Putnam
California
Tax Exempt
Money Market Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
For most of the 12 months ended September 30, 1999, the money market sustained
positive momentum. The economy continued to grow, inflation stayed in check,
and interest rates trended upward. Elsewhere in the U.S. financial universe,
the stock market continued on its upward path while the bond market suffered
its second-worst year on record. Even within the stock and money markets, there
were pockets of volatility, especially surrounding the Federal Reserve Board's
two short-term interest rate increases in June and August. Overall, though, the
tax-exempt money market remained one of the calmest sectors in the financial
marketplace, and funds such as Putnam California Tax Exempt Money Market Fund
continued to attract many new assets. Your fund's recent performance reflects
this relatively benign environment.
Total return for 12 months ended 9/30/99
NAV
- ------------------------------------------------------------------------
2.22%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance information
for longer periods and explanation of performance calculation methods begin on
page 5.
* SLIGHTLY LONGER DURATION CAPTURES INCOME
What a difference a year makes. Just last September the economy appeared so
much in danger of stalling that the Fed lowered short-term interest rates
three times in just seven weeks. Since then, many world economies have
strengthened, while U.S. economic growth has remained fairly steady. California
has kept pace with the national growth rates, enjoying solid prosperity over
the period. Over the summer, the Fed became concerned that the economy was
overheating and actually raised interest rates twice, in June and again in
August. In response, the pace of U.S. growth slowed to 1.6% during the second
quarter of 1999. Despite widespread expectations of a third increase, the Fed
left rates alone at its early October meeting. Nonetheless, current market
interest rates reflect an expectation that the Fed will raise rates again in
the months ahead. This expectation has driven up yields, and at its October
meeting, the Fed stated a firm bias toward tightening rates should inflation
appear stronger.
In this environment of higher interest rates, your fund manager, Brian S.
Torpey, used duration as the key tool for managing the fund. In order to lock
in the highest available money market rates, Brian kept portfolio duration
slightly longer than the market average throughout the past six months. Besides
allowing the fund to capture additional income, this longer duration enables
the fund to avoid reinvesting assets in January, a time when yields on
tax-exempt money market securities traditionally drop. At the beginning of the
year, many tax-exempt bonds reach maturity and demand for money market issues
surges as investors seek parking places for the resulting assets until they can
find suitable reinvestment opportunities.
* AMID LOW SUPPLY, QUALITY REMAINS KEY
Ongoing economic growth throughout the country and the state of California
continued to raise tax revenues and limit municipalities' borrowing needs
during the annual period. Indeed, the level of tax-exempt money market security
issuance over the past year has been relatively flat. In California, issuance
has actually fallen off considerably. For example, while the state of
California historically issues approximately $2 billion to $3 billion worth of
tax-exempt securities over the summer to cover its short-term borrowing needs
for the coming fiscal year, this summer's issuance was a scant $1 billion. Amid
this challenging climate, your fund manager kept superior credit quality and
capital preservation uppermost in his mind as he continued to pursue
appropriate income opportunities for the fund. As always, the portfolio
includes a wide range of top-quality tax-exempt money market securities. In the
current portfolio, more than 44.8% of holdings is either insured or backed by
letters of credit.
In the coming months, Brian will continue to pursue appropriate income
opportunities while keeping a firm grasp on superior credit quality and capital
preservation. After the beginning of the new year, when yields on tax-exempt
money market securities should decline gradually, he plans to bring portfolio
duration back to a more neutral position. As always, he will remain focused on
implementing the conservative strategies that have served shareholders well
thus far.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 9/30/99, there is no guarantee the fund will continue to hold
these securities in the future. An investment in the fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve your investment at $1.00 per share,
it is possible to lose money by investing in the fund.
PERFORMANCE COMPARISONS (9/30/99)
Current After-tax
return* return
- -------------------------------------------------------------------------------
Passbook savings account 1.25% 0.68%
- -------------------------------------------------------------------------------
Taxable money market fund 7-day yield 4.82 2.64
- -------------------------------------------------------------------------------
3-month certificate of deposit 3.85 2.11
- -------------------------------------------------------------------------------
Putnam California Tax Exempt
Money Market Fund (7-day yield) 2.70 2.70
- -------------------------------------------------------------------------------
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 combined 45.22% maximum 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 state and federal income tax consistent with capital preservation,
stable principal, and liquidity.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Lipper
California
Tax Exempt Consumer
Fund shares Money Market price
at NAV Fund Average index
- -------------------------------------------------------------------------
1 year 2.22% 2.39% 2.75%
- -------------------------------------------------------------------------
5 years 14.35 15.26 12.38
Annual average 2.72 2.88 2.36
- -------------------------------------------------------------------------
10 years 33.52 36.22 34.32
Annual average 2.93 3.14 2.99
- -------------------------------------------------------------------------
Life of fund (10/26/87) 47.29 50.43 45.62
Annual average 3.30 3.48 3.20
- -------------------------------------------------------------------------
Fund Shares
Current return (end of period) at NAV
- -------------------------------------------------------------------------
Current 7-day yield1 2.70%
- -------------------------------------------------------------------------
Taxable equivalent2 4.93
- -------------------------------------------------------------------------
Current 30-day yield1 2.26
- -------------------------------------------------------------------------
Taxable equivalent2 4.13
- -------------------------------------------------------------------------
1The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2Assumes 45.22% maximum combined state and federal income 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.
Past performance is no assurance of future results and more recent returns
may be more or less than those shown. Fund performance data do not take
into account any adjustment for taxes payable on reinvested distributions.
Investment returns will fluctuate. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the fund seeks to preserve your
investment at $1.00 per share, it is possible to lose money by investing
in the fund. The fund's holdings do not match those in the Lipper average.
Yield data more closely reflect the current earnings of the fund.
DISTRIBUTION INFORMATION 12 MONTHS ENDED 9/30/99
- -----------------------------------------------------------------------
Distributions (number) 12
- -----------------------------------------------------------------------
Income $0.021972
- -----------------------------------------------------------------------
Total $0.021972
- -----------------------------------------------------------------------
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 an index.
Consumer price index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
The Board of Trustees and Shareholders
Putnam California Tax Exempt Money Market Fund
We have audited the accompanying statement of assets and liabilities of
Putnam California Tax Exempt Money Market Fund, including the fund's
portfolio as of September 30, 1999, and the related statement of
operations, statement of changes in net assets and financial highlights
for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net
assets for the year ended September 30, 1998 and the financial highlights
for each of the years in the four-year period ended September 30, 1998
were audited by other auditors whose report dated November 11, 1998
expressed an unqualified opinion on that financial statement and those
financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1999 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Putnam California Tax Exempt Money Market Fund as of September 30,
1999, the results of its operations, changes in its net assets and
financial highlights for the year then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
Boston, Massachusetts
November 9, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.7%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
California (91.9%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,205,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Southdown Inc.), 3.3s, 2/15/13 VMIG1 $ 1,205,000
1,350,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds
(Chevron USA Inc.), FRB, 3.9s, 11/15/01 MIG1 1,351,497
2,200,000 CA Poll. Cntrl. Fin. Auth. Rev. Bonds VRDN
(Pacific Gas & Elec.), Ser. F, 3.05s, 11/1/26
(Banque Nationale Paris LOC) A-1+ 2,200,000
3,000,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds VRDN
(Pooled Project), Ser. C, 3.35s, 6/1/28
(National Westminster Bank LOC) VMIG1 3,000,000
2,100,000 CA State Econ. Dev. Fin. Auth. VRDN
(CA Indpt. Syst.), Ser. C, 4.00s, 4/1/08 VMIG1 2,100,000
500,000 CA State Pub. Wks. Rev. Bonds
(CA State U. Library), Ser. A, 6 1/4s, 9/1/16 Aaa 521,913
250,000 CA State Wtr. Dept. Res. Rev. Bonds, Ser. H,
6.9s, 12/1/25 Aaa 259,734
450,000 East Bay, CA Muni. Util. Dist. Wtr. Sys.
Rev. Bonds, FGIC, 6s, 6/1/00 VMIG1 458,212
1,800,000 Indio, Multi-Fam. Rev. Bonds VRDN
(Carreon), Ser. A, 3.4s, 8/1/26 A-1+ 1,800,000
2,100,000 Irvine Ranch, Wtr. Dist. VRDN
(Cons. Bds.), 3.5s, 10/1/05 A-1+ 2,100,000
750,000 Los Angeles Cnty., COP
(Correctional Facs.), MBIA, 6 1/2s, 9/1/13 Aaa 784,735
Los Angeles, Cnty. Cmnty. Redev. Agcy. VRDN
275,000 (Alpha Partnership), 3.15s, 12/1/13 A-1+ 275,000
200,000 (Southeast Partnership), 3.15s, 12/1/13 A-1+ 200,000
1,425,000 Northern CA Transmission Rev. Bonds
(Ore Transportation), Ser. A, MBIA, 7s, 5/1/24 Aaa 1,476,249
1,200,000 San Jacinto, U. School Dist. COP VRDN,
FSA, 3.5s, 9/1/27 VMIG1 1,200,000
350,000 Southern CA Pub. Pwr. Auth. Rev. Bonds,
Ser. R, 9.625s, 7/1/15 AAA 369,329
2,400,000 Three Valleys, Muni. Wtr. Dist. COP VRDN,
3.4s, 11/1/14 A-1 2,400,000
1,700,000 Vallejo, Hsg. Auth. VRDN, 3.4s, 1/1/08 VMIG1 1,700,000
2,000,000 Westminster, COP (Civic Ctr.), Ser. B., AMBAC,
FRB, 3.4s, 6/1/24 A-1 2,000,000
1,500,000 Yucaipa-Calimesa, Joint School Dist. Notes,
4s, 6/30/00 MIG1 1,506,510
-------------
26,908,179
Puerto Rico (6.8%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 Cmnwlth. of PR, Hwy. Trans. Auth. VRDN,
AMBAC, 3.45s, 7/1/28 VMIG1 2,000,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $28,908,179) (b) $ 28,908,179
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $29,274,903.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1999 for the securities listed. Ratings are generally ascribed to securities at the time of issuance.
While the agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings
do not necessarily represent what the agencies would ascribe to these securities at September 30, 1999. Securities
rated by Putnam are indicated by "/P" and are not publicly rated. Ratings are not covered by the Report of independent
accountants.
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 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 = 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+ = Very strong capacity to pay principal and interest
SP-1 = Strong capacity to pay principal and interest
SP-2 = Satisfactory capacity to pay principal and interest
A-1+ = Extremely strong degree of safety
A-1 = Strong degree of safety
A-2 = Satisfactory capacity for timely repayment
(b) The aggregate identified cost on a tax basis is the same.
The rates shown on FRB and VRDN are the current interest rates at September 30, 1999 which are subject to change
based on the terms of the security.
The fund had the following industry group concentrations greater than 10% at September 30, 1999 (as a percentage of net
assets):
Water and sewer 24.7%
Pollution control 16.3
Housing 13.6
Transportation 11.9
Education 11.0
Capital improvements 10.3
The fund had the following insurance concentration greater than 10% at September 30, 1999 (as a percentage of net
assets):
AMBAC 13.7%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $28,908,179
- -----------------------------------------------------------------------------------------------
Cash 341,823
- -----------------------------------------------------------------------------------------------
Interest and other receivables 155,893
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 10,269
- -----------------------------------------------------------------------------------------------
Total assets 29,416,164
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 49,974
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 17,080
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 42,248
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,731
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,980
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 881
- -----------------------------------------------------------------------------------------------
Other accrued expenses 24,367
- -----------------------------------------------------------------------------------------------
Total liabilities 141,261
- -----------------------------------------------------------------------------------------------
Net assets $29,274,903
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $29,274,903
- -----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($29,274,903 divided by 29,274,903 shares) $1.00
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1999
<S> <C>
Tax exempt interest income $1,142,057
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 178,325
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 62,596
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,225
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,508
- -----------------------------------------------------------------------------------------------
Reports to shareholders 9,270
- -----------------------------------------------------------------------------------------------
Registration fees 2,725
- -----------------------------------------------------------------------------------------------
Auditing 18,571
- -----------------------------------------------------------------------------------------------
Legal 5,561
- -----------------------------------------------------------------------------------------------
Postage 3,047
- -----------------------------------------------------------------------------------------------
Other 263
- -----------------------------------------------------------------------------------------------
Total expenses 288,091
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (43,249)
- -----------------------------------------------------------------------------------------------
Net expenses 244,842
- -----------------------------------------------------------------------------------------------
Net investment income 897,215
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 897,215
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 897,215 $ 1,027,043
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 897,215 1,027,043
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (897,215) (1,027,043)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (188,656) (16,142,524)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (188,656) (16,142,524)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 29,463,559 45,606,083
- ---------------------------------------------------------------------------------------------------------------
End of year $29,274,903 $29,463,559
- ---------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $0.0220 $0.0281 $0.0283 $0.0270 $0.0288
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations $0.0220 $0.0281 $0.0283 $0.0270 $0.0288
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $(0.0220) $(0.0281) $(0.0283) $(0.0270) $(0.0288)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.22 2.85 2.87 2.74 2.92
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $29,275 $29,464 $45,606 $43,927 $35,140
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73 .75 .85 .93 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.26 2.89 2.80 2.73 2.84
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
Notes to financial statements
September 30, 1999
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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
A) Security valuation 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 are recorded daily by the fund and
are distributed monthly to the shareholders. Distributions of realized
gains, if any, are paid at least annually.
E) Amortization of bond premium and accretion of bond discounts Premiums
and discounts from purchases of short-term investments are
amortized/accreted 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 subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended September 30, 1999, fund expenses were reduced by
$43,249 under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the
Statement of operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with the expense
offset arrangements in an income producing asset if it had not entered
into such arrangements.
Each Trustee of the fund receives an annual Trustee fee, of which $297 has
been allocated to the fund, and an additional fee for each Trustee's
meeting attended. Trustees who are not interested persons of Putnam
Management and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees Fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of Trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted 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. For the year ended September 30,
1999, Putnam Mutual Funds received no monies in contingent deferred sales
charges from such redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 1999, cost of purchases and proceeds
from sales (including maturities) of investment securities (all short-term
obligations) aggregated $259,453,195 and $258,005,000, respectively.
Note 4
Capital shares
At September 30, 1999, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares at a
constant net asset value of $1.00 per share were as follows:
Year ended September 30
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
Shares sold 126,819,223 66,376,144
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 810,925 966,770
- -----------------------------------------------------------------------------
127,630,148 67,342,914
Shares
repurchased (127,818,804) (83,485,438)
- -----------------------------------------------------------------------------
Net decrease (188,656) (16,142,524)
- -----------------------------------------------------------------------------
Note 5 (Unaudited)
Change in Independent
Accountants
Based on the recommendation of the Audit Committee of the fund, the Board
of Trustees has determined not to retain PricewaterhouseCoopers LLP as
this fund's independent accountant and voted to appoint KPMG LLP for the
fund's fiscal year ended September 30, 1999. During the two previous
fiscal years, PricewaterhouseCoopers LLP audit reports contained no
adverse opinion or disclaimer of opinion; nor were its reports qualified
or modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audits for the two previous fiscal years
and through July 14, 1999, there were no disagreements between the fund
and PricewaterhouseCoopers LLP on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
which if not resolved to the satisfaction of PricewaterhouseCoopers LLP
would have caused it to make reference to the disagreements in its report
on the financial statements for such years.
Federal tax information
(Unaudited)
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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
Vice President and Fund Manager
John R. Verani
Vice President
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' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN055-56146 064 11/99
