Putnam
California
Tax Exempt
Money Market
Fund
SEMIANNUAL REPORT
March 31, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Amid ongoing improvement in California's economic and fiscal
situation, the state's municipal money market environment has become more
and more positive. Nevertheless, we remain extremely cautious in our
securities selection process and continue to seek only those holdings that
meet the highest quality standards."
-- Brian Torpey, manager
Putnam California Tax Exempt
Money Market Fund
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
9 Portfolio holdings
12 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[Copyright] Karsh, Ottawa
Dear Shareholder:
The financial troubles in Asia continued to dominate the capital markets
during the first half of Putnam California Tax Exempt Money Market Fund's
fiscal year, pushing aside worries that the continued strength in the U.S.
economy would have inflationary implications. The rush of funds to the safety
of the U.S. bond market did push yields on most bonds, including municipals,
lower -- and their prices higher.
The Federal Reserve Board kept close watch on these events, as you might
expect. But in the end, the Fed remained on the sidelines, apparently content
that the economic engine was still sufficiently under control.
In this environment, Fund Manager Brian Torpey continued to focus on
maintaining capital preservation, superior credit quality, and liquidity,
regardless of market conditions. In the following report, Brian discusses his
strategy during the six months ended March 31, 1998, and looks at prospects
for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 20, 1998
Report from the Fund Manager
Brian S. Torpey
With the U.S. economic engine continuing to steam ahead and inflation
remaining low, the semiannual period ended March 31, 1998, brought few changes
for money market investors. Once again, Putnam California Tax Exempt Money
Market Fund delivered a competitive total return while maintaining a stable
$1.00 share price, as its ongoing focus on superior quality, preservation of
capital, and current tax-free income continued to prove successful.
* ECONOMIC GROWTH CONTINUES; INFLATION REMAINS AT BAY
Despite concerns about fallout from the Asian financial crisis, the U.S.
economy maintained a rather heady pace of expansion during the semiannual
period. Indeed, U.S. economic data did not experience substantial negative
consequences from an Asian tsunami as weaker demand in Asia pushed down
worldwide commodities prices and long-term interest rates.
Isolated Asian-related pressures notwithstanding, most sectors and regions of
the U.S. economy continue to evidence strong growth. California's economy
remained vibrant, and as a result of increased tax revenues sustained by solid
growth, the state's borrowing needs have continued to drop throughout the
1990s. Consumers appear to be in excellent shape overall with strong
employment and income gains helping to boost consumer confidence and spending.
While the economy continues to expand at a rate that in the past would have
been considered a harbinger of inflationary pressures, current data show
virtually no signs of higher inflation. The inflation rate for 1997 was just
1.4%, and so far the numbers for 1998 seem similarly low. Given such a benign
environment, the Federal Reserve Board has kept monetary policy on hold
throughout the period. In fact, the Fed has not raised the federal funds rate,
the benchmark rate on overnight loans between banks, since March 1997. At that
time, policymakers feared the then strong economic demand would result in
increased inflation.
* MONEY MARKET CONTINUES TO ATTRACT CASH
Money market funds continued to receive record inflows over the past six
months. Investors are moving assets to more conservative, high-quality
investments because of a more volatile stock market, a potential intervention
by the Fed, and the Asian crisis. Money market funds are attractive because of
the flat yield curve environment, resulting in tighter spreads compared to
long-term funds while holding liquid, quality assets.
Your fund, in fact, prefers to focus exclusively on conservative tax-exempt
money market securities of the highest quality. These include variable rate
demand notes (VRDNs), tax-exempt notes, and municipal commercial paper from
large top-quality issuers. VRDNs are instruments that pay variable interest
rates that reset daily, weekly, or monthly. Superior quality thus remains a
hallmark of your fund. With the exception of general obligation securities
issued by the state of California, all portfolio holdings are backed by
letters of credit or insurance or are U.S. Treasury issues.
Diversification is another key element of your fund's conservative strategy.
The Securities and Exchange Commission recently updated its Rule 2a-7
requirements for tax-exempt money market funds to take effect July 1, 1998.
Because Putnam Management has always believed in the prudence of
diversification, your fund is already in compliance with these new
requirements.
* NEUTRAL DURATION STRUCTURE KEEPS FUND FLEXIBLE FOR WHAT LIES AHEAD
In seeking to position the fund appropriately for the current interest-rate
environment and for any changes that may lie ahead, we have continued our
strategy of maintaining flexibility. At the end of the period, this meant
keeping the fund's average days to maturity neutral relative to the market.
This positioning readies the fund to capitalize on the higher tax-exempt
security yields that typically become available during the second quarter due
to tax-exempt money market fund cash outflows for income tax payments. We also
expect to take advantage of new VRDN supply that should become available in
June and July, a time when many states conclude their fiscal years and come
to market with municipal issues.
PERFORMANCE COMPARISONS (3/31/98)
Current After-tax
return* return
- ------------------------------------------------------------------------------
Passbook savings account 2.00% 1.10%
- ------------------------------------------------------------------------------
Taxable money market fund 7-day yield 5.05 2.77
- ------------------------------------------------------------------------------
3-month certificate of deposit 4.12 2.26
- ------------------------------------------------------------------------------
Putnam California Tax Exempt
Money Market Fund (7-day yield) 2.84 2.84
- ------------------------------------------------------------------------------
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).
For the time being, it appears that economic strength and low inflation can
indeed go hand in hand. With the Fed waiting to see how and if the Asian
financial crisis will affect the U.S. economy, short-term interest rates
appear to be on hold for now. Should the economy begin to overheat, however,
the Fed may be forced to raise rates. Your fund's duration structure and
conservative, quality-focused strategy position it well for this environment
by providing the flexibility to capture any higher yields that become
available.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 3/31/98, there is no guarantee the fund will continue to hold
these securities in the future. An investment in this fund is neither insured
nor guaranteed by the U.S. government, and there is no assurance that a $1.00
share price will be maintained.
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.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
Lipper
California
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- ------------------------------------------------------------------------------
6 months 1.43% 1.44% 0.62%
- ------------------------------------------------------------------------------
1 year 2.92 2.99 1.38
- ------------------------------------------------------------------------------
5 years 13.37 14.67 12.95
Annual average 2.54 2.77 2.47
- ------------------------------------------------------------------------------
Life of fund (10/26/87) 42.11 44.75 40.68
Annual average 3.43 3.61 3.33
- ------------------------------------------------------------------------------
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
6 months ended 3/31/98
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.014219
- ------------------------------------------------------------------------------
Total $0.014219
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current 7-day yield1 2.84%
- ------------------------------------------------------------------------------
Taxable equivalent2 5.18
- ------------------------------------------------------------------------------
Current 30-day yield1 2.74
- ------------------------------------------------------------------------------
Taxable equivalent2 5.00
- ------------------------------------------------------------------------------
1The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2Assumes 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.
Portfolio of investments owned
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Key to Abbreviations
COP - Certificate of Participation
FHA Insd. - Federal Housing Administration Insured
G.O. Bonds - General Obligation Bonds
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corporation
RAN - Revenue Anticipation Notes
VRDN - Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (96.8%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
California (91.9%)
- ------------------------------------------------------------------------------------------------------------
$2,200,000 CA Hlth. Fac. Fin. Auth. VRDN (Sutter Hlth.),
Ser. A, 3.8s, 3/1/20 (Morgan Guaranty Trust
Co. LOC) A-1+ $2,200,000
1,350,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds
(Chevron USA Inc.), 3.9s, 11/15/01 AA 1,350,378
2,200,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Pacific Gas & Elec.), Ser. F, 3.7s, 11/1/26
(Banque Nationale Paris LOC) A-1+ 2,200,000
1,205,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Southdown, Inc.), 3.6s, 2/15/13
(Societe General LOC) SP-1 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) VMIG1 3,000,000
250,000 CA State G.O. Bonds, 8 1/4s, 9/1/98 A-1+ 254,640
5,000,000 CA State RAN, 4 1/2s, 6/30/98 SP-1 5,008,900
2,200,000 CA Statewide Cmnty. Dev. Auth. COP VRDN
(Northern CA Retired Officers), 3.75s, 6/1/26
(Dresdner Bank A.G. LOC) VMIG1 2,200,000
600,000 CA Statewide Cmnty. Dev. Auth. COP VRDN
(Barton Memorial Hosp.), 3.5s, 12/01/09
(Banque Nationale Paris LOC) VMIG1 600,000
2,200,000 Irvine Ranch, Wtr. Dist. G.O., VRDN (Cons. Bonds),
Ser. B, 3.75s, 10/01/09
(Landesbank Hessen-Thuringen LOC) A-1+ 2,200,000
1,600,000 Lancaster, Redev. Agcy. Rev. Bonds VRDN
(Woodcreek Garden Apts), 3.8s, 10/1/07
(Bank of Tokyo Mitsubishi LOC) VMIG1 1,600,000
1,500,000 Los Angeles Cnty., Trans. Sales Tax Rev. Bonds,
Ser. A, 8s, 7/1/18 Aaa 1,545,840
2,200,000 Los Angeles, Cmnty. Redev. Agcy. Multi-Fam. Hsg.
VRDN (Promenade Towers), 3.55s, 4/1/09
(Barclays Bank LOC) VMIG1 2,200,000
920,000 Northern CA Pwr. Agcy. Pub. Pwr. Rev. Bonds,
Ser. B-1, 8s, 7/1/24 AAA 929,752
1,300,000 Oakland, COP VRDN (Cap. Equip.), 3.7s, 12/1/15
(National Westminster Bank LOC) VMIG1 1,300,000
1,600,000 Orange Cnty., Apt. Dev. Rev Bonds VRDN
(Vintage Woods), Ser. E, 3.9s, 11/1/08
(Bank of Tokyo Mitsubishi LOC) VMIG1 1,600,000
1,900,000 Palm Springs Cmnty., Redev. Agcy. COP VRDN
(Headquarters Hotel 10), 3.5s, 12/1/14
(Citibank LOC) A-1+ 1,900,000
1,705,000 Riverside Cnty., COP VRDN (Corr. Fac. Impt.),
Ser. D, 3.45s, 12/1/15
(National Westminster LOC) A-1+ 1,705,000
2,100,000 San Bernardino Cnty., Multi-Fam. Hsg. Rev. Bond,
VRDN (Castle Peak Apts), 4.05s, 11/1/05
(Bank of Tokyo Mitsubishi LOC) VMIG1 2,100,000
800,000 San Diego Cnty., Tax & Rev. G.O. Antic. Notes,
4 1/2s, 9/30/98 (Canadian Imperial Bank LOC) SP-1 803,064
2,200,000 San Diego, Hsg. Auth. Multi-Fam. Hsg. Rev. Bonds
VRDN (Paseo Point Apartments) Ser. A, 3.9s,
8/1/15 (Bank of Tokyo Mitsubishi LOC) VMIG1 2,200,000
350,000 San Mateo Cnty., Trans. Dist. Rev. Bonds, Ser. A,
MBIA, 4s, 6/1/98 Aaa 350,168
170,000 San Mateo Cnty., Trans. Auth. Rev. Bonds, Ser. A,
MBIA, 4s, 6/1/98 Aaa 170,082
2,100,000 Upland, Multi-Fam. Hsg. Auth. VRDN
(Village Green), 3.8s, 9/1/10
(Bank of Tokyo Mitsubishi LOC) VMIG1 2,100,000
--------------
40,722,824
Puerto Rico (4.9%)
- ------------------------------------------------------------------------------------------------------------
800,000 Puerto Rico Commonwealth, Hwy. Auth. Rev.
Bonds, Ser. N, 8s, 7/1/03 Aaa 824,552
1,000,000 Puerto Rico Indl. Med. & Env. Poll. Control Rev.
Bonds (Dr. Pila Hosp.) Ser. A, FHA Insd., 7.85s,
8/1/99 (Citibank N.A. LOC) Aaa 1,033,710
300,000 Puerto Rico Tel. Auth. Rev. Bonds, Ser. M,
MBIA, 4.4s, 1/1/99 Aaa 301,686
--------------
2,159,948
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $42,882,772) *** $42,882,772
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $44,310,730.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 1998 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the
ratings do not necessarily represent what the agencies would ascribe to these securities at March 31, 1998.
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
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 March 31, 1998, which are subject to change based
on the terms of the security.
The fund had the following industry group concentration greater than 10% at March 31, 1998. (as a percentage of
net assets):
Housing 30.9%
Pollution Control 13.1
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $42,882,772
- ---------------------------------------------------------------------------------------------------
Cash 1,007,292
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 422,016
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 83,258
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 100,000
- ---------------------------------------------------------------------------------------------------
Total assets 44,495,338
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 89,964
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 34,000
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 40,365
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 3,817
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 890
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 15,572
- ---------------------------------------------------------------------------------------------------
Total liabilities 184,608
- ---------------------------------------------------------------------------------------------------
Net assets $44,310,730
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $44,310,730
- ---------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($44,310,730 divided by 44,310,730 shares) $1.00
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1998 (Unaudited)
<S> <C>
Tax exempt interest income $614,448
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 77,420
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 37,534
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,778
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,772
- --------------------------------------------------------------------------------------------------
Auditing 10,739
- --------------------------------------------------------------------------------------------------
Legal 6,676
- --------------------------------------------------------------------------------------------------
Total expenses 135,919
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (41,225)
- --------------------------------------------------------------------------------------------------
Net expenses 94,694
- --------------------------------------------------------------------------------------------------
Net investment income 519,754
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $519,754
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $519,754 $1,107,407
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 519,754 1,107,407
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (519,754) (1,107,407)
Increase (decrease) from capital share transactions (Note 4) (1,295,353) 1,678,666
- ----------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (1,295,353) 1,678,666
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 45,606,083 43,927,417
- ----------------------------------------------------------------------------------------------------------------------
End of period $44,310,730 $45,606,083
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- -----------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share March 31
operating performance (Unaudited) Year ended September 30
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $0.0142 $0.0283 $0.0270 $0.0288 $0.0192 $0.0175
- -----------------------------------------------------------------------------------------------------------------------------
Total from
investment operations $0.0142 $0.0283 $0.0270 $0.0288 $0.0192 $0.0175
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.0142) $(0.0283) $(0.0270) $(0.0288) $(0.0192) $(0.0175)
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 1.43 * 2.87 2.74 2.92 1.94 1.77
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $44,311 $45,606 $43,927 $35,140 $44,799 $45,364
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .39 * .85 .93 1.00 .67 .89
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.51 * 2.80 2.73 2.84 1.84 1.78
- -----------------------------------------------------------------------------------------------------------------------------
* Not annualized
(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
March 31, 1998
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 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 bond 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 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, 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.
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 wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the six months ended March 31, 1998, fund expenses were reduced by $41,225
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.
The Internal Revenue Service is currently examining the treatment of expense
offset arrangements in existence since 1994 for another Putnam tax-exempt
income fund. Should a determination be made that such amounts should be
treated as taxable income, it may give rise to a liability on the part of the
fund and require the fund to report these amounts as taxable income in the
future. The outcome of this matter cannot currently be predicted.
Each Trustee of the fund receives an annual Trustee fee, of which $140 has
been allocated to the fund, and an additional fee for each Trustee's meeting
attended. Trustees who are not interested persons of Putnam Management and who
serve on committees of the Trustees receive additional fees for attendance at
certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted 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 that apply to certain shares that have been
exchanged from other Putnam funds. Putnam Mutual Funds received no monies in
contingent deferred sales charges from such redemptions.
Note 3
Purchase and sales of securities
During the six months ended March 31, 1998, purchases and sales (including
maturities) of investment securities (all short-term obligations) aggregated
$123,681,085 and $125,928,280, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
Note 4
Capital shares
At March 31, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares at a constant net asset
value of $1.00 per share were as follows:
Six months ended Year ended
March 31 September 30
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
Shares sold 28,213,261 162,560,591
- ---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 459,267 1,013,805
- ---------------------------------------------------------------------------
28,672,528 163,574,396
Shares
repurchased (29,967,881) (161,895,730)
- ---------------------------------------------------------------------------
Net increase
(decrease) (1,295,353) 1,678,666
- ---------------------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
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
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
- --------------------
SA055- 42046 064 5/98
