PUTNAM
TAX EXEMPT
MONEY MARKET
FUND
ANNUAL REPORT
September 30, 1995
[LOGO]
BOSTON * LONDON * TOKYO
<PAGE>
PERFORMANCE HIGHLIGHTS
"In just five years, total assets of money funds have grown by 72%,
and in the not too distant future, assets should break the elusive $1
trillion barrier. . . . There are many factors contributing to asset
growth. One of the most important has been the tremendous acceptance
of money funds as a viable cash alternative to traditional market
securities."
- -- IBC Money Market Insight, September 1995
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 exempt from federal income tax,
consistent with capital preservation, stable principal, and liquidity.
FISCAL 1995 RESULTS AT A GLANCE
<TABLE><CAPTION>
<S> <C> <C> <C>
TOTAL RETURN: NAV
- ----------------------------------------------------------------------
12 months ended 9/30/95
(change in value during
period plus reinvested
distributions) 3.16%
- ----------------------------------------------------------------------
DISTRIBUTIONS: NO. INCOME TOTAL
- ----------------------------------------------------------------------
12 $0.031155 $0.031155
- ----------------------------------------------------------------------
CURRENT RETURN
(end of period): NAV
- ----------------------------------------------------------------------
Current 7-day SEC yield(1) 3.19%
Taxable equivalent(2) 5.28
Current 30-day SEC yield(1) 3.04
Taxable equivalent(2) 5.03
- ----------------------------------------------------------------------
<FN>
Performance data represent past results. For performance over longer
periods, see page 7. (1)The 7- 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. 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.
</TABLE>
<PAGE>
FROM THE CHAIRMAN
[PHOTO OF GEORGE PUTNAM]
(C) KARSH, OTTAWA
DEAR SHAREHOLDER:
PUTNAM TAX EXEMPT MONEY MARKET FUND ENDS ONE FISCAL YEAR AND BEGINS
ANOTHER IN ONE OF THE MOST LIVELY BOND MARKETS IN YEARS. INFLATION
APPEARS TO HAVE PEAKED AT 3%, A LOWER LEVEL THAN IN THE MID-1980S.
WITH MODEST GROWTH, IT COULD FALL LOWER, MAKING REAL YIELDS EVEN MORE
ATTRACTIVE THAN THEY ARE NOW.
THIS FAVORABLE ENVIRONMENT BELIES THE CHALLENGES YOUR FUND FACED
DURING THE 12 MONTHS ENDED SEPTEMBER 30, 1995, AS THE ECONOMY SLOWED
AND INTEREST RATES -- ESPECIALLY SHORT-TERM RATES -- BEGAN A DESCENT.
THE DECLINE IN SHORT-TERM RATES WAS FORESHADOWED WHEN THE FEDERAL
RESERVE BOARD OPTED NOT TO ADJUST RATES UPWARD IN FEBRUARY AND THEN
WAS CONFIRMED AS THE FED ACTUALLY LOWERED RATES IN JULY.
FUND MANAGER LINDSEY STRONG'S CHALLENGE IN THIS ENVIRONMENT WAS TO
STAY AHEAD OF THE TREND, WHICH SHE DID BY EXTENDING THE AVERAGE
MATURITY OF THE SECURITIES IN THE PORTFOLIO. SHE MADE THE MOVE BEFORE
THE FED'S JULY RATE CUT, THUS HELPING THE FUND MAINTAIN ITS
COMPETITIVE EDGE. LINDSEY'S REPORT FOR FISCAL 1995 AND HER OUTLOOK FOR
THE MONTHS AHEAD APPEAR ON THE FOLLOWING PAGES.
RESPECTFULLY YOURS,
[SIGNATURE}
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
NOVEMBER 15, 1995
<PAGE>
REPORT FROM THE FUND MANAGER
LINDSEY C. STRONG
The 12-month period that ended September 30, 1995, marked another year
of solid performance for Putnam Tax Exempt Money Market Fund. Our
challenge during the period was to manage the fund in an environment
where the economy and the direction of interest rates changed course
rather dramatically. Throughout the period, we maintained an active
investment strategy of selecting high-quality, short-term instruments
for the portfolio, and this resulted in a steady stream of monthly tax-
exempt income and a stable price of $1.00 per share.
A CHANGED INVESTMENT ENVIRONMENT
During the last quarter of calendar 1994, economic growth remained
strong and concerns about increased inflation dominated the financial
markets. At that time, the Federal Reserve Board's anti-inflation
policy of periodically raising short-term interest rates was in full
force. Even as the Fed was raising rates for the last time in February
1995, the success of its anti-inflation policy was becoming apparent.
The growth in gross domestic product (GDP) slowed from 5.1% during the
fourth quarter of 1994 to 2.8% during the first quarter of 1995.
During the second quarter of 1995, GDP declined to 0.5%. By early
summer, recession fears began to mount, and in July, the Fed lowered
short-term interest rates from 6.0% to 5.75%. Toward the end of the
summer, leading economic indicators began to show signs of strength,
and recession concerns abated. However, the Fed took no other action.
CAPITALIZING ON INTEREST-RATE MOVES
As interest rates fluctuated during the period, our strategy centered
on maximizing income while at the same time maintaining a very high-
quality portfolio of securities. To this end, while interest rates
were rising, we shortened the average maturity of the portfolio. This
allowed us to take advantage of incrementally higher yields.
<PAGE>
When it became apparent that rates were unlikely to rise further, we
reversed our approach, seeking to lock in higher yields by lengthening
the average maturity of the portfolio. Finally, toward the end of the
fiscal year, as the direction of interest rates became somewhat
uncertain, we put the fund's average maturity in a more neutral
position. It is no longer as short as it was very early in the period,
nor is it as long as it was in the summer.
SECURITY SELECTION FOCUSED ON QUALITY
Typically, the supply of tax-exempt securities ebbs and flows
throughout the year. Because the fiscal year for many municipalities
begins in June or July, new issues of tax-exempt securities are
usually plentiful during the summer months. While new issuance of
securities has lagged that of previous years, we were still able to
find securities that measured up to our strict standards for high
quality and liquidity in a wide range of states and municipalities.
In selecting securities for the portfolio, we invested primarily in
variable rate demand notes (VRDNs). VRDNs pay variable interest rates
that reset at daily, weekly, or monthly intervals. Nearly 80% of your
fund's investments are insured or backed
PERFORMANCE COMPARISONS (9/30/95)
<TABLE><CAPTION>
<S> <C> <C>
CURRENT AFTER-TAX
RETURN* RETURN
- ----------------------------------------------------------------------
PASSBOOK SAVINGS ACCOUNT 2.01% 1.21%
- ----------------------------------------------------------------------
TAXABLE MONEY-MARKET FUND 7-DAY YIELD 5.35 3.23
- ----------------------------------------------------------------------
3-MONTH CERTIFICATE OF DEPOSIT (CD) 3.26 1.97
- ----------------------------------------------------------------------
PUTNAM TAX EXEMPT MONEY MARKET
FUND (7-DAY YIELD) 3.19 3.19
- ----------------------------------------------------------------------
<FN>
* The net asset value of money-market mutual funds is uninsured and
designed to be fixed, while distributions vary daily. The
principal values on passbook savings and bank CDs are generally
insured up to certain limits by state and federal agencies. CDs -
- unlike money-market funds, which incur more risk -- offer a
fixed rate of return. Unlike money-market funds, early
withdrawals from bank CDs may be subject to substantial
penalties. Investment returns will fluctuate. After-tax return is
based on a maximum 39.6% federal tax bracket.
Sources: Bank of Boston (passbook savings), Bank Rate Monitor (3-
month CDs), IBC/Donaghue's Money Fund Report (taxable money-
market fund 7-day yield). by bank letters of credit. These
features enhance the quality assurance of the securities in the
portfolio, even those rated in the highest categories by
nationally recognized rating services.
</TABLE>
<PAGE>
OUR OUTLOOK
Going forward, we will be monitoring the economic environment very
carefully. Because the Fed seems to have achieved its goal of low
inflation and a slowly growing economy, we believe interest rates
could decline modestly in the months ahead. However, we do not expect
to see extremely steep declines in rates such as the ones we
experienced in 1993.
Because your fund's average maturity is relatively neutral, we believe
it is well positioned to generate a relatively high amount of income
even if rates decline. In the months ahead, we will continue to seek a
competitive amount of income by investing in a well-diversified
portfolio of tax-exempt money market instruments. We will maintain our
emphasis on stability of principal, high quality, and liquidity.
The views expressed throughout the report are exclusively those of
Putnam Management and are not meant as investment advice. Although the
described holdings were viewed favorably as of 9/30/95, there is no
guarantee the fund will continue to hold these securities in the
future.
<PAGE>
PERFORMANCE SUMMARY
THIS SECTION PROVIDES, AT A GLANCE, INFORMATION ABOUT YOUR FUND'S
PERFORMANCE. TOTAL RETURN SHOWS HOW THE VALUE OF THE FUND'S SHARES
CHANGED OVER TIME, ASSUMING YOU HELD THE SHARES THROUGH THE ENTIRE
PERIOD AND REINVESTED ALL DISTRIBUTIONS BACK INTO THE FUND. WE SHOW
TOTAL RETURN IN TWO WAYS: ON A CUMULATIVE LONG-TERM BASIS AND ON
AVERAGE HOW THE FUND MIGHT HAVE GROWN EACH YEAR OVER VARYING PERIODS.
TOTAL RETURN FOR PERIODS ENDED 9/30/95
<TABLE><CAPTION>
<S> <C> <C> <C>
LIPPER
TAX EXEMPT CONSUMER
FUND SHARES MONEY MARKET PRICE
AT NAV AVERAGE INDEX
- ----------------------------------------------------------------------
1 year 3.16% 3.24% 2.54%
- ----------------------------------------------------------------------
5 years 15.56 15.75 15.45
Annual average 2.94 2.97 2.91
- ----------------------------------------------------------------------
Life of fund (10/26/87) 34.88 34.76 32.87
Annual average 3.85 3.84 3.65
- ----------------------------------------------------------------------
<FN>
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.
</TABLE>
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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended September 30, 1995
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, 1995, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each for the two years in the period then ended, and the
financial highlights for each of the periods indicated therein. 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, 1995 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, 1995, 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
periods indicated therein, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 10, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
September 30, 1995
MUNICIPAL BONDS AND NOTES (97.9%)*
<TABLE><CAPTION>
<S> <C> <C>
PRINCIPAL AMOUNT RATINGS** VALUE
ARKANSAS (4.1%)
- ----------------------------------------------------------------------
$3,000,000 University of AR Variable Rate
Demand Notes (VRDN) 4.35s, 12/1/19
(Credit Suisse Letter of Credit (LOC))VMIG1 $3,000,000
CALIFORNIA (10.3%)
- ----------------------------------------------------------------------
3,500,000 CA Public Cap. Impts. Fin. Auth.
VRDN Ser. C, 3.75s, 6/1/28 (
National Westminster Bank USA (LOC))VMIG1 3,500,000
4,000,000 Pomona CA Redev. Agcy. Multi-Fam.
VRDN (Bauer Group Apts.), 4.85s,
12/1/07 VMIG1 4,000,000
------------
7,500,000
COLORADO (1.1%)
- ----------------------------------------------------------------------
800,000 Lakewood, Multi-Fam. Hsg. VRDN 4.05s,
10/01/07 (Dai Ichi Kangyo Bank (LOC))VMIG1 800,000
GEORGIA (1.4%)
- ----------------------------------------------------------------------
1,000,000 De Kalb Cnty. Hsg. Auth. Multi-Fam.
VRDN (Wood Hills Apt. Project),
4.4s, 12/01/07 (Bank of Montreal (LOC))A-1+ 1,000,000
ILLINOIS (7.8%)
- ----------------------------------------------------------------------
3,000,000 Chicago IL Tender Notes Ser. A2,
VRDN 3.5s, 10/31/95 (Union Bank of
Switzerland (LOC)) VMIG1 3,000,000
1,940,000 Elmhurst IL Rev. Notes VRDN
(Joint Comm. Accred.), 4.4s, 7/01/18
(The Sanwa Bank (LOC)) A-1+ 1,940,000
800,000 IL Hlth. Facs. Auth. VRDN (Midwest
Cambridge Project), 3.9s, 1/1/15
(National Westminster Bank (LOC)) P-1 800,000
------------
5,740,000
INDIANA (2.1%)
- ----------------------------------------------------------------------
1,500,000 Indianapolis IN Multi-Fam. VRDN
(Canal Square Project), 4.25s,
12/1/15 (Societe Generale (LOC)) VMIG1 1,500,000
IOWA (2.7%)
- ----------------------------------------------------------------------
2,000,000 IA, Student Loan Ser. C, 6.125s,
12/1/95 AMBAC Indemnity Corp. AAA 2,005,826
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
KENTUCKY (8.7%)
- ----------------------------------------------------------------------
$1,950,000 Clark Cnty. Poll. Control VRDN
(Kentucky Pwr. Natural Resources)
4.15s, 10/15/14 VMIG1 $1,950,000
1,442,000 Jefferson Cnty. Indl. Dev.
VRDN 3.85s, 12/1/14 (Chemical Bank
(LOC)) A-1 1,442,000
3,000,000 Ohio Cnty. Poll. Control VRDN
(Big Rivers Elec.
Corp.), 4.55s, 10/1/15, (Chemical Bank (LOC)) P-1 3,000,000
------------
6,392,000
LOUISIANA (1.5%)
- ----------------------------------------------------------------------
1,130,000 Orleans, Levee Dist. Impt.
VRDN 4.5s, 11/1/14 (The Fuji Bank (LOC)) VMIG1
1,130,000
MICHIGAN (6.0%)
- ----------------------------------------------------------------------
1,900,000 MI State Job Dev. Auth. VRDN 3.85s,
12/1/14 (First Bank N.A. (LOC)) A-1 1,900,000
2,500,000 MI State Underground Storage Tank
Auth. VRDN Ser. I, 4.35s, 12/1/04
(Canadian Imperial Bank of
Commerce (LOC)) VMIG1 2,500,000
------------
4,400,000
MINNESOTA (2.1%)
- ----------------------------------------------------------------------
1,500,000 St. Louis Park, Indl. Dev. VRDN
(Unicare Homes Project), 3.9s, 8/1/14
(Banque Paribus (LOC)) A-1 1,500,000
MISSISSIPPI (8.8%)
- ----------------------------------------------------------------------
3,000,000 Jackson Cnty Poll. Control
VRDN (Chevron USA Project), 4.4s,
6/1/23 P-1 3,000,000
3,440,000 Jackson Cnty. VRDN (Wtr. System),
3.60s, 11/1/24 VMIG1 3,440,000
------------
6,440,000
NEW HAMPSHIRE (2.6%)
- ----------------------------------------------------------------------
1,900,000 NH ST Hsg. Auth. Mutli-Fam. Hsg.
VRDN (Fairways Project), 4.35s, 1/1/24
(General Electric Capital Corp. (LOC))VMIG1 1,900,000
NORTH DAKOTA (2.2%)
- ----------------------------------------------------------------------
1,600,000 Mercer Cnty. Solid Waste Disp. VRDN
(United Power Project) 3.95s,
12/1/18 VMIG1 1,600,000
OHIO (2.1%)
- ----------------------------------------------------------------------
1,500,000 Cleveland OH City Sch. Dist. Antic.
Notes 4.5s, 6/1/96 AMBAC Indemnity
Corp. AAA 1,509,272
<PAGE>
MUNICIPAL BONDS AND NOTES
PRINCIPAL AMOUNT RATINGS** VALUE
OKLAHOMA (3.1%)
- ----------------------------------------------------------------------
$2,300,000 Tulsa Cnty. Indl. Auth. Hlth. Care
VRDN (Laureate Psychiatric Project),
3.75s, 12/15/08 A-1+ $2,300,000
OREGON (7.8%)
- ----------------------------------------------------------------------
2,000,000 Klamath Falls Elec. Rev. VRDN
(Salt Caves Hydroelectric), 4.4s,
5/1/23 SP1+ 2,000,000
3,700,000 Portland OR Poll. Control VRDN
(Reynolds Metals) 4.1s, 12/1/09
(Bank of Nova Scotia (LOC)) P-1 3,700,000
------------
5,700,000
SOUTH DAKOTA (4.0%)
- ----------------------------------------------------------------------
2,915,000 Rapid City, Economic Dev. VRDN
(Civic Ctr. Assn. Partnership),
4.35s, 12/1/16 (Citibank, N.A. (LOC))P-1 2,915,000
TENNESSEE (5.5%)
- ----------------------------------------------------------------------
4,000,000 Clarksville Pub. Bldg. Auth. VRDN 4.45s,
6/1/24 (Nations Bank of Tennessee (LOC)) A-1
4,000,000
TEXAS (8.1%)
- ----------------------------------------------------------------------
4,000,000 Lone Star Arpt. Imp. Auth. VRDN
(Multi-Mode American Airlines)
4.75s, 12/1/14 (Royal Bank of Canada
(LOC)) VMIG1 4,000,000
1,900,000 Lower Neches Valley Auth. Poll.
Control (Chevron USA Project) 3.75s,
2/15/17 A-1+ 1,900,000
------------
5,900,000
WISCONSIN (5.9%)
- ----------------------------------------------------------------------
4,300,000 Alma, Poll. Cntl. VRDN (Dairyland Pwr.
Project), 3.9s, 2/1/15 (RaboBank
Nederland (LOC)) P-1 4,300,000
- ----------------------------------------------------------------------
TOTAL MUNICIPAL BONDS AND NOTES
(cost $71,532,098)
$71,532,098
- ----------------------------------------------------------------------
<PAGE>
MUNICIPAL COMMERCIAL PAPER (28.2%)*
PRINCIPAL AMOUNT RATINGS** VALUE
$3,000,000 Burke Cnty. GA Dev. Auth. Poll.
Control 3.7s, 10/25/95
(Credit Suisse (LOC) A-1+ $3,000,000
1,000,000 Chatom AL Indl. Dev. Poll. Control
3.7s, 10/3/95 A-1+ 1,000,000
2,500,000 Clairborne Cnty MS Poll. Control 3.6s,
11/7/95 A-1+ 2,500,000
1,140,000 Cornell TWP. MI EIndl. Dev. 4.15s, 10/2/95
(Credit Suisse (LOC)) A-1+ 1,140,000
2,000,000 Gillette WY Poll. Control 3.75s,
11/1/95 (Deutsche Bank AG (LOC)) P-1 2,000,000
2,000,000 Hillsboro Cnty. FL Aviation Auth.
3.75s, 10/02/95 (National Westminster
Bank PLC (LOC)) A-1+ 2,000,000
3,000,000 Montgomery AL Gas & Elec.
(General Electric Project) 4.15s,
10/31/95 A-1+ 3,000,000
2,000,000 Sunshine St Gov. Fing. Comm. FL 3.6s,
11/15/95 (Union Bank of Switzerland,
National Westminster Bank, Morgan
Guaranty (LOC)) VMIG1 2,000,000
1,200,000 Toledo Lucas Cnty. OH Port Auth.
3.85s, 11/16/95 (Bank of Nova Scotia
(LOC)) A-1+ 1,200,000
1,000,000 Venango PA Indl. Dev. Auth. 3.8s,
11/10/95 (National Westminster Bank
(LOC)) P-1 1,000,000
1,800,000 West Orange Cnty. FL Mem. Hosp. 3.8s,
10/11/95 (RaboBank Nederland (LOC)) VMIG1 1,800,000
- ----------------------------------------------------------------------
TOTAL MUNICIPAL COMMERCIAL PAPER
(cost $20,640,000) $20,640,000
- ----------------------------------------------------------------------
TOTAL INVESTMENTS (cost $92,172,098)*** $92,172,098
- ----------------------------------------------------------------------
<PAGE>
<FN>
NOTES
- ----------------------------------------------------------------------
* Percentages indicated are based on total net assets of
$73,066,188 which correspond to a net asset value per share of
$1.00.
** The Moody's or Standard & Poor's ratings are believed to be the
most recent ratings available at September 30, 1995, 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 September 30, 1995. Securities
rated by Putnam are indicated by "/P" and are not publicly rated.
These 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 Investor Services, Inc.
MIG1/VMIG1 = Best quality; strong protection of cash flows,
superior liquidity and broad access to refinancing
MIG2/VMIG2 = High quality, ample protection of cash flows,
liquidity support and ability to refinance
AAA = Strong capacity to pay interest and repay principal and
differs from the higher rated issues only in a small degree
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
Standard & Poor's Corp.
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
*** The aggregate identified cost on a tax basis is the same.
The rates shown on Variable Rate Demand Notes (VRDN) are the
current interest rates at September 30, 1995, which are subject
to change based on the terms of the security.
The fund had the following industry group concentrations greater
than 10% on September 30, 1995 (as a percentage of total net
assets):
Utilities 22.3%
Housing 14.6
</TABLE>
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995
<TABLE>
<S> <C>
ASSETS
- ----------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $92,172,098
- ----------------------------------------------------------------------
Cash 287,463
- ----------------------------------------------------------------------
Interest and other receivables 522,777
- ----------------------------------------------------------------------
Receivable for shares of the fund sold 89,337
- ----------------------------------------------------------------------
Receivable for securities sold 50,000
- ----------------------------------------------------------------------
TOTAL ASSETS 93,121,675
- ----------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------
Distributions payable to shareholders 23,589
- ----------------------------------------------------------------------
Payable for shares of the fund repurchased 19,885,849
- ----------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 99,137
- ----------------------------------------------------------------------
Payable for administrative services (Note 2) 2,045
- ----------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 22,570
- ----------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 139
- ----------------------------------------------------------------------
Other accrued expenses 22,158
- ----------------------------------------------------------------------
TOTAL LIABILITIES 20,055,487
- ----------------------------------------------------------------------
NET ASSETS $73,066,188
- ----------------------------------------------------------------------
Represented by Paid-in capital (Note 4) $73,066,188
- ----------------------------------------------------------------------
Net asset value, offering and redemption price per share
($73,066,188 divided by 73,066,188 shares) $1.00
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
Year ended September 30, 1995
<TABLE>
<S> <C>
TAX EXEMPT INTEREST INCOME $3,388,858
- ----------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Compensation of Manager (Note 2) 412,686
- ----------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 188,999
- ----------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,605
- ----------------------------------------------------------------------
Reports to shareholders 31,335
- ----------------------------------------------------------------------
Auditing 29,558
- ----------------------------------------------------------------------
Legal 17,411
- ----------------------------------------------------------------------
Postage 13,493
- ----------------------------------------------------------------------
Administrative services (Note 2) 5,147
- ----------------------------------------------------------------------
Registration fee 34,676
- ----------------------------------------------------------------------
Other expenses 3,356
- ----------------------------------------------------------------------
TOTAL EXPENSES 740,266
- ----------------------------------------------------------------------
FEES PAID INDIRECTLY (NOTE 2) (193,875)
- ----------------------------------------------------------------------
NET EXPENSES 546,391
- ----------------------------------------------------------------------
NET INVESTMENT INCOME 2,842,467
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,842,467
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
- ----------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------
Net investment income $2,842,467 $1,741,373
- ----------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS 2,842,467 1,741,373
- ----------------------------------------------------------------------
Distributions to shareholders from:
- ----------------------------------------------------------------------
Net investment income (2,842,467) (1,741,373)
- ----------------------------------------------------------------------
Increase (decrease) from capital share
transactions (Note 4) (25,331,139) 17,321,543
- ----------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (25,331,139) 17,321,543
- ----------------------------------------------------------------------
NET ASSETS
- ----------------------------------------------------------------------
Beginning of year 98,397,327 81,075,784
- ----------------------------------------------------------------------
END OF YEAR $73,066,188 $98,397,327
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<TABLE><CAPTION>
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------
INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income $.0312 $.0191 $.0184 $.0297(a)$.0462(a)
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Net realized loss on
investments -- -- -- -- (.0001)
- ----------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS .0312 .0191 .0184 .0297 .0461
- ----------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.0312) (.0191) (.0184) (.0297) (.0461)
- ----------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE (%)(B) 3.16 1.93 1.85 3.02 4.74
- ----------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $73,066 $98,397 $81,076 $81,820 $100,077
- ----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .81 .71 .99 .87(a) .79(a)
- ----------------------------------------------------------------------
Ratio of net investment
income to average net
assets (%) 3.10 1.97 1.85 2.99(a) 4.62(a)
- ----------------------------------------------------------------------
<FN>
(a) Reflects a voluntary expense limitation. As a result of such
limitation, expenses of the fund for the years ended September
30, 1992 and 1991 reflect per share reductions of approximately
$0.0029 and $0.0030, respectively.
(b) Total investment return assumes dividend reinvestment and does
not reflect the effect of sales charges.
(c) The ratio of expenses to average net assets for the year ended
September 30, 1995 includes amounts paid through expense offset
arrangements. Prior period ratios exclude these amounts. See Note
2.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
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
under 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.
D INTEREST INCOME AND DISTRIBUTIONS TO SHAREHOLDERS Interest income
is recorded on the accrual basis. Income dividends (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.
NOTE 2
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Investment Management, Inc., ("Putnam
Management") the fund's Manager, a wholly-owned subsidiary of Putnam
<PAGE>
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 Putnam
Management on the fund's portfolio transactions.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $420 and an
additional fee for each Trustees' 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.
During the year ended September 30, 1995, 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 the
fund or in other Putnam funds until distribution in accordance with
the Plan.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam
Investments, Inc. Investor servicing agent functions are provided by
Putnam Investor Services, a division of PFTC.
For the year ended September 30, 1995, fund expenses were reduced by
$193,875, 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 offset arrangements in an
income-producing asset if it had not entered into such arrangements.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the
Plan is to compensate Putnam Mutual Funds Corp., a wholly-owned
<PAGE>
subsidiary of Putnam Investments Inc., for services provided and
expenses incurred by it in distributing shares of the fund. The Plan
provides for payments by the fund to Putnam Mutual Funds Corp. at an
annual rate up to 0.35% of the average net assets of the funds.
Currently, no payments are being made under the plan.
NOTE 3
PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1995, purchases and sales
(including maturities) of investment securities (all short-term
obligations) aggregated $589,549,980 and $595,396,915, respectively.
In determining the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
NOTE 4
CAPITAL SHARES
At September 30, 1995, 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:
<TABLE><CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 30
- ----------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------
Shares sold 561,608,126 608,686,024
Shares issued in connection with
reinvestment of distributions 2,587,440 1,581,308
- ----------------------------------------------------------------------
564,195,566 610,267,332
- ----------------------------------------------------------------------
Shares repurchased (589,526,705) (592,945,789)
- ----------------------------------------------------------------------
NET INCREASE (DECREASE) (25,331,139) 17,321,543
- ----------------------------------------------------------------------
</TABLE>
<PAGE>
FEDERAL TAX INFORMATION
(Unaudited)
The fund has designated 100% of dividends paid from net investment
income during the fiscal year as tax exempt for federal income tax
purposes.
The Form 1099 you receive in January 1996 will show the tax status of
all distributions paid to your account in calendar 1995.
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service
Seal for the past five years, through 1994. DALBAR, an independent
research firm, ran more than 10,000 tests of 38 shareholder service
components. In every category, Putnam outperformed the industry
standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a
month from a Putnam fund or from your checking or savings account.*
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of
shares without a service charge. (This privilege is subject to change
or termination.)
ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost.
For details about any of these or other services, contact your
financial advisor or call the toll-free number shown below and speak
with a helpful Putnam representative.
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number: 1-800-225-
1581.
* Regular investing, of course, does not guarantee a profit or
protect against a loss in a declining market. Investors should
consider their ability to continue purchasing shares during
periods of low price levels.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Gary N. Coburn
Vice President
William F. McGue
Vice President
Blake E. Anderson
Vice President
Lindsey C. Strong
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION; ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY; AND INVOLVE RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
20968-062 11/95
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED
AND EDGAR-FILED TEXTS.
(1) Rule lines for tables are omitted.
(2) Italic typefaces is displayed in normal type.
(3) Boldface type is displayed in capital letters.
(4) Headers (e.g. the names of the fund) and footers (e.g. page
numbers and OThe accompanying notes are an integral part of these
financial statementsO) are omitted.
(5) Because the printed page breaks are not reflected, certain
tabular and columnar headings and symbols are displayed
differently in this filing.
(6) Bullet points and similar graphic symbols are omitted.
(7) Page numbering is different.
