Putnam
Tax Exempt
Money Market
Fund
SEMIANNUAL REPORT
March 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[D]espite the obvious love affair individual investors have had
with mutual funds the past few years, they've also been steadily
allocating cash to money market funds, one of the most conservative
and most 'liquid' -- or easy to enter and exit -- investments available.
By next month, these assets could top $1 trillion, up from $300 billion
only four years ago."
-- The Wall Street Journal, April 3, l997
CONTENTS
4 Report from Putnam Management
7 Fund performance summary
10 Portfolio holdings
15 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
Prolonged anticipation of a Federal Reserve Board increase in short-term
interest rates provided most of the challenges for Fund Manager Lindsey Strong
throughout the first half of Putnam Tax Exempt Money Market Fund's fiscal
year. Thus, when the Fed finally did raise rates by a quarter point near the
end of the period, she had already positioned the portfolio appropriately.
Lindsey also maintained the fund's conservative strategy of investing in
high-quality short-term investments. As a result, she was able to deliver
another period of competitive performance while maintaining a stable net asset
value. In the following report, Lindsey discusses in detail the driving forces
behind your fund's performance during the first half of fiscal 1997 and her
outlook for the fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 14, 1997
Report from the Fund Manager
Lindsey C. Strong
Putnam Tax Exempt Money Market Fund began fiscal 1997 in an economic
environment marked by solid growth, relatively moderate interest rates, and
fairly low inflationary expectations. In fact, throughout the period's entire
first half -- the six months ended March 31, 1997 -- an economic environment
prevailed in which momentum toward higher interest rates was building. During
the first three months of calendar 1997, however, the indicators that measure
the strength of the economy pointed to a rate of growth that some financial
professionals believed could trigger a significant rise in inflation -- and
the Federal Reserve Board responded accordingly.
Your fund's conservative investment strategy, which emphasizes superior
quality short-term tax-exempt instruments and the pursuit of current income,
served it well in this environment. The fund once again provided a competitive
total return while continuing to focus on capital preservation and maintaining
a stable $1.00 share price.
* THE FED'S PREEMPTIVE STRIKE
After leaving interest rates alone for more than two years, the Federal
Reserve Board raised short-term interest rates by a quarter of a percentage
point on March 25, l997, explaining the move as a "preemptive strike" against
inflation. The Fed's action came on the heels of a host of data that indicated
a still robust economy. Personal income and consumer spending rose sharply,
new home sales were up, and the unemployment rate had declined to 5.2%, its
lowest level in eight years.
These positive trends were accompanied by growing concern about the prospect
of higher inflation down the road. It was this worry that prompted the Fed's
action, since rising interest rates usually have the effect of slowing
economic growth and thus can be expected to help keep inflation under control.
In light of the economy's strength and the potential for higher interest
rates, managing the portfolio's average maturity wasan important aspect
of our investment strategy. Because we anticipated the Fed's move on
interest rates correctly, we took a more defensive approach in managing
the fund. We concentrated on maximizing income while maintaining high
quality. Since we wanted the fund to be able to take full advantage of
any rise in interest rates, we shortened the portfolio's average maturity,
thus affording an earlier opportunity to purchase newer higher-yielding
securities. By using this strategy, we have avoided locking the portfolio
into lower-yielding investments, should interest rates continue to rise.
* SEEKING ATTRACTIVELY VALUED HIGH-QUALITY SECURITIES
We continued to invest in traditional tax-exempt money market securities of
the highest quality. These include variable rate demand notes (VRDNs) and
municipal commercial paper from large top-quality issuers. VRDNs are
instruments that can be redeemed on short notice. They pay variable interest
rates that reset 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.
As many investors across the board became more cautious during the first three
months of l997, we saw an increase in the amount of money flowing into your
fund. As the new money came in, we were able to take advantage of a steady
supply of attractively priced tax-exempt securities. Since superior portfolio
quality is one of your fund's most important attributes, our strict standards
for investing in any security, as always, remains intact.
Currently the majority 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. These features provide an added measure of
quality assurance even to those issues rated in the highest categories by
nationally recognized rating services, making many of the fund's holdings
among the highest quality available.
* OUTLOOK: FURTHER RATE INCREASES POSSIBLE
In the months ahead, we will be carefully monitoring the economic environment.
If the economy continues to gain strength, we believe the Fed may again take
preemptive moves against inflation with further increases in short-term rates.
Should this type of environment persist, we would continue to focus on
capturing the highest possible yields for the fund while maintaining the
portfolio's traditional high quality. To this end, we would anticipate keeping
the average maturity relatively short. We believe our emphasis on traditional
high-quality instruments should enable the fund to maintain its policy of
seeking current income and a stable share price.
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 3/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
PERFORMANCE COMPARISONS (3/31/97)
Current After-tax
return* return
- ------------------------------------------------------------------------------
Passbook savings account 2.01% 1.21%
- ------------------------------------------------------------------------------
Taxable money market fund 7-day yield 5.08 3.07
- ------------------------------------------------------------------------------
3-month certificate of deposit 4.03 2.43
- ------------------------------------------------------------------------------
Putnam Tax Exempt
Money Market Fund (7-day yield) 2.88 2.88
- ------------------------------------------------------------------------------
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 of passbook savings and 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: Bank of Boston (passbook savings), Bank Rate Monitor (3-month CDs),
IBC/Donaghue's Money Fund Report (taxable money market fund 7-day yield).
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 a high level of current income exempt from federal income tax,
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 3/31/97
Lipper
Tax Exempt Consumer
Fund shares Money Market Price
at NAV Fund Average Index
- ------------------------------------------------------------------------------
6 months 1.46% 1.43% 1.39%
- ------------------------------------------------------------------------------
1 year 2.99 2.91 2.76
- ------------------------------------------------------------------------------
5 years 13.39 13.78 14.86
Annual average 2.54 2.62 2.81
- ------------------------------------------------------------------------------
Life of fund (10/26/87) 40.98 40.87 38.77
Annual average 3.71 3.70 3.54
- ------------------------------------------------------------------------------
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
6 months ended 3/31/97
- ------------------------------------------------------------------------------
Distributions (number) 6
- ------------------------------------------------------------------------------
Income $0.0144640
- ------------------------------------------------------------------------------
Total $0.0144640
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current 7-day yield1 2.88%
- ------------------------------------------------------------------------------
Taxable equivalent2 4.77
- ------------------------------------------------------------------------------
Current 30-day yield1 2.83
- ------------------------------------------------------------------------------
Taxable equivalent2 4.69
- ------------------------------------------------------------------------------
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.
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources 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 Trust
Income 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-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
LIFESTAGESM 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
MOST CONSERVATIVE
INVESTMENTS **
Putnam money market funds: ++
California Tax Exempt Money Market Fund
Money Market Fund
New York Tax Exempt Money Market Fund
Tax Exempt Money Market Fund
CDs and savings accounts [2 DBL. DAGGERS]
* Formerly Natural Resources Fund
+ Formerly Overseas Growth Fund
[DBL. DAGGER] Formerly OTC Emerging Growth Fund
[SECTION MARK] Not available in all states.
** Relative to above.
++ 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.
[2 DBL. DAGGERS] Not offered by Putnam Investments. Certificates of
deposit offer a fixed rate of return and may be insured up to certain
limits by federal/state agencies. Savings accounts may also be insured
up to certain limits. 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.
Portfolio of investments owned
March 31, 1997 (Unaudited)
Key to Abbreviations
FGIC -- Financial Guaranty Insurance Company
G.O. Bonds -- General Obligation Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
RAN -- Revenue Anticipation Notes
TAN -- Tax Anticipation Notes
TRAN -- Tax Revenue Anticipation Notes
VRDN -- Variable Rate Demand Notes
<TABLE>
<CAPTION>
MUNICIPAL BONDS AND NOTES (75.5%) *
PRINCIPAL AMOUNT RATINGS** VALUE
<S> <C> <C> <C>
Arkansas (4.2%)
- ---------------------------------------------------------------------------------------------------
$5,450,000 U of Arkansa, VRDN (UAMS Campus), 3.4s
12/01/19 (Credit Suisse (LOC)) VMIG1 $ 5,450,000
California (4.6%)
- ---------------------------------------------------------------------------------------------------
3,500,000 CA Pub. Cap. Impt. Fin. Auth. VRDN
(Pooled Project, Jt. Pwrs. Agcy.), Ser. C, 3.8s,
6/1/28 (National Westminster (LOC)) VMIG1 3,500,000
2,000,000 CA State RAN, Ser. A, 4 1/2s, 6/30/97 SP1+ 2,002,747
500,000 CA State G.O. Bonds, 6.7s, 09/01/97 A 506,429
--------------
6,009,176
Colorado (0.8%)
- ---------------------------------------------------------------------------------------------------
1,000,000 CO State Gen. Fund TRAN Ser. A, 4 1/2s,
06/27/97 SP1+ 1,002,206
Florida (0.2%)
- ---------------------------------------------------------------------------------------------------
215,000 Volusia Cnty. Wtr. & Swr. Rev. Bonds 6.85s,
10/01/97 Aaa 221,728
Georgia (3.1%)
- ---------------------------------------------------------------------------------------------------
4,000,000 Marietta Multi-Fam. Hsg. Auth. (Wood Pointe Apts.)
VRDN 3.55s, 10/01/07 A-1 4,000,000
Illinois (7.7%)
- ---------------------------------------------------------------------------------------------------
1,000,000 Chicago, G.O. Bonds Ser. C, 3.6s, 10/31/99
(Societe Generale (LOC)) VMIG1 1,000,000
5,700,000 Chicago, O'Hare Intl. Aprt. VRDN (American
Airlines, Inc.), Ser. C, 3.85s, 12/01/17
(Bank of Canada (LOC)) VMIG1 5,700,000
3,290,000 IL Dev Fin Auth. VRDN 3.5s, 02/01/09
(Societe Generale (LOC)) VMIG1 3,290,000
--------------
9,990,000
Kentucky (2.5%)
- ---------------------------------------------------------------------------------------------------
2,000,000 Clark Cnty. Poll. Control VRDN 3.65s, 10/15/14 AA- 2,000,000
1,298,000 Jefferson Cnty., Indl. Dev. VRDN, 3.55s, 12/01/14
(Chase Manhattan Bank (LOC)) VMIG1 1,298,000
--------------
3,298,000
Louisiana (4.4%)
- ---------------------------------------------------------------------------------------------------
5,700,000 W. Feliciana Parish Poll. Control VRDN (Gulf States
Utilities Co.), 3.9s, 12/01/15 (Canadian Imperial
Bank (LOC)) VMIG1 5,700,000
Massachusetts (2.3%)
- ---------------------------------------------------------------------------------------------------
1,000,000 MA Bay Trans. Auth. VRDN, 3.625s, 3/1/14
(State Street Bank & Trust Co. (LOC)) VMIG1 1,000,000
2,000,000 MA State Multi-Fam. Hsg. Fin. Agcy. Rev. Bonds
MBIA Ser. A, 4 1/2s, 07/01/97 Aaa 2,003,271
--------------
3,003,271
Michigan (1.5%)
- ---------------------------------------------------------------------------------------------------
1,900,000 MI State Job Dev. Auth. VRDN, 3.2s, 12/01/14
(First Bank N.A. (LOC)) VMIG1 1,900,000
Mississippi (6.2%)
- ---------------------------------------------------------------------------------------------------
3,800,000 Jackson Cnty. VRDN (Wtr. System), 3.55s, 11/01/24 VMIG1 3,800,000
4,200,000 Perry Co. Poll. Control VRDN, 3.85s,3/01/22
(Credit Suisse First Boston (LOC)) VMIG1 4,200,000
--------------
8,000,000
Missouri (1.9%)
- ---------------------------------------------------------------------------------------------------
2,525,000 MO State Hlth. & Edl. Fac. Auth. VRDN
(Drury College), Ser. A, 3.85s, 08/15/21
(Chase Manhattan (LOC)) VMIG1 2,525,000
New York (4.4%)
- ---------------------------------------------------------------------------------------------------
5,700,000 NY City, Muni. Wtr. & Swr. Fin. Auth. VRDN, Ser. A,
FGIC, 3.7s, 06/15/25 VMIG1 5,700,000
North Carolina (4.4%)
- ---------------------------------------------------------------------------------------------------
5,700,000 NC Med. Care Community Hosp. VRDN
(Aces-Pooled Fin.), Ser. A., 3.9s, 10/01/20
(Nationsbank of NC (LOC)) VMIG1 5,700,000
North Dakota (1.2%)
- ---------------------------------------------------------------------------------------------------
1,600,000 Mercer Cnty. Solid Waste Disp. VRDN (National
Rural Utiltities, United Power), 3.65s, 12/01/18 P-1 1,600,000
Oregon (3.2%)
- ---------------------------------------------------------------------------------------------------
4,200,000 Port Portland, Poll. Control VRDN
(Reynolds Metals), 3.8s, 12/01/09 (Bank of
Nova Scotia (LOC)) VMIG1 4,200,000
Pennsylvania (3.1%)
- ---------------------------------------------------------------------------------------------------
4,000,000 PA State TAN 4 1/2s, 06/30/97 SP1+ 4,008,914
South Dakota (2.2%)
- ---------------------------------------------------------------------------------------------------
2,815,000 Rapid City Econ. Dev. VRDN (Civic Ctr. Assoc.
Partnership), 3.4s, 12/01/16 VMIG1 2,815,000
Texas (9.3%)
- ---------------------------------------------------------------------------------------------------
3,500,000 Bowie Cnty., Indl. Dev. Corp. VRDN (Texarkana
Newspapers, Inc.), 3.75s, 11/01/25
(Bank of NY (LOC)) VMIG1 3,500,000
3,100,000 Grapevine, Ind. Dev. Corp. VRDN (American
Airlines Inc.), Ser. B-1, 3.8s, 12/01/24
(Morgan Guaranty Trust (LOC)) VMIG1 3,100,000
2,500,000 Lower Neches Valley Auth. VRDN (Chevron USA),
3.65s, 02/15/17 AA 2,500,000
3,000,000 TX TRAN 4 3/4s, 8/29/97 SP1+ 3,009,545
--------------
12,109,545
Virginia (7.7%)
- ---------------------------------------------------------------------------------------------------
5,900,000 Henrico Cnty., Indl. Dev. Auth. VRDN 3.9s,
05/01/24 VMIGI 5,900,000
4,200,000 Peninsula Port. Auth. VRDN (Shell Oil), 4.1s,
12/01/05 AAA 4,200,000
--------------
10,100,000
Wisconsin (0.6%)
- ---------------------------------------------------------------------------------------------------
775,000 Beloit Swr. Sys. Rev. Bonds MBIA, Ser. B, 6.9s,
07/01/09 Aaa 787,931
--------------
Total Municipal Bonds and Notes
(cost $98,120,771) $ 98,120,771
MUNICIPAL COMMERCIAL PAPER (16.8%) *
PRINCIPAL AMOUNT RATINGS** VALUE
- ---------------------------------------------------------------------------------------------------
$2,000,000 Burlington KS Poll. Control, 3 1/2s, 4/4/97
(Toronto Dominion (LOC)) A-1+ $ 2,000,000
2,500,000 Clairborne Cnty. MS Poll. Control, 3.55s, 4/4/97 A-1+ 2,500,000
1,900,000 Municipal Elec. Auth. of GA Ser. 85A, 3.45s, 4/9/97
(Morgan Guaranty (LOC)) A-1 1,900,000
2,000,000 Campbell Cty. WY (Gillette) Poll. Control, 3.2s,
4/8/97 (Deutsche Bank AG (LOC)) P-1 2,000,000
3,000,000 Intermountain Pwr. Agcy., (Utah Power) 3 1/2s,
4/10/97 (Bank of America (LOC)) VMIGI 3,000,000
1,000,000 Jacksonville FL Pwr. Agcy. 3.55s, 7/16/97
(Florida Power & Light (LOC)) MIGI 1,000,000
2,500,000 Municipal Elec. Auth. GA 3.3s, 4/11/97
(Bayerische Landesbanke (LOC)) A-1+ 2,500,000
1,500,000 North Carolina Muni. Pwr. 3 1/2s, 7/16/97
(Union Bank of Switzerland (LOC)) A-1+ 1,500,000
3,500,000 Pendleton Ctny. KY 3 1/4s, 4/8/97
(Commonwealth Bank of Australia (LOC)) A-1+ 3,500,000
2,000,000 Sunshine State Gov. Fin. Comm. FL 3/12s,
7/16/97 (Union Bank of Switzerland (LOC)) VMIGI 2,000,000
--------------
Total Municipal Commercial Paper
(cost $21,900,000) $ 21,900,000
- ---------------------------------------------------------------------------------------------------
Total Investments (cost $120,020,771) *** $120,020,771
- ---------------------------------------------------------------------------------------------------
See page 14 for notes to the Portfolio.
* Percentages indicated are based on net assets of $129,995,490.
** The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at March 31, 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 March 31, 1997.
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 and 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 = Overwhelming safety characteristics
SP-2 = Strong capacity to pay interest and repay principal.
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 rate shown on VRDN's are the current interest rates at March 31,
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
March 31, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) 120,020,771
- ---------------------------------------------------------------------------------------------
Cash 46,174
- ---------------------------------------------------------------------------------------------
Interest and other receivables 811,274
- ---------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 9,509,999
- ---------------------------------------------------------------------------------------------
Receivable for securities sold 130,000
- ---------------------------------------------------------------------------------------------
Total assets 130,518,218
Liabilities
- ---------------------------------------------------------------------------------------------
Distributions payable to shareholders 30,078
- ---------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 279,884
- ---------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 117,818
- ---------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 2,874
- ---------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,014
- ---------------------------------------------------------------------------------------------
Payable for postage 55,410
- ---------------------------------------------------------------------------------------------
Other accrued expenses 35,650
- ---------------------------------------------------------------------------------------------
Total liabilities 522,728
- ---------------------------------------------------------------------------------------------
Net assets $129,995,490
Represented by
- ---------------------------------------------------------------------------------------------
Paid-in capital (Note 4) $129,995,490
- ---------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($129,995,490 divided by 129,995,490 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, 1997 (Unaudited)
<S> <C>
Tax exempt interest income: $1,785,802
Expenses:
- --------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 229,445
- --------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 93,416
- --------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 5,368
- --------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,984
- --------------------------------------------------------------------------------------------
Reports to shareholders 15,897
- --------------------------------------------------------------------------------------------
Registration fees 23,439
- --------------------------------------------------------------------------------------------
Auditing 8,410
- --------------------------------------------------------------------------------------------
Legal 6,901
- --------------------------------------------------------------------------------------------
Postage 1,808
- --------------------------------------------------------------------------------------------
Other 11,213
- --------------------------------------------------------------------------------------------
Total expenses 397,881
- --------------------------------------------------------------------------------------------
Expense reduction (Note 2) (82,130)
- --------------------------------------------------------------------------------------------
Net expenses 315,751
- --------------------------------------------------------------------------------------------
Net investment income 1,470,051
- --------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,470,051
- --------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
March 31 September 30
1997* 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 1,470,051 $ 2,389,511
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,470,051 2,389,511
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (1,470,051) (2,389,511)
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 29,181,517 27,747,785
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 29,181,517 27,747,785
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 100,813,973 73,066,188
- ---------------------------------------------------------------------------------------------------------------
End of period $129,995,490 $100,813,973
- ---------------------------------------------------------------------------------------------------------------
* 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
Per-share March 31
operating performance (Unaudited) Year ended September 30
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment operations
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income $.0145 $.0298 $.0312 $.0191 $.0184 $.0297(c)
- --------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .0145 .0298 .0312 .0191 .0184 .0297
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (.0145) (.0298) (.0312) (.0191) (.0184) (.0297)
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 1.46* 3.02 3.16 1.93 1.85 3.02
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $129,995 $100,814 $73,066 $98,397 $81,076 $81,820
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .39* .90 .81 .71 .99 .87(c)
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.44* 2.86 3.10 1.97 1.85 2.99(c)
- --------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(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 an expense limitation in effect during the period. As a result of such limitation,
expenses of the fund for the period ended September 30, 1992 reflects a
reduction of approximately $0.0029 per share.
</TABLE>
Notes to financial statements
March 31, 1997 (Unaudited)
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 preservation of
capital, 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 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.
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, 0.250% 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% of any excess thereafter. Prior to 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 six months ended March 31, 1997, fund expenses were reduced by $82,130
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 $210 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 "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 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 on the plan.
For the six months ended March 31, 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 six months ended March 31, 1997, purchases and sales (including
maturities) of investment securities (all short-term obligations) aggregated
$661,360,097 and $625,272,000, 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, 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:
Six months ended Year ended
March 31 September 30
1997 1996
- ---------------------------------------------------------
Shares sold 488,927,593 785,297,019
- ---------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,382,852 2,296,709
- ---------------------------------------------------------
490,310,445 787,593,728
Shares
repurchased (461,128,928) (759,845,943)
- ---------------------------------------------------------
Net increase 29,181,517 27,747,785
- ---------------------------------------------------------
WELCOME TO
www.putnaminv.com
Now you can get up-to-date information about your funds, learn more
about investing and retirement planning, and access market news and an
economic outlook from Putnam experts -- with just a few clicks of the
mouse!
VISIT PUTNAM'S NEW SITE ON THE WORLD WIDE WEB TO FIND OUT:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* daily fund pricing and long-term fund performance
* how to tell if your retirement savings plan is on track
* how quickly money can accumulate in a tax-deferred investment
You can also read Dr. Robert Goodman's economic commentary and Putnam's
Capital Markets Forum outlook, search for a particular Putnam fund by
name or objective . . . and much more.
The site can be accessed through any of the major online services
(America Online, CompuServe, Prodigy) that offer web access. Of course,
you can also access it via Netscape and an independent Internet service
provider.
New features will be added to the site on an ongoing basis. So, visit us
at http://www.putnaminv.com -- often!
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
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 J. Curtin
Vice President
William F. McGue
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. 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 principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
32896-062 5/97
