and Shareholders of
Putnam California Tax Exempt Money Market Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings),
and the related statements of operations and of changes in net assets,
and the financial highlights present fairly, in all material respects,
the financial position of Putnam California Tax Exempt Money Market Fund
(the "fund") at September 30, 1996, and the results of its operations,
the changes in its net assets, and the financial highlights for the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility
of the fund's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at September 30, 1996 by
correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 12, 1996
<TABLE>
<CAPTION>
Portfolio of investments owned
September 30, 1996
Key to Abbreviations
COP -- Certificate of Participation
FGIC -- Federal Guaranty Insurance Corporation
LOC -- Letters of Credit
RAN -- Revenue Anticipation Notes
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (67.1%) *
PRINCIPAL AMOUNT RATINGS ** VALUE
<S> <C> <C> <C> <C>
California (67.1%)
- -------------------------------------------------------------------------------------------------------------------------------
$600,000 CA Hlth. Fac. Fin. Auth. VRDN (Sutter Hlth.),
Ser. A, 3.8s, 3/1/20 (Morgan Guaranty Trust Co. LOC) VMIG1 600,000
1,500,000 CA Hsgs. Fin. Auth. VRDN (Home Mtge) Ser.E,
FGIC 3 1/2s, 8/1/27 VMIG1 1,500,000
1,350,000 Ca. Poll. Ctrl. Fing. Auth. VRDN (Chevron USA
Inc. Project), 4s, 11/15/01 Aa-2 1,350,493
3,000,000 CA. Pub. Cap. Impts. Fing. Auth. VRDN 3.8s, 6/1/28
(Nat'l. Westminister Bk. USA LOC) VMIG1 3,000,000
1,500,000 CA St. RAN Ser. A, 41/2s, 6/30/97 MIG1 1,503,979
1,900,000 Palm Springs Comm. Redev. AG. VRDN 3 1/4s,
12/1/14 (Citibank LOC) A-1 1,900,000
1,380,000 Indio, CA Multi-Fam. Rev. Bonds VRDN, 3.85s, 6/1/05
(Home Savings of America LOC) A-1 1,380,000
1,600,000 Los Angeles Cnty. Redev. Mulit-Fam Hsg. VRDN,
3.6s, 4/1/09 (Tokai Bank LOC) VMIG1 1,600,000
1,500,000 Los Angeles Cnty. Cmnty. COP. (Willowbrook Project)
VRDN, 3.7s, 11/1/15 (Wells Fargo & Co. LOC) A-1 1,500,000
1,400,000 Moorpark Multi-Fam. VRDN (Le Club Apartments Project),
3.7s, 11/1/15 (Citibank, NA LOC) A-1+ 1,400,000
1,500,000 Oakland VRDN COP (Cap. Equip. Project) 4.1s,
12/1/15 (Nat'l. Westminister Bank LOC) A-1 1,500,000
2,000,000 Pomona, Redev. Agcy. Multi-Fam. VRDN (Bauer Group Apt.)
4.7s, 12/1/07 (Bank of America LOC) VMIG1 2,000,000
1,525,000 Riverside Cnty. Hsg. Auth.. Multi-Fam. VRDN (Mtn. View Apts.),
Ser. A, 3.8s, 8/1/25 (Redlands Federal Savings & Loan LOC) A-1+ 1,525,000
1,500,000 Sacramento Cnty. COP VRDN 3s, 6/1/20, (Union Bank of
Switzerland LOC) VMIG1 1,500,000
1,495,000 Sacramento, Cnty. Multi-Fam. Hsg. VRDN (Smoketree),
Ser. A, 3.7s, 4/15/10 A-1+ 1,495,000
1,500,000 San Bernardino Cnty. TRAN. 4 1/2s, 6/30/97, (The
Toronto-Dominion Bank, Landesbank Hessen-Thuringen LOC) MIG1 1,506,749
1,400,000 San Diego Hsg. Auth. Multi-Fam. Hsg. VRDN (Paseo Apartments),
Ser. A, 3.85s, 8/1/15 (Bnak of Tokyo LOC) VMIG1 1,400,000
1,400,000 Stockton, Multi-Fam. Hsg. VRDN 3 3/4s, 9/1/18
(Bank of America LOC) A-1+ 1,400,000
1,400,000 Woodland, Multi-Fam. Hsg. Mtge. VRDN (Crossroads)
3.7s, 7/15/18 A-1+ 1,400,000
----------
Total Municipal Bonds and Notes (cost $29,461,221) $29,461,221
MUNICIPAL COMMERCIAL PAPER (4.8%) *
PRINCIPAL AMOUNT RATING ** VALUE
$600,000 Los Angeles Cnty. Metropolitan Trans. Auth. Sales Tax,
3.05s, 2/3/96 (Banque Nat'l De Paris LOC) P-1 $ 600,000
1,500,000 Sacramento Muni. Utility Dist., 3.15s, 11/13/96
(Bayerische LandesBank Girozentrale LOC) P-1 1,500,000
----------
Total Municipal Commercial Paper (cost $2,100,000) $ 2,100,000
- -------------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $31,561,221)*** $31,561,221
- -------------------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $43,927,417
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
September 30, 1996 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, 1996.
Securities rated by Putnam are indicated by "/P" and
are not publicly rated. Ratings are not covered by the
Report of independent accountants.
Moody's Investor Service, Inc. and Standard & Poor's Corp.
are the leading independent rating agencies for debt
securities. Moody's uses the designation "Moody's Investment
Grade", or "MIG", for most short-term municipal obligations,
adding a "V" ("VMIG") for bonds with a demand or variable
feature; the designation "P" is used for tax exempt
commercial paper. Standard & Poor's uses "SP" for notes
maturing in three years or less, "A" for bonds with a demand
or variable feature.
Moody's Investors Inc.
MIGI/VMIGI = Best quality; strong protection of cash flows, superior
liquidity and broad access to refinancing
MIG2/VMIG2 = High quality; ample protection of cash flows, liquidity
support and ability to refinance
AAA = Extremely strong capacity to pay interest and repay principal
AA = Strong capacity to pay interest and repay principal and differs
from the higher rated issues only in a small degree
Aa2 = Superior capacity for repayment
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
Standard & Poor's Corp.
SP-1 = Overwhelming safety characteristics
SP-2 = Strong capacity to pay interest and repay principal.
A-1+ = Overwhelming degree of credit and protection
A-1 = Strong degree of safety
A-2 = Considered strong but lacks solid strength for timely repayment
*** The aggregate identified cost on a tax basis is the same
The rates shown on VRDN are the current interest rates
shown at September 30, 1996 which are subject to
change based on the terms of the security.
The fund had the following industry group
concentration greater than 10% on
September 30, 1996 (as a percentage of net assets):
Housing 34.4%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30,1996
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $31,561,221
- -----------------------------------------------------------------------------------------------------
Cash 29,924
- -----------------------------------------------------------------------------------------------------
Interest and other receivables 186,586
- -----------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 12,381,332
- -----------------------------------------------------------------------------------------------------
Total assets 44,159,063
Liabilities
- -----------------------------------------------------------------------------------------------------
Distributions payable to shareholders 64,090
- -----------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 61,346
- -----------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 35,073
- -----------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,052
- -----------------------------------------------------------------------------------------------------
Other accrued expenses 70,085
- -----------------------------------------------------------------------------------------------------
Total liabilities 231,646
- -----------------------------------------------------------------------------------------------------
Net assets $43,927,417
Represented by
- -----------------------------------------------------------------------------------------------------
Paid-in capital (Notes 4) $43,927,417
- -----------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($43,927,417 divided by 43,927,417 shares) $1.00
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1996
<S> <C>
Tax exempt interest income $1,185,257
- -------------------------------------------------------------------------------------------------
Expenses:
- -------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 155,509
- -------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 63,549
- -------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,577
- -------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,233
- -------------------------------------------------------------------------------------------------
Reports to shareholders 30,998
- -------------------------------------------------------------------------------------------------
Registration fees 9,034
- -------------------------------------------------------------------------------------------------
Auditing 19,440
- -------------------------------------------------------------------------------------------------
Legal 8,936
- -------------------------------------------------------------------------------------------------
Postage 21,955
- -------------------------------------------------------------------------------------------------
Other 518
- -------------------------------------------------------------------------------------------------
Total expenses 319,749
- -------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (76,371)
- -------------------------------------------------------------------------------------------------
Net expenses 243,378
- -------------------------------------------------------------------------------------------------
Net investment income 941,879
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $941,879
- -------------------------------------------------------------------------------------------------
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year Ended September 30
1996 1995
--------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $941,879 $1,340,960
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 941,879 1,340,960
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (941,879) (1,340,960)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 8,787,774 (9,659,129)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 8,787,774 (9,659,129)
- ---------------------------------------------------------------------------------------------------------------
Net Assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 35,139,643 44,798,772
- ---------------------------------------------------------------------------------------------------------------
End of year $43,927,417 $35,139,643
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an intergal part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Year ended September 30
------------------------------------------------
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Net investment income $0.0270 $0.0288 0.0192
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.0270 $0.0288 $0.0192
- --------------------------------------------------------------------------------------------------------------------------
Total distributions ($0.0270) ($0.0288) ($0.0192)
- --------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 2.74 2.92 1.94
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $43,927 $35,140 $44,799
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .93 1.00 .67
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 2.73 2.84 1.84
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
1993 1992
--------------------------------
<S> <C> <C>
Net investment income $0.0175 $0.0262(a)
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments -- 0.0001
- -------------------------------------------------------------------------------------------------------
Total from investment operations $0.0175 $0.0263
- -------------------------------------------------------------------------------------------------------
Total distributions ($0.0175) ($0.0263)
- -------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%)(b) 1.77 2.67
- -------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $45,364 $58,858
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .89 .85 (a)
- -------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.78 2.70 (a)
- -------------------------------------------------------------------------------------------------------
(a) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses
of the fund for the year ended September 30, 1992 reflect a per share reduction of $.0026.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the year ended September 30, 1995 and thereafter
includes amounts paid through expense offset arrangements. Prior Period ratios exclude these amounts.
(See Note 2.)
</TABLE>
Notes to financial statements
September 30, 1996
Note 1
Significant accounting policies
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 is consistent with
preservation of capital, maintenance of liquidity and stability of
principal by investing primarily in a diversified portfolio of short-
term California tax-exempt securities.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with generally accepted accounting principles and requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities. Actual results could differ from those
estimates.
A) Security valuation The valuation of the fund's portfolio instruments
is determined by means of the amortized cost method as set forth in Rule
2a-7 under the Investment Company Act of 1940. The amortized cost which
approximates market value of an instrument is determined by valuing it
at cost originally and thereafter amortizing any discount or premium
from its face value at a constant rate until maturity.
B) Security transactions Security transactions are accounted for on the
trade date (date the order to buy or sell is executed).
C) 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. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax on income and capital
gains.
D) Interest income and distributions to shareholders Interest is
recorded on the accrual basis. Income dividends (and distributions of
realized gains, if any) are recorded daily by the fund and are
distributed monthly to the shareholders. 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.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Investment Management, Inc. ("Putnam
Management"), the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc., 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: 0.45% of the first $500 million of
average net assets, 0.35% of the next $500 million, 0.30% of the next
$500 million, and 0.25% of any amount thereafter subject, under current
law, to reduction in any year by the amount of certain brokerage
commissions and fees (less expenses) received by affiliates of Putnam
Management on the fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned 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, 1996, fund expenses were reduced by
$76,371 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $380 and an
additional fee for each Trustees' 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 adopted a Trustee Fee Deferral Plan (the "Plan") which allows
the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan
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 Plan provides for payment by
the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35%
of the fund's average net assets. Currently, no payments are being made
under the plan.
Putnam Mutual Funds Corp., acting as underwriter receives proceeds from
contingent deferred sales charges. These charges apply to certain shares
that have been exchanged from other Putnam funds. Putnam Mutual Funds
Corp. received no monies in contingent deferred sales charges from such
redemptions for the year ended September 30, 1996.
Note 3
Purchase and sales securities
During the year ended September 30, 1996, purchases and sales (including
maturities) of investment securities (all short-term obligations)
aggregated $71,129,009 and $74,980,000 respectively. In determining the
net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
Note 4
Capital shares
At September 30, 1996, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares at a
constant net value of $1.00 per share were as follows:
Year ended
September 30
1996 1995
- ----------------------------------------------------------
Shares sold 98,400,833 114,301,007
- ----------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 874,218 1,230,354
- ----------------------------------------------------------
99,275,051 115,531,361
Shares
repurchased (90,487,277) (125,190,490)
- -----------------------------------------------------------
Net increase
(decrease) 8,787,774 (9,659,129)
- -----------------------------------------------------------
Federal tax information
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for Federal income tax
purposes.
The Form 1099 you receive in January 1997 will show the tax status of
all distributions paid to your account in calendar 1996.
Results of September 5, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on September 5, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Votes
Votes for withheld
Jameson Adkins Baxter 23,694,416 326,477
Hans H. Estin 23,695,527 325,366
John A. Hill 23,727,096 293,797
R.J. Jackson 23,695,920 324,973
Elizabeth T. Kennan 23,694,416 326,477
Lawrence J. Lasser 23,727,096 293,797
Robert E. Patterson 23,727,096 293,797
Donald S. Perkins 23,727,096 293,797
William F. Pounds 23,727,096 293,797
George Putnam 23,727,096 293,797
George Putnam, III 23,714,302 306,591
E. Shapiro 23,664,351 356,542
A.J.C. Smith 23,727,096 293,797
W. Nicholas Thorndike 23,727,096 293,797
A proposal to ratify the Trustees' selection of Price Waterhouse LLP as
auditors for the fund was approved as follows: 22,733,274 votes for, and
60,508 votes against, with 1,227,112 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to diversification of investments was approved as follows:
21,831,572 votes for, and 956,032 votes against, with 1,233,290
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in the securities of a single issuer was approved
as follows: 21,164,706 votes for, and 1,439,139 votes against, with
1,417,049 abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to making loans through purchases of debt obligations,
repurchase agreements and securities loans was approved as follows:
20,914,211 votes for, and 1,900,232 votes against, with 1,206,449
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to investments in real estate was approved as follows:
19,830,131 votes for, and 2,890,877 votes against, with 1,299,884
abstentions and broker non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to senior securities was approved as follows: 21,587,884 votes
for, and 1,127,771 votes against, with 1,305,238 abstentions and broker
non-votes.
A proposal to amend the fund's fundamental investment restriction with
respect to concentration of its assets was approved as follows:
21,664,770 votes for, and 1,006,217 votes against, with 1,369,906
abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in securities of issuers in which management
of the fund or Putnam Investment Management, Inc. owns securities was
approved as follows: 20,173,483 votes for, and 1,693,490 votes against,
with 2,163,920 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to margin transactions was approved as follows: 20,435,493
votes for, and 2,240,986 votes against, with 1,344,414 abstentions and
broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to short sales was approved as follows: 21,066,399 votes
for, and 2,337,635 votes against, with 1,420,249 abstentions and broker
non-votes.
A proposal to eliminate the fund's fundamental investment restriction
which limits the fund's ability to pledge assets was approved as
follows: 20,263,009 votes for, and 2,337,635 votes against, with
1,420,249 abstentions and broker non-votes.
A proposal to eliminate the fund's fundamental investment restriction
with respect to investments in restricted securities was approved as
follows: 20,677,762 votes for, and 2,053,562 votes against, with
1,289,569 abstentions and broker non-votes.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William F. McGue
Vice President
Blake E. Anderson
Vice President
Lindsey C. Strong
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam California
Tax Exempt Money Market Fund. It may also be used as sales literature
when preceded or accompanied by the current prospectus, which gives
details of sales charges, investment objectives, and operating policies
of the fund, and the most recent copy of Putnam's Quarterly Performance
Summary. For more information or to request a prospectus, call toll-
free: 1-800-225-1581. You can also learn more at Putnam Investments'
website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution, are not insured by the
Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board
or any other agency, and involve risk, including the possible loss of
the principal amount invested.
Putnam
Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ----------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ----------------
28360-064 11/96
