ITunes can't locate music I have stored in the iCloud

I am experiencing the following problem. In iTunes some of my "songs" have an exclamation point beside them even though they are stored in the cloud. I see the dialog box that asks if I want to locate the music and I have found if I hit the cancel button, the music suddenly has a cloud icon and starts to play. This is weird, and I'd love to know how to fix this.
Thanks

Yes, you are correct. The songs are only stored in the iCloud. Which is what I want. I don't want to have all my library sitting on my iMac and in iCloud. Am I missing something?
There are plenty of songs on my hard drive with the iCloud symbol and they play without a problem. I also have some songs sitting on my hard drive. And they aren't a problem. THE PROBLEM is the tracks that have the exclamation mark and will play from the iCloud after I press "Cancel" in the "Locate" dialog box. I hope I'm explaining this clearly....

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