<PAGE> 1
PUTNAM
CALIFORNIA
INVESTMENT GRADE
MUNICIPAL TRUST
SEMIANNUAL REPORT
OCTOBER 31, 1994
[LOGO]
BOSTON - LONDON - TOKYO
<PAGE> 2
PERFORMANCE HIGHLIGHTS
-- "Investors who buy closed-end funds [shares] at discounts to their net
asset values (NAV) both reduce the risk of holding the funds and
increase their potential profits should the discounts narrow or
even turn into premiums to NAV."
--Kiplinger's Personal Finance Magazine, "Great buys in beaten-down bond
funds," November 1994
-- Performance should always be considered in light of a fund's investment
strategy. Putnam California Investment Grade Municipal Trust is designed
for investors seeking high current income free from federal and
state income tax, consistent with preservation of capital.
<TABLE>
SEMIANNUAL RESULTS AT A GLANCE
-----------------------------------------------------------------------
<CAPTION>
TOTAL RETURN: NAV MARKET PRICE
-----------------------------------------------------------------------
<S> <C> <C>
(change in value during period
plus reinvested distributions)
6 months ended 10/31/94 -1.71% -6.82%
<CAPTION>
SHARE VALUE NAV MARKET PRICE
-----------------------------------------------------------------------
4/30/94 $14.49 $13.875
10/31/94 13.77 12.500
<CAPTION>
CAPITAL GAINS1
LONG- SHORT-
DISTRIBUTIONS: NO. INCOME TERM TERM TOTAL
-----------------------------------------------------------------------
6 months ended 10/31/94
Common shares 6 $ 0.465 -- -- $ 0.465
Preferred shares $974.09 -- -- $974.09
<CAPTION>
TAXABLE EQUIVALENT2
MARKET MARKET
CURRENT RETURN: NAV PRICE NAV PRICE
-----------------------------------------------------------------------
End of period
Common shares
Current dividend rate3 6.75% 7.44% 12.56% 13.84%
<FN>
Performance data represent past results. For performance over longer
periods, see page 8. 1Capital gains are taxable for federal and, in most
cases, state tax purposes. 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. 2Assumes maximum 46.24%
combined federal and state tax rate . Results for investors subject to
lower tax rates would not be as advantageous. 3 Income portion of most
recent distribution, annualized and divided by NAV or market price at
end of period.
</TABLE>
2
<PAGE> 3
[PHOTO]
(c) Karsh, Ottawa
FROM THE CHAIRMAN
DEAR SHAREHOLDER:
IN THIS PERIOD OF UNSETTLED MARKETS, I WANT TO ASSURE YOU THAT THE
WIDELY PUBLICIZED FINANCIAL DIFFICULTIES OF ORANGE COUNTY SHOULD NOT BE
AMONG YOUR CONCERNS AS FAR AS PUTNAM CALIFORNIA INVESTMENT GRADE
MUNICIPAL TRUST IS CONCERNED. AT THE CLOSE OF THE FUND'S SEMIANNUAL
PERIOD ON OCTOBER 31, 1994, YOUR FUND HELD NO DIRECT ORANGE COUNTY
OBLIGATIONS.
PUTNAM MANAGEMENT, OF COURSE, WILL REMAIN CAUTIOUS UNTIL EVENTS RELATING
TO THIS ISSUE ARE RESOLVED. OVER THE LONG TERM, WE CONTINUE TO BELIEVE
THERE ARE SUBSTANTIAL BUYING OPPORTUNITIES IN THE CALIFORNIA
MUNICIPAL BOND MARKET.
FURTHERMORE, BECAUSE OF YOUR FUND'S BROAD DIVERSIFICATION AND HIGH
CREDIT QUALITY, A DEFAULT BY A SINGLE ISSUER WILL GENERALLY HAVE ONLY
MINIMAL IMPACT ON THE FUND. THIS SITUATION ALSO REINFORCES THE ADVANTAGE
OF BUYING A MUNICIPAL BOND FUND RATHER THAN INDIVIDUAL MUNICIPAL
BONDS TO ACHIEVE THE BENEFIT OF DIVERSIFICATION.
IN THE REPORT THAT FOLLOWS, FUND MANAGER THOMAS GOGGINS DISCUSSED THE
FUND'S PERFORMANCE DURING THE FIRST HALF OF FISCAL 1994 AND THE OUTLOOK
FOR THE SECOND HALF.
RESPECTFULLY YOURS,
/S/ GEORGE PUTNAM
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
DECEMBER 14, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
THOMAS GOGGINS
Throughout the six months ended October 31, 1994, the broad
deterioration of bond prices--a direct result of rising interest rates
and investor uncertainty--was reflected in the prices of both taxable
and municipal bond funds. In fact, it could be said that calendar 1994
has been one of the most challenging years in recent history for
fixed-income investments, particularly for single-state municipal bond
funds. Putnam California Investment Grade Municipal Trust was not
immune to the performance-dampening effects of investor apprehension
and a tighter monetary policy.
However, we encourage you to keep in mind that a mutual fund investment,
particularly one that emphasizes long-term municipal bonds in its
portfolio, requires a long-term view and that market corrections are a
natural part of any business cycle. We remain committed to providing you
with hands-on management while pursuing the best opportunities that
occur under any type of market condition.
-- BALANCING INCOME AND TOTAL RETURN IN A RISING INTEREST RATE
ENVIRONMENT
Despite the market's turbulence, the fund succeeded in providing you
with a high level of tax-free income throughout the period. A taxable
investment at the maximum combined federal and state rate of 46.24%
would have had to provide a current return of 12.56% to equal the
fund's 6.75% current dividend rate at net asset value on October 31,
1994. In today's low inflation, high-tax environment, we believe these
figures represent attractive real rates of return, even for investors in
lower tax brackets.
The fund was able to provide you with a high tax-free income stream
primarily because it continued to emphasize long-term bonds in its
portfolio. The probability of further interest rate increases caused
many investors to flee to the comparable safety of tax-free money market
instruments. Thus, even
4
<PAGE> 5
though rates were on the rise, the increased demand helped keep yields
on these short-term securities low. Had we liquidated your fund's
long-term bond positions and redeployed assets into short-term municipal
securities, we would have cushioned the fund's net asset value to a
greater extent, but the net investment income would have dropped
substantially. Considering the fund's current-income objective, we
believe our decision to maintain the fund's long-term bond positions was
the appropriate choice.
As you may know, the fund issued and sold preferred shares to
institutional investors in fiscal 1993. We believe the timing was
fortunate because rates on medium-term tax-free investments were low. A
form of leveraging, this strategy continues to play an important
role in bolstering the portfolio's income potential. Since the issuance
of these preferred shares, we've been able to reinvest the proceeds in
higher-paying, long-term bonds. A portion of the income that continues
to be generated from these higher-paying bonds is distributed to the
fund's common shareholders, enhancing their monthly dividend.
As a result of the recent increased demand for the safety of short-term
tax- free investments, the municipal yield curve has remained steep. We
believe this trend continues to make the fund's use of leveraging an
attractive income-generating strategy. At period's end, 20% of the
fund's net assets remained leveraged.
CREDIT QUALITY OVERVIEW
[PIE CHART]
A bond rated BBB or higher is considered investment grade. All ratings
reflect Standard & Poor's[Registration Mark] descriptions, unless noted
otherwise. Based on net assets as of 10/31/94.
5
<PAGE> 6
-- AN EMPHASIS ON PREMIUM COUPONS, HIGHER CREDIT QUALITY
In an attempt to mitigate the effects of current volatility without
sacrificing yield, we've increased the fund's weighting in
premium-coupon bonds--those selling at prices above their par value. As
these bonds typically offer coupons higher than current rates, they tend
to be less seriously affected when prices decline, which should
help reduce the fund's overall price volatility. Some of the fund's
recent housing-sector acquisitions were of this type. We've increased
the fund's exposure to state-appropriated and insured California bonds,
and also reined in duration by a couple of years.
We've sought to increase the portfolio's overall credit quality, while
at the same time taking advantage of some unusually attractive yield
situations. We believe the entertainment, biotechnology, and health
care industries within California hold particular promise for growth.
Our extensive research into these areas has already produced new
investment prospects for your fund.
One issue that particularly caught our attention is Berkeley Alta Bates
Hospital. A turnaround situation, the hospital posted some discouraging
figures on its financial statement in years past. Our analysts met with
the hospital's management on several occasions to discuss the losses and
their proposed strategies to rectify the situation. We believe their
proposals held merit, so we have maintained significant holdings at the
hospital's bonds this year.
Despite California's widely publicized difficulties, including the most
recent events in Orange County, the state's overall economy is showing
signs of recovery. In fact, we believe the strength of its rebound and
influence on business momentum may come as a surprise to many. With one
of the largest economies in the world, California stands to benefit from
any positive global economic developments, such as the General Agreement
on Tariffs and Trade (GATT) and the North American Free Trade Agreement
(NAFTA). We believe California businesses are also well positioned,
both culturally and geographically, to benefit from the explosive
growth occurring in many Pacific Rim economies.
6
<PAGE> 7
<TABLE>
<S> <C>
TOP INDUSTRY SECTORS*
-------------------------------------------------------------------
Utilities 14.2%
-------------------------------------------------------------------
Hospitals 12.5%
-------------------------------------------------------------------
Water/Sewer 7.0%
-------------------------------------------------------------------
Transportation 6.7%
-------------------------------------------------------------------
Housing 5.4%
-------------------------------------------------------------------
<FN>
* Based on net assets on 10/31/94.
</TABLE>
Admittedly, the acute mismanagement of one municipality's finances has
created skepticism about many of California's municipal securities.
However, we are not overly concerned. Your fund's investments have had
the benefit through research and are continuously monitored by an
experienced team of 14 credit analysts and eight veteran portfolio
managers. We will, of course, remain cautious until recent events have
been resolved.
-- POSITIONING FOR A POSSIBLE MARKET RISE
While investing in a down market can be psychologically difficult, we
believe doing so can also lead to profitability over the long term.
Today's post- correction prices actually represent a buying opportunity.
For the long-term investor, acquiring shares at reduced
prices--either through direct purchase or reinvestment of
dividends--creates a larger income-generating share base for the future.
We currently believe the recovery potential of California municipal
bonds is among the strongest of all fixed-income investments, although
we anticipate continued volatility over the near term. Favorable market
trends, such as an anticipated supply/demand imbalance, bode well for
the municipal market, both regionally and nationally. Year-to-date new
issuance for municipal bonds has dropped by more than 40% on a
national level and roughly 36% on a state level. We believe the
decreased supply, combined with growing investor demand for tax relief,
speaks strongly for the appreciation potential of municipal bonds.
As experienced bond fund investors have learned, time generally favors
those with patience and vision.
7
<PAGE> 8
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of the fund's shares
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We show
total return in two ways: on a cumulative long-term basis and on average
how the fund might have grown each year over varying periods. For
comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 10/31/94
<CAPTION>
LEHMAN BROS.
MUNICIPAL
NAV MARKET PRICE BOND INDEX CPI
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 months -1.71% - 6.82% -0.85% 1.43%
-----------------------------------------------------------------------------
1 year -7.45 -13.65 -4.36 2.61
-----------------------------------------------------------------------------
Life of fund
(since 11/27/92) 11.53 - 5.38 7.19 5.28
Annual average 5.81 - 2.82 3.66 2.70
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
TOTAL RETURN FOR PERIODS ENDED 9/30/94
(most current calendar quarter)
<CAPTION>
MARKET
NAV PRICE
-----------------------------------------------------------------------------
<S> <C> <C>
6 months 1.81% -2.16%
-----------------------------------------------------------------------------
1 year -4.48 -8.57
-----------------------------------------------------------------------------
Life of fund
(since 11/27/92) 15.04 -0.31
Annual average 7.91 -0.17
-----------------------------------------------------------------------------
<FN>
Performance data represent past results. Investment returns, net asset
value and market price will fluctuate so an investor's shares, when
sold, may be worth more or less than their original cost. Fund
performance data do not take into account any adjustment for taxes
payable on reinvested distributions.
</TABLE>
8
<PAGE> 9
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any
liabilities, the liquidation preference and cumulative undeclared
dividends paid on the remarketed preferred shares, divided by the
number of outstanding common shares.
MARKET PRICE is the current trading price of one share of the fund.
Market prices are set by transactions between buyers and sellers on the
American Stock Exchange.
COMPARATIVE BENCHMARKS
LEHMAN BROTHERS MUNICIPAL BOND INDEX is an unmanaged list of long-term
fixed-rate investment-grade tax-exempt bonds representative of the
municipal bond market. The index does not take into account brokerage
commissions or other costs, may include bonds different from those in
the fund, and may pose different risks than the fund.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
9
<PAGE> 10
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1994 (Unaudited)
<CAPTION>
MUNICIPAL BONDS AND NOTES (102.9%)(A)
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
CALIFORNIA (99.5%)
------------------------------------------------------------------------------------------
$3,000,000 Berkeley, Hlth. Fac. Rev. Bonds
(Alta Bates Medical Center Project), 6.55s, 12/1/22 Baa $2,673,750
1,020,000 CA Educ. Fac. Auth. Rev. Bonds College &
Univ. Fings., Ser. B, 61\4s, 6/1/18 Baa 897,600
1,100,000 CA Health Facs. Fing. Auth. Variable Rate
Demand Notes (VRDN) (Sutter Hlth.),
Ser. A, 31\2s, 3/1/20 VMIGI 1,100,000
2,955,000 CA Health Facs. Fing. Auth. Rev. Bonds,
(Pacific Presbyterian), Ser. B, 63\4s, 6/1/15 A 2,829,412
8,500,000 CA Hsg. Fin. Agcy. Home Mtge. Rev. Bonds,
Ser. D, zero %, 8/1/20 Aa 1,147,500
2,885,000 CA Poll. Control Fin. Auth. Rev. Bonds
(Pacific Gas & Elec. Project), Ser. B, 87\8s, 1/1/10 A 3,184,319
CA Poll. Control Fin. Auth. VRDN
1,700,000 (Shell Oil Comp. Project), Ser. B, 31\2s, 10/1/11 VMIGI 1,700,000
1,100,000 (Shell Oil Comp. Project), Ser. A, 31\4s, 10/1/10 VMIGI 1,100,000
3,300,000 CA Poll. Control Fin. Auth. Solid Waste Disposal
Rev. Bonds (Keller Canyon Landfill Co. Project),
67\8s, 11/1/27 A 3,180,375
2,000,000 CA State Dept. of Wtr. Resources Residual Interest
Bonds (RIBS) (Central Valley Project), 9.963s,
12/1/12 (acquired 11/27/92, cost $2,198,104)(c) AA 2,222,500
CA State Pub. Works Board Lease Rev. Bonds
2,000,000 (Dept. of Corrections), Ser. A, 7s, 11/1/19 A 1,995,260
2,500,000 (CA State U. Projects), Ser. A, 6.7s, 10/1/17 A 2,400,000
5,500,000 (CA State U. Projects), Ser. A, 6.6s, 12/1/22 AAA 5,926,250
1,000,000 Campbell, Certifs. of Participation (Civic Ctr.
Project), 63\4s, 10/1/17 A 972,500
1,500,000 Carson, Redev. Agcy. Rev. Bonds (Redev. Project
Area No. 1), 63\8s, 10/1/16 Baa 1,357,500
2,700,000 Central Valley, Fing. Auth. Rev. Bonds
(CA Cogeneration Project), 6.2s, 7/1/20 BBB 2,362,500
3,150,000 Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy. Loc. Pool.
Rev. Bonds, 81\4s, 8/15/23 A 3,366,562
1,000,000 Irvine Ranch, Wtr. Dist. (Cons Dist. Nos. 105,
250, 290), VRDN, 4.45s, 8/1/16 VMIGI 1,000,000
1,000,000 Loma Linda, Hosp. Rev. Bonds (Loma Linda Univ.
Med. Ctr. Project), Ser. A, 6s, 12/1/23 BBB 810,000
750,000 Los Alamitos, Unified School Dist. Spl. Tax Bonds
(Cmnty Facs. Dist. No. 90-1), 61\4s, 8/15/23 BAA1 681,563
3,925,000 Los Angeles Cnty., Certifs. of Participation
(Disney Pkg. Project), 61\2s, 3/1/23 A 3,660,063
5,500,000 Northn. CA Pwr. Agcy. Multi. Cap. Facs. RIBS,
Municipal Bonds Insurance Assn. (MBIA),
9.324s, 9/2/25(d) AAA 5,238,750
2,000,000 Palmdale, Civic Auth. Rev. Bonds (Merged
Redevelopment Project), Ser. A, 6.6s, 9/1/34 AAA 1,842,500
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS(B) VALUE
<S> <C> <C> <C>
CALIFORNIA (continued)
-------------------------------------------------------------------------------------------
$1,500,000 Petaluma Cmnty. Dev. Commission Rev. Bonds
(Park Lane Apts. Project), Ser. A, Government
National Mortgage Association (GNMA) Coll.,
67\8s, 11/20/34 AAA $ 1,475,625
1,660,000 Poway, Certifs. of Participation, Financial Security
Assurance, Inc. (FSA), (Cap. Impt. Project),
7s, 7/1/20 AAA 1,664,150
4,000,000 Rancho, Wtr. Dist. Fin. Auth. RIBS, American
Municipal Bond Assurance Corp. (AMBAC),
9.17s, 8/17/21(d) AAA 4,485,000
1,655,000 Richmond, Joint Pwrs. Fing. Auth. Rev. Bonds,
Ser. B, 81\2s, 9/2/19 BBB/P 1,712,925
2,890,000 Riverside, Hosp. Rev. Bonds (Riverside Cmnty.
Hosp.) Ser. A, 63\4s, 11/1/15 BBB 2,629,900
2,000,000 San Francisco City & Cnty. Rdv. Agcy. Multi.
Family Rev. Rfdg. (South Beach Project), GNMA
Coll., 5.7s, 3/1/29 Aaa 1,700,000
1,000,000 San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds (Senior Lien), 63\4s, 1/1/32 BB/P 906,250
2,500,000 San Joaquin Hills, Trans. Corridor Agcy. Toll Rd.
Rev. Bonds (Senior Lien), 5s, 1/1/33 BB/P 1,706,250
1,000,000 Santa Barbara, Certif. of Participation (Harbor
Rfdg. Project), 63\4s, 10/1/27 A 962,500
1,400,000 Santa Maria, Certif. of Participation Rev. Bonds
(Marian Med. Ctr. Project), 63\4s, 9/1/22 A 1,302,000
500,000 Southern CA Pub. Pwr. Auth. Rev. Bonds
(Transmission Project), Ser. A, 7.3s, 7/1/08 AA 527,500
1,000,000 Torrance Memorial Hospital Rev. Bonds
(Little Co. of Mary Hosp.), 67\8s, 7/1/15 A 963,750
4,500,000 Vallejo, Certif. of Participation (Marine World
Foundation), 8.1s, 2/1/21 BBB/P 4,606,875
West Contra Costa Union School Dist. Certif.
of Participation
1,860,000 71\8s, 1/1/24 Ba 1,734,450
1,140,000 67\8s, 1/1/09 Ba 1,081,575
-----------
79,107,654
PUERTO RICO(3.4%)
-------------------------------------------------------------------------------------------
2,500,000 Cmnwlth. of Puerto Rico, Hwy. & Trans. Auth.
Rev. Bonds, Ser. T, 61\2s, 7/1/22 AAA 2,678,125
-----------
TOTAL INVESTMENTS
(cost $82,655,663)(e) $81,785,779
-----------
</TABLE>
11
<PAGE> 12
NOTES
------------------------------------------------------------------------
(a) Percentages indicated are based on total net assets of $79,480,005.
Net assets available to common shareholders are $63,480,005,
which correspond to a net asset value per common share of $13.78.
(b) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at October 31, 1994 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 October 31, 1994.
Securities rated by Putnam are indicated by "/P" and are not
publicly rated.
(c) Restricted as to public resale. At the date of acquisition this
security was valued at cost. There were no outstanding unrestricted
securities of the same class as that held. The market value of the
restricted security owned at October 31, 1994 was $2,222,500 or
2.8% of net assets.
(d) These securities were pledged to cover margin requirements for
futures contracts at October 31, 1994. The market value of
segregated securities with the custodian for transactions on
futures contracts is $9,723,750 or 12.2% of net assets.
(e) The aggregate identified cost on a tax basis $82,655,663 resulting
in gross unrealized appreciation and depreciation of $1,546,253 and
$2,416,137 respectively, or net unrealized depreciation of
$869,884.
<TABLE>
The Fund had the following industry group concentrations greater than
10% on October 31, 1994 (as a percentage of net assets):
Utilities 14.2%
Health Care 12.5
Futures Contracts Outstanding at October 31, 1994
<CAPTION>
AGGREGATE EXPIRATION UNREALIZED
TOTAL VALUE FACE VALUE DATE APPRECIATION
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond
Futures (Sell) $3,933,750 $3,949,688 Dec. 94 $15,938
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 13
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1994 (Unaudited)
<TABLE>
<S> <C>
ASSETS
-------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $82,655,663)(Note 1) $81,785,779
-------------------------------------------------------------------------------------------
Cash 791,320
-------------------------------------------------------------------------------------------
Receivable for securities sold 1,762,287
-------------------------------------------------------------------------------------------
Interest receivable 1,515,089
-------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 5,683
-------------------------------------------------------------------------------------------
TOTAL ASSETS 85,860,158
LIABILITIES
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 409,038
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 3) 147,637
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 3) 225
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 3) 14,239
-------------------------------------------------------------------------------------------
Payable for securities purchased 5,774,337
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 3) 3,237
-------------------------------------------------------------------------------------------
Other accrued expenses 31,440
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES 6,380,153
-------------------------------------------------------------------------------------------
NET ASSETS $79,480,005
-------------------------------------------------------------------------------------------
REPRESENTED BY
-------------------------------------------------------------------------------------------
Remarketed preferred shares, without par value;
320 shares authorized (320 shares issued at $50,000 per
share liquidations preference) (Note 2) $16,000,000
-------------------------------------------------------------------------------------------
Common shares, without par value; unlimited shares
authorized; 4,607,092 shares outstanding 64,177,325
-------------------------------------------------------------------------------------------
Undistributed net investment income 189,056
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (32,430)
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (853,946)
-------------------------------------------------------------------------------------------
NET ASSETS $79,480,005
-------------------------------------------------------------------------------------------
COMPUTATION OF NET ASSET VALUE
-------------------------------------------------------------------------------------------
Remarketed preferred shares at
liquidation preference $16,000,000
-------------------------------------------------------------------------------------------
Cumulative undeclared capital gain dividends on
remarketed preferred shares 38,483
-------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred
shares at liquidation preference 16,038,483
-------------------------------------------------------------------------------------------
Net assets available to common shares:
Net asset value per share $13.77 ($63,441,522 divided by
4,607,092 shares) 63,441,522
-------------------------------------------------------------------------------------------
NET ASSETS $79,480,005
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
STATEMENT OF OPERATIONS
For the six months ended October 31, 1994 (Unaudited)
<TABLE>
<S> <C>
--------------------------------------------------------------------------
TAX EXEMPT INTEREST INCOME $ 2,822,004
EXPENSES:
--------------------------------------------------------------------------
Compensation of Manager (Note 3) $ 294,531
--------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 41,012
--------------------------------------------------------------------------
Compensation of Trustees (Note 3) 3,913
--------------------------------------------------------------------------
Auditing 21,560
--------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,651
--------------------------------------------------------------------------
Reports to shareholders 20,737
--------------------------------------------------------------------------
Legal 5,807
--------------------------------------------------------------------------
Postage 6,692
--------------------------------------------------------------------------
Administrative services 4,011
--------------------------------------------------------------------------
Registration fees 402
--------------------------------------------------------------------------
Exchange listing fee 4,262
--------------------------------------------------------------------------
Preferred share remarketing agent fees 2,000
--------------------------------------------------------------------------
Other 2,138
--------------------------------------------------------------------------
Total expenses 408,716
--------------------------------------------------------------------------
Net investment income 2,413,288
--------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (843,317)
--------------------------------------------------------------------------
Net realized gain on futures 170,276
--------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (2,618,237)
--------------------------------------------------------------------------
Net loss on investments (3,291,278)
--------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (877,990)
--------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
OCTOBER 31 APRIL 30
---------------------------
1994* 1994
<S> <C> <C>
DECREASE IN NET ASSETS
-------------------------------------------------------------------------------------------
Operations:
-------------------------------------------------------------------------------------------
Net investment income $ 2,413,288 $ 4,762,519
-------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (843,317) 1,167,376
-------------------------------------------------------------------------------------------
Net realized gain on futures 170,276 209
-------------------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,618,237) (2,940,139)
-------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS (877,990) 2,989,965
-------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders from:
-------------------------------------------------------------------------------------------
Net investment income (311,708) (578,383)
-------------------------------------------------------------------------------------------
Net realized gains -- (84,851)
-------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
APPLICABLE TO COMMON SHAREHOLDERS (excluding
cumulative undeclared capital gain dividends on remarketed
preferred shares of $38,483 and $38,483, respectively) (1,189,698) 2,326,731
-------------------------------------------------------------------------------------------
Distributions to common shareholders from:
-------------------------------------------------------------------------------------------
Net investment income (2,143,302) (4,284,931)
-------------------------------------------------------------------------------------------
Net realized gains -- (829,261)
-------------------------------------------------------------------------------------------
Underwriting commissions and offering costs on remarketed
preferred shares (Note 2) -- (46,642)
-------------------------------------------------------------------------------------------
TOTAL DECREASE IN NET ASSETS (3,333,000) (2,834,103)
NET ASSETS
-------------------------------------------------------------------------------------------
Beginning of period 82,813,005 85,647,108
-------------------------------------------------------------------------------------------
END OF PERIOD (including undistributed
net investment income of $189,056
and $230,778, respectively) $79,480,005 $82,813,005
-------------------------------------------------------------------------------------------
NUMBER OF FUND SHARES
-------------------------------------------------------------------------------------------
Common shares outstanding at beginning of period 4,607,092 4,607,092
-------------------------------------------------------------------------------------------
Shares issued in public offering -- --
-------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING AT END OF PERIOD 4,607,092 4,607,092
-------------------------------------------------------------------------------------------
Remarketed preferred shares at beginning of period 320 320
-------------------------------------------------------------------------------------------
Remarketed preferred shares issued in public offering -- --
-------------------------------------------------------------------------------------------
REMARKETED PREFERRED SHARES OUTSTANDING
AT END OF PERIOD 320 320
-------------------------------------------------------------------------------------------
</TABLE>
* Unaudited.
15
<PAGE> 16
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
FOR THE PERIOD
NOVEMBER 27,
1992
SIX MONTHS YEAR (COMMENCEMENT
ENDED ENDED OF OPERATIONS) TO
OCTOBER 31 APRIL 30 APRIL 30
----------------------------------------------------------------------------------
1994 1994 1993
----------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.49 $ 15.12 $ 14.02*
----------------------------------------------------------------------------------
INVESTMENT OPERATIONS:
----------------------------------------------------------------------------------
Net investment income .52 1.03 .41(a)
----------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.70) (.40) 1.12
----------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (.18) .63 1.53
----------------------------------------------------------------------------------
Less distributions from:
----------------------------------------------------------------------------------
Net investment income:
to preferred shareholders (.07) (.12) (.03)**
to common shareholders (.47) (.93) (.31)
----------------------------------------------------------------------------------
Net realized gain
to preferred shareholders -- (.02) --
to common shareholders -- (.18) --
----------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.54) (1.25) (.34)
----------------------------------------------------------------------------------
Preferred share offering costs -- (.01) (.09)**
----------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD
(common shares) $ 13.77 $ 14.49 $ 15.12
----------------------------------------------------------------------------------
MARKET VALUE, END OF PERIOD
(common shares) $ 12.50 $ 13.88 $ 14.88
----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
MARKET VALUE (common shares) (%) (b) (6.82)(d) 0.31 1.23(d)
----------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(total fund) (in thousands) $79,480 $82,813 $85,647
----------------------------------------------------------------------------------
Ratio of expenses to average
net assets(%) (c) 0.61(d) 1.07 .33(a)(d)
----------------------------------------------------------------------------------
Ratio of net investment income to
average net assets (%) (c) 3.16(d) 5.84 2.69(a)(d)
----------------------------------------------------------------------------------
Portfolio turnover rate(%) 46.82(d) 54.06 43.46(d)
----------------------------------------------------------------------------------
<FN>
* Represents initial net asset value of $14.10 less offering expenses
of approximately $0.08.
** Preferred shares were issued on February 18, 1993.
(a) Reflects a waiver of the management fee for the period November 27,
1992 to February 19, 1993. As a result of such waiver, expenses
of the fund for the period ended April 30, 1993 reflect a reduction
of approximately $0.02 per share.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
(c) Ratios reflect net assets available to common shares only; net
investment income ratio also reflects reduction for dividend
payments to preferred shareholders.
(d) Not annualized.
</TABLE>
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
October 31, 1994 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, closed-end management investment company. The fund's
investment objective is to seek high current income exempt from federal
income tax and California personal income tax. The fund intends to achieve
its objective by investing in investment grade municipal securities
constituting a portfolio that the fund's Manager believes to be consistent
with preservation of capital.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATION Tax-exempt bonds and notes are stated on the basis of
valuations provided by a pricing service, approved by the Trustees, which
uses information with respect to transactions in bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. The fair value of
restricted securities is determined by the Manager following procedures
approved by the Trustees, and such valuations and procedures are reviewed
periodically by the Trustees.
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). Interest income is recorded on the accrual basis.
C DETERMINATION OF NET ASSET VALUE Net asset value of the common shares is
determined by dividing the value of all assets of the fund (including accrued
interest and dividends), less all liabilities (including accrued expenses),
and the liquidation value of any outstanding remarketed preferred shares, by
the total number of common shares outstanding.
D FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the
Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986. Therefore, no provision has been made for federal taxes on income or
capital gains of securities held or excise tax on income and capital gains.
E DISTRIBUTIONS TO SHAREHOLDERS Distributions to common shareholders are
recorded by the fund on the ex-dividend date. Distributions to preferred
shareholders are recorded daily by the fund and paid at the end of each
dividend period. Each dividend period for the remarketed preferred shares is
generally a 30-day period until January 13, 1995. The applicable dividend
rate for the remarketed preferred shares on October 31, 1994 was 3.90% per
annum and fixed until January 13, 1995. Each subsequent dividend period will
generally be a 28-day period and the applicable dividend rate will be the
dividend rate determined by the remarketing agent.
The amount and character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from
17
<PAGE> 18
generally accepted accounting principles. These differences include treatment of
organization expenses, wash sales and futures contracts. Reclassifications are
made to the fund's capital accounts at the close of the fund's fiscal year to
reflect income and gains available for distribution (or available capital loss
carryovers) under income tax regulations.
F AMORTIZATION OF BOND PREMIUM AND DISCOUNT Any premium resulting from the
purchase of securities in excess of maturity value is amortized on a yield-to-
maturity basis. Discount on zero-coupon bonds, stepped-coupon bonds and
original issue discount bonds is accreted according to the effective yield
method.
G UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in
connection with its organization aggregated $12,024. These expenses are being
amortized on a straight-line basis over a five-year period.
H FUTURES A futures contract is an agreement between two parties to buy or
sell a security at a set price on a future date. Upon entering into such a
contract the fund is required to pledge to the broker an amount of cash or
U.S. government securities equal to the minimum "initial margin" requirements
of the exchange. Pursuant to the contract, the fund agrees to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in value
of the contract. Such receipts or payments are known as "variation margin,"
and are recorded by the fund as unrealized gains or losses. When the contract
is closed, the fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the time it was closed. The potential risk to the fund is that the change in
value of the underlying securities may not correspond to the change in value
of the futures contracts.
NOTE 2
REMARKETED PREFERRED SHARES
On February 18, 1993, the fund issued 320 Remarketed Preferred Shares.
Proceeds to the fund before, underwriting expenses of $280,000 and offering
expenses of $191,443, amounted to $16,000,000. Such offering expenses and the
fund's underwriting expenditures were paid initially by Putnam Investment
Management, Inc. (Putnam Management), the fund's Manager, a wholly owned
subsidiary of Putnam Investments, Inc., and the fund is obligated to
reimburse the Manager for such costs. These expenses were charged against net
assets of the fund available to common shareholders. The remarketed preferred
shares are redeemable at the option of the fund on any remarketing date at a
redemption price of $50,000 per share, plus an amount equal to any dividends
accumulated on a daily basis but unpaid through the redemption date (whether
or not such dividends have been declared) and, in certain circumstances, a
call premium. There were no unpaid dividends on remarketed preferred shares
at October 31, 1994.
It is anticipated that dividends paid to holders of remarketed preferred
shares will be considered tax-exempt dividends under the Internal Revenue
Code of 1986, as amended. To the extent that the fund earns taxable income
and capital gains by the conclusion of a fiscal year, it is required to
apportion to the holders of the remarketed preferred shares throughout that
year additional dividends as necessary to result in an after-tax yield
equivalent to the applicable dividend rate for the period.
Under the Investment Company Act of 1940, the fund is required to maintain
asset coverage of at least 200% with respect to the remarketed preferred
shares as of the last business day of each month in which any such shares are
outstanding. Additionally, the fund is required to meet more stringent asset
18
<PAGE> 19
coverage requirements under the terms of the remarketed preferred shares and
the shares' rating agencies. Should these requirements not be met, or should
dividends accrued on the remarketed preferred shares not be paid, the fund
may be restricted in its ability to declare dividends to common shareholders
or may be required to redeem certain of the remarketed preferred shares. At
October 31, 1994, there were no such restrictions on the fund.
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, the fund's Manager, for management and
investment advisory services is paid quarterly based on the average net
assets of the fund, including net assets attributable to remarketed preferred
shares. Such fee is based on the annual rate of 0.70% of the first $500
million of the average net asset value of the fund, 0.60% of the next $500
million, 0.55% of the next $500 million and 0.50% of any excess amount $1.5
billion of such average net asset value.
If dividends payable on remarketed preferred shares during any dividend payment
period plus any expenses attributable to remarketed preferred shares for
that period exceed the fund's net income attributable to the proceeds of the
remarketed preferred shares during that period, then the fee payable to Putnam
Management for that period will be reduced by the amount of the excess (but not
more than .70% of the liquidation preference of the remarketed preferred shares
outstanding during the period).
The fund also reimburses the Manager 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. For the six months
ended October 31, 1994, the fund paid $4,011 for these services. Trustees of
the fund receive an annual Trustee's fee of $530 and an additional fee for
each Trustees' meeting attended. Trustees who are not interested persons of
the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
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. Fees paid for these investor servicing and custodial
functions for the six months ended October 31, 1994 amounted to $41,012.
Investor servicing and custodian fees reported in the Statement of operations
for the six months ended October 31, 1994 have been reduced by credits
allowed by PFTC.
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the six months ended October 31, 1994, purchases and sales of investment
securities other than short-term investments aggregated $41,828,385 and
$36,496,678, respectively. Purchases and sales of short-term municipal
obligations aggregated $33,300,000 and $33,900,000, respectively. In determining
the net gain or loss on securities sold, the cost of securities has been
determined on the identified cost basis.
<TABLE>
The following is a summary of futures contracts activity during the period:
<CAPTION>
SALES OF FUTURES CONTRACTS
----------------------------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
----------------------------------------------
<S> <C> <C>
Contracts
open at
beginning of
period 60 $ 6,385,459
Contracts
opened 434 43,699,319
Contracts closed (454) (46,135,090)
----------------------------------------------
OPEN AT END
OF PERIOD 40 $ 3,949,688
----------------------------------------------
</TABLE>
19
<PAGE> 20
<TABLE>
SELECTED QUARTERLY DATA
(Unaudited)*
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
OCTOBER 31 JULY 31 APRIL 30 JANUARY 31
----------------------------------------------------------------------------------------------------
1994 1994 1994 1994
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 1,465,080 $ 1,356,924 $ 1,365,012 $ 1,383,360
Per share++ $ .32 $ .29 $ .29 $ .30
----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME AVAILABLE
TO COMMON SHAREHOLDERS
Total $ 1,092,630 $ 1,008,950 $ 1,004,269 $ 1,077,194
Per share++ $ .23 $ .22 $ .21 $ .24
----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Total $(3,778,702) $ 487,424 $(6,920,597) $ 705,801
Per share++ $ (.81) $ .11 $ (1.51) $ .15
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
AVAILABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Total $(2,686,072) $ 1,496,374 $(6,001,179) $ 1,782,995
Per share++ $ (.57) $ .33 $ (1.32) $ .39
----------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS AT END OF PERIOD
Total $63,441,522 $67,199,203 $66,774,522 $73,881,488
Per share++ $ 13.77 $ 14.59 $ 14.49 $ 16.04
----------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 27, 1992
(COMMENCEMENT OF
------------------------------------------------- OPERATIONS) TO
OCTOBER 31 JULY 31 APRIL 30+ JANUARY 31
----------------------------------------------------------------------------------------------------
1993 1993 1993 1993
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL INVESTMENT INCOME
Total $ 1,399,089 $ 1,384,972 $ 1,381,531 $ 715,956
Per share++ $ .31 $ .30 $ .31 $ .15
----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME AVAILABLE
TO COMMON SHAREHOLDERS
Total $ 1,045,563 $ 1,057,110 $ 1,052,874 $ 705,897
Per share++ $ .23 $ .23 $ .23 $ .15
----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Total $ 2,986,551 $ 1,455,691 $ 2,824,038 $ 2,267,530
Per share++ $ .65 $ .31 $ .61 $ .51
----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
AVAILABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS
Total $ 4,032,114 $ 2,512,801 $ 3,876,912 $ 2,973,427
Per share++ $ .88 $ .54 $ .84 $ .66
----------------------------------------------------------------------------------------------------
NET ASSETS AVAILABLE TO COMMON
SHAREHOLDERS AT END OF PERIOD
Total $74,010,364 $71,088,472 $69,647,108 $67,226,650
Per share++ $ 16.06 $ 15.43 $ 15.12 $ 14.59
----------------------------------------------------------------------------------------------------
<FN>
* In connection with the initial offering of shares of the fund, Putnam
Investment Management agreed to waive its management fee for the period
November 27, 1992 (commencement of operation) to February 19, 1993.
+ Preferred shares were issued on February 18, 1993.
++ Per common share.
</TABLE>
21
<PAGE> 22
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
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C.Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Blake Anderson
Vice President
Thomas C. Goggins
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
22
<PAGE> 23
Call 1-800-225-1581 weekdays from 9 a.m. to 5 p.m., Eastern Time for
up-to-date information about the fund's NAV or to request Putnam's
Quarterly Closed-End Fund Commentary.
23
<PAGE> 24
-------------
PUTNAM INVESTMENTS BULK RATE
U.S. POSTAGE
THE PUTNAM FUNDS PAID
ONE POST OFFICE SQUARE PUTNAM
BOSTON, MASSACHUSETTS 02109 INVESTMENTS
-------------
184/15434
