Putnam
Tax Exempt
Money Market
Fund
ANNUAL REPORT
September 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Assets of money market mutual funds broke through the $1 trillion mark
for the first time in their 25-year history last week, totaling $1.007
trillion for the period ending August 12. Assets have increased at an
average of 45.3 percent a year over the past 20 years, and have increased
by $147.2 billion, or 17.1 percent, over the past year alone (August 13,
1996, through August 12, 1997).
-- IBC's Money Fund Report, August 22, 1997
* "Our overriding concern must always be to maintain credit quality
and stability of principal, since most of our investors choose the fund
for precisely these reasons, even above the steady tax-free income it
provides."
-- Brian S. Torpey, manager
Putnam Tax Exempt Money Market Fund
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
10 Portfolio holdings
14 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
In contrast to the somewhat unsettled interest-rate environment that prevailed
when Putnam Tax Exempt Money Market Fund's management reported to you at the
fiscal year's midpoint, stable rates kept fixed-income investors more or less
calm during the second half. Ongoing economic strength raised some questions
about inflation but current economic data continue to suggest growth slow
enough to satisfy the ever vigilant Federal Reserve Board.
I am pleased to introduce your fund's new manager, Brian S. Torpey. Brian
joined Putnam in 1996 as tax-exempt cash manager. He currently manages two
other Putnam tax-exempt money market funds as well as the cash positions of
our tax-exempt bond funds. Before coming to Putnam, Brian was with Municipal
Market Data. He has nine years of investment industry experience.
In the following report, Brian reviews the fund's fiscal year that ended on
September 30, 1997, and discusses prospects for the fiscal year just begun.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 19, 1997
Report from the Fund Manager
Brian S. Torpey
Putnam Tax Exempt Money Market Fund concluded its fiscal year much as it
began, in an environment marked by solid economic growth, low inflation, and
relatively moderate interest rates. In this climate, your fund's conservative
investment strategy continued to serve shareholders well. Once again, an
emphasis on superior quality, capital preservation, and current tax-free
income enabled the fund to provide a competitive total return while
maintaining a stable $1.00 share price.
* STEADY GROWTH, LOW INFLATION ENVIRONMENT CONTINUES
The U.S. economy maintained its ongoing strength throughout the year. While
the second quarter growth in gross domestic product (GDP) slowed slightly to
3.3% from 4.9% in the first quarter, summer and early fall statistics
continued to indicate healthy growth. The index of leading economic indicators
rose solidly in July and August, as did retail spending, construction
spending, and industrial production. In fact, despite the UPS strike -- when
some companies may have slowed output because of nonshipment of parts needed
for their production lines -- recent production gains have been vigorous
enough to surpass the torrid pace of capacity expansion. Consumer confidence
has been rising too, closing in on the 28-year high seen in June.
In the past, economic strength has been a traditional harbinger of higher
inflation. The current expansion has not followed suit thus far. Consumer
prices, excluding food and energy costs, inched up at a scant 2.2% annual rate
this year, down from 2.6% last year. However, there are hints that pressures
may be building. Energy prices have moved up and labor markets remain tight
with the nation's unemployment rate for the first half of 1997 falling below
5% for the first time since 1973. These factors, along with the labor-friendly
UPS strike settlement, could push up inflation in the months ahead. This may
prompt the Federal Reserve Board to tighten short-term interest rates in
response.
* MONETARY POLICY STAYS ON HOLD FOR THE MOMENT
While volatility in the financial markets continues to reflect investor
sensitivity to inflationary pressures, the Fed has not raised short-term
interest rates since its March meeting. In April and May, money market
security yields rose in expectation of another Fed increase, but the Fed
failed to act and money market yields backed down to their current levels near
the federal funds target rate. Although the "persistent strength in demand"
cited by Fed officials as a key reason for their March interest-rate
tightening has continued, this demand has not yet led to rising prices, and at
subsequent meetings during the period, the Fed found no compelling reason to
raise rates again. However, in his October congressional testimony, Fed
Chairman Alan Greenspan did warn that the economy was still on "an
unsustainable track" and had not slowed enough to eliminate the threat of
renewed inflation. When those cautionary words will translate into
interest-rate action remains to be seen.
* MONEY MARKET ATTRACTS CASH INFLOWS, MORE DERIVATIVES
Investors are finding the liquidity and quality of money market funds more
appealing. In the past year, tax-exempt money market fund assets have
increased by 10%, due to greater volatility in bond and equity markets and
competitive yield relative to other short-term investments. Derivative
issuance has also increased over this period. However, your fund has always
avoided derivatives, preferring to focus exclusively on more conservative
tax-exempt money market securities of the very highest quality. These include
variable rate demand notes (VRDNs), tax-exempt notes, and municipal commercial
paper from large top-quality issuers. VRDNs are instruments that pay variable
interest rates that reset daily, weekly, or monthly. With the exception of
general obligations issued by state governments, the vast majority of
portfolio holdings are backed by bank letters of credit. The letters of credit
guarantee that the short-term debt (money market instruments) in which your
fund invests will be paid within a certain period. Currently, more than
two-thirds of your fund's investments are backed by letters of credit.
*PORTFOLIO KEPT NEUTRAL IN EXPECTATION OF HIGHER RATES
We have continued to position the fund flexibly, seeking to balance yield
concerns with the possibility of rising short-term interest rates. At the end
of the fiscal year, the fund's average days-to-maturity was neutral relative
to the market, allowing it to maintain a competitive yield while positioning
it to take advantage of higher yields, should rates begin to rise.
Putnam Management believes it likely that the Fed will take action on
short-term rates by early 1998. While actual inflation remains quite low,
pressures are certainly building and the market remains vulnerable to any news
of an uptick. With its neutral positioning and conservative, quality focused
investment strategy, your fund remains well positioned for what lies ahead.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 9/30/97, there is no guarantee the fund will continue to hold
these securities in the future. There can be no assurance that the fund will
be able to maintain a stable net asset value of $1.00 per share.
PERFORMANCE COMPARISONS (9/30/97)
Current After-tax
return* return
- ------------------------------------------------------------------------------
Passbook savings account 2.00% 1.21%
- ------------------------------------------------------------------------------
Taxable money market fund (7-day yield) 5.04 3.04
- ------------------------------------------------------------------------------
3-month certificate of deposit 4.10 2.48
- ------------------------------------------------------------------------------
Putnam Tax Exempt
Money Market Fund (7-day yield) 3.35 3.35
- ------------------------------------------------------------------------------
The net asset value of money market mutual funds is uninsured and designed to
be fixed, while distributions vary daily. Investment returns will fluctuate.
The principal value on passbook savings and on bank CDs is generally insured
up to certain limits by state and federal agencies. Unlike stocks, which incur
more risk, CDs offer a fixed rate of return. Unlike money market funds, bank
CDs may be subject to substantial penalties for early withdrawals. After-tax
return assumes a 39.6% maximum federal income tax rate.
* Sources: BankBoston (passbook savings), Bank Rate Monitor (3-month CDs),
IBC/Donaghue's Money Fund Report (taxable money market fund compound 7-day
yield).
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its 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.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Lipper
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- ------------------------------------------------------------------------------
1 year 3.09% 3.02% 2.15%
- ------------------------------------------------------------------------------
5 years 13.74 14.09 14.08
Annual average 2.61 2.67 2.67
- ------------------------------------------------------------------------------
Life of fund (10/26/87) 43.25 43.12 39.81
Annual average 3.69 3.68 3.44
- ------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes
payable on reinvested distributions. Performance data represent past
results and are not indicative of future returns. 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. The fund's
holdings do not match those in the Lipper Average.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 9/30/97
- ------------------------------------------------------------------------------
Distributions (number) 12
- ------------------------------------------------------------------------------
Income $0.030444
- ------------------------------------------------------------------------------
Total $0.030444
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current 7-day yield1 3.35%
- ------------------------------------------------------------------------------
Taxable equivalent2 5.55
- ------------------------------------------------------------------------------
Current 30-day yield1 3.36
- ------------------------------------------------------------------------------
Taxable equivalent2 5.56
- ------------------------------------------------------------------------------
1 The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2 Assumes maximum 39.6% federal tax rate. Results for investors subject to
lower tax rates would not be as advantageous. For some investors,
investment income may also be subject to the federal alternative minimum
tax. Investment income may be subject to state and local taxes.
TERMS AND DEFINITIONS
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.
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, used for performance
comparison purposes, 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. It is not possible to invest
directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Report of independent accountants
For the fiscal year ended September 30, 1997
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, 1997, and the related statement of operations for the year
then ended and the statements of changes in net assets for each of 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, 1997, by correspondence with the custodian and
brokers. 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, 1997, the results
of its operations for the year then ended and 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 11, 1997
Portfolio of investments owned
September 30, 1997
Key to Abbreviations
G.O. Bonds -- General Obligation Bonds
LOC -- Letter of Credit
TAN -- Tax Anticipation Notes
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
D. Put Bonds -- Demand Put Bonds
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (81.5%) *
PRINCIPAL AMOUNT RATINGS** VALUE
Arizona (1.9%)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
$2,000,000 Salt River, Agric. Rev. Bonds Ser. A, 7 7/8s, 1/1/98 Aaa $ 2,059,761
Arkansas (7.6%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 AR Hosp. Equip. Fin. Auth. VRDN (Baptist Hlth.),
4.15s, 11/1/10 (Credit Suisse (LOC)) VMIG1 3,500,000
4,500,000 U. of Arkansas VRDN (UAMS Campus), 3.5s,
12/1/19 (Credit Suisse (LOC)) VMIG1 4,500,000
--------------
8,000,000
California (5.1%)
- ------------------------------------------------------------------------------------------------------------
3,500,000 CA Pub. Cap. Impt. Fin. Auth. D. Put Bonds Ser. C,
3.8s, 6/1/28 (National Westminster (LOC)) VMIG1 3,500,000
1,900,000 Oakland, VRDN (Cap. Equip.), 4.2s, 12/1/15
(National Westminister (LOC)) P-1 1,900,000
--------------
5,400,000
Colorado (1.9%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 CO State Gen. Fund TRAN Ser. A, 4 1/2s, 6/26/98 SP1+ 2,009,749
Delaware (0.9%)
- ------------------------------------------------------------------------------------------------------------
1,000,000 DE State G.O. Bonds Zero %, 5/1/98 Aa 977,602
District of Columbia (3.8%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 District Columbia, TRAN Ser. B, 4 1/2s, 9/30/98
(Union Bk. of Switzerland (LOC)and Morgan
Guarantee Trust (LOC)) MIG1 4,024,179
Georgia (11.0%)
- ------------------------------------------------------------------------------------------------------------
4,400,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 4.2s, 8/1/26
(First Union National Bank (LOC)) A-1 4,400,000
2,750,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Spring Creek Crossing), 3.55s, 10/1/24
(Wachovia Bank of Georgia (LOC)) A-1+ 2,750,000
4,500,000 Marietta, Hsg. Auth. Multi-Fam. VRDN
(Wood Pointe Apts.), 4.2s, 10/1/07 A-1 4,500,000
--------------
11,650,000
Idaho (2.4%)
- ------------------------------------------------------------------------------------------------------------
2,500,000 ID State G.O. TAN 4 5/8s, 6/30/98 MIG1 2,513,406
Illinois (5.9%)
- ------------------------------------------------------------------------------------------------------------
3,290,000 IL Dev. Fin. Auth. VRDN (Cook Composites
& Polymers), 3.95s, 2/1/09 (Societe
Generale (LOC)) A-1+ 3,290,000
2,900,000 Northbrook, Indl. Dev. VRDN (Euromarket
Designs, Inc.) 4.1s, 7/1/02 (Harris Trust
& Savings Bank (LOC)) A-1+ 2,900,000
--------------
6,190,000
Kentucky (1.9%)
- ------------------------------------------------------------------------------------------------------------
2,000,000 Clark Cnty., Poll. Control VRDN (Kentucky
Pwr. Natural Resources), 3.75s, 10/15/14 VMIG1 2,000,000
Mississippi (7.6%)
- ------------------------------------------------------------------------------------------------------------
3,800,000 Jackson Cnty., D. Put Bonds (Wtr. System), 3.55s,
11/1/24 (Chevron Corp. (LOC)) VMIG1 3,800,000
4,200,000 Perry Cnty., Poll. Control VRDN(Leaf River
Forest), 4.1s, 10/1/12 (Morgan
Guarantee (LOC)) P-1 4,200,000
--------------
8,000,000
Missouri (3.8%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 MO State Env. Impt. & Energy Auth. D. Put Bonds
(Union Electric Co.), 3.72s, 6/1/14
(Swiss Bank (LOC)) P-1 4,000,000
North Carolina (4.3%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 NC Med. Care Cmnty. Hosp. VRDN
(Lincoln Hlth. Syst.), Ser. A, 4.1s, 4/1/16
(NationsBank (LOC)) A-1 4,000,000
500,000 NC Med. Care Cmnty. Hosp. VRDN
(Aces-Pooled Fin.), Ser. A, 3.85s, 10/1/20
(NationsBank of NC (LOC)) VMIG1 500,000
--------------
4,500,000
Oklahoma (4.3%)
- ------------------------------------------------------------------------------------------------------------
4,500,000 Cushing, Muni. Auth. VRDN (Correctional Fac.),
4.15s, 11/1/17 (First Union National
Bank(LOC)) VMIG1 4,500,000
Pennsylvania (5.1%)
- ------------------------------------------------------------------------------------------------------------
4,600,000 Montgomery Cnty., Higher Ed. & Hlth.
Auth. VRDN (Philadelphia Presbytery),
4.1s, 7/1/25 (PNC Bk. (LOC)) VMIG1 4,600,000
805,000 Venango, Indl. Dev. Auth. VRDN (Penzoil
Co.), 4.4s, 12/1/12 (Mellon Bank (LOC)) A-1 805,000
--------------
5,405,000
South Dakota (2.7%)
- ------------------------------------------------------------------------------------------------------------
2,815,000 Rapid City, Econ. Dev. VRDN (Civic Ctr. Assoc.
Partnership), 4.5s, 12/1/16 (Citibank
N.A. (LOC)) P-1 2,815,000
Texas (4.6%)
- ------------------------------------------------------------------------------------------------------------
4,900,000 Katy, Indpt. School Dist. G.O. D. Put Bonds
Ser. A 4.15s, 2/15/20 A-1+ 4,900,000
Virginia (3.8%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Culpepper, Ind. Dev. Auth. Res. Care Fac.
VRDN (Baptist Homes), 4.1s, 11/1/17
(NationsBank of VA. (LOC)) A-1+ 4,000,000
Wisconsin (2.9%)
- ------------------------------------------------------------------------------------------------------------
3,000,000 WI State Rev Bonds 4 1/2s, 6/15/98 MIG1 3,013,284
--------------
Total Municipal Bonds
and Notes (cost $85,957,981) $ 85,957,981
MUNICIPAL COMMERCIAL PAPER (9.5%) *
PRINCIPAL AMOUNT RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------
$2,000,000 Burlington KS Poll. Control, 3.95s
10/2/97 (Toronto Dominion Bank (LOC)) A-1+ $ 2,000,000
2,500,000 Claiborne Cnty., MS PCRB (National Rural
Utility) 3.95s, 10/2/97 A-1+ 2,500,000
3,500,000 Pendleton Cnty., KY 3 3/4s, 10/7/97
(Commonwealth Bank of Australia (LOC)) A-1+ 3,500,000
2,000,000 Sunshine State Gov. Fin. Comm. FL 3.8s,
10/15/97 (Union Bank of Switzerland (LOC)) A-1+ 2,000,000
--------------
Total Municipal Commercial
Paper (cost $10,000,000) $ 10,000,000
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $95,957,981) *** $ 95,957,981
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $105,442,136.
** The Moody's or Standard & Poor's ratings indicated are believed
to be the most recent ratings available at September 30, 1997 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, 1997. 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 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 Service, Inc.
MIGI/VMIGI = 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 = 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
P-1 = Superior capacity for repayment
P-2 = Strong capacity for repayment
Standard & Poor's Corp.
SP-1+ = Very strong capacity to pay principal and interest
SP-1 = Strong capacity to pay principal and interest
SP-2 = Satisfactory capacity to pay principal and interest
A-1+ = Extremely strong degree of safety
A-1 = Strong degree of safety
A-2 = Satisfactory capacity for timely repayment
*** The aggregate identified cost on a tax basis is the same.
The rates shown on VRDN and D. Put Bonds are the current Interest
rates at September 30,1997, which are subject to change based on the
terms of the security.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
September 30, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $ 95,957,981
- ---------------------------------------------------------------------------------------------------
Cash 40,416
- ---------------------------------------------------------------------------------------------------
Interest and other receivables 584,658
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 13,347,292
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 219,300
- ---------------------------------------------------------------------------------------------------
Total assets 110,149,647
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 26,163
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 4,024,160
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 483,519
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 69,326
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,965
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,549
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 99,829
- ---------------------------------------------------------------------------------------------------
Total liabilities 4,707,511
- ---------------------------------------------------------------------------------------------------
Net assets $105,442,136
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $105,442,136
- ---------------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($105,442,136 divided by 105,442,136 shares) $1.00
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1997
<S> <C>
Tax exempt interest income: $3,660,143
- --------------------------------------------------------------------------------------------------
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 457,535
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 217,281
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,687
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 5,695
- --------------------------------------------------------------------------------------------------
Reports to shareholders 20,509
- --------------------------------------------------------------------------------------------------
Registration fees 34,799
- --------------------------------------------------------------------------------------------------
Auditing 34,881
- --------------------------------------------------------------------------------------------------
Legal 14,411
- --------------------------------------------------------------------------------------------------
Postage 8,505
- --------------------------------------------------------------------------------------------------
Other 11,970
- --------------------------------------------------------------------------------------------------
Total expenses 812,273
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (209,441)
- --------------------------------------------------------------------------------------------------
Net expenses 602,832
- --------------------------------------------------------------------------------------------------
Net investment income 3,057,311
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,057,311
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,057,311 $ 2,389,511
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,057,311 2,389,511
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income (3,057,311) (2,389,511)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,628,163 27,747,785
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 4,628,163 27,747,785
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 100,813,973 73,066,188
- ----------------------------------------------------------------------------------------------------------------------
End of year $105,442,136 $100,813,973
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment operations
- ------------------------------------------------------------------------------------------------------------------------
Net investment income $.0304 $.0298 $.0312 $.0191 $.0184
- ------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .0304 .0298 .0312 .0191 .0184
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (.0304) (.0298) (.0312) (.0191) (.0184)
- ------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 3.09 3.02 3.16 1.93 1.85
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $105,442 $100,814 $73,066 $98,397 $81,076
- ------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80 .90 .81 .71 .99
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.02 2.86 3.10 1.97 1.85
- ------------------------------------------------------------------------------------------------------------------------
(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. (Note 2).
</TABLE>
Notes to financial statements
September 30, 1997
Note 1
Significant accounting policies
Putnam Tax Exempt Money Market Fund (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 and related investment income 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, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
D) Interest income and distributions to shareholders Interest is recorded on
the accrual basis. Income dividends (and distributions of realized gains, if
any) are recorded daily by the fund and are distributed monthly to the
shareholders.
E) Amortization of bond premium and accretion of bond discount Premiums and
discounts on short-term investments are amortized/accreted using the
straight-line method.
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, 0.25% of the next $5
billion, 0.225% of the next $5 billion, 0.205% of the next $5 billion,
0.190% of the next $5 billion, and 0.180% thereafter. Prior January 20,
1997, any amount over $1.5 billion was based on 0.25%.
The fund reimburses Putnam Management for the compensation and related
expenses of certain officers of the fund and their staff who provide
administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc.
Investor servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended September 30, 1997, fund expenses were reduced by $209,441
under expense offset arrangements with PFTC. Investor servicing and custodian
fees reported in the Statement of operations exclude these credits. The fund
could have invested a portion of the assets utilized in connection with the
expense offset arrangements in an income producing asset if it had not entered
into such arrangements.
Trustees of the fund receive an annual Trustees fee of $206 and an additional
fee for each Trustee's meeting attended. Trustees who are not interested
persons of Putnam Management and who serve on committees of the Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
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 Plan provides for payment by the fund to
Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of the fund's
average net assets. Currently, no payments are being made under the plan.
For the year ended September 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter receives proceeds from contingent deferred sales charges. These
charges apply to certain shares that have been exchanged from other Putnam
funds. Putnam Mutual Funds received no monies in contingent deferred sales
charges from such redemptions.
Note 3
Purchase and sales of securities
During the year ended September 30, 1997, purchases and sales (including
maturities) of investment securities (all short-term obligations) aggregated
$1,582,129,419 and $1,569,862,642, 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, 1997, 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:
Year ended
September 30
- ------------------------------------------------------------
1997 1996
- ------------------------------------------------------------
Shares sold 956,290,369 785,297,019
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,849,509 2,296,709
- ------------------------------------------------------------
959,139,878 787,593,728
Shares
repurchased (954,511,715) (759,845,943)
- ------------------------------------------------------------
Net increase 4,628,163 27,747,785
- ------------------------------------------------------------
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 1998 will show the tax status
of all distributins paid to your account in calendar 1997.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund *
International New Opportunities Fund
Investors Fund
New Opportunities Fund +
OTC & Emerging Growth Fund [DBL. DAGGER]
Vista Fund
Voyager Fund
Voyager Fund II
PUTNAM GROWTH
AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Diversified Income Trust II
Federal Income Trust
Global Governmental Income Trust
High Yield Advantage Fund
High Yield Total Return Fund
High Yield Trust +
Income Fund
Money Market Fund **
Intermediate U.S. Government
Income Fund
Preferred Income Fund
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New
Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE [SERVICE MARK] funds
Putnam Asset Allocation Funds--three investment portfolios that spread
your money across a variety of stocks, bonds, and money market
investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Overseas Growth Fund
+ Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** An investment in a money market fund is neither insured nor
guaranteed by the U.S. government. These funds are managed
to maintain a price of $1.00 per share, although there is no
assurance that this price will be maintained in the future.
Please call your financial advisor or Putnam at 1-800-225-1581 to obtain
a prospectus for any Putnam fund. It contains more complete information,
including charges and expenses. Please read it carefully before you
invest or send money.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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 J. Curtin
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
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AN057-36837 11/97
