Putnam
Tax Exempt
Money Market
Fund
SEMIANNUAL REPORT
March 31, 1996
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Should the interest rate environment change, our strategy
will include focusing on maximizing income while
maintaining a very high-quality portfolio of securities."
-- Lindsey C. Strong, Manager
Putnam Tax Exempt Money Market Fund
* "Additionally, given that 1996 is an election year, the
popularity of tax deductions, and complexity of
implementing any substantial changes to the tax codes help
make the outlook for the muni market optimistic."
-- The Value Line Mutual Fund Survey, March 19, 1996
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
8 Portfolio holdings
12 Financial statements
[GRAPHIC OMMITTED: photo of George Putnam]
(copyright) Karsh, Ottawa
From the Chairman
Dear Shareholder:
For most of the first half of Putnam Tax Exempt Money Market Fund's
current fiscal year, the six months ended March 31, 1996, bonds enjoyed
one of the most vibrant markets in recent memory, only to turn abruptly
downward toward the end of the period. The bond market was reacting to
concerns over a pickup in inflation resulting from economic overheating.
Fund Manager Lindsey C. Strong, foreseeing the potential for such
volatility, had earlier shifted your fund's portfolio to shorter
maturities. This move gave the fund a considerable advantage over many
other funds. With the portfolio concentrated, as always, in high-quality
issues, Lindsey believes share price and income stream should be
preserved in a market environment that we believe may remain somewhat
unsettled over the next few months.
She provides a full discussion of your fund's performance and outlook in
the report that follows.
Respectfully yours,
/S/George Putnam
George Putnam
Chairman of the Trustees
May 15, 1996
Report from the Fund Manager
Lindsey C. Strong
For the six months ended March 31, 1996, Putnam Tax Exempt Money Market
Fund continued to provide a competitive total return while focusing on
capital preservation and maintaining a stable $1.00 share price.
Throughout the period, we implemented the fund's conservative investment
strategy, which emphasizes short-term tax-exempt instruments of the
highest quality in pursuit of current income.
* PORTFOLIO MATURITY ADJUSTED IN A SHIFTING ECONOMY
During the semiannual period, the economic environment in which your
fund was managed shifted from one of slow economic growth and declining
interest rates to one of stronger growth and uncertainty about the
direction of interest rates. Since tax-exempt money market funds invest
in short-term municipal securities, their yields rise and fall with the
short-term interest rates that are controlled by the Federal Reserve
Board. The slow-growth, low-inflation environment that persisted
throughout 1995 prompted the Fed to trim short-term interest rates by
one quarter of a percentage point in December 1995, and again in January
1996. In this declining interest rate environment, our strategy
emphasized extending the fund's average maturity in order to lock in
higher yields.
However, early in 1996, stronger-than-expected economic growth began to
raise concerns that inflation might rise faster than had been
anticipated. These concerns were fueled by February employment gain
figures that were twice what analysts had forecast. March employment
statistics were also robust. While the Fed took no action in February
and March, many analysts believe that the strong economic news makes
additional interest rate declines unlikely. Because of the uncertainty
of this investment climate, we adopted a more neutral strategy. We began
to reduce the fund's average maturity so we would be in a position to
take advantage of incrementally higher yields, should interest rates
begin to rise.
* QUALITY STANDARDS MAINTAINED DURING SEASONAL SUPPLY
The supply of municipal securities fluctuates broadly throughout the
year. Nevertheless, we were able to find securities that we believe
measured up to our strict standards for high quality and liquidity. We
primarily invested in variable rate demand notes (VRDNs) and municipal
commercial paper issued by a wide range of states and municipalities.
VRDNs are instruments that can be redeemed on short notice. They pay a
variable interest rate that resets at daily, weekly, or monthly
intervals. They are helpful in managing the fund's average maturity and
liquidity. Commercial paper is a type of security issued by a
municipality to finance capital or operating needs.
Currently, approximately 80% of your fund's investments are insured or
backed by bank letters of credit. The insurance and letters of credit
guarantee that the short-term debt (money market instruments) in which
your fund invests will be paid within a certain period of time. These
features add a significant measure of quality assurance, making many of
our holdings among the highest-quality securities available. We intend
to maintain the portfolio's high percentage of insured and bank-backed
securities going forward and may even expand it, should appropriate
investment opportunities arise.
* OUR OUTLOOK
We are cautiously optimistic in our outlook for the economy and interest
rates. Rising long-term interest rates, a weak bond market, and strong
employment data indicate that more robust economic growth and possibly
higher inflation may be in the offing. We believe that short-term
interest rates could remain at current levels or edge upward. Given this
environment, we plan to maintain the fund's average maturity at a level
that should keep the fund sufficiently flexible to take advantage of
buying opportunities that may arise, while protecting its income stream.
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 3/31/96, there is no
guarantee the fund will continue to hold these securities in the future.
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. High-income
investors may be subject to the alternative minimum tax. Income may be
subject to state and local taxes. Capital gains, if any, are taxable for
federal and, in most cases, state purposes.
PERFORMANCE COMPARISONS (3/31/96)
Current After-tax
return return
- ---------------------------------------------------------------------
Passbook savings account 2.00% 1.21%
- ---------------------------------------------------------------------
Taxable money market
fund 7-day yield 4.79 2.89
- ---------------------------------------------------------------------
3-month certificate of
deposit (as of 4/1/96) 4.04 2.45
- ---------------------------------------------------------------------
Putnam Tax Exempt
Money Market Fund
(7-day yield) 2.61 2.61
- ---------------------------------------------------------------------
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).
The net asset 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. CDs, unlike stocks 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 assumes a
combined 39.6% federal and state tax rate.
Performance Summary
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 personal income taxes,
consistent with capital preservation, stable principal, and liquidity.
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 3/31/96
Lipper
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- --------------------------------------------------------------------
6 months 1.48% 1.53% 1.63%
- --------------------------------------------------------------------
1 year 3.13 3.23 2.84
- --------------------------------------------------------------------
5 years* 14.39 14.71 15.33
Annual average* 2.73 2.78 2.89
- --------------------------------------------------------------------
Life of fund (10/26/87)* 36.88 36.91 35.04
Annual average* 3.79 3.80 3.63
- --------------------------------------------------------------------
Performance data represent past results and should not be taken as an
assurance of future performance. *Performance data reflect an expense
limitation previously in effect. Without the expense limitation, total
returns would have been lower. Investment returns will fluctuate with
changes in market conditions. 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.
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). 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.
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1996 (Unaudited)
Key to Abbreviations
AMBAC - AMBAC Indemnity Corporation
LOC - Letter of Credit
MBIA - Municipal Bond Investors Assurance Corporation
VRDN - Variable Rate Demand Notes
Municipal Bonds and Notes (72.9%)*
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C> <C>
Arkansas (3.4%)
- ----------------------------------------------------------------------------------------------------------
$3,000,000 U. of AR VRDN 3.44s, 12/1/19
(Credit Suisse (LOC)) VMIG1 $3,000,000
California (8.5%)
- ----------------------------------------------------------------------------------------------------------
3,500,000 CA Public Cap. Impts. Fin. Auth. VRDN,
Ser. C, 3.4s, 6/1/28 (National Westminster Bank
USA (LOC)) VMIG1 3,500,000
4,000,000 Pomona CA Redev. Agcy. Multi-Fam. Hsg. VRDN
(Bauer Group Apts.), 4.15s, 12/1/07 VMIG1 4,000,000
--------------
7,500,000
Georgia (1.1%)
- ----------------------------------------------------------------------------------------------------------
1,000,000 De Kalb Cnty. Hsg. Auth. Multi-Fam. VRDN
(Wood Hills Apt. Project), 3.5s,12/1/07
(Bank of Montreal (LOC)) A-1+ 1,000,000
Illinois (3.7%)
- ----------------------------------------------------------------------------------------------------------
3,300,000 Chicago IL Tender Notes, VRDN 3.1s, 1/31/98
(Landesbank Hessen-Thuringen (LOC)) VMIG1 3,300,000
Kentucky (7.2%)
- ----------------------------------------------------------------------------------------------------------
1,950,000 Clark Cnty. Poll. Control VRDN (Kentucky Pwr.
Natural Resources) 3.7s, 10/15/14 VMIG1 1,950,000
1,370,000 Jefferson Cnty. Indl. Dev. VRDN 3.55s, 12/1/14
(Chemical Bank (LOC)) A-1 1,370,000
3,000,000 Ohio Cnty. Poll. Control VRDN (Big Rivers Elec.
Corp.), 3.8s, 10/1/15,
(Chemical Bank (LOC)) P-1 3,000,000
--------------
6,320,000
Louisiana (3.4%)
- ----------------------------------------------------------------------------------------------------------
3,000,000 W. Feliciana Parish Poll. Cntrl. VRDN (Gulf States
Util. Co.), 3.8s, 12/1/15 (Canadian Imperial Bank
of Canada (LOC)) A-1+ 3,000,000
Maryland (1.1%)
- ----------------------------------------------------------------------------------------------------------
$1,000,000 U. of Maryland Rev. Bonds 7.2s, 4/1/01 AAA $1,020,290
Massachusetts (2.6%)
- ----------------------------------------------------------------------------------------------------------
2,250,000 MA Bay Trans. Auth. VRDN 3.05s, 3/1/14
(State Street Bank & Trust Co. (LOC)) VMIG1 2,250,000
Michigan (2.2%)
- ----------------------------------------------------------------------------------------------------------
1,900,000 MI State Job Dev. Auth. VRDN 3.65s, 12/1/14
(First Bank N.A. (LOC)) A-1 1,900,000
Minnessota (1.7%)
- ----------------------------------------------------------------------------------------------------------
1,500,000 St. Louis Park, Indl. Dev. VRDN
(Unicare Homes Project), 3.65s, 8/1/14
(Banque Paribas (LOC)) A-1 1,500,000
Mississippi (7.3%)
- ----------------------------------------------------------------------------------------------------------
3,000,000 Jackson Cnty. Poll. Control VRDN
(Chevron USA Project), 3.7s, 12/1/16 P-1 3,000,000
3,440,000 Jackson Cnty. VRDN (Wtr. System), 3.3s, 11/1/24 VMIG1 3,440,000
--------------
6,440,000
North Dakota (1.8%)
- ----------------------------------------------------------------------------------------------------------
1,600,000 Mercer Cnty. ND Solid Waste Disposal
VRDN, 3.65s, 12/1/18 VMIG1 1,600,000
Ohio (4.0%)
- ----------------------------------------------------------------------------------------------------------
1,500,000 Cleveland OH City Sch. Dist. Antic. Notes AMBAC ,
4.5s, 6/1/96 AAA 1,502,346
2,000,000 Evendale Indl. Dev. VRDN (SHV Real Estate Inc.),
3.4s, 9/1/15
(ABN AMRO (LOC)) P-1 2,000,000
--------------
3,502,346
Oklahoma (2.6%)
- ----------------------------------------------------------------------------------------------------------
2,300,000 Tulsa Cnty. Indl. Auth. Hlth. Care VRDN
(Laureate Psychiatric Project), 3.65s, 12/15/08 A-1+ 2,300,000
Oregon (7.0%)
- ----------------------------------------------------------------------------------------------------------
2,000,000 Klamath Falls Elec. Rev. VRDN (Salt Caves
Hydroelectric), 4.4s, 5/1/23 SP1+ 2,000,000
4,200,000 Portland Poll. Control VRDN (Reynolds Metals),
3.8s, 12/1/09
(Bank of Novia Scotia (LOC)) P-1 4,200,000
--------------
6,200,000
South Dakota (3.2%)
- ----------------------------------------------------------------------------------------------------------
$2,865,000 Rapid City, Economic Dev. VRDN (Civic Ctr. Assoc.
Partnership), 3.4s, 12/1/16
(Citibank, N.A. (LOC)) P-1 $2,865,000
Tennessee (4.3%)
- ----------------------------------------------------------------------------------------------------------
3,800,000 Clarksville Pub. Bldg. Auth. VRDN 3 1/2s, 6/1/24
(NationsBank (LOC)) A-1 3,800,000
Texas (3.3%)
- ----------------------------------------------------------------------------------------------------------
1,000,000 Dallas Cnty. TX Util. & Reclamation District, Ser. A,
MBIA, 7 3/4s, 2/15/11 AAA 1,015,246
1,900,000 Lower Neches Valley Auth. Poll. Control VRDN
(Chevron USA Project) 3.1s, 2/15/17 A-1+ 1,900,000
--------------
2,915,246
Virginia (4.5%)
- ----------------------------------------------------------------------------------------------------------
4,000,000 Peninsula Port Auth. VRDN, Ser. A, 3.75s, 12/1/05 AAA 4,000,000
--------------
Total Municipal Bonds and Notes (cost $64,412,882) $64,412,882
MUNICIPAL COMMERCIAL PAPER (32.5%)*
PRINCIPAL AMOUNT RATINGS** VALUE
- ----------------------------------------------------------------------------------------------------------
$1,000,000 City of Austin, TX (Travis & Williamson Counties)
Combined Util. Syst. 3.35s, 4/19/96
(Swiss Bank Corp. (LOC)) A-1+ $1,000,000
3,000,000 Burke Cnty. GA Dev. Auth. Poll. Control 3.33s,
5/22/96 (Credit Suisse (LOC)) A-1+ 3,000,000
2,000,000 Burlington KS Poll. Control, 3.15s, 4/23/96
(Toronto Dominion (LOC)) A-1+ 2,000,000
2,500,000 Clairborne Cnty. MS Poll. Control, 3 1/4s, 5/10/96 A-1+ 2,500,000
2,000,000 Gillette WY Poll. Control, 3 1/4s, 4/4/96
(Deutsche Bank AG (LOC)) P-1 2,000,000
1,500,000 Hillsboro Cnty. FL Aviation Auth.
(Tampa Intl. Arpt.) 3.35s, 5/10/96
(National Westminster Bank PLC (LOC)) A-1+ 1,500,000
3,000,000 Intermountain Pwr. Agcy., Ser. F, 3.3s, 4/11/96
(Bank of America (LOC)) VMIG1 3,000,000
3,000,000 Montgomery AL Indl. Dev. Board Poll. Control,
3.3s, 5/23/96 A-1+ 3,000,000
3,000,000 MA Wtr. Res. Auth., 3.6s, 4/1/96
(Morgan Guaranty Trust Co. (LOC)) P-1 3,000,000
3,500,000 Pendleton Cnty KY, 3.4s, 5/17/96
(Commonwealth Bank of Australia (LOC)) A-1+ 3,500,000
2,000,000 Sunshine State Gov. Fin. Comm. FL 3.2s, 5/9/96
(Union Bank of Switzerland (LOC))
(National Westminster Bank PLC (LOC))
(Morgan Guaranty (LOC)) VMIG1 2,000,000
$1,200,000 Toledo Lucas Cnty. OH Port Auth. 3 1/4s, 5/13/96
(Bank of Nova Scotia (LOC)) A-1+ $1,200,000
1,000,000 Venango PA Indl. Dev. Auth. 3.35s, 8/8/96
(National Westminster Bank PLC (LOC)) A-1+ 1,000,000
--------------
Total Municipal Commercial Paper (cost $28,700,000) $28,700,000
- ----------------------------------------------------------------------------------------------------------
Total Investments (cost $93,112,882)*** $93,112,882
- ----------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $88,358,340.
** The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available
at March 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 March 31, 1996. Securities rated by Putnam are indicated by "/P" and are not publicly rated.
Moody's Investor Service, 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, superior liquidity support and ability to refinance
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
AAA = Extremely strong capacity to pay interest and repay principal
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.
SP-1 = Overwhelming safety characteristics
SP-2 = Strong capacity to pay principal and interest
A-1+ = Overwhelming degree of credit and 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 on VRDN, and FRB are the current rates at March 31, 1996, which are subject to change based on the
terms of the security.
The fund had the following industry group concentrations greater than 10% on March 31, 1996 (as a percentage
of net assets):
Pollution Control 33.4%
Housing 13.9
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
March 31, 1996 (Unaudited)
<S> <C>
Assets
- ----------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $93,112,882
- ----------------------------------------------------------------------------------------
Cash 460,170
- ----------------------------------------------------------------------------------------
Interest and other receivables 418,488
- ----------------------------------------------------------------------------------------
Receivable for shares of the fund sold 308,340
- ----------------------------------------------------------------------------------------
Total assets 94,299,880
Liabilities
- ----------------------------------------------------------------------------------------
Distributions payable to shareholders 25,126
- ----------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 5,790,930
- ----------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 90,990
- ----------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 8,229
- ----------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,135
- ----------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 118
- ----------------------------------------------------------------------------------------
Other accrued expenses 25,012
- ----------------------------------------------------------------------------------------
Total liabilities 5,941,540
- ----------------------------------------------------------------------------------------
Net assets $88,358,340
Represented by
- ----------------------------------------------------------------------------------------
Paid-in-capital (Note 4) $88,358,340
- ----------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
- ----------------------------------------------------------------------------------------
($88,358,340 divided by 88,358,340 shares) $1.00
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended March 31, 1996 (Unaudited)
<S> <C>
Tax exempt interest income $1,434,556
- ----------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 179,977
- ----------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 92,152
- ----------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 3,042
- ----------------------------------------------------------------------------------------
Reports to shareholders 2,472
- ----------------------------------------------------------------------------------------
Auditing 8,899
- ----------------------------------------------------------------------------------------
Legal 758
- ----------------------------------------------------------------------------------------
Postage 2,073
- ----------------------------------------------------------------------------------------
Administrative services (Note 2) 1,443
- ----------------------------------------------------------------------------------------
Registration fees 30,858
- ----------------------------------------------------------------------------------------
Other 720
- ----------------------------------------------------------------------------------------
Total expenses 322,394
- ----------------------------------------------------------------------------------------
Expense reduction (Note 2) (78,447)
- ----------------------------------------------------------------------------------------
Net expenses 243,947
- ----------------------------------------------------------------------------------------
Net investment income 1,190,609
- ----------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,190,609
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31, September 30
1996* 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- --------------------------------------------------------------------------------------------------------
Operations:
- --------------------------------------------------------------------------------------------------------
Net investment income $1,190,609 $2,842,467
- --------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,190,609 2,842,467
- --------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- --------------------------------------------------------------------------------------------------------
From net investment income (1,190,609) (2,842,467)
- --------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions
(Note 4) 15,292,152 (25,331,139)
- --------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 15,292,152 (25,331,139)
- --------------------------------------------------------------------------------------------------------
Net Assets
- --------------------------------------------------------------------------------------------------------
Beginning of period 73,066,188 98,397,327
- --------------------------------------------------------------------------------------------------------
End of period $88,358,340 $73,066,188
- --------------------------------------------------------------------------------------------------------
* 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
March 31 Year ended September 30
- -------------------------------------------------------------------------------------------------------------------------
1996* 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment operations
- -------------------------------------------------------------------------------------------------------------------------
Net investment income $0.0148 $0.0312 $0.0191 $0.0184 $.0297(c) $.0462(c)
- -------------------------------------------------------------------------------------------------------------------------
Net realized loss on investments -- -- -- -- -- (.0001)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations .0148 .0312 .0191 .0184 .0297 .0461
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.0148) (.0312) (.0191) (.0184) (.0297) (.0461)
- -------------------------------------------------------------------------------------------------------------------------
Total investment return at
net asset value (%) (a) 1.48(d) 3.16 1.93 1.85 3.02 4.74
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $88,358 $73,066 $98,397 $81,076 $81,820 $100,077
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%)(b) .40(d) .81 .71 .99 .87(c) .79(c)
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets (%) 1.46(d) 3.10 1.97 1.85 2.99(c) 4.62(c)
- -------------------------------------------------------------------------------------------------------------------------
* Unaudited
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter, includes amounts
paid through expense offset arrangements. Prior period ratios exclude these amounts. (See Note 2).
(c) Reflects a voluntary expense limitation in effect during the period. As a result of such limitation, expenses of the
fund for the period ended September 30, 1992 and 1991 reflect reductions of approximately $0.0029 and $0.0030 per share,
respectively.
(d) Not annualized.
</TABLE>
Notes to financial statements
March 31, 1996 (Unaudited)
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 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 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 taxes on income, capital gains or unrealized
appreciation on securities held and for excise tax 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
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 $400 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.
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 funds 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 March 31, 1996, fund expenses were reduced by
$78,447 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 the assets utilized in connection
with the expense 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 subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Trustees have approved
payment by the fund to Putnam Mutual Funds Corp. at an annual rate up to
0.35% of the average net assets. Currently, no payments are being made
under the Plan.
Note 3
Purchases and sales of securities
During the six months ended March 31, 1996, purchases and sales
(including maturities) of investment securities (all short-term
obligations) aggregated $373,423,240 and $372,447,000, 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 March 31, 1996, 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:
Six months ended Year ended
March 31 September 30
- ----------------------------------------------------
1996 1995
- ----------------------------------------------------
Shares sold 346,546,632 561,608,126
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,081,893 2,587,440
- ----------------------------------------------------
347,628,525 564,195,566
Shares
repurchased (332,336,373) (589,526,705)
- ----------------------------------------------------
Net increase
(decrease) 15,292,152 (25,331,139)
- ----------------------------------------------------
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investor Services has won the DALBAR Quality Tested Service Seal
for the past six years. In 1995, over 146,000 tests of 56 shareholder
service components demonstrated that Putnam outperformed the industry
standard in every category.
* HELP YOUR INVESTMENT GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market 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 of the shares.
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.
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
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
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
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.
Putnam Investments
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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Putnam
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24537-062 5/96
