Putnam
California
Investment Grade
Municipal Trust
SEMIANNUAL REPORT
October 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "An increasing number of national investors are returning to the
California bond market. Continued progress in the state's economic and
fiscal outlook and resolution of Orange County's problems have enabled
California general obligations bonds to regain preeminence among
municipal bond investors."
-- William H. Reeves, Manager
Putnam California Investment Grade Municipal Trust
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
13 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
The first half of Putnam California Investment Grade Municipal Trust's
fiscal year finished on a more propitious note than it began. During the
six months ended October 31, 1996, your fund -- and the rest of the tax-
exempt bond market -- made up ground lost to the challenges presented by
the flat-tax concerns and to the worry that a still-vibrant economy
would ignite the fires of inflation.
As investors gradually concluded that their fears may have been
misplaced, the fixed-income market environment began to show steady
improvement. Fund Manager William Reeves believes prospects for the
second half of your fund's fiscal year now seem more positive. Demand
for tax-exempt securities is strong, especially relative to their fairly
modest supply. The economy, interest rates, and inflation remain
generally favorable.
Bill provides more detail as he reviews the fund's performance and
prospects in the report that follows.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
December 18, 1996
Report from the Fund Manager
William H. Reeves
The sun has begun to shine again on the bonds of the Golden State. The
continued upswing in California's economy, its improving financial
situation, and the resolution of Orange County's difficulties have
brought about a turnaround in the outlook for the state's debt, and
Putnam California Investment Grade Municipal Trust's performance
reflects this improving environment.
For the six months ended October 31, 1996, your fund posted a return of
6.90% at net asset value (5.00% at market price), comfortably ahead of
the 4.54% delivered by the Lehman Brothers Municipal Bond Index. For
additional performance information, please see pages 8 through 10.
* CALIFORNIA BONDS REGAIN THEIR STATURE
California's economy, the seventh largest in the world, has improved
considerably over the past few years. Only recently mired in recession,
the state's economic growth currently rivals that of the nation at
large. The California financial engine has been fueled by strength in
high technology, entertainment, biotechnology, and services --
industries whose prospects remain positive. Supply and demand factors
also appear to be favorable. Typically the state accounts for 12% to 14%
of the new debt issued annually in the U.S. municipal bond market. We
believe new issuance over the next several months will either fall
within those bounds or rise modestly.
In light of these developments, it is not surprising that many investors
who only months ago shied away from California bonds have taken a fresh
look at the state's prospects. Sought by an increasing number of
national investors, California's general obligation bonds again carry
premier status. In light of the state's improving investment climate and
the increasing number of national buyers seeking California's debt, we
believe demand for these bonds will remain healthy well into calendar
1997.
Throughout much of 1995, federal tax-reform proposals, particularly the
idea of a flat tax, had caused investors to fear for the continued tax-
favored status of municipal bonds. The issue was in the forefront of
investors' minds in early 1996, particularly in light of the then
upcoming presidential election and the legislative agenda in Congress.
However, during the year, the effect of tax-reform and political issues
on the market diminished when enactment of flat-tax proposals became
unlikely and other political uncertainties were answered, at least to
the satisfaction of investors.
Fixed-income investments were buffeted by shifting interest-rate
expectations through the first half of calendar 1996. Interest rates had
fallen to near-historic lows through much of 1995 and early 1996 on the
outlook for a slowing of economic growth and continued low inflation. In
March 1996, interest rates reversed course as reports of increasing
strength in employment began to appear. Investors developed concerns
that strong employment growth would stimulate economic activity and thus
lead to greater inflation. Volatility increased through June as
investors waited for longer-term trends to emerge.
By midyear, moderate economic growth had been confirmed and inflation
remained well contained. Investors were still watchful for signs of
future inflation, but started to feel more confident that economic
growth and inflation would remain in control. Volatility began to
subside and interest rates moved within a narrow range. That environment
continues to prevail as your fund enters the second half of fiscal 1997.
[GRAPHIC OMITTED:HORIZONTAL BAR CHART OF TOP INDUSTRY SECTORS*]
TOP INDUSTRY SECTORS*
Utilities 14.6%
Health care 13.3%
Housing 13.2%
Water and sewerage 9.0%
Education 4.7%
Footnote reads:
*Based on net assets as of 10/31/96. Holdings will vary over time.
We believe a significant amount of money earmarked for the tax-exempt
market was diverted to equities as the stock market continued to reach
new highs. As a result, in our view, the tax-exempt market is currently
undervalued. Given the current supply/demand environment for municipal
bonds, we believe there is a potential for significant price
appreciation, should that money begin flowing from stocks into the tax-
exempt market.
* FUND'S FOCUS: BALANCE OF INCOME AND PRICE STABILITY
During the period, we employed several strategies to preserve relative
price stability while seeking to enhance income. First, we maintained
the fund's high-premium, low-risk in income-oriented bonds. These high-
coupon bonds typically provide better protection from price erosion when
interest rates are rising. The fund's relatively short duration also
served to preserve price stability. Duration is a measure of the
portfolio's maturity structure and reflects the price sensitivity of the
portfolio's holdings to changes in interest rates.
We also maintained the portfolio's position in inverse floaters. These
derivative securities were utilized to increase the fund's income and
improve the potential for price appreciation, should long-term interest
rates decline. The yields on these variable-rate bonds move in a
direction opposite to that of short-term interest rates. As with other
derivative products, inverse floaters require careful analysis. We
continually monitor performance of these securities and adjust the size
of the position in an effort to minimize the fund's risk exposure.
We have continued to generate income for common shareholders through the
selective use of leveraging strategies. As part of its ongoing strategy,
the fund issues and sells preferred shares that pay dividends at
prevailing short-term rates. We then invest the proceeds from those
shares in longer-term bonds with higher yields. The difference between
the rate earned on those bonds and the rate paid to the holders of the
fund's preferred shares is used to enhance distributions to common
shareholders.
TOP 10 HOLDINGS*
Northern California Power Agency, Multi. Cap. Facilities IFB, MBIA,
9.142s, 9/2/25
Santa Clara County, Financing Authority Lease Revenue Bonds
(VMC Facilities Replacement), Series A, AMBAC, 6 7/8s, 11/15/14
Vallejo, Certificate of Participation (Marine World Foundation),
8.1s, 2/1/21
California Housing Financing Agency, Home Mortgage Revenue Bonds, Series
C, 8.3s, 8/1/19
San Bernadino, Department of Transportation Lease Financing
Authority Revenue Bonds, Series A, 5 1/2s, 12/1/14
California Educational Facilities, Revenue Bonds (University of
San Francisco), 6.4s, 10/1/17
Rancho, Water District Financing Authority IFB, AMBAC,
9.024s, 8/17/21
Victor, Elementary School District Certificate of Participation
(School Construction Refinancing), MBIA, 6.45s, 5/1/18
Irvine Ranch, Water District Joint Power Agency Revenue Bonds
(Issue II), FNMA, 8 1/4s, 8/15/23
Los Angeles, Multi-Family Revenue Bonds (Mission Plaza Apartments),
Series A, GNMA, 7.8s, 1/20/35
*These holdings represent 51.4% of the fund's net assets as of 10/31/96.
Portfolio holdings will vary over time.
* FAVORABLE OUTLOOK FOR THE MONTHS AHEAD
We look for a favorable environment for municipal bonds over the
remainder of fiscal 1997. From an interest-rate perspective, we believe
that the economy will continue to grow at a moderate pace and that
inflation will remain low. In our opinion, this should help keep
interest rates relatively stable.
Supply and demand factors also should give a boost to municipal bonds.
We expect investors with considerable cash flow from coupon income and
those holding bonds that are likely to be called in to create strong
demand for the declining supply of municipal bonds expected to be
available at the end of this year. Finally, with the stock market at
record highs and money market rates relatively low, we would not be
surprised to see investors shift a larger portion of their assets into
the municipal bond market.
Footnote reads:
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 10/31/96, 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 10/31/96
(common shares)
Lehman Bros.
Market Municipal Consumer
NAV price Bond Index Price Index
- ------------------------------------------------------------------------
6 months 6.90% 5.00% 4.54% 1.28%
- ------------------------------------------------------------------------
1 year 7.76 15.42 5.71 2.99
- ------------------------------------------------------------------------
Life (11/27/92) 41.29 28.17 30.16 11.48
Annual average 9.19 6.52 6.96 2.80
- ------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 9/30/96
(most recent calendar quarter)
(common shares)
Market
NAV price
- ------------------------------------------------------------------------
6 months 4.69% 4.98%
- ------------------------------------------------------------------------
1 year 8.63 18.54
- ------------------------------------------------------------------------
Life (11/27/92) 38.98 29.68
Annual average 8.95 7.00
- ------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. They do not take into
account any adjustment for taxes payable on reinvested distributions.
Investment returns and net asset value will fluctuate so that an
investor's shares, when sold, may be worth more or less than their
original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 10/31/96
- ------------------------------------------------------------------------
Distributions (number) 6
- ----------------------------------------------------------------------
Common shares
- -----------------------------------------------------------------------
Income1 $0.465
- ------------------------------------------------------------------------
Total $0.465
- ------------------------------------------------------------------------
Preferred shares (320 shares)
- ------------------------------------------------------------------------
Income $972.02
- ----------------------------------------------------------------------
Total $972.02
- ------------------------------------------------------------------------
Share value: NAV Market price
- ------------------------------------------------------------------------
4/30/96 $14.55 $14.375
- ------------------------------------------------------------------------
10/31/96 15.07 14.625
- ------------------------------------------------------------------------
Current return NAV Market price
- ------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------
Current dividend rate2 6.17% 6.36%
- ------------------------------------------------------------------------
Taxable equivalent3 11.48 11.83
- ------------------------------------------------------------------------
1 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.
2 Income portion of most recent distribution, annualized and divided by
NAV or market price at end of period.
3 Assumes maximum combined federal and state tax rate of 46.24%.
Results for investors subject to lower tax rates would not be as
advantageous.
TERMS AND DEFINITIONS
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, the liquidation preference 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
October 31, 1996 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
FNMA -- Federal National Mortgage Association Collateralized
GNMA -- Government National Mortgage Association Collateralized
IFB -- Inverse Floating Rate Bonds
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
<S> <C> <C> <C> <C>
MUNICIPAL BONDS AND NOTES (98.1%) *
PRINCIPAL AMOUNT RATINGS** VALUE
California (98.1%)
- -----------------------------------------------------------------------------------------------------------------------
$3,000,000 Berkeley, Hlth. Fac. Rev. Bonds (Alta Bates
Med. Ctr.), Ser. A, 6.55s, 12/1/22 Baa 3,037,500
1,500,000 Big Bear Lake Wtr. Rev. Bonds, MBIA, 6s, 4/1/22 Aaa 1,595,625
3,600,000 CA Edl. Fac. Rev. Bonds (U. of San Francisco),
6.4s, 10/1/17 AAA 4,005,000
3,000,000 CA Hlth. Fac. Fin. Auth. Rev. Bonds (Henry
Mayo Newhall), Ser. A, 8s, 10/1/18 A 3,232,500
CA Hsg. Fin. Agcy. Home Mtge. Rev. Bonds
4,610,000 Ser. C, 8.3s, 8/1/19 AA 4,782,875
3,010,000 Ser. A, 7 3/4s, 8/1/17 Aa 3,179,311
2,885,000 CA Poll. Control Fin. Auth. Rev. Bonds (Pacific
Gas & Elec. Co.), Ser. B, 8 7/8s, 1/1/10 A 3,071,140
3,000,000 CA Poll. Ctrl. Fin. Auth. Rev. Bonds (San Diego
Gas & Elec.), Ser. A, 5.9s, 6/1/14 A 3,127,500
2,000,000 CA State Dept. Wtr. Resources IFB (Central Valley),
9.926s, 12/1/12 (acquired 11/27/95, cost $2,198,104)
(double dagger) Aa 2,697,500
2,000,000 CA State Pub. Wks. Board Lease Rev. Bonds (Dept. of
Corrections Monterey Cnty. Sole), Ser. A, 7s, 11/1/19 A 2,322,500
3,150,000 Irvine Ranch, Wtr. Dist. Jt. Pwr. Agcy. Rev. Bonds
(Issue II), FNMA, 8 1/4s, 8/15/23 A 3,350,813
3,120,000 Los Angeles Multi-Fam. Rev. Bonds (Mission Plaza Apts.),
Ser. A, GNMA, 7.8s, 1/20/35 AAA 3,307,200
5,500,000 Northern CA Pwr. Agcy. Multi. Cap. Fac. IFB,
MBIA, 9.142s, 9/2/25 Aaa 6,270,000
2,000,000 Orange Cnty., Pub. Fac. Corp. COP (Solid Waste
Management), 7 7/8s, 12/1/13 Baa 2,110,000
3,250,000 Rancho, Wtr. Dist. Fin. Auth. IFB, AMBAC, 9.024s, 8/17/21 Aaa 3,887,813
1,610,000 Richmond, Jt. Pwr. Fin. Auth. Rev. Bonds (Impt. Dists.
851 & 853), Ser. B, 8 1/2s, 9/2/19 BBB/P 1,660,345
2,000,000 Riverside Hosp. Rev. Bonds (Riverside Cmnty. Hosp.),
Ser. A, 6 3/4s, 11/1/15 BBB 2,015,000
2,300,000 Sacramento, Pwr. Auth Rev. Bonds (Cogeneration), 6s, 7/1/22 BBB 2,259,750
4,500,000 San Bernadino, Dept. of Trans. Lease Fin. Auth. Rev. Bonds,
Ser. A, 5 1/2s, 12/1/14 A 4,393,125
3,000,000 San Francisco, City & Cnty. Intl. Arpt. Second Ser.,
Rev. Bonds, Issue 10B, MBIA, 5 1/2s, 5/1/21 Aaa 2,966,250
4,750,000 Santa Clara Cnty. Fin. Auth. Lease Rev. Bonds (VMC Facs.
Replacement), Ser. A, AMBAC, 6 7/8s, 11/15/14# Aaa 5,284,375
3,000,000 U. of CA, Hosp. Rev. Bonds (U. of CA Med. Ctr.),
AMBAC, 5 3/4s, 7/1/15 Aaa 3,041,250
4,500,000 Vallejo COP (Marine World Foundation), 8.1s, 2/1/21 BBB/P 4,865,625
3,345,000 Victor, Elementry School Dist. COP (School Construction
Refinancing), MBIA, 6.45s, 5/1/18 Aaa 3,729,675
West Contra Costa U. School Dist. COP
1,860,000 7 1/8s, 1/1/24 BBB 1,957,650
1,140,000 6 7/8s, 1/1/09 BBB 1,191,300
500,000 Woodland Multi-Fam. Mtge. VRDN 3.15s, 8/1/18 A-1+ 500,000
- -----------------------------------------------------------------------------------------------------------------------
Total Investments (cost $78,579,211)*** 83,841,622
- -----------------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $85,436,592.
Net assets available to common shareholders are $69,416,034.
** The Moody's or Standard & Poor's ratings indicated are
believed to be the most recent ratings available at
October 31, 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 October 31, 1996.
Securities rated by Putnam are indicated by "/P"and
are not publicly rated.
*** The aggregate identified cost on a tax basis is
$78,579,211 resulting in gross unrealized appreciation and
depreciation of $5,481,652 and $219,241, respectively,
or net unrealized appreciation of $5,262,411.
(double dagger) Restricted, excluding 144A securities, as to public resale.
The total market value of restricted securities held at
October 31, 1996 was $2,697,500 or 3.2% of net assets.
# A portion of this security was pledged and
segregated with the custodian to cover margin requirements
for futures contracts at October 31, 1996.
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 October 31, 1996.
The fund had the following industry group
concentrations greater than 10% at October 31, 1996
(as a percentage of net assets):
Utilities 14.6%
Health Care 13.3
Housing 13.2
The fund had the following insurance
concentrations greater than 10% at October 31, 1996
(as a percentage of net assets):
MBIA 17.0%
AMBAC 14.3
<CAPTION>
- ----------------------------------------------------------------------------------------------
Futures Contracts Outstanding at October 31, 1996
Aggregate Face Expiration Unrealized
Total Value Value Date Appreciation
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury Bonds (Long) $2,034,000 $1,965,375 Dec-96 $68,625
- ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of assets and liabilities
October 31, 1996 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------
Investments in securities, at value (identified
cost $78,579,211)(Note 1) $83,841,622
- ---------------------------------------------------------------------------------------------
Cash 205,321
- ---------------------------------------------------------------------------------------------
Interest receivable 1,661,251
- ---------------------------------------------------------------------------------------------
Receivable for securities sold 290,522
- ---------------------------------------------------------------------------------------------
Receivable for variation margin 7,313
- ---------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 1,322
- ---------------------------------------------------------------------------------------------
Total assets 86,007,351
Liabilities
- ---------------------------------------------------------------------------------------------
Distributions payable to shareholders 357,029
- ---------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 152,919
- ---------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 5,174
- ---------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 162
- ---------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,644
- ---------------------------------------------------------------------------------------------
Other accrued expenses 53,831
- ---------------------------------------------------------------------------------------------
Total liabilities 570,759
- ---------------------------------------------------------------------------------------------
Net Assets $85,436,592
Represented by
- ---------------------------------------------------------------------------------------------
Remarketed preferred shares (320 shares issued
and outstanding at $50,000 per share) (Note 4) $16,000,000
- ---------------------------------------------------------------------------------------------
Paid in capital-common shares (Note 1) 64,184,085
- ---------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 53,036
- ---------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (131,565)
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,331,036
- ---------------------------------------------------------------------------------------------
Total - Representing net assets applicable
to capital shares outstanding $85,436,592
Computation of net asset value
- ---------------------------------------------------------------------------------------------
Remarketed preferred shares $16,000,000
- ---------------------------------------------------------------------------------------------
Cumulative undeclared dividends on remarketed
preferred shares 20,558
- ---------------------------------------------------------------------------------------------
Net assets allocated to remarketed preferred shares -- liquidation preference $16,020,558
- ---------------------------------------------------------------------------------------------
Net assets available to common shares $69,416,034
- ---------------------------------------------------------------------------------------------
Net asset value per common share ($69,416,034 divided
by 4,607,092 shares) $15.07
- ---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended October 31, 1996 (Unaudited)
<S> <C>
Tax exempt interest income: $2,822,486
- -----------------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 300,180
- -----------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 30,221
- -----------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,336
- -----------------------------------------------------------------------------------------------------
Administrative services (Note 2) 2,453
- -----------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 1,202
- -----------------------------------------------------------------------------------------------------
Reports to shareholders 27,159
- -----------------------------------------------------------------------------------------------------
Auditing 13,725
- -----------------------------------------------------------------------------------------------------
Legal 5,369
- -----------------------------------------------------------------------------------------------------
Postage 33,385
- -----------------------------------------------------------------------------------------------------
Exchange listing fees 1,999
- -----------------------------------------------------------------------------------------------------
Preferred share remarketing agent fees 4,599
- -----------------------------------------------------------------------------------------------------
Other 1,477
- -----------------------------------------------------------------------------------------------------
Total expenses 426,105
- -----------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (44,313)
- -----------------------------------------------------------------------------------------------------
Net expenses 381,792
- -----------------------------------------------------------------------------------------------------
Net investment income 2,440,694
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments (Note 1 and 3) (14,732)
- -----------------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Notes 1) 132,044
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments
and futures during the period 2,267,964
- -----------------------------------------------------------------------------------------------------
Net gain on investments 2,385,276
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $4,825,970
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Statements of changes in net assets
Six months ended Year ended
October 31, April 30,
1996* 1996
-------------------------------------
<S> <C> <C>
Increase in net assets
- -----------------------------------------------------------------------------------------------------
Operations:
- -----------------------------------------------------------------------------------------------------
Net investment income $2,440,694 $4,779,081
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments 117,312 2,602,136
- -----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 2,267,964 (691,673)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 4,825,970 6,689,544
- -----------------------------------------------------------------------------------------------------
Distributions to remarketed preferred shareholders:
- -----------------------------------------------------------------------------------------------------
From net investment income (311,046) (610,115)
- -----------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations
applicable to common shareholder excluding cumulative
undeclared dividends on remarketed preferred shares of $20,558
and $44,004, respectively) 4,514,924 6,079,429
- -----------------------------------------------------------------------------------------------------
Distributions to common shareholders:
- -----------------------------------------------------------------------------------------------------
From net investment income (2,142,127) (4,284,289)
- -----------------------------------------------------------------------------------------------------
Total increase in net assets 2,372,797 1,795,140
- -----------------------------------------------------------------------------------------------------
Net Assets
- -----------------------------------------------------------------------------------------------------
Beginning of period 83,063,795 81,268,655
- -----------------------------------------------------------------------------------------------------
End of period (including undistributed
net investment income of $53,036 and $65,515, respectively) $85,436,592 $83,063,795
- -----------------------------------------------------------------------------------------------------
Common shares outstanding at beginning and end of period 4,607,092 4,607,092
- -----------------------------------------------------------------------------------------------------
Remarketed preferred shares outstanding
at beginning and end of period 320 320
- -----------------------------------------------------------------------------------------------------
*Unaudited
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Six months
ended
October 31 Year ended April 30
-------------------------------------------------
1996+ 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $14.55 $14.16 $14.49
(common shares)
- -------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income .53 1.04 1.04
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments .52 .41 (.15)
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 1.05 1.45 .89
- -------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------
From net investment income
- -------------------------------------------------------------------------------------------------------------
to preferred shareholders (.07) (.13) (.12)
- -------------------------------------------------------------------------------------------------------------
to common shareholders (.46) (.93) (.95)
- -------------------------------------------------------------------------------------------------------------
From net realized gain
- -------------------------------------------------------------------------------------------------------------
to preferred shareholders -- -- (.01)
- -------------------------------------------------------------------------------------------------------------
to common shareholders -- -- (.12)
- -------------------------------------------------------------------------------------------------------------
In excess of net realized gain
to common shareholders
- -------------------------------------------------------------------------------------------------------------
to preferred shareholders -- -- --(g)
- -------------------------------------------------------------------------------------------------------------
to common shareholders -- -- (.02)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.53) (1.06) (1.22)
- -------------------------------------------------------------------------------------------------------------
Preferred share offering costs -- --
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period
(common shares) $15.07 $14.55 $14.16
- -------------------------------------------------------------------------------------------------------------
Market value, end of period (common shares) $14.63 $14.38 $13.63
- -------------------------------------------------------------------------------------------------------------
Total investment return at market value
(common shares) (%)(b) 5.00* 12.68 6.67
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (total fund)
(in thousands) $85,437 $83,064 $81,269
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) (c)(d) .63* 1.26 1.20
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(c) 3.59* 6.11 6.52
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 18.71* 125.01 101.23
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Financial highlights (continued)
(For a share outstanding throughout the period)
For the period
November 27, 1992
(commencement of
Year ended operations) to
April 30 April 30
-----------------------------
1994 1993
-----------------------------
<S> <C> <C>
Net asset value, beginning of period (common shares) $15.12 $14.02(e)
- ------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------
Net investment income 1.03 .41(a)
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.40) 1.12
- ------------------------------------------------------------------------------------------------------
Total from investment operations .63 1.53
- ------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------
From net investment income
- ------------------------------------------------------------------------------------------------------
to preferred shareholders (.12) (.03)(f)
- ------------------------------------------------------------------------------------------------------
to common shareholders (.93) (.31)
- ------------------------------------------------------------------------------------------------------
From net realized gain
- ------------------------------------------------------------------------------------------------------
to preferred shareholders (.02) --
- ------------------------------------------------------------------------------------------------------
to common shareholders (.18) --
- ------------------------------------------------------------------------------------------------------
In excess of net realized gain to common shareholders
- ------------------------------------------------------------------------------------------------------
to preferred shareholders -- --
- ------------------------------------------------------------------------------------------------------
to common shareholders -- --
- ------------------------------------------------------------------------------------------------------
Total distributions (1.25) (.34)
- ------------------------------------------------------------------------------------------------------
Preferred share offering costs (.01) (.09)(f)
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period (common shares) $14.49 $15.12
- ------------------------------------------------------------------------------------------------------
Market value, end of period (common shares) $13.88 $14.88
- ------------------------------------------------------------------------------------------------------
Total investment return at market value (common shares) (%)(b) .31 1.23*
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (total fund) (in thousands) $82,813 $85,647
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c)(d) 1.07 .33(a)*
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%)(c) 5.84 2.69(a)*
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 54.06 43.46*
- ------------------------------------------------------------------------------------------------------
+ Unaudited
* Not annualized.
(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) The ratio of expenses to average net assets for the year ended April 30, 1996 and thereafter
includes amounts paid through expense offset arrangements. Prior period ratios
exclude these amounts. (Note 2)
(e) Represents initial net asset value of $14.10 less offering expenses of
of approximately $0.08.
(f) Preferred shares were issued on February 18, 1993.
(g) Distributions in excess of net investment income amounted to less than
$0.01 per share.
</TABLE>
Notes to financial statements
October 31, 1996 (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 Putnam Investment
Management, Inc. ("Putnam Management"), that 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 in which it may invest 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 and dividends), less all liabilities (including accrued
expenses) and the liquidation preference 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
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
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 October 31, 1996 was 3.35%.
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. 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.
G) Amortization of bond premium and accretion of bond discount Any
premium resulting from the purchase of securities in excess of maturity
value is amortized on a yield-to-maturity basis.
Discounts on original issue 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 management and investment
advisory services is paid quarterly based on the average net assets of
the fund. Such fee is based on the following annual rates: 0.70% of the
first $500 million of the average net 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.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the six months ended October 31, 1996, fund expenses were reduced by
$44,313 under expense offset arrangements with PFTC. Investor servicing
and custodian fees reported in the Statement of operations exclude these
credits. The fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
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 in the fund
and are invested in certain Putnam funds until distribution in
accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the Fund who have
served as Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Compensation of trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
Note 3
Purchase and sales of securities
During the six months ended October 31, 1996, purchases and sales of
investment securities other than short-term investments aggregated
$15,226,310 and $16,097,690, 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 an 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 dividends 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 October 31, 1996, no such
restrictions have been placed on the fund.
Results of October 31, 1996 shareholder meeting
(Unaudited)
A meeting of shareholders of the fund was held on October 31, 1996. At
the meeting, each of the nominees for Trustees was elected, as follows:
Common Shares Preferred Shares
Votes Votes Votes Votes
for withheld for withheld
Jameson Adkins Baxter 2,922,365 40,678 194 0
Hans H. Estin 2,922,265 40,778 194 0
R.J. Jackson 2,922,631 40,412 194 0
Elizabeth T. Kennan 2,922,631 40,412 194 0
Lawrence J. Lasser 2,922,631 40,412 194 0
Donald S. Perkins 2,922,631 40,412 194 0
William F. Pounds 2,922,631 40,412 194 0
George Putnam 2,922,531 40,512 194 0
George Putnam, III 2,922,631 40,412 194 0
Eli Shapiro 2,922,531 40,512 194 0
A.J.C. Smith 2,922,631 40,412 194 0
W. Nicholas Thorndike 2,922,365 40,678 194 0
Results of October 31, 1996 shareholder meeting (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Common Shares Preferred shares
- --------------------------------------------------------------------------------------------------------------------------
Abstentions Abstentions
Votes Votes and Broker Votes Votes and Broker
For Against Non-Votes For Against Non-Votes
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A proposal to ratify the selection of Price
Waterhouse LLP as auditors for the fund was
approved as follows: 2,894,997 11,350 56,696 194 0 0
- --------------------------------------------------------------------------------------------------------------------------
A proposal to amend the fund's fundamental
investment restriction with respect to
diversification of investments was approved
as follows: 2,473,979 79,676 409,388 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to amend the fund's fundamental
investment restriction with respect to
investments in the securities of a
single issuer was approved as follows: 2,436,467 124,769 401,807 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to amend the fund's fundamental
investment restriction with respect to making
loans through purchases of debt obligations,
repurchase agreements and securities loans
was approved as follows: 2,386,167 156,771 420,105 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to amend the fund's fundamental
investment restriction with respect to
investments in commodities or commodity
contracts was approved as follows: 2,375,886 185,487 401,670 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to amend the fund's fundamental
investment restriction with respect to
concentration of its assets was approved
as follows: 2,445,376 116,102 401,565 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction with
respect to investments in securities of issuers
in which management of the fund or Putnam
Investment Management, Inc. owns securities
was approved as follows: 2,378,619 164,623 419,801 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction with
respect to margin transactions was approved
as follows: 2,381,891 190,029 391,123 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction with
respect to short sales was approved
as follows: 2,391,501 157,888 413,654 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction
which limits the fund's ability to
pledge assets was approved as follows: 2,377,223 188,766 397,054 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction with
respect to investments in certain oil,
gas and mineral interests was approved
as follows: 2,389,222 173,109 400,712 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction
with respect to invest to gain control of
a company's management was approved
as follows: 2,414,777 162,033 386,233 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
A proposal to eliminate the fund's
fundamental investment restriction
with respect to investments in other
investment companies was approved
as follows: 2,426,033 150,441 386,569 191 0 3
- --------------------------------------------------------------------------------------------------------------------------
All tabulations are rounded to nearest whole number.
</TABLE>
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
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
Jerome J. Jacobs
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 net asset value.
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- ---------------------
29211-184 12/96
