Putnam
California
Tax Exempt
Money Market
Fund
ANNUAL REPORT
September 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Assets of money market mutual funds broke through the
$1 trillion mark for the first time in their 25-year history last week,
totaling $1.007 trillion for the period ending August 12. Assets have
increased at an average of 45.3 percent a year over the past 20 years, and
have increased by $147.2 billion, or 17.1 percent, over the past year
alone (August 13, 1996 through August 12, 1997)."
-- IBC's Money Fund Report, August 22, 1997
* "While California's fiscal and economic situation appears to have
stabilized into a position of strength, we remain extremely cautious in
securities selection for the fund, since preserving credit quality and net
asset value remain two of the most important components of our investment
strategy."
-- Brian Torpey, manager
Putnam California Tax Exempt
Money Market Fund
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
14 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In contrast to the somewhat unsettled interest-rate environment that prevailed
when Putnam California Tax Exempt Money Market Fund's management reported to
you at the fiscal year's midpoint, stable rates kept fixed-income investors
more or less calm during the second half. Ongoing economic strength raised
some questions about inflation but current economic data continue to suggest
growth slow enough to satisfy the ever vigilant Federal Reserve Board.
I am pleased to introduce your fund's new manager, Brian S. Torpey. Brian
joined Putnam in 1996 as tax-exempt cash manager. He currently manages two
other Putnam tax-exempt money market funds as well as the cash positions of
our tax-exempt bond funds. Before coming to Putnam, Brian was with Municipal
Market Data. He has nine years of investment industry experience.
In the following report, Brian reviews the fund's fiscal year that ended on
September 30, 1997, and discusses prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 19, 1997
Report from the Fund Manager
Brian S. Torpey
Putnam California Tax Exempt Money Market Fund concluded its fiscal year much
as it began, in an environment marked by solid economic growth, low inflation,
and relatively moderate interest rates. In this climate, your fund's
conservative investment strategy continued to serve shareholders well. Once
again, an emphasis on superior quality, capital preservation, and current
tax-free income enabled the fund to provide a competitive total return while
maintaining a stable $1.00 share price.
*STEADY GROWTH, LOW INFLATION ENVIRONMENT CONTINUES
The U.S. economy maintained its ongoing strength throughout the fund's fiscal
year. While expansion of the gross domestic product (GDP) in the second
quarter slowed slightly to 3.3% from 4.9% in the first quarter, summer and
early fall statistics continued to indicate healthy growth. The index of
leading economic indicators rose solidly in July and August, as did retail
spending, construction spending, and industrial production. In fact, despite
the UPS strike -- when some companies may have slowed output because of
nonshipment of parts needed for their production lines -- recent gains have
been vigorous enough to surpass the torrid pace of capacity expansion.
Consumer confidence has been rising too, closing in on the 28-year high seen
in June.
In the past, economic strength has been a traditional harbinger of higher
inflation. The current expansion thus far has not followed this pattern.
Consumer prices, excluding food and energy costs, inched up at a scant 2.2%
annual rate this year, down from 3.0% last year. However, there are hints that
pressures may be building. Energy prices have moved up while labor markets
remain tight, with the nation's unemployment rate for the first half of 1997
falling below 5% for the first time since 1973. These factors, along with the
labor-friendly UPS strike settlement, could push up inflation in the months
ahead. This may prompt the Federal Reserve Board to tighten short-term
interest rates in response.
* MONETARY POLICY STAYS ON HOLD FOR THE MOMENT
While volatility in the financial markets continues to reflect investor
sensitivity to inflationary pressures, the Fed has not raised short-term rates
since its March meeting. In April and May, money market yields rose in
expectation of another increase, but the board failed to act and yields backed
down to their current levels, near the target federal funds rate. Although the
"persistent strength in demand" cited by Fed officials as a key reason for
their March interest-rate tightening has continued, this demand has not yet
led to rising prices, and at subsequent meetings during the period, the Fed
found no compelling reason to raise rates again. However, in his October
congressional testimony, the Fed's chairman, Alan Greenspan, did warn that the
economy was still on "an unsustainable track" and had not slowed enough to
eliminate the threat of renewed inflation. Whether those cautionary words will
translate into interest-rate action remains to be seen.
* CALIFORNIA ACHIEVES FISCAL, ECONOMIC STRENGTH
After suffering a severe recession during the early 1990s because of weakness
in the aerospace, defense, and real estate industries, California's economy
appears to be on the rebound. The high-technology, electronics, and
manufacturing sectors are fueling the current expansion. Today's California
economy is also more diversified than it was in the early 1990s, giving the
state a better opportunity to build on its current strength. The unemployment
rate has also dropped consistently for the past three years, although it still
exceeds the national average.
As the healthy U.S. economy has reduced the borrowing needs of the U.S.
Treasury, so has California's economic strength reduced the state's borrowing
needs. Consequently, the state's issuance of tax-exempt municipal notes has
dropped from its previous high of approximately $6 billion in the early 1990s
to this year's issue of $3 billion. Despite the vast improvement in the
California economy and the accompanying swell in tax revenues, state lawmakers
have resisted spending increases and the state's budget remains conservative.
* STAYING NEUTRAL AND KEEPING QUALITY HIGH
Given our current expectation of higher interest rates by early 1998, we have
continued to position the fund flexibly. During the fiscal year, 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.
Although the healthy California economy and its sound budgetary position
continue to create more confidence in the overall quality of state debt, we
still put extra effort into identifying only the highest quality investments
for your fund. Our standards for credit quality remain extremely strict, and
our approach continues to focus on traditional tax-exempt money market
securities including variable rate demand notes (VRDNs) and municipal
commercial paper from large top-quality issuers.
As an extra measure of caution, we continue to eschew tax-exempt issues from
local municipalities unless they feature credit enhancements such as insurance
or bank letters of credit. The insurance and letters of credit offer a
guarantee that the short-term debt (money market instruments) in which your
fund invests will be paid within a certain period. Currently, more than 79% of
your fund's investments are insured or backed by letters of credit.
* OUTLOOK: HIGHER RATES LIKELY
While many investors seem to be extending their expectations of stable
short-term interest rates almost indefinitely, we believe that as time goes on
there will be moderate upward pressure on interest rates driven by the strong
economy. Actual inflation remains quite low at present but pressures are
certainly building, and the market remains vulnerable to any news of an
uptick.
With its neutral portfolio duration and conservative, quality-focused
investment strategy, your fund remains well positioned for what lies ahead.
Should interest rates begin to rise, we should be able to take advantage of
higher yields and potentially capture additional income for the fund. In the
meantime, we will continue to concentrate on preserving net asset value and
maintaining a superior quality portfolio.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 9/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
PERFORMANCE COMPARISONS (9/30/97)
Current After-tax
return* return
- ------------------------------------------------------------------------------
Passbook savings account 2.00% 1.10%
- ------------------------------------------------------------------------------
Taxable money market fund (7-day yield) 5.04 2.76
- ------------------------------------------------------------------------------
3-month certificate of deposit 4.10 2.25
- ------------------------------------------------------------------------------
Putnam California Tax Exempt
Money Market Fund (7-day yield) 3.16 3.16
- ------------------------------------------------------------------------------
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 on bank CDs is generally insured
up to certain limits by state and federal agencies. Unlike stocks, which incur
more risk, CDs offer a fixed rate of return. Unlike money market funds, bank
CDs may be subject to substantial penalties for early withdrawals. After-tax
return assumes a 45.22% maximum combined federal and state income tax rate.
*Sources: BankBoston (passbook savings), Bank Rate Monitor (3-month CDs),
IBC/Donaghue's Money Fund Report (taxable money market fund compound 7-day
yield).
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 Money Market Fund is designed for investors seeking
current income exempt from federal income tax and California personal
income tax, consistent with capital preservation, stable principal, and
liquidity.
COMPARATIVE RETURNS FOR PERIODS ENDED 9/30/97
Lipper
California
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- ------------------------------------------------------------------------------
1 year 2.87% 2.97% 2.15%
- ------------------------------------------------------------------------------
5 years 12.84 14.20 14.08
Annual average 2.45 2.69 2.67
- ------------------------------------------------------------------------------
Life of fund (10/26/87) 40.11 42.66 39.81
Annual average 3.45 3.65 3.44
- ------------------------------------------------------------------------------
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 9/30/97
- ------------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------------
Income $0.02832
- ------------------------------------------------------------------------------
Total $0.02832
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current 7-day yield1 3.16%
- ------------------------------------------------------------------------------
Taxable equivalent2 5.77
- ------------------------------------------------------------------------------
Current 30-day yield1 2.96
- ------------------------------------------------------------------------------
Taxable equivalent2 5.40
- ------------------------------------------------------------------------------
1 The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2 Assumes maximum 45.22% 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
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.
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. It is not
possible to invest directly in the average.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
To the Trustees and Shareholders of
Putnam California Tax Exempt 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, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments owned at September 30,
1997 by correspondence with the custodian, provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
November 10, 1997
Portfolio of investments owned
September 30, 1997
Key to Abbreviations
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (95.4%) *
PRINCIPAL AMOUNT RATING ** VALUE
California (95.4%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$ 2,100,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Pacific Gas & Elec.), Ser. F, 3.3s, 11/1/26
(Banque Nationale Paris LOC) VMIGI $ 2,100,000
1,350,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds
(Chevron USA Inc.), 3.9s, 11/15/01 Aa2 1,350,000
1,205,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Southdown Inc.), 3.6s, 2/15/98 (Societe
Generale LOC) VMIGI 1,205,000
3,000,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds
VRDN (Pooled Project), Ser. C, 3.8s, 6/1/28
(National Westminster Bank LOC) VMIGI 3,000,000
4,000,000 CA St. Notes (Antic Nts.), 4 1/2s, 6/30/98 MIGI 4,018,906
Indio, Multi-Fam. Rev. Bonds VRDN
2,000,000 (Carreon), Ser. A, 3.95s, 8/1/26 (Redlands
Federal Bank LOC)) VMIGI 2,000,000
2,200,000 (Western Fed. Sav. & Loan Assoc.), 4s, 6/1/05
(Wells Fargo & Co. LOC) VMIGI 2,200,000
1,500,000 Los Angeles Cnty., Trans Sales Tax
Rev. Bonds, 8s, 7/1/18 AAA 1,575,222
920,000 Northern CA Pwr. Agcy. Pub. Pwr.
Rev. Bonds, Ser. B-1, 8s, 7/1/24 AAA 948,239
2,400,000 Oakland, VRDN COP (Cap. Equip.),
4.2s, 12/1/15 (National Westminister
Bank LOC) VMIGI 2,400,000
2,200,000 Orange Cnty., Sanitation Dist. COP
(Nos. 1-2-3-6-7 & 11), Ser. C, FGIC,
3.4s, 8/1/17 AAA 2,200,000
2,200,000 Orange Cnty., Apt. Dev. Rev. Bonds VRDN
(Harbor Point), Ser. D, 3.4s, 12/1/06
(Citibank LOC) VMIGI 2,200,000
1,900,000 Palm Springs Cmnty., Redev. Agcy. VRDN
COP (Headquarters Hotel 10), 4.05s ,
12/1/14 (Citibank LOC) VMIGI 1,900,000
2,000,000 Pasadena, VRDN COP (Rose Bowl Impt.),
4.05s, 12/1/16 (Canadian Imperial Bank LOC) VMIGI 2,000,000
1,525,000 Riverside Cnty., Hsg. Auth. Multi-Fam.
Rev. Bonds VRDN (Mtn. View Apts.),
Ser. A, 4s, 8/1/25 (Redlands Federal
Savings & Loan LOC) A-1+ 1,525,000
1,680,000 San Bernadino Cnty., Multi-Fam. Rev. Bonds
VRDN (Woodview Apts.), Ser. I, 4s, 4/1/07
(Swiss Bank LOC) VMIGI 1,680,000
300,000 San Bernardino Cnty., Multi-Fam. Hsg. VRDN
(Castle Pk. Apts), Ser. A, 3.3s, 11/1/05
(Bank of Tokyo Mitsubishi LOC) VMIGI 300,000
2,000,000 San Diego, Multi-Fam. Hsg. Rev. Bonds VRDN
(Flores), Ser. A, 4s, 6/1/05 (Swiss Bank LOC) VMIGI 2,000,000
2,200,000 San Diego, Hsg. Auth. Multi-Fam. Hsg.
Rev. Bonds VRDN (Paseo Point Apartments),
Ser. A, 4s, 8/1/15 (Bank of Tokyo Mitsubishi LOC) Aa2 2,200,000
2,200,000 San Diego, Hsg. Auth. Rev. Bonds VRDN
(Carmel Del Mar Apts.), Ser. A, 4s, 12/1/15
(Citibank LOC) VMIGI 2,200,000
1,000,000 San Jacinto, Uni School Dist. COP (School Fac.
Bridge Funding), FSA, 3.45s, 9/1/27 AAA 1,000,000
170,000 San Mateo Cnty., Trans. Auth. Rev. Bonds,
Ser. A, MBIA, 4s, 6/1/98 Aaa 170,215
350,000 San Mateo Cnty., Trans. Dist Rev. Bonds,
Ser. A, MBIA, 4s, 6/1/98 Aaa 350,442
1,400,000 Stockton, Multi-Fam. Hsg. Rev. Bonds VRDN
(Mariners Pointe Assoc.), Ser. A, 4.05s,
9/1/18 (Bank of America LOC) A-1+ 1,400,000
1,600,000 Vista, Multi-Fam. Hsg. VRDN (Var-Ref-A-Rmkt-
11/1/95), 4s, 5/1/05 (Swiss Bank LOC) VMIGI 1,600,000
--------------
Total Municipal Bonds and Notes
(cost $43,523,024) $ 43,523,024
MUNICIPAL COMMERCIAL PAPER (3.5%) * (cost $1,605,344)
PRINCIPAL AMOUNT RATING VALUE
- ------------------------------------------------------------------------------------------------------------
1,600,000 Los Angeles, Wastewater Syst. , 3.8s, 10/2/97
(Union Bank of Switzerland LOC) P-1 $ 1,605,344
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $45,128,368) *** $ 45,128,368
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of
$45,606,083.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at September 30, 1997 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at September 30, 1997. Securities rated by Putnam are
indicated by "/P" and are not publicly rated. 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 Investor Service, 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/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/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, 1997, which are subject to change based on the terms of the security.
The fund had the following industry group concentration greater
than 10% at September 30, 1997 (as a percentage of net assets):
Housing 51.1%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $45,128,368
- ---------------------------------------------------------------------------------------------------
Cash 24,160
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 206,322
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 522,060
- ---------------------------------------------------------------------------------------------------
Total assets 45,880,910
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 71,829
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 92,470
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 38,801
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,409
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 946
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 67,372
- ---------------------------------------------------------------------------------------------------
Total liabilities 274,827
- ---------------------------------------------------------------------------------------------------
Net assets $45,606,083
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $45,606,083
- ---------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($45,606,083 divided by 45,606,083 shares) $1.00
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1997
<S> <C>
Tax exempt interest income $1,368,940
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 177,716
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 75,772
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,253
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,833
- --------------------------------------------------------------------------------------------------
Reports to shareholders 14,016
- --------------------------------------------------------------------------------------------------
Registration fees 2,591
- --------------------------------------------------------------------------------------------------
Auditing 20,981
- --------------------------------------------------------------------------------------------------
Legal 13,200
- --------------------------------------------------------------------------------------------------
Postage 16,331
- --------------------------------------------------------------------------------------------------
Other 4,697
- --------------------------------------------------------------------------------------------------
Total expenses 336,390
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (74,857)
- --------------------------------------------------------------------------------------------------
Net expenses 261,533
- --------------------------------------------------------------------------------------------------
Net investment income 1,107,407
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,107,407
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 1,107,407 $ 941,879
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,107,407 941,879
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (1,107,407) (941,879)
Increase from capital share transactions (Note 4) 1,678,666 8,787,774
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 1,678,666 8,787,774
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 43,927,417 35,139,643
- ----------------------------------------------------------------------------------------------------------------------
End of year $45,606,083 $43,927,417
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- -------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment operations
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.0283 $0.0270 $0.0288 $0.0192 $0.0175
- -------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations $0.0283 $0.0270 $0.0288 $0.0192 $0.0175
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.0283) $(0.0270) $(0.0288) $(0.0192) $(0.0175)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 2.87 2.74 2.92 1.94 1.77
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $45,606 $43,927 $35,140 $44,799 $45,364
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85 .93 1.00 .67 .89
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.80 2.73 2.84 1.84 1.78
- -------------------------------------------------------------------------------------------------------------------------------
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the year ended September 30, 1995
and thereafter includes amounts paid through expense offset arrangements.
Prior period ratios exclude these amounts. ( Note 2)
</TABLE>
Notes to financial statements
September 30, 1997
Note 1
Significant accounting policies
Putnam California Tax Exempt Money Market 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 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, 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.
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.
E) Amortization of bonds premium Premiums from purchases of short-term
investments are amortized using the straight-line method.
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 Investment, 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 the next $5
billion, 0.225% of the next $5 billion, 0.205% of the next $5 billion, 0.19%
of the next $5 billion, and 0.18% thereafter. Prior to January 20, 1997, any
amount over $1.5 billion was based on 0.25%.
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, 1997, fund expenses were reduced by $74,857
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 $173 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of Trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted 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, 1997.
Note 3
Purchase and sales of securities
During the year ended September 30, 1997, purchases and sales (including
maturities) of investment securities (all short-term obligations) aggregated
$469,671,698 and $456,055,222, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At September 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares at a constant net value of
$1.00 per share were as follows:
Year ended
September 30
- ------------------------------------------------------------
1997 1996
- ------------------------------------------------------------
Shares sold 162,560,591 98,400,833
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,013,805 874,218
- ------------------------------------------------------------
163,574,396 99,275,051
- ------------------------------------------------------------
Shares
repurchased (161,895,730) (90,487,277)
- ------------------------------------------------------------
Net increase 1,678,666 8,787,774
- ------------------------------------------------------------
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 1998 will show the tax status of all
distributions paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGERS]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGESM FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact Putnam
for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed to maintain a
price of $1.00 per share, although there is no assurance that this price
will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam California Tax
Exempt 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN055-36844 064 11/97
