Putnam
California
Tax Exempt
Money Market Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 15, 2000
REPORT FROM FUND MANAGEMENT
Brian S. Torpey
For most of the 12 months ended September 30, 2000, the tax-exempt money
market sustained positive momentum. The economy remained strong,
inflation was subdued, and interest rates tended upward. Among other
U.S. financial markets, the equity market experienced growing volatility
amid uneven corporate earnings reports, while the bond market generally
declined in response to rising interest rates. Overall, the environment
for money market funds was favorable, and your fund's recent performance
reflects this.
Total return for 12 months ended 9/30/00
NAV
--------------------------------------------------------
2.78%
--------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 5.
* ECONOMIC STRENGTH BEGINS TO WANE; FED POLICY ON HOLD
The annual period began with the U.S. economic engine in full gear.
Plentiful jobs, rising incomes, tame inflation, and stock market gains
put consumers in a buying mood. Indeed, one key indicator of the
economy's positive momentum has been home sales, which have remained
strong over the past six months. In August, existing home sales rose
9.3%. This was the largest gain since June 1999, when sales of existing
homes reached 10.9%. It surprised many analysts, who had expected a rise
closer to 4%.
As the third quarter progressed, clearer evidence of economic slowing
began to emerge. A punishing string of corporate earnings warnings
relentlessly pushed down stock prices, especially among the
much-watched, high-flying technology stocks. Rising oil prices also
began to concern investors, analysts, and consumers. President Clinton
took the unusual step of releasing oil from the nation's petroleum
reserves to help reduce oil prices. Signs of a slowdown have also begun
to emerge in Asia and Europe. However, just after the period closed the
unemployment rate dipped to 3.9% -- a 30-year low and a surprise to
analysts who had been expecting a slight rise and further evidence of an
economic slowdown.
Over the 12-month period, the Federal Reserve Board, concerned that the
strong economy would bring about a rise in inflation, raised its federal
funds rate (the interest rate charged by banks when they loan money to
each other) six times. By May, the tightening cycle appeared to be
ending, and the Fed left rates alone for the rest of the period. Several
reasons account for this shift. First, the Fed saw evidence that the
economy was weakening -- the intended effect of the interest-rate
increases. Second, the euro has been extremely weak against the dollar,
and if the Fed was to raise interest rates further, the euro's weakness
could be exacerbated. Third, oil prices are rising, another potential
drag on the economy. Finally, with the presidential election
approaching, the Fed may have been reluctant to act for fear of
appearing biased toward either party's candidate.
* GROWING DEMAND AND LOW SUPPLY KEEP TAX-EXEMPT MARKET STRONG
Yields on tax-exempt money market securities remained attractive over
the period, especially relative to yields on longer-term tax-exempt
bonds. Although the municipal market has not experienced the inverted
yield curve of the Treasury market (in which yields on short-term
securities are higher than those on longer-term issues), its yield curve
has remained relatively flat. Since intermediate and longer-term bonds
are not offering significantly higher yields than short-term securities,
investors see less potential reward in assuming the greater
interest-rate risks associated with these longer issues.
Partly as a result of their yield advantage, tax-exempt money market
securities have been in high demand over the period. In fact, tax-exempt
money market assets grew by 13.7% over the 12 months ended September 30,
2000. Demand has been particularly strong in states that, like
California, have a high proportion of wealthy individuals in its
Internet and technology business sectors. In many cases, the companies
these people work for go public, providing the investors with a windfall
that many choose to invest at least partially in municipal bonds and
tax-exempt money market securities. Besides higher yields, investors
also appreciate the attractive relative stability of these issues.
With the economy continuing to generate strong tax revenues for many
municipalities, the supply of tax-exempt money market securities has
been lighter than in previous years. Some states, including California,
did not issue short-term debt at all. This supply shortfall, combined
with increased demand, has reduced buying opportunities for your fund.
* FUND MAINTAINS QUALITY FOCUS
Superior quality and capital preservation remain the hallmarks of your
fund's portfolio strategy, and we continue to invest in a wide spectrum
of traditional tax-exempt money market securities. Although the low
supply of tax-exempt securities has increased the challenge of finding
the higher-grade notes we target, we have not compromised our quality
standards. In the current portfolio, all holdings are insured, backed by
letters of credit, or carry the highest available rating from at least
one major rating agency.
Because higher quality securities carry a lower level of risk, they
typically offer slightly lower yields. Consequently, to keep the fund's
yield competitive, we try to keep the fund's dollar- weighted average
maturity (DWAM) at or slightly above the market average. This typically
means a focus on longer-term money market securities, which generally
offer slightly higher yields. The fund's actual DWAM has fluctuated
around the market average for most of the past year, as lack of supply
has limited our buying opportunities. Supply generally improves in the
2nd and 4th quarter of each calendar year. So, over the near term, we
will be looking to lengthen maturities as overall demand wanes, yields
become more attractive, and we work to avoid a difficult reinvestment
period in the first quarter of 2001.
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 9/30/00, 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 (9/30/00)
Current After-tax
return* return
-----------------------------------------------------------------------
Passbook savings account 2.96% 1.62%
-----------------------------------------------------------------------
Taxable money market fund 7-day yield 6.00 3.29
-----------------------------------------------------------------------
3-month certificate of deposit 4.55 2.49
-----------------------------------------------------------------------
Putnam California Tax Exempt
Money Market Fund (7-day yield) 3.57 3.57
-----------------------------------------------------------------------
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 state and federal income tax rate.
*Sources: Fleet National Bank (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 California state and federal income
tax, consistent with capital preservation, stable principal, and
liquidity.
TOTAL RETURN FOR PERIODS ENDED 9/30/00 (most recent calendar quarter)
Lipper California
Tax Exempt Consumer
Fund shares Money Market price
at NAV Fund Average index
----------------------------------------------------------------------
1 year 2.78% 2.96% 3.46%
----------------------------------------------------------------------
5 years 14.19 15.13 13.32
Annual average 2.69 2.86 2.53
----------------------------------------------------------------------
10 years 30.37 33.42 30.82
Annual average 2.69 2.92 2.72
-----------------------------------------------------------------------
Life of fund
(since 10/26/87) 51.40 54.89 50.56
Annual average 3.26 3.44 3.22
-----------------------------------------------------------------------
Fund shares
Current return (end of period) at NAV
-----------------------------------------------------------------------
Current 7-day yield 1 3.57%
-----------------------------------------------------------------------
Taxable
equivalent 2 6.52
-----------------------------------------------------------------------
Current 30-day yield 1 3.03
-----------------------------------------------------------------------
Taxable
equivalent 2 5.53
-----------------------------------------------------------------------
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 9/30/00
NAV
----------------------------------------------------------------
Distributions
(number) 12
----------------------------------------------------------------
Income $0.027442
----------------------------------------------------------------
Total $0.027442
----------------------------------------------------------------
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, not including
any initial or contingent deferred sales charge.
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 noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
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, 2000, and the related statement of
operations for the year then ended, statements of changes in net assets
for each of the years in the two-year period and financial highlights
for each of the years in the two-year period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights for each of the years in the three-year period
ended September 30, 1998 were audited by other auditors whose report
dated November 11, 1998 expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2000 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 audits provide 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, 2000, the results of its operations, changes in its net
assets and financial highlights for each of the years or periods
described above, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Boston, Massachusetts
November 1, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
September 30, 2000
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
IF COP -- Inverse Floating Rate Certificate of Participation
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (96.3%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
California (92.1%)
-------------------------------------------------------------------------------------------------------------------
$ 1,350,000 CA Poll. Control Fin. Auth. Rev. Bonds FRB
(Chevron USA Inc.), 3.8s, 11/15/01 VMIG1 $ 1,350,808
CA Poll. Control Fin. Auth. VRDN
1,100,000 (Shell Oil Comp. Project-A), 5.75s, 10/1/08 A-1+ 1,100,000
1,300,000 (Pacific Gas and Electric), 5.7s, 11/1/26 VMIG1 1,300,000
1,205,000 (Southdown, Inc.), 4.1s, 2/15/13 VMIG1 1,205,000
3,000,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds VRDN
(Pooled Project), Ser. C, 3.95s, 6/1/28
(National Westminster Bank LOC) MIG1 3,000,000
2,000,000 CA State Poll. Control Fin. Auth. VRDN
(Sierra Pacific Indl. Project),4.4s, 2/1/13
(Bank of America LOC) VMIG1 2,000,000
1,300,000 CA Statewide Cmnty. Dev. Auth. COP
(North CA Ret. Officers), 2.45s, 6/1/26 VMIG1 1,300,000
400,000 CA Statewide Cmnty. Dev. Auth. VRDN
(Barton Memiorial Hosp.), 4.35s, 12/1/09 VMIG1 400,000
1,200,000 Indio, Multi-Fam.VRDN (Carreon), Ser. A,
4.3s, 8/1/26 A-1+ 1,200,000
1,300,000 Irvine, Impt. Bond. Act 1915 Rev. Bonds
(Adj-Assmt. Dist. No-94-15), 2.45s, 9/2/20 VMIG1 1,300,000
1,300,000 Irvine Ranch, Wtr. Dist. VRDN (Cons. Bonds),
5.75s, 10/1/10 A-1+ 1,300,000
Los Angeles, Cmnty. Redev. Agcy. COP FRB
275,000 (Alpha Partnership), 4.2s, 12/1/13 A-1+ 275,000
200,000 (Southeast Partnership), 4.2s, 12/1/13 A-1+ 200,000
2,000,000 Los Angeles, School Dist. COP VRDN
(Belmont Learning Complex), Ser. A,
4.35s, 12/1/17 VMIG1 2,000,000
225,000 Los Angeles, Wastewtr. Syst. Rev. Bonds,
Ser. D, MBIA, 6.7s, 12/1/21 VMIG/P-1 230,555
225,000 Riverside Cnty., Trans. Comm. Rev. Bonds,
Ser. A, AMBAC, 6 1/2s, 6/1/09 Aaa 232,823
1,200,000 San Jacinto, U. School Dist. COP VRDN FSA,
4 1/2s, 9/1/27 VMIG1 1,200,000
570,000 Southern CA Pub. Pwr. Auth. Rev. Bond,
6 3/4s, 7/1/01 A 581,257
1,300,000 Stockton, Multi-Fam. Hsg. VRDN (Mariners
Pointe Assoc.), Ser. A, 5s, 9/1/18 A-1+ 1,300,000
1,700,000 Three Valleys, Muni. Wtr. Dist. COP, 4.4s, 11/1/14 A-1 1,700,000
1,900,000 Westminster, COP VRDN (Civic Ctr.), Ser. B.,
AMBAC, 4.4s, 6/1/24 A-1 1,900,000
1,000,000 Yucaipa-calimesa, Joint Unified School Dist. G.O.
Bonds, 5s, 6/29/01 MIG1 1,005,357
-------------
26,080,800
Puerto Rico (4.2%)
-------------------------------------------------------------------------------------------------------------------
700,000 Cmnwlth. of PR, Govt. Dev. Bank VRDN, MBIA,
4.35s, 12/1/15 VMIG1 700,000
500,000 Cmnwlth. of PR Rev. Bond, 5 1/2s, 7/1/01 Aaa 505,823
-------------
$ 1,205,823
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $27,286,623) (b) $ 27,286,623
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $28,327,615.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September 30, 2000 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 take no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these
securities at September 30, 2000. 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 = 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 Floating Rate Bonds (FRB) are the current
interest rates shown at September 30, 2000 which are subject to change
based on the terms of the security.
The rates shown on VRDN's are the current interest rates at
September 30, 2000.
The fund had the following industry group concentrations greater
than 10% at September 30, 2000 (as a percentage of net assets):
Pollution control 24.6%
Capital improvements 15.8
Education 14.9
Water and sewer 11.4
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $27,286,623
-------------------------------------------------------------------------------------------
Cash 927,936
-------------------------------------------------------------------------------------------
Interest and other receivables 116,310
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 213,636
-------------------------------------------------------------------------------------------
Total assets 28,544,505
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 62,068
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 97,305
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 30,428
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,309
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 804
-------------------------------------------------------------------------------------------
Other accrued expenses 19,976
-------------------------------------------------------------------------------------------
Total liabilities 216,890
-------------------------------------------------------------------------------------------
Net assets $28,327,615
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $28,327,615
-------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($28,327,615 divided by 28,327,615 shares) $1.00
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended September 30, 2000
<S> <C>
Tax exempt interest income $1,100,764
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 146,844
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 56,146
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,200
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,530
-------------------------------------------------------------------------------------------
Auditing 22,080
-------------------------------------------------------------------------------------------
Other 30,968
-------------------------------------------------------------------------------------------
Total expenses 265,768
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (53,625)
-------------------------------------------------------------------------------------------
Net expenses 212,143
-------------------------------------------------------------------------------------------
Net investment income 888,621
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 888,621
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 888,621 $ 897,215
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 888,621 897,215
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (888,621) (897,215)
--------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (947,288) (188,656)
--------------------------------------------------------------------------------------------------
Total decrease in net assets (947,288) (188,656)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of year 29,274,903 29,463,559
--------------------------------------------------------------------------------------------------
End of year $28,327,615 $29,274,903
--------------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income $0.0274 $0.0220 $0.0281 $0.0283 $0.0270
-----------------------------------------------------------------------------------------------------
Total from
investment operations $0.0274 $0.0220 $0.0281 $0.0283 $0.0270
-----------------------------------------------------------------------------------------------------
Total distributions $(0.0274) $(0.0220) $(0.0281) $(0.0283) $(0.0270)
-----------------------------------------------------------------------------------------------------
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) 2.78 2.22 2.85 2.87 2.74
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $28,328 $29,275 $29,464 $45,606 $43,927
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81 .73 .75 .85 .93
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.72 2.26 2.89 2.80 2.73
-----------------------------------------------------------------------------------------------------
(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, 2000
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 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 funds' 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 and related investment income 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
taxable 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 paid monthly to the shareholders.
E) Amortization of bond premium and accretion of bond discounts Premiums
and discounts from purchases of short-term investments are
amortized/accreted at a constant rate until maturity.
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, 2000, fund expenses were reduced by
$53,625 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.
Each Trustee of the fund receives an annual Trustee fee, of which $279
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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. For the year ended September
30, 2000, Putnam Retail Management, Inc., acting as underwriter receives
proceeds from contingent deferred sales charges that apply to certain
shares that have been exchanged from other Putnam funds. Putnam Retail
Management, Inc., received no monies in contingent deferred sales
charges from such redemptions.
Note 3
Purchase and sales of securities
During the year ended September 30, 2000, cost of purchases and proceeds
from sales (including maturities) of investment securities (all
short-term obligations) aggregated $107,836,301 and $109,314,253,
respectively.
Note 4
Capital shares
At September 30, 2000, 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 Year ended
September 30, September 30,
2000 1999
---------------------------------------------------------------------------
Shares sold 67,818,286 126,819,223
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 787,393 810,925
---------------------------------------------------------------------------
68,605,679 127,630,148
Shares
repurchased (69,552,967) (127,818,804)
---------------------------------------------------------------------------
Net decrease (947,288) (188,656)
---------------------------------------------------------------------------
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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
WELCOME TO WWW.PUTNAMINVESTMENTS.COM
Now you can use your PC to get up-to-date information about your funds,
learn more about investing and retirement planning, and access market
news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape or Microsoft Internet Explorer,
using an independent Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminvestments.com
THE PUTNAM FAMILY OF FUNDS
The following is a complete list of Putnam's open-end mutual funds.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Technology Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Fund
Balanced Retirement Fund
Classic Equity Fund *
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Growth and Income Fund II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply.
Contact Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at
www.putnaminvestments.com.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
KPMG LLP
TRUSTEES
John A. Hill, 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, III
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
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 and Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN055-65463 064 11/00
