Putnam
California
Investment Grade
Municipal Trust
ANNUAL REPORT
April 30, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "With California's economy improving vastly and Orange
County's fiscal woes behind, the state's municipal bonds are regaining
their rightful place among the premier trading markets in the tax-free
universe."
-- William H. Reeves, Manager,
Putnam California Investment Grade Municipal Trust
* "[G]iven that 1996 is an election year, the popularity of tax
deductions, and complexity of implementing any substantial changes to the
tax codes help make the outlook for the muni market optimistic."
-- The Value Line Mutual Fund Survey, March 19, 1996
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
15 Financial statements
[GRAPHIC OMITTED:Photo George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
The tax-exempt bond market provided quite a ride for shareholders of
Putnam California Investment Grade Municipal Trust during the fiscal year
ended April 30, 1996. The year got off to a strong start as the U.S. bond
market enjoyed what would become one of the strongest advances in recent
memory. The euphoria proved short-lived for municipal bond investors,
however, as talk of a flat tax gave rise to concern over the continued
viability of tax-exempt securities.
Once raised, the flat-tax worries provided a negative undercurrent
throughout much of the remainder of the year. It subsided just in time to
temper the decline in tax-exempt securities when the entire bond market
suddenly plunged in March. Through all these market gyrations, your fund
was able to close fiscal 1996 solidly in the black.
As Fund Manager William Reeves explains in the report that follows, he
believes the continuing demand for tax-free investments, coupled with a
relatively subdued pace in new issuance, bodes well for your fund in the
new fiscal year.
Respectfully yours,
/s/George Putnam
George Putnam
Chairman of the Trustees
June 19, 1996
Report from the Fund Manager
William H. Reeves
Bond market events during the past year have shown more ups and downs than
a ride on a roller coaster. Fixed-income investors everywhere had to
buckle their seat belts just to hang on as news of stronger-than-expected
economic growth brought the 10-month rally to an abrupt halt.
Much of Putnam California Investment Grade Municipal Trust's fiscal year,
which ended April 30, 1996, occurred during this period of market euphoria
- -- a period driven by declining interest rates, benign inflation, and slow
economic growth. Despite uncertainty over the various political proposals
to reform the tax code, your fund was an active participant in the rally.
In the aftermath of a decision by the Federal Reserve Board to reduce
short-term interest rates by a quarter of a percentage point on December
19, the fund finished calendar 1995 with a total return of 24.88% at net
asset value and 33.14% at market value.
An additional quarter-point drop in rates at the end of January only
served to further bolster bond investors' optimism. Despite the breakdown
of budget talks in Washington, bond prices climbed. However, by early
March, evidence of rapid employment growth fueled fears of inflation and a
possible end to the Federal Reserve's program of lowering short-term
interest rates, bringing the extended rally to an end.
During the last weeks of the fund's reporting period, the bond market
continued to sell off amid further evidence of a stronger-than-expected
economy. Thanks to the significant headway made earlier in the period, the
fund's returns for the 12-month period ended April 30, 1996, were solid:
9.74% at net asset value and 12.68% at market price. Both figures are
competitive with the average of 9.06% for the California closed-end
municipal bond funds tracked over this period. Returns for longer periods,
which can be found on page 9, reflect a similar pattern.
* FLAT-TAX FEARS RECEDE, BRIGHTENING MARKET OUTLOOK
Since the spring of 1995, the municipal bond market has been overshadowed
by talk of tax reform. Central to this debate has been the flat-tax
proposal, which in its purest form would jeopardize the tax advantages
enjoyed by municipal bonds. For the better part of a year, the threat of
such an event has been largely responsible for the underperformance of
tax-free bonds relative to the rest of the fixed-income market.
However, much of the momentum for a major overhaul to the current tax
structure has evaporated. Although we expect discussions of broader tax
reform to reappear this fall as the presidential election nears, our
current assessment is that any radical changes to the tax code appear less
likely than they did a few months ago.
* MARKET FUNDAMENTALS RECAPTURE INVESTORS' ATTENTION
With flat-tax fears subsiding, underlying fundamentals are once again at
the forefront of investors' minds. Overall the economic environment for
fixed-income investments remains favorable. Inflation is the primary
barometer for fixed-income returns and it continues to be fairly subdued
and relatively stable. In fact, inflation has remained below 3.0% for the
past five years. Low inflation makes longer-term bonds particularly
attractive, and your fund continues to invest substantially in high-
quality longer-maturity issues.
[PIE CHART OMITTED: AS FOLLOWS]
PORTFOLIO QUALITY OVERVIEW*
BBB--24.7%
A--23.8%
VMIGI (short-term)--1.6%
AAA--36.4%
AA/Aa--13.5%
*As a percentage of market value as of 4/30/96. A bond rated BBB or
higher is considered investment grade. The ratings reflect Standard &
Poor's(registered trademark) and Moody's descriptions. Holdings will vary
over time.
[END GRAPHIC]
Recent historically low interest rates have also played a role in your
fund's performance. Early in the fiscal year, we lengthened the
portfolio's duration in hopes of increasing its total return potential
during what we expected would be a lower-rate environment. Duration is a
measure of the portfolio's maturity structure and reflects the price
sensitivity of the portfolio holdings to changes in interest rates.
Typically bonds with longer maturities are more sensitive to these changes
and thus may offer greater potential for appreciation during periods of
declining rates. Conversely bonds with shorter maturities, which are less
sensitive to rate changes, can help protect a portfolio's value when rates
are on the increase.
Some of your fund's income is generated by the selective use of leveraging
strategies. With this approach, the fund issues preferred shares that pay
dividends at prevailing short-term rates. These shares are sold to
corporate and institutional investors; the resulting assets are then
invested in longer-term bonds with higher yields. The difference between
the rates paid to holders of preferred shares and the rates earned by the
fund augment the flow of income to holders of common shares. Since the
yield curve steepened during the year, resulting in a profitable spread
between short- and long-term yields, the fund's leveraging strategies
proved to be beneficial.
* RECENT INTEREST-RATE VOLATILITY PROMPTS MORE
DEFENSIVE STRATEGY
Although Federal Reserve Chairman Alan Greenspan has commented that
economic growth should continue without fueling inflation, the recent
spike in interest rates has had a dampening effect on such interest-rate-
sensitive industries as housing. This suggests that growth in some areas
may be balanced by slowdowns in others. With increases in consumer prices
being called "moderate" and producer prices "well-behaved," the overall
economy appears to be on track for noninflationary trend growth of 2.0% to
2.5% for the balance of calendar 1996.
That said, bond investors still appear skittish and are remaining vigilant
for signs of inflationary pressure. Consequently we thought it prudent to
shorten the portfolio's duration by approximately one and a half years.
This shift was completed by the close of the fiscal year. In addition, we
sold selected high-quality discount-coupon bonds. Proceeds were invested
in more defensive premium-coupon bonds. Premium-coupon bonds typically
offer coupons higher than current rates and tend to be less seriously
affected when rates increase.
[GRAPHIC OMITTED: HORIZONTAL BAR GRAPH AS FOLLOWS]
TOP INDUSTRY SECTORS*
Housing 14.4%
Utilities 11.0%
Hospitals 9.8%
Water and sewerage 7.1%
*Based on net assets as of 4/30/96. Holdings will vary over time.
[END GRAPHIC]
As always, we concentrate primarily on the fund's objective -- providing
shareholders with attractive levels of tax-free income. However, we will
also pursue further opportunities for appreciation, should interest rates
decline. Our overall focus is consistently on top-quality bonds with solid
income, but we may also take advantage of opportunities in lower-tier
investment-grade credits to help enhance the fund's returns. Two of the
fund's holdings, Foothills Eastern Transportation Corridor Agency and
Sacramento Cogeneration Authority, exemplify this strategy and were
selected to enable the fund to lock in high income and potential price
appreciation through improving credit quality.
Another strategy we employ to help increase returns is buying inverse
floaters. Inverse floaters, also known as residual interest bonds (RIBs),
are variable-rate bonds whose yields move in the opposite direction of
short-term interest rates. Like all other derivative products, these
securities require careful handling but can offer attractive benefits when
used appropriately. In the current environment, with relatively low short-
term interest rates, they can help to increase your fund's yield and also
provide appreciation potential if long-term rates decline. At the end of
the fiscal year, inverse floaters represented about 14.9% of net assets.
* LOW SUPPLY OF CALIFORNIA BONDS MIRRORS NATIONAL TREND
The recent uptick in interest rates has further reduced the state's
already tight supply of municipal bonds. Refinancing, for all practical
purposes, is nonexistent. New bond issuance fell again in 1995 for the
third year in a row. In addition, bond calls and redemptions indicate
that, for the second consecutive year, more bonds are likely to leave the
market than to come into it. This continuing decline in supply is having a
positive effect on prices.
As a result of the scarcity of new issues, bonds at the lower end of the
investment-grade spectrum are trading at higher prices -- relative to the
AAA-rated sector -- than would otherwise be the case. We are relying on
our in-house analytical capabilities to determine which bonds offer the
most attractive balance of credit quality, yield, and relative price
stability.
* OUTLOOK FOR FISCAL 1997 CAUTIOUS, BUT CONSTRUCTIVE
A climate of steadier economic growth clearly requires a more cautious
approach to fixed-income investing. Greater emphasis will be placed on
coupon income, stressing the importance of astute credit analysis. As more
weight is placed on enhancing the price stability and liquidity of the
portfolio, careful maturity selection and a focus toward larger, well-
known municipal names will play an increasingly vital role in your fund's
strategy over the next six months.
We believe the recent market correction, coupled with the diminished
influence of flat-tax fears, may offer investors who have shied away from
municipals an attractive opportunity to retest the waters. Furthermore,
municipal yields remain generous on a taxable equivalent basis, providing
an attractive alternative to Treasuries and investment-grade corporate
bonds.
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 4/30/96, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
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.
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 in the fund.
TOTAL RETURN FOR PERIODS ENDED 4/30/96
(common shares)
Market
NAV price
- --------------------------------------------------------------------------
1 year 9.74% 12.68%
- --------------------------------------------------------------------------
Life of fund (11/27/92) 32.18 22.06
Annual average 8.47 5.98
- --------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED
4/30/96
Lehman Bros.
Municipal Consumer
Bond Index Price Index
- --------------------------------------------------------------------------
1 year 7.95% 2.90%
- --------------------------------------------------------------------------
Life of fund (11/27/92) 22.14 10.07
Annual average 6.03 2.84
- --------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 3/31/96
(most recent calendar quarter)
(common shares)
Market
NAV price
- --------------------------------------------------------------------------
1 year 10.21% 15.74%
- --------------------------------------------------------------------------
Life of fund (11/27/92) 32.74 23.53
Annual average 8.85 6.53
- --------------------------------------------------------------------------
Performance data represent past results and do not reflect future
performance. They do not take into account any adjustment for taxes
payable on reinvested distributions. Investment returns, net asset value,
and market price will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 4/30/96
NAV
- --------------------------------------------------------------------------
Distributions (number) 12
- --------------------------------------------------------------------------
Common shares
- --------------------------------------------------------------------------
Income $0.93
- --------------------------------------------------------------------------
Total $0.93
- --------------------------------------------------------------------------
Preferred shares (320 shares)
- --------------------------------------------------------------------------
Income $1,906.61
- --------------------------------------------------------------------------
Total $1,906.61
Share value (common shares) NAV Market price
- --------------------------------------------------------------------------
4/30/95 $14.16 $13.625
- --------------------------------------------------------------------------
4/30/96 14.55 14.375
- --------------------------------------------------------------------------
Current return (common shares)
- --------------------------------------------------------------------------
End of period
- --------------------------------------------------------------------------
Current dividend rate1 6.39% 6.47%
- --------------------------------------------------------------------------
Taxable equivalent2 11.89 12.03
- --------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period. 2Assumes maximum combined federal
and state tax rate of 46.24%. Results for investors subject to lower
tax rates would not be as advantageous. For some investors, investment
income may be subject to the federal alternative minimum tax. Investment
income may be subject to state and local taxes.
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 accrued 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
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
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. The index assumes
reinvestment of all distributions and interest payments and does not take
into account brokerage fees or taxes. Securities in the fund do not match
those in the index and performance of the fund will differ.
It is not possible to invest directly in an index.
Report of independent accountants
To the Trustees and Shareholders of
Putnam California Investment Grade Municipal Trust
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments owned (except for bond ratings),
and the related statements of operations and of changes in net assets and
the financial highlights present fairly, in all material respects, the
financial position of Putnam California Investment Grade Municipal Trust
(the "fund") at April 30, 1996, and the results of its operations, the
changes in its net assets, and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at April 30, 1996 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
June 14, 1996
<TABLE>
Portfolio of investments owned
<CAPTION>
April 30, 1996
Key to Abbreviations
AMBAC AMBAC Indemnity Corporation
COP Certificate of Participation
FGIC Financial Guaranty Insurance Company
FNMA Coll. Federal National Mortgage Association Collateralized
FSA Financial Security Assurance
GNMA Coll. Government National Mortgage Association Collateralized
IFB Inverse Floating Rate Bonds
LOC Letter of Credit
MBIA Municipal Bond Investors Assurance Corporation
VRDN Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (100.3%)*
PRINCIPAL AMOUNT RATINGS** VALUE
California (100.3%)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$3,000,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates
Med. Ctr.), Ser. A, 6.55s, 12/1/22 BBB $ 2,921,250
3,600,000 CA Edl. Fac. Rev. Bonds (U. of San Francisco),
6.4s, 10/1/17 A 3,721,500
3,000,000 CA Hlth. Fac. Fin. Auth. Rev Bonds (Henry Mayo
Newhall), Ser. A, 8s, 10/1/18 A 3,236,250
1,300,000 CA Hlth. Fac. Fin. VRDN (Sutter Hlth.),
Ser. A, 3.6s, 3/1/20 (Morgan Gty Trust
Co of NY LOC) VMIGI 1,300,000
CA Hsg. Fin. Agcy. Home Mtge. Rev. Bonds
4,890,000 Ser. C, 8.3s, 8/1/19 Aa 5,073,375
3,445,000 Ser. A, 7 3/4s, 8/1/17 Aa 3,638,781
2,885,000 CA Poll. Control Fin. Auth. Rev. Bonds (Pacific Gas
& Elec Co. Project), Ser. B, 8 7/8s, 1/1/10 A 3,115,800
2,000,000 CA State Dept. Wtr. Resources IFB
(Central Valley Project), 9.810s, 12/1/12
(acquired 11/27/92 cost $2,198,104) ++ AA 2,535,000
2,000,000 CA State Pub. Wks. Board Lease Rev. Bonds
(Dept. of Corrections Monterey Cnty. Sole.),
Ser. A, 7s, 11/1/19 A 2,167,500
3,000,000 El Dorado Cnty., Auth. Rev Bonds FGIC,
5 1/2s, 2/15/21 AAA 2,831,250
2,000,000 Foothill/Eastern Trans. Corridor Agcy. Rev. Bonds
(California Toll Roads), Ser. A, 6s, 1/1/34 BBB 1,867,500
3,150,000 Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy. Rev. Bonds
(Issue II), FNMA Coll., 8 1/4s, 8/15/23 A 3,346,875
3,120,000 Los Angeles, Multi. Fam. Rev. Bonds
(Mission Plaza Apts. Project), Ser. A, GNMA Coll.,
7.8s, 1/20/35 AAA 3,260,400
5,500,000 Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB,
MBIA, 9.121s, 9/2/25 AAA 5,995,000
2,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 BBB 2,087,500
6,000,000 Pittsburg, CA Redev. Agcy Rev. Bonds
(Los Medanos Project), FSA, 5.8s, 8/1/34 AAA 5,700,000
3,250,000 Rancho, Wtr. Dist. Fin. Auth. IFB, AMBAC,
9.034s, 8/17/21 AAA 3,887,813
1,630,000 Richmond, Jt. Pwr. Fin. Auth. Rev. Bonds
(Impt. Dists. 851 & 853), Ser. B, 8 1/2s, 9/2/19 BBB/P 1,679,699
2,000,000 Riverside, Hosp. Rev. Bonds (Riverside
Cmnty. Hosp.), Ser. A, 6 3/4s, 11/1/15 BBB 1,952,500
2,300,000 Sacramento, CA Pwr. Auth Rev Bonds
(Cogeneration Project), 6s, 7/1/22 BBB 2,159,125
4,500,000 San Bernardino, CA Fing. Auth. Rev. Bonds,
5 1/2s, 12/1/14 A 4,252,500
4,750,000 Santa Clara Cnty., Fin. Auth. Lease Rev. Bonds
(VMC Facs. Replacement Project), Ser. A,
AMBAC, 6 7/8s, 11/15/14 # AAA 5,165,625
4,500,000 Vallejo, COP (Marine World Foundation),
8.1s, 2/1/21 BBB/P 4,809,375
3,345,000 Victor, CA School Dist. COP MBIA, 6.45s,
05/01/18 AAA 3,533,156
West Contra Costa, U. School Dist. COP
1,860,000 7 1/8s, 1/1/24 BBB 1,918,125
1,140,000 6 7/8s, 1/1/09 BBB 1,171,350
-------------
Total Investments (cost $80,281,329)*** $ 83,327249
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $83,063,795. Net assets available to common
shareholders are $67,019,791.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings
available at April 30, 1996 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 April 30, 1996. Securities rated by Putnam are indicated by
"/P" and are not publicly rated. Ratings are not covered by the Report of Independent Accountants.
++ Restricted excluding 144A securities, as to public resale. The total market value of restricted
securities held at April 30, 1996 was $2,535,000 or 3.1% of net assets.
# A portion of this security was pledged and segregated with the custodian to cover margin
requirements for futures contracts at April 30, 1996. The market value of the segregated
security with the custodian for transactions on futures contracts is $207,397 or less than
1.0% of net assets.
*** The aggregate identified cost for federal income tax purposes is $80,281,329, resulting in
gross unrealized appreciation and depreciation of $3,382,383 and $336,463, respectively, or
net unrealized appreciation of $3,045,920.
The fund had the following insurance concentrations greater than 10% of net assets at April 30, 1996:
MBIA 11.5%
AMBAC 10.9
The fund had the following industry group concentrations greater than 10% of net assets at
April 30, 1996:
Housing 14.4%
Utilities 11.0
The rates shown on Inverse Floating Rate Bonds, (IFB), which are securities paying interest
rates that vary inversely to changes in the market interest rates, and Variable Rate Demand
Notes (VRDN's) are the current interest rates at April 30, 1996.
Futures Contracts Outstanding at April 30, 1996
(Aggregate Face Value $3,837,621)
Total Aggregate Expiration Unrealized
Value Face Value Date Appreciation
--------------------------------------------------------------------------------------
UST Bonds (Short) $3,820,469 $3,837,621 June 96 $17,152
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1996
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $80,281,329) (Note 1) $83,327,249
- ---------------------------------------------------------------------------------------------------
Cash 527,134
- ---------------------------------------------------------------------------------------------------
Interest receivable 1,522,610
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 1,769,053
- ---------------------------------------------------------------------------------------------------
Receivable for variation margin 24,062
- ---------------------------------------------------------------------------------------------------
Unamortized organization expense (Note 1) 2,524
- ---------------------------------------------------------------------------------------------------
Total assets 87,172,632
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 357,031
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 3,536,301
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 144,628
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 13,367
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 46
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 423
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 57,041
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,108,837
- ---------------------------------------------------------------------------------------------------
Net assets $83,063,795
Represented by
- ---------------------------------------------------------------------------------------------------
Remarketed preferred shares (320 shares issued and outstanding at
$50,000 per share liquidation preference) (Note 4) $16,000,000
- ---------------------------------------------------------------------------------------------------
Paid in capital-common shares (Note 1) 64,184,085
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 65,515
- ---------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (248,877)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,063,072
- ---------------------------------------------------------------------------------------------------
Net Assets $83,063,795
Computation of net asset value:
- ---------------------------------------------------------------------------------------------------
Remarketed preferred shares at liquidation preference $16,000,000
- ---------------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed preferred shares 44,004
- ---------------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares $16,044,004
- ---------------------------------------------------------------------------------------------------
Net assets available to common shares $67,019,791
- ---------------------------------------------------------------------------------------------------
Net asset value per common share ($67,019,791 divided by 4,607,092 shares) $14.55
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended April 30, 1996
<S> <C>
Tax exempt interest income: $5,572,498
- ---------------------------------------------------------------------------------------------------
Expenses:
- ---------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 589,474
- ---------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 87,268
- ---------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 7,868
- ---------------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,313
- ---------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 2,405
- ---------------------------------------------------------------------------------------------------
Reports to shareholders 31,588
- ---------------------------------------------------------------------------------------------------
Auditing 46,774
- ---------------------------------------------------------------------------------------------------
Legal 6,536
- ---------------------------------------------------------------------------------------------------
Postage 16,810
- ---------------------------------------------------------------------------------------------------
Exchange listing fees 3,630
- ---------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 62,084
- ---------------------------------------------------------------------------------------------------
Other 2,862
- ---------------------------------------------------------------------------------------------------
Total expenses 861,612
- ---------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (68,195)
- ---------------------------------------------------------------------------------------------------
Net expenses 793,417
- ---------------------------------------------------------------------------------------------------
Net investment income 4,779,081
- ---------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 2,569,944
- ---------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1 and 3) 32,192
- ---------------------------------------------------------------------------------------------------
Net unrealized depreciation of investments and futures contracts during the year (691,673)
- ---------------------------------------------------------------------------------------------------
Net gain on investments 1,910,463
- ---------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $6,689,544
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended April 30
--------------------
1996 1995
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
- -----------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------
Net investment income $4,779,081 $4,805,233
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 2,602,136 (2,683,740)
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (691,673) 1,990,454
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,689,544 4,111,947
- -----------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- -----------------------------------------------------------------------------------------------------
From net investment income (610,115) (538,541)
- -----------------------------------------------------------------------------------------------------
From net realized gains -- (71,815)
- -----------------------------------------------------------------------------------------------------
In excess of net realized gains -- (12,038)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholders
(excluding cumulative undeclared dividends and
capital gain dividends on remarketed preferred shares
of $44,004 and $42,607 respectively.) 6,079,429 3,489,553
- -----------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- -----------------------------------------------------------------------------------------------------
From net investment income (4,284,289) (4,369,764)
- -----------------------------------------------------------------------------------------------------
From net realized gains -- (568,796)
- -----------------------------------------------------------------------------------------------------
In excess of net realized gains -- (95,343)
- -----------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 1,795,140 (1,544,350)
- -----------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------
Beginning of year 81,268,655 82,813,005
- -----------------------------------------------------------------------------------------------------
End of year (including undistributed net investment income of
$65,515 and $128,585 respectively) $83,063,795 $81,268,655
- -----------------------------------------------------------------------------------------------------
Number of fund shares
- -----------------------------------------------------------------------------------------------------
Common shares outstanding at beginning and end of year 4,607,092 4,607,092
- -----------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding at beginning
and end of year 320 320
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
For the Period
November 27, 1992
(commencement of
operations) to
Year ended April 30 April 30
- ------------------------------------------------------------------------------------------------
1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $14.16 $14.49 $15.12 $14.02*
(common shares)
- ------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------
Net investment income 1.04 1.04 1.03 .41(a)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .41 (.15) (.40) 1.12
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.45 .89 .63 1.53
- ------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------
Net investment income
- ------------------------------------------------------------------------------------------------
to preferred shareholders (.13) (.12) (.12) (.03)**
- ------------------------------------------------------------------------------------------------
to common shareholders (.93) (.95) (.93) (.31)
- ------------------------------------------------------------------------------------------------
From net realized gain
- ------------------------------------------------------------------------------------------------
to preferred shareholders -- (.01) (.02) --
- ------------------------------------------------------------------------------------------------
to common shareholders -- (.12) (.18) --
- ------------------------------------------------------------------------------------------------
In excess of net realized gain
- ------------------------------------------------------------------------------------------------
to preferred shareholders -- --*** -- --
- ------------------------------------------------------------------------------------------------
to common shareholders -- (.02) -- --
- ------------------------------------------------------------------------------------------------
Total distributions (1.06) (1.22) (1.25) (.34)
- ------------------------------------------------------------------------------------------------
Preferred share offering costs -- (.01) (.09)**
- ------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $14.55 $14.16 $14.49 $15.12
- ------------------------------------------------------------------------------------------------
Market value, end of period
(common shares) $14.38 $13.63 $13.88 $14.88
- ------------------------------------------------------------------------------------------------
Total investment return at market
value (common shares) (%)(b) 12.68 6.67 .31 1.23(d)
- ------------------------------------------------------------------------------------------------
Net assets, end of period
(total fund) (in thousands) $83,064 $81,269 $82,813 $85,647
- ------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(c)(e) 1.26 1.20 1.07 .33(a)(d)
- ------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 6.11 6.52 5.84 2.69(a)(d)
- ------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 125.01 101.23 54.06 43.46(d)
- ------------------------------------------------------------------------------------------------
* Represents initial net asset value of $14.10 less offering expenses of approximately $0.08.
** Preferred shares were issued on February 18, 1993.
*** Distributions in excess of net investment income amounted to less than $0.01 per share.
(a) Reflects a waiver of the management fee. 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) Ratio reflects net assets available to common shares only; net investment income ratio
also reflects reduction for dividend payments to preferred shareholders.
(d) Not annualized.
(e) The ratio of expenses to average net assets for the year ended April 30, 1996 includes
amounts paid through expense offset arrangements. Prior period ratios exclude these
amounts. (Note 2)
</TABLE>
Notes to financial statements
April 30, 1996
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 Putnam Investment Management,
Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary
of Putnam Investments, Inc., 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
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ from those estimates.
A) Security valuation 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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on securities
it owns or which it invests to increase its current returns.
The potential risk to the fund is that the change in value of futures and
options contracts may not correspond to the change in value of the hedged
instruments. In addition, losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparty to the contract is unable to
perform.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. Exchange traded options
are valued at the last sale price, or if no sales are reported, the last
bid price for purchased options and the last ask price for written
options. Options traded over-the-counter are valued using prices supplied
by dealers.
D) 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), less all liabilities (including accrued expenses and
undeclared dividends on remarketed preferred shares) and the liquidation
value of any outstanding remarketed preferred shares, by the total number
of common shares outstanding.
E) 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, capital gains or unrealized appreciation on securities
held and for excise tax on income and
capital gains.
At April 30, 1996, the fund had a capital loss carryover of approximately
$131,377 available to offset future net capital gains, if any, which will
expire on April 30, 2003.
F) Distributions to shareholders Distributions to common and preferred
shareholders are recorded by the fund on the ex-dividend date.
Dividends on remarketed preferred shares become payable when, as and if
declared by the Trustees. Each dividend period for the remarketed
preferred shares is generally a 28 day period. The applicable dividend
rate for the remarketed preferred shares on April 30, 1996 was 3.50%.
The amount and character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences include
treatment of unrealized gains and losses on certain futures contracts,
capital loss carryover and market discount. Reclassifications are made to
the fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the year ended April 30, 1996, the fund reclassified
$52,253 to increase undistributed net investment income and $7,639 to
increase paid in capital, with an increase to accumulated net realized
loss on investments of $59,892. The calculation of net investment income
per share in the financial highlights table excludes these adjustments.
G) 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. Discounts on zero coupon bonds, original issue,
and stepped-coupon bonds are accreted according to the effective yield
method.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $12,024. These expenses are being amortized on
a straight-line basis over a five-year period.
Note 2
Management fee, administrative services, and other transactions
Compensation of Putnam Management, for managment 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: 0.70% 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, 0.50% of any excess over $1.5
billion of such average net asset value subject, under current law, to
reduction in any year by the amount of certain brokerage commissions and
fees (less expenses) received by affiliates of Putnam Management on the
fund's portfolio transactions.
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
fees payable to Putnam Management for that period will be reduced by the
amount of the excess (but not more than 0.70% of the liquidation
preference of the remarketed preferred shares outstanding during the
period).
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustees fee of $530 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee
meetings.
The fund adopted a Trustee Fee Deferral Plan (the "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 Plan.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments,
Inc. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
For the year ended April 30, 1996, fund expenses were reduced by $68,195
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 these assets utilized
in connection with the expense offset arrangements in an income producing
asset if it had not entered into such arrangements.
Note 3
Purchases and sales of securities
During the year ended April 30, 1996, purchases and sales of investment
securities other than short-term investments aggregated $108,656,647 and
$100,912,811, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities
sold, the cost of securities has been determined on the identified cost
basis.
Note 4
Remarketed preferred shares
The remarketed preferred shares are redeemable at the option of the fund
on any dividend payment 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.
It is anticipated that distributions paid to holders of remarketed
preferred shares will be considered tax-exempt dividends under the
Internal Revenue Code of 1986. To the extent that the fund earns taxable
income and capital gains by the conclusion of a fiscal year, it will be
required to apportion to the holders of the remarketed preferred shares
throughout that year additional dividends as necessary to result in an
after-tax 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 coverage requirements under 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 April 30, 1996, no such restrictions have been placed
on the fund.
<TABLE>
<CAPTION>
Selected quarterly data
(Unaudited)
- -------------------------------------------------------------------------------------------------------------
Net realized Net increase
Net and unrealized (decrease) in
Investment investment gain (loss) on net assets
income income* investments* from operations*
- -------------------------------------------------------------------------------------------------------------
Per Per Per Per
Quarter Common Common Common Common
Ended Total Share Total Share Total Share Total Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
7-31-94 $1,356,924 $.29 $1,008,950 $.22 $ 487,424 $0.11 $1,496,374 $0.33
10-31-94 $1,465,080 $.32 $1,092,630 $.23 ($3,778,702) ($0.81) ($2,686,072) ($0.58)
1-31-95 $1,372,289 $.30 $1,088,151 $.24 $ 256,135 $0.05 $1,344,286 $0.29
4-30-95 $1,389,764 $.30 $1,034,349 $.22 $2,341,857 $0.50 $3,376,206 $0.72
7-31-95 $1,369,921 $.30 $1,028,411 $.22 $1,050,504 $0.23 $2,078,915 $0.45
10-31-95 $1,427,347 $.31 $1,101,331 $.23 $2,382,822 $0.51 $3,484,153 $0.74
1-31-96 $1,389,196 $.30 $1,032,642 $.23 $2,212,650 $0.47 $3,245,292 $0.70
4-30-96 $1,386,034 $.30 $1,005,185 $.23 ($3,735,513) ($0.80) ($2,730,828) ($0.57)
- ------------------------------------------------------------------------------------------------------------
* Available to common shareholders
</TABLE>
Federal tax information
(Unaudited)
The fund has designated 99% 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 1997 will show the tax status of all
distributions paid to your account in calendar 1996.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
James E. Erickson
Vice President
Blake E. Anderson
Vice President
William H. Reeves
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
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.
[LOGO: PUTNAM INVESTMENTS]
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
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PAID
Putnam
Investments
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