<PAGE> 1
PUTNAM
TAX EXEMPT
MONEY MARKET
FUND
ANNUAL REPORT
September 30, 1994
[Logo]
Boston - London - Tokyo
<PAGE> 2
PERFORMANCE HIGHLIGHTS
- "Money funds are among the few investments to benefit
from the Fed's interest rate hikes so far this year. While the
average stock and bond fund has lost money since January 12,
money fund yields have climbed from 2.7% to 3.9%."
- MONEY, August 1994
- Performance should always be considered in light of a
fund's investment strategy. Putnam Tax Exempt Money Market Fund
is designed for investors seeking current income free from
federal income taxes, consistent with capital preservation,
stable principal and liquidity.
<TABLE>
FISCAL 1994 RESULTS AT A GLANCE
--------------------------------------------------------
TOTAL RETURN
--------------------------------------------------------
12 MONTHS ENDED 9/30/94
<S> <C> <C> <C>
(change in value plus
reinvested earnings) 1.93%
Current return
--------------------------------------------------------
Current 7-day yield(1) 2.75%
Taxable equivalent(2) 4.55
Current 30-day yield(1) 2.56
Taxable equivalent(2) 4.24
Distributions No. Income Total
--------------------------------------------------------
12 $0.019147 $0.019147
</TABLE>
Performance data represent past results. For performance over
longer periods, see page 6. (1)The yield is the rate at which an
investment earns interest income. The 7-day and 30-day yields are
the two most common gauges for measuring money market mutual fund
performance. Investment income may be subject to state and
local taxes. For some investors, investment income may also be
subject to the federal Alternative Minimum Tax. (2)Assumes maximum
39.6% federal tax rate. Results for investors subject to lower
tax rates would not be as advantageous.
2
<PAGE> 3
FROM THE CHAIRMAN
Dear Shareholder:
The bond market environment that has given anxiety to most fixed-
income investors actually worked in Putnam Tax Exempt Money Market
Fund's favor during the 12 months ended September 30, 1994. The rise
in short-term interest rates raised yields on the money market
instruments in which the fund invests. Since your fund seeks to
maintain a constant $1.00 share value, the greater cash flow provided
by the rising rates almost immediately translated into a higher total
return.
When the Federal Reserve Board raised short-term rates last February,
Fund Manager Lindsey Callen began repositioning the portfolio in
anticipation of further rate increases. She also shortened the
portfolio's average maturity to allow faster reinvestment of proceeds
from maturing securities in higher-yielding ones. To allow the fund
to take immediate advantage of rising rates, she provided further
flexibility by adding floating-rate securities that reset yields
weekly.
Lindsey discusses these and other aspects of the fund's fiscal 1994
performance and prospects for fiscal 1995 in the report that
follows.
Respectfully yours,
George Putnam
Chairman of the Trustees
October 19, 1994
3
<PAGE> 4
REPORT FROM THE FUND MANAGER
LINDSEY M. CALLEN
For the fiscal year ended September 30, 1994, Putnam Tax Exempt Money
Market Fund continued to provide a steady stream of tax-free income
while emphasizing capital preservation and maintaining a stable $1.00
share price. After reaching historic lows in the fall of 1993, short-
term interest rates rose during 1994, creating a more favorable
investment climate for your fund.
During the fiscal year, the economic indicators that measure the
economy's strength remained positive. Factors such as employment
growth and the rise in home and automobile sales pointed to a more
robust economy. Side by side with these trends, however, came
concerns that inflation might rise. In moves to keep inflation at
bay, the Federal Reserve Board began a series of short-term interest
rate increases in February. By September 30, the federal funds rate
-- the interest rate banks charge each other for overnight loans --
had climbed from 3.00% to 4.75%. The discount rate -- the rate the
Fed charges member banks for loans -- increased from 3% to 4% over
the same period.
- CAPTURING HIGHER YIELDS
During the period, we structured the fund to be in the best possible
position to benefit from each incremental rise in interest rates. For
example, we reduced the average maturity of portfolio securities, so
that the fund would not be locked into lower-yielding investments in
a rising interest rate environment. We also built a position in
floating- rate securities, targeting those with yields that reset on
a weekly basis. Interest rates on floating-rate securities adjust at
regular intervals, and when market rates rise, investors benefit
promptly.
As always, we focused on only the highest quality investments while
maintaining a well-diversified portfolio. While new types of
securities have become available on occasion, relatively few
4
<PAGE> 5
of these have met our criteria for high quality, liquidity, and price
sensitivity. In weighing the appropriateness of a new issuer or new
type of money market security for your fund, we analyzed factors that
could affect the creditworthiness, yield, and price stability of
the issue. If the security did not meet our high standards, it was
not added to the portfolio.
Ideally, every holding must be rated by two or more nationally
recognized rating services and receive at least two ratings within
the top two categories. If a security has only been rated by one
service, its rating must be within that service's top category.
- OUR OUTLOOK
We believe the economy will continue to grow and that the Fed will
maintain its anti-inflation policy of periodically raising short-term
interest rates. To this end, we anticipate continuing our strategy of
investing in a diversified portfolio of tax-exempt securities,
such as municipal commercial paper, notes, and bonds. We expect to
continue adding floating-rate securities to the portfolio to take
advantage of rising interest rates. Furthermore, we expect to keep
the average maturity of the portfolio relatively short and believe
our emphasis on traditional high-quality instruments should enable
the fund to maintain the stability that is most shareholders' top
priority.
<TABLE>
PERFORMANCE COMPARISONS (9/30/94)
------------------------------------------------------------------------
<CAPTION>
CURRENT RETURN* AFTER TAX**
------------------------------------------------------------------------
<S> <C> <C>
PASSBOOK SAVINGS ACCOUNT 2.17% 1.31%
------------------------------------------------------------------------
TAXABLE MONEY MARKET FUND 7-DAY YIELD 4.35 2.63
------------------------------------------------------------------------
3-MONTH CERTIFICATE OF DEPOSIT 3.25 1.96
------------------------------------------------------------------------
PUTNAM TAX EXEMPT MONEY MARKET FUND
(7-DAY YIELD) 2.75 2.75
------------------------------------------------------------------------
<FN>
* The principal value of money market mutual funds is uninsured
and designed to be fixed, while distributions vary daily. The
principal value on passbook savings and bank CDs are generally insured
up to certain limits by state and federal agencies. Unlike money
market funds, early withdrawals from bank CDs may be subject to
substantial penalties. Investment returns will fluctuate.
** Assumes maximum 39.6% federal tax rate.
Sources: Bank of Boston (passbook savings), Bank Rate Monitor (3-month
CDs), IBC/Donaghue's Money Fund Report (taxable money market fund
7-day compound yield).
</TABLE>
5
<PAGE> 6
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's
performance. Total return shows how the value of your investment
changed over time, assuming you held the shares through the entire
period and reinvested all distributions back into the fund. We
show total return in two ways: on a cumulative long-term basis and on
average how the fund might have grown each year over varying periods.
For comparative purposes, we show how the fund performed relative to
appropriate indexes and benchmarks.
<TABLE>
TOTAL RETURN FOR PERIODS ENDING 9/30/94
<CAPTION>
LIPPER
TAX EXEMPT
FUND SHARES MONEY MARKET
AT NAV AVERAGE CPI
<S> <C> <C> <C>
1 year 1.93% 2.07% 2.96%
------------------------------------------------------------------
5 years 18.31 18.39 19.52
Annual average 3.42 3.43 3.63
------------------------------------------------------------------
Life of fund (since 10/26/87) 30.75 30.58 29.58
Annual average 3.94 3.93 3.81
</TABLE>
Performance data represent past results and should not be taken as an
assurance of future performance. Investment returns will fluctuate. An
investment in the fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the fund will be able to
maintain a stable net asset value of $1.00 per share.
However, since the fund's inception on October 26, 1987, no investor
has ever lost a penny of net asset value.
TERMS AND DEFINITIONS
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus
any liabilities, divided by the number of outstanding shares.
COMPARATIVE BENCHMARKS
Lipper Tax Exempt Money Market Fund Average is an arithmetic average
of the total return of all tax-exempt money market mutual funds
tracked by Lipper Analytical Services. Lipper is an independent rating
organization for the mutual fund industry. Lipper rankings vary for
other periods. The fund's holdings do not match those in the Lipper
Average.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
6
<PAGE> 7
LIFE CYCLE INVESTING
As we move through life, our investment needs change. As these needs
change, so does the way we allocate our assets. Here are some basic
rules for setting up and maintaining an investment program.
- DETERMINE YOUR INVESTMENT OBJECTIVES.
Objectives may include a new home, college education expenses,
or retirement.
- EVALUATE YOUR RISK TOLERANCE.
Generally, risk tolerance is higher for younger investors with longer
timelines and lower for older investors who may depend on their
investment for current income.
- ALLOCATE YOUR INVESTABLE SAVINGS.
Your investment advisor will help you determine how much of your
investable dollars should be allocated to each investment category.
- CHOOSE THE APPROPRIATE PUTNAM FUNDS.
Using Putnam's free exchange privilege between the same classes of
shares, you can adjust your own Putnam portfolio of funds as your
financial needs change.*
Turn the page for a complete list of the Putnam Family of Funds.
* Putnam reserves the right to change or terminate the exchange
privilege. In some cases, a sales charge may apply. See prospectus for
details.
7
<PAGE> 8
<TABLE>
PUTNAM FAMILY OF FUNDS
<S> <C>
PUTNAM GROWTH FUNDS PUTNAM TAX-FREE FUNDS
Asia Pacific Growth Fund Intermediate Tax Exempt Fund
Diversified Equity Trust Municipal Income Fund
Europe Growth Fund Tax Exempt Income Fund
Global Growth Fund Tax-Free High Yield Fund
Health Sciences Trust Tax-Free Insured Fund
Investors Fund
Natural Resources Fund* STATE TAX-FREE FUNDS+
New Opportunities Fund Arizona, California, Florida,
OTC Emerging Growth Fund Massachusetts, Michigan, Minnesota, New Jersey,
Overseas Growth Fund New York, Ohio, and Pennsylvania
Vista Fund
Voyager Fund LIFESTAGE[SM] FUNDS
Putnam Asset Allocation Funds--three investment
PUTNAM GROWTH portfolios that spread your money across a variety
AND INCOME FUNDS of stocks, bonds, and money market investments to
Convertible Income-Growth Trust help maximize your return and reduce your risk.
Dividend Growth Fund The three portfolios:
Equity Income Fund Putnam Asset Allocation: Balanced
The George Putnam Fund of Boston Portfolio
The Putnam Fund for Growth Putnam Asset Allocation: Conservative
and Income Portfolio
Managed Income Trust Putnam Asset Allocation: Growth
Utilities Growth and Income Fund Portfolio
PUTNAM INCOME FUNDS MOST CONSERVATIVE INVESTMENTS++
Adjustable Rate U.S. Government Fund PUTNAM MONEY MARKET FUNDS:
American Government Income Fund
Balanced Government Fund Money Market Fund [S]
Corporate Asset Trust Tax Exempt Money Market Fund
Diversified Income Trust California Tax Exempt Money Market
Federal Income Trust Fund
Global Governmental Income Trust New York Tax-Exempt Money Market
High Yield Advantage Fund Fund
High Yield Trust
Income Fund CDS AND SAVINGS ACCOUNTS**
U.S. Government Income Trust
<FN>
* Formerly Energy-Resources Trust.
+ Not available in all states.
++ Relative to above.
Please call your financial advisor or [S] Formerly Daily Dividend Trust.
Putnam to obtain a prospectus for any ** Not offered by Putnam Investments. Certificates
Putnam fund. It contains more complete of deposit offer a fixed rate of return and may be
information, including charges and insured, up to certain limits, by federal/state
expenses. Read it carefully before you agencies. Savings accounts may also be insured up
invest or send money. to certain limits.
</TABLE>
8
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
for the fiscal year ended September 30, 1994
To the Trustees and Shareholders of
Putnam Tax Exempt Money Market Fund
We have audited the accompanying statement of assets and liabilities
of Putnam Tax Exempt Money Market Fund, including the portfolio of
investments owned, as of September 30, 1994, and the related statement
of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended, and the
"Financial Highlights" for each of the six years in the period then
ended and for the period October 26, 1987 (commencement of operations)
to September 30, 1988. These financial statements and "Financial
Highlights" are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and "Financial Highlights" based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and "Financial Highlights" are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1994 by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and "Financial Highlights"
referred to above present fairly, in all material respects, the
financial position of Putnam Tax Exempt Money Market Fund as of
September 30, 1994, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended, and the "Financial Highlights" for each of the
six years in the period then ended and for the period October 26, 1987
(commencement of operations) to September 30, 1988, in conformity with
generally accepted accounting principles.
Coopers & Lybrand LLP
Boston, Massachusetts
November 2, 1994
9
<PAGE> 10
<TABLE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1994
<CAPTION>
MUNICIPAL BONDS AND NOTES (90.0%) (A)
PRINCIPAL AMOUNT RATINGS (B) VALUE
<S> <C> <C> <C>
ARIZONA (2.3%)
- --------------------------------------------------------------------------------------------------
$1,800,000 Yavapai Cnty. Indl. Dev. Auth. Variable Rate
Demand Note (VRDN) (Kachina Pointe Project)
3.7s, 1/1/09 (Swiss Bank Corp. Letter of Credit
(LOC)) VMIG1 $ 1,800,000
500,000 Yuma Indl. Dev. Auth. VRDN, Alternative
Minimum Tax (AMT) (Ardco Inc. Project), 2s,
7/1/02 (Harris Trust and Savings Bank (LOC)) A-1+ 500,000
-----------
2,300,000
CALIFORNIA (17.8%)
- --------------------------------------------------------------------------------------------------
2,000,000 CA Public Cap. Impts. Fing. Auth. VRDN Ser.
C, 3.45s, 6/1/28 (National Westminster Bank
USA (LOC)) VMIG1 2,000,000
3,000,000 LA Cnty. Local Edl. Agy. Tax & Rev Antic.
Notes 4.5s, 7/6/95 MIGI 3,016,554
3,500,000 Orange Cnty Tax & Rev. Antic. Notes Ser. A
4.5s, 7/19/95 MIG1 3,520,198
4,000,000 Orange Cnty Var Sanitation Dists. Ctfs. Partn
Notes VRDN, 3.45s, 8/1/15 (National
Westminster Bank USA (LOC)) A-1+ 4,000,000
4,000,000 Pomona CA Redv. Agcy. Multi-Fam. VRDN
(Bauer Group Apts.) 3.85s, 12/01/07 A-1+ 4,000,000
1,000,000 Fontana CA Ctfs. of Partn. VRDN (Empire
Center Proj.) 3.7s, 7/1/21(Sakura Bank (LOC)) A-1 1,000,000
-----------
17,536,752
COLORADO (6.4%)
- --------------------------------------------------------------------------------------------------
4,000,000 Arapahoe Cnty. CO Cap. Impt. Trust Fund Hwy.
VRDN Ser. M, 3.9s, 8/31/26 SP-1+ 4,000,000
800,000 Lakewood , Multi- Fam. Hsg. VRDN 3.2s,
10/1/07 ( Dai Ichi Kangyo Bank(LOC)) VMIG1 800,000
1,500,000 Northglen Indl. Dev. Rev. Rfdg.- Castle
Garden VRDN 3.7s, 1/1/09 ( Swiss Bank
Corp.(LOC)) VMIG1 1,500,000
-----------
6,300,000
GEORGIA (3.6%)
- --------------------------------------------------------------------------------------------------
2,500,000 Atlanta Urban Residential Fin. Auth. VRDN
(Multi-Fam. Mtg), 3.25s, 12/1/08 (The Sanwa
Bank, LTD.(LOC)) A-1+ 2,500,000
1,000,000 De Kalb Cnty. Hsg. Auth. Multi-Fam. VRDN
(Wood Hills Apt. Project), 3.75s, 12/1/07 (Bank
of Montreal (LOC)) A-1+ 1,000,000
-----------
3,500,000
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (90.0%) (A)
PRINCIPAL AMOUNT RATINGS (B) VALUE
<S> <C> <C> <C>
ILLINOIS (0.8%)
- --------------------------------------------------------------------------------------------------
$ 800,000 IL Health Facs. Auth. VRDN (Midwest Cambridge
Project) 2.85s, 1/1/15 (Fleet National Bank (LOC)) P-1 $ 800,000
INDIANA (4.1%)
- --------------------------------------------------------------------------------------------------
2,000,000 IN State Dev. Fin. Auth. Indl. VRDN Ser. B,
(Red Gold, Inc. Project), 3.8s, (AMT), 6/30/09
(Harris Trust & Savings Bank (LOC)) A-1+ 2,000,000
2,000,000 Mount Vernon, Poll. Control VRDN (Southern
In Gas & Elec. Co), Ser A, 3.5s, 5/1/15 AA 2,000,000
-----------
4,000,000
IOWA (1.2%)
- --------------------------------------------------------------------------------------------------
1,135,000 DesMoines, Private College VRDN (U of
Osteopathic Med & Health), 3.15s, 5/15/15
(Lloyds Bank PLC (LOC)) A-1+ 1,135,000
KENTUCKY (4.6%)
- --------------------------------------------------------------------------------------------------
1,514,000 Jefferson Cnty ., Indl. Dev. VRDN 3.15s,
12/1/14 (Chemical Bank (LOC)) A-1 1,514,000
3,000,000 Ohio Cnty., Poll. Control VRDN 3.85s,
10/1/15 (Chemical Bank (LOC)) P-1 3,000,000
-----------
4,514,000
LOUISIANA (4.2%)
- --------------------------------------------------------------------------------------------------
3,000,000 LA State Recvy. Dist. Sales Tax VRDN
Municipal Bond Insurance Association (MBIA),
3.6s, 7/1/98 (Swiss Bank Corp. (SPA)) VMIG1 3,000,000
1,170,000 Orleans, Levee Dist. Impt. VRDN 3.95s,
11/1/14 (Fuji Bank (LOC)) VMIG1 1,170,000
-----------
4,170,000
MAINE (2.0%)
- --------------------------------------------------------------------------------------------------
2,000,000 ME State Tax Antic. Notes 4.5s, 6/30/95 VMIG1 2,011,536
MICHIGAN (1.9%)
- --------------------------------------------------------------------------------------------------
1,900,000 MI State Job Dev. Auth. VRDN 3s, 12/1/14 (First
Bank N.A. (LOC)) A-1 1,900,000
MINNESOTA (6.2%)
- --------------------------------------------------------------------------------------------------
3,600,000 Duluth Tax Increment VRDN (Lake Superior
Paper), 3.75s, 9/1/10 (National Australia Bank
Ltd. (LOC)) VMIG1 3,600,000
1,000,000 Golden Valley Indl. Dev. VRDN (Unicare Homes
Project) 3.75s, 9/1/14 (Banque Paribas (LOC)) VMIG1 1,000,000
1,500,000 St. Louis Park, Indl. Dev. VRDN (Unicare Homes
Project), 3s, 8/1/14 (Banque Paribas (LOC)) A-1 1,500,000
-----------
6,100,000
NEW HAMPSHIRE (3.8%)
- --------------------------------------------------------------------------------------------------
3,700,000 NH Higher Ed. & Health Fac. Auth. VRDN (VHA
New England Inc.), American Municipal Bond
Assurance Corp. (AMBAC) Ser. F, 3.7s, 12/1/25 AAA 3,700,000
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (90.0%) (A)
PRINCIPAL AMOUNT RATINGS (B) VALUE
<S> <C> <C> <C>
NEW YORK (4.5%)
- --------------------------------------------------------------------------------------------------
$2,000,000 NY State Energy Research & Dev. Auth. VRDN
(Niagra Pwr. Corp. Project B), (AMT), 3.8s,
7/1/27 (Morgan Gty. (LOC)) A-1+ $ 2,000,000
2,400,000 NY State Energy Research & Dev. Auth. VRDN
(Niagra-Mohawk Pwr) Ser. A, 3.8s, (AMT),
12/1/23 (Morgan Gty. (LOC)) A-1+ 2,400,000
-----------
4,400,000
OHIO (3.0%)
- --------------------------------------------------------------------------------------------------
3,000,000 Ohio Hsg. Fin. Agy. VRDN (Multi-Fam Hsg.
Project A) 3.3s, 12/1/24 FSA Insured A-1 3,000,000
OKLAHOMA (4.2%)
- --------------------------------------------------------------------------------------------------
2,700,000 OK State Wtr. Res. Board State Loan Program
VRDN Ser. A, 3.85s, 9/1/23 A-1+ 2,700,000
1,465,000 Tulsa Cnty. Indl. Auth. Hlth. Care VRDN
(Laureate Psychiatric Project), 3.25s, 12/15/08 A-1+ 1,465,000
-----------
4,165,000
OREGON (1.0%)
- --------------------------------------------------------------------------------------------------
1,000,000 Klamath Falls Elec. Rev. VRDN (Salt Caves
Hydroelec.) 3.75s, 5/1/23 SP-1+ 1,000,000
PENNSYLVANIA (2.0%)
- --------------------------------------------------------------------------------------------------
2,000,000 Allegheny Cnty., Hosp. Dev. Auth. VRDN
(Presbyterian Univ. Hosp.), 2.85s, 3/1/18
(Pittsburgh National Bank (LOC)) VMIG1 2,000,000
SOUTH DAKOTA (3.0%)
- --------------------------------------------------------------------------------------------------
2,940,000 Rapid City, Economic Dev. VRDN (Civic Ctr.
Assn. Partnership), 3.55s, 12/1/16 (Citibank,
N.A. LOC)) P-1 2,940,000
TENNESSEE (4.1%)
- --------------------------------------------------------------------------------------------------
4,000,000 Clarksville Pub. Bldg. Auth. VRDN 3.7s, 6/1/24
(Nations Bank of Tennessee (LOC)) A-1 4,000,000
TEXAS (4.9%)
- --------------------------------------------------------------------------------------------------
2,310,000 Amarillo Indl. Dev. Corp. VRDN (Safeway Inc.
Project), 3.9s, 4/1/03 (Bankers Trust Co. (LOC)) A-1+ 2,310,000
2,500,000 Bexar Cnty, Hsg. Fin. Corp. VRDN Ser. A, 3.95s,
11/1/06 (Sakura Bank Ltd. (LOC)) A-1 2,500,000
-----------
4,810,000
WISCONSIN (4.4%)
- --------------------------------------------------------------------------------------------------
4,300,000 Alma, Poll. Ctl. VRDN (Dairyland Pwr. Project),
3s, 2/1/15 (RaboBank Nederland (LOC)) P-1 4,300,000
-----------
TOTAL MUNICIPAL BONDS AND NOTES
(cost $ 88,582,288) $88,582,288
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
MUNICIPAL COMMERICAL PAPER (9.7%) (A)
PRINCIPAL AMOUNT RATINGS (B) VALUE
<S> <C> <C> <C>
$2,000,000 Hillsboro Cnty., FL 3.1s, 10/11/94
(National Westminster Bank (LOC)) A-1+ $ 2,000,000
500,000 Lone Star, TX Arpt. Impt. Auth. Rev. Bonds 3.15s,
10/18/94 (Bank of New York (LOC)) VMIG1 500,000
1,600,000 Orange Cnty., CA Apt. Rev. Bonds 3.1s, 10/3/94
(Citibank (LOC)) VMIG1 1,600,000
3,000,000 Texas State G.O. Bonds, 3.05s, 12/1/94 VMIG1 3,000,000
2,400,000 W. Orange, FL Tax Dist. Rev. Bond (FL Memorial
Hosp.) 3s, 10/5/94 (Societe Generale (LOC)) VMIG1 2,400,000
-----------
TOTAL MUNICIPAL COMMERCIAL PAPER
(cost $9,500,000) $ 9,500,000
-----------
TOTAL INVESTMENTS
(cost $ 98,082,288)(c) $98,082,288
-----------
<FN>
NOTES
- -------------------------------------------------------------------------------------------
(a) Percentages indicated are based on total net assets of $98,397,327,
which correspond to a net asset value per share of $1.00.
(b) The Moody's or Standard & Poor's ratings indicated are believed to be
the most recent ratings available at September 30, 1994 for the
securities listed. Ratings are generally ascribed to securities at the
time of issuance. While the agencies may from time to time revise such
ratings, they under-take no obligation to do so, and the ratings do not
necessarily represent what the agencies would ascribe to these securities
at September 30, 1994. Securities rated by Putnam are indicated by "/P"
and are not publicly rated. Ratings are not covered by the report of
Independent Accountants.
Moody's Investors Services, Inc. and Standard & Poor's Corp. are
the leading independent rating agencies for debt securities. Moody's uses
the designation "Moody's Investment Grade," or "MIG" for most short-term
municipal obligations, adding a "V" ("VMIG") for bonds with a demand or
variable feature; the designation "P" is used for tax-exempt commercial
paper. Standard & Poor's uses "SP" for notes maturing in three years or
less, "A" for bonds with a demand or variable feature.
Moody's Investors Services, Inc.
MIG/VMIG1 = Best quality; strong protection of cash flow, superior quality and
broad access to refinancing
MIG/MVIG2 = High quality; ample protection of cash flow, liquidity support and
ability to refinance.
AAA = Capacity to pay interest and repay principal is extremely strong
AA = Strong capacity to pay interest and repay principal and differs from the
higher rated issues only in a small degree
Standard & Poor's Corp.
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
SP-1 = Overwhelming safety characteristics
SP-2 = Strong capacity to pay principal and interest
A-1+ = Overwhelming degree of credit protection
A-1 = Strong degree of safety
A-2 = Considered strong but lacks solid strength for timely repayment
(c) The aggregate identified cost on a tax basis is the same.
</TABLE>
The rates shown on Variable Rate Demand Notes (VRDN) are the current
interest rates at September 30, 1994, which are subject to change based
on the terms of the security.
13
<PAGE> 14
The Fund had the following industry group concentrations greater than
10% at September 30, 1994 (as a percentage of net assets):
Utilities 14.9%
Health Care 14.6
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 15
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1994
<S> <C>
ASSETS
- ---------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $98,082,288
- ---------------------------------------------------------------------------
Cash 19,810
- ---------------------------------------------------------------------------
Interest and other receivables 440,044
- ---------------------------------------------------------------------------
Receivable for shares of the fund sold 166,539
- ---------------------------------------------------------------------------
TOTAL ASSETS 98,708,681
LIABILITIES
- ---------------------------------------------------------------------------
Distributions payable to shareholders $ 16,629
- ---------------------------------------------------------------------------
Payable for shares of the fund repurchased 119,746
- ---------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 110,822
- ---------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,497
- ---------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,665
- ---------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 17,634
- ---------------------------------------------------------------------------
Other accrued expenses 38,361
- ---------------------------------------------------------------------------
TOTAL LIABILITIES 311,354
- ---------------------------------------------------------------------------
NET ASSETS $98,397,327
- ---------------------------------------------------------------------------
Represented by Paid-in capital (Note 4) $98,397,327
- ---------------------------------------------------------------------------
Net asset value, offering price and redemption price
per share ($98,397,327 divided by 98,397,327 shares) $1.00
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 16
<TABLE>
STATEMENT OF OPERATIONS
Year ended September 30, 1994
<S> <C>
- ---------------------------------------------------------------------------
TAX EXEMPT INTEREST INCOME $2,373,535
EXPENSES:
- ---------------------------------------------------------------------------
Compensation of Manager (Note 2) $ 398,614
- ---------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 65,779
- ---------------------------------------------------------------------------
Compensation of Trustees (Note 2) 11,099
- ---------------------------------------------------------------------------
Registration 55,616
- ---------------------------------------------------------------------------
Reports to shareholders 19,998
- ---------------------------------------------------------------------------
Auditing 14,533
- ---------------------------------------------------------------------------
Legal 21,603
- ---------------------------------------------------------------------------
Postage 18,403
- ---------------------------------------------------------------------------
Administrative services (Note 2) 6,201
- ---------------------------------------------------------------------------
Distribution fees (Note 2) 18,293
- ---------------------------------------------------------------------------
Other 2,023
- ---------------------------------------------------------------------------
TOTAL EXPENSES 632,162
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME 1,741,373
- ---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,741,373
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE> 17
<TABLE>
STATEMENT OF CHANGES OF NET ASSETS
<CAPTION>
Year ended September 30
----------------------------
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
- ---------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------
Net investment income $ 1,741,373 $ 1,467,365
- ---------------------------------------------------------------------------
Net realized gain on investments -- 3,603
- ---------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,741,373 1,470,968
- ---------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (1,741,373) (1,470,968)
- ---------------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) 17,321,543 (744,101)
- ---------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 17,321,543 (744,101)
NET ASSETS
- ---------------------------------------------------------------------------
Beginning of year 81,075,784 81,819,885
- ---------------------------------------------------------------------------
END OF YEAR $98,397,327 $81,075,784
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
<TABLE>
FINANCIAL HIGHLIGHTS*
(For a share outstanding throughout the period)
<CAPTION>
Year ended September 30
---------------------------------------------
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------
Net Investment Income $.0191 $ .0184 $ .0297(a)
- ----------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments -- -- --
- ----------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0191 .0184 .0297
- ----------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.0191) (.0184) (.0297)
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) 1.93 1.85 3.02
- ----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $98,397 $81,076 $81,820
- ----------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) .71(d) .99 .87(a)
- ----------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets (%) 1.97(d) 1.85 2.99(a)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
For the period
October 26, 1987
(commencement of
operations) to
September 30
----------------------------------------------------------------
1991 1990 1989 1988
----------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income $ .0462(a) $ .0548(a) $ .0578(a) $ .0424(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net Realized Gain (Loss) on Investments (.0001) -- -- .0002
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS .0461 .0548 .0578 .0426
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.0461) (.0548) (.0578) (.0426)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE (%) (b) 4.74 5.61 5.92 4.35(c)
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $100,077 $111,705 $98,867 $83,336
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets (%) .79(a) .68(a) .69(a) .58(a)(c)
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of Net Investment Income to Average Net Assets (%) 4.62(a) 5.45(a) 5.79(a) 4.29(a)(c)
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
* Financial highlights for periods ended through September 30, 1992 have been
restated to conform with requirements issued by the SEC in April 1993.
(a) Reflects a voluntary expense limitation, and, during the period ended
September 30, 1988, a waiver of a portion of distribution fees in effect
during the period. As a result of such limitation and waiver, expenses of the
fund for the years ended September 30, 1992, 1991, 1990, 1989 and the period
ended September 30, 1988 reflect per share reductions of approximately
$0.0029, $0.0030, $0.0034, $0.0035 and $0.0047, respectively. See Note 2.
(b) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Not Annualized.
(d) See Note 2.
</TABLE>
19
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
September 30, 1994
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
The fund is registered under the Investment Company Act of 1940, as amended,
as a diversified, open-end management investment company. The fund seeks as
high a level of current income exempt from federal income tax as is
consistent with maintenance of liquidity and stability of principal by
investing primarily in a diversified portfolio of short-term tax exempt
securities.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A SECURITY VALUATIONS The valuation of the fund's portfolio instruments is
determined by means of the amortized cost method as set forth in Rule 2a-7
under the Investment Company Act of 1940. The amortized cost of an instrument
is determined by valuing it at cost originally and thereafter amortizing any
discount or premium from its face value at a constant rate until maturity.
B SECURITY TRANSACTIONS Security transactions are accounted for on the trade
date (date the order to buy or sell is executed).
C FEDERAL TAXES It is the policy of the fund to distribute all of its 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 subject to Section 4982 of the Internal Revenue
Code of 1986. Therefore, no provision has been made for federal or excise
taxes on income and capital gains.
At September 30, 1994, the fund had a capital loss carryover of approximately
$2,000 which may be available to offset realized capital gains to the extent
provided by regulations. This amount will expire September 30, 2000. To the
extent that capital loss carryovers are used to offset capital gains, it is
unlikely that capital gains will be distributed to shareholders, since any
distribution might be taxable as ordinary income.
D INTEREST INCOME AND DISTRIBUTIONS TO SHAREHOLDERS Interest is recorded on the
accrual basis. Income distributions (and distributions of capital gains,
if any) are recorded daily by the fund and distributed monthly to the
shareholders.
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 losses
on wash sales transactions, realized and unrealized gains and losses on
futures, options and forward currency contracts, realized gains and losses on
foreign exchange transactions, post-October losses, payment-in-kind income,
market discount and defaulted interest income. 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.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment
20
<PAGE> 21
Management, Inc., "Putnam Management" the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc., for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.45% of the first $500 million of
average net assets, 0.35% of the next $500 million, 0.30% of the next $500
million, and 0.25% of any amount over $1.5 billion, subject to reduction in any
year by the amount of certain brokerage commissions and fees (less expenses)
received by affiliates of the Manager on the fund's portfolio transactions.
The fund also reimburses the Manager for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees. For the year ended
September 30, 1994, the fund paid $6,201 for these services.
Trustees of the fund receive an annual Trustee's fee of $630 and an
additional fee for each Trustees' meeting attended. Trustees who are not
interested persons of the Manager and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
Custodial functions for the fund are provided by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a division of PFTC.
Fees paid for these investor servicing and custodial functions for the year
ended September 30, 1994 amounted to $65,779.
Investor servicing and custodian fees reported in the statement of operations
for the year ended September 30, 1994 have been reduced by credits allowed
by PFTC, and such credits amounted to $216,991.
Pursuant to the fund's underwriting agreement and to a distribution plan adopted
under Rule 12b-1 of the Investment Company Act of 1940, the fund paid Putnam
Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., a
quarterly distribution fee at the annual rate of 0.10% of the average broker net
assets of the fund. For the period ended December 31, 1993, the fund paid
distribution fees in the amount of $18,293. As of January 1, 1994, the Trustees
of the fund voted to stop making payments under the fund's distribution
plan.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1994, purchases and sales (including
maturities) of investment securities (all short-term obligations) aggregated
$476,723,682 and $459,427,500, respectively. In determining the net gain or
loss on securities sold, the cost of securities has been determined on the
identified cost basis.
<TABLE>
NOTE 4
CAPITAL SHARES
At September 30, 1994, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares, at a constant net asset
value of $1.00 per share, were as follows:
<CAPTION>
YEAR ENDED SEPTEMBER 30
1994 1993
- ---------------------------------------------------------
<S> <C> <C>
Shares sold 608,686,024 324,783,397
- ---------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,581,308 1,511,810
- ---------------------------------------------------------
610,267,332 326,295,207
Shares
repurchased (592,945,789) (327,039,308)
- ---------------------------------------------------------
NET INCREASE
(DECREASE) 17,321,543 (744,101)
- ---------------------------------------------------------
</TABLE>
21
<PAGE> 22
NOTE 5
RECLASSIFICATION OF
CAPITAL ACCOUNTS
Effective October 1, 1993, The Putnam Tax Exempt Money Market Fund has
adopted the provisions of AICPA Statement of Position (SOP) 93-2
"Determination, Disclosure and Financial Statement Presentation of Income
Capital Gain and Return of Capital Distributions, by Investment Companies."
The purpose of this SOP is to report the accumulated net investment income
(loss) and accumulated net realized gain (loss) accounts in such a manner as
to approximate amounts available for future distribution (or to offset future
realized capital gains) and to achieve uniformity in the presentation of
distributions by investment companies.
There were no cumulative reclassifications required as a result of the
adoption of the SOP.
- ------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
The fund has designated all dividends paid during the fiscal year as
exempt-interest dividends. Thus, 100% of these distributions are exempt from
federal income tax. Investors who receive Social Security benefits should
consult a tax advisor to determine what effect, if any, the fund's income has
on the taxation of benefits. An investment in the fund may be subject to
state, local or the alternative minimum tax. Distributions of capital gains,
if any, are taxable.
22
<PAGE> 23
<TABLE>
FUND INFORMATION
<S> <C>
INVESTMENT MANAGER OFFICERS
Putnam Investment Management, Inc. George Putnam
One Post Office Square President
Boston, MA 02109
Charles E. Porter
MARKETING SERVICES Executive Vice President
Putnam Mutual Funds Corp.
One Post Office Square Patricia C.Flaherty
Boston, MA 02109 Senior Vice President
CUSTODIAN Lawrence J. Lasser
Putnam Fiduciary Trust Company Vice President
LEGAL COUNSEL Gordon H. Silver
Ropes & Gray Vice President
INDEPENDENT Gary N. Coburn
ACCOUNTANTS Vice President
Coopers & Lybrand LLP
William F. McGue
TRUSTEES Vice President
George Putnam, Chairman
William F. Pounds, Vice Chairman Lindsey M. Callen
Jameson Adkins Baxter Vice President and Fund Manager
Hans H. Estin
John A. Hill William N. Shiebler
Elizabeth T. Kennan Vice President
Lawrence J. Lasser
Robert E. Patterson John R. Verani
Donald S. Perkins Vice President
George Putnam, III
A.J.C. Smith Paul M. O'Neil
W. Nicholas Thorndike Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
<FN>
This report is for the information of shareholders of Putnam Tax Exempt Money
Market Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales charges,
investment objectives, and operating policies of the fund, and the most recent
copy of Putnam's Quarterly Performance Summary. For more information or to
request a prospectus, call toll-free: 1-800-225-1581.
</TABLE>
23
<PAGE> 24
PUTNAM INVESTMENTS -------------
Bulk Rate
THE PUTNAM FUNDS U.S. Postage
One Post Office Square PAID
Boston, Massachusetts 02109 Putnam
Investments
-------------
062-14784
