Putnam
Tax Exempt
Money Market
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
For most of the 12 months ended September 30, 1999, the money market sustained
positive momentum. The economy continued to grow, inflation stayed in check,
and interest rates trended upward -- all contributing to a favorable environment
for short-term securities. Elsewhere in the U.S. financial universe, the stock
market continued on its upward path while the bond market suffered its
second-worst year on record. Even within the stock and money markets, there
were pockets of volatility, especially surrounding the Federal Reserve Board's
two short-term interest rate increases in June and August. Overall, though,
the tax-exempt money market remained one of the calmest sectors in the
financial marketplace, and funds such as Putnam Tax Exempt Money Market Fund
continued to attract new assets. Your fund's recent performance reflects this
relatively favorable environment.
Total return for 12 months ended 9/30/99
NAV
- ------------------------------------------------------------------------
2.57%
- ------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 5.
* SLIGHTLY LONGER DURATION CAPTURES INCOME
What a difference a year makes. Just last September the economy appeared so
much in danger of stalling that the Fed lowered short-term interest rates
three times in just seven weeks. Since then, many of the world's economies have
strengthened, while U.S. economic growth has remained fairly steady. In fact,
over the summer, the Fed became concerned that the economy was overheating and
actually raised interest rates twice, in June and again in August. In response,
the pace of growth slowed to 1.6% during the second quarter of 1999. Despite
widespread expectations of a third increase, the Fed left rates alone at its
early October meeting. Nonetheless, current market interest rates reflect an
expectation that the Fed will raise rates again in the months ahead. This
expectation has driven up yields, and at its October meeting, the Fed stated a
firm bias toward tightening rates should inflation appear stronger.
In this environment of higher interest rates, your fund's manager, Brian S.
Torpey, used duration as the key tool for managing the fund. In order to lock
in the highest available money market rates, Brian kept portfolio duration
slightly longer than the market average throughout the past six months. Besides
allowing the fund to capture additional income, this longer duration enables
the fund to avoid reinvesting assets in January, a time when yields on
tax-exempt money market securities traditionally drop. At the beginning of the
year, many tax-exempt bonds reach maturity and demand for money market issues
surges as investors seek parking places for the resulting assets until they can
find suitable reinvestment opportunities.
* AMID LOW SUPPLY, QUALITY REMAINS KEY
Ongoing economic growth throughout the country continued to raise tax revenues
and limit municipalities' borrowing needs during the annual period. Indeed, the
level of tax-exempt money market securities issuance over the past year has
been relatively flat. Amid this challenging climate, your fund manager has kept
superior credit quality and capital preservation uppermost in his mind while
pursuing appropriate income opportunities for the fund. As always, the
portfolio includes a wide range of top-quality tax-exempt money market
securities. In the current portfolio, more than 79.9% of holdings are either
insured or backed by letters of credit.
In the coming months, Brian will continue to pursue appropriate income
opportunities while keeping a firm grasp on superior credit quality and capital
preservation. After the new year, when yields on tax-exempt money market
securities should decline gradually, he plans to bring portfolio duration back
to a more neutral position. As always, he will remain focused on implementing
the conservative strategies that have served shareholders well thus far.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
November 17, 1999
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 9/30/99, there is no guarantee the fund will continue to hold
these securities in the future. An investment in the fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve your investment at $1.00 per share,
it is possible to lose Tax Exempt Money by investing in the fund.
PERFORMANCE COMPARISONS (9/30/99)
Current After-tax
return* return
- -------------------------------------------------------------------------------
Passbook savings account 1.25% 0.76%
- -------------------------------------------------------------------------------
Taxable money market fund 7-day yield 4.82 2.91
- -------------------------------------------------------------------------------
3-month certificate of deposit 3.85 2.33
- -------------------------------------------------------------------------------
Putnam Tax Exempt Money Market Fund (7-day yield) 2.95 2.95
- -------------------------------------------------------------------------------
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 9/30/99 (most recent calendar quarter)
Lipper
Tax Exempt Consumer
Fund shares Money Market price
at NAV Fund Average index
- -----------------------------------------------------------------------------
1 year 2.57% 2.62% 2.75%
- -----------------------------------------------------------------------------
5 years 15.78 16.04 12.38
Annual average 2.97 3.02 2.36
- -----------------------------------------------------------------------------
10 years 36.96 35.66 34.32
Annual average 3.20 2.88 2.99
- -----------------------------------------------------------------------------
Life of fund (10/26/87) 51.38 49.05 45.62
Annual average 3.54 3.18 3.20
- -----------------------------------------------------------------------------
Current return (end of period)
- -----------------------------------------------------------------------------
Current 7-day yield1 2.95%
- -----------------------------------------------------------------------------
Taxable equivalent2 4.88
- -----------------------------------------------------------------------------
Current 30-day yield1 2.72
- -----------------------------------------------------------------------------
Taxable equivalent2 4.50
- -----------------------------------------------------------------------------
1 The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2Assumes 39.6% maximum federal income 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.
Past performance is no assurance of future results and more recent returns
may be more or less than those shown. Fund performance data do not take
into account any adjustment for taxes payable on reinvested distributions.
Investment returns will fluctuate. An investment in the fund is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. Although the fund seeks to preserve your
investment at $1.00 per share, it is possible to lose money by investing
in the fund. The fund's holdings do not match those in the Lipper average.
Yield data more closely reflect the current earnings of the fund.
DISTRIBUTION INFORMATION 12 months ended 9/30/99
- -----------------------------------------------------------------------------
Distributions (number) 12
- -----------------------------------------------------------------------------
Income $0.025425
- -----------------------------------------------------------------------------
Total $0.025425
- -----------------------------------------------------------------------------
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.
A guide to the financial statements
These sections of the report, preceded by the Report of independent
accountants, constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values as
of the last day of the reporting period. Holdings are organized by asset
type and industry sector, country, or state to show areas of concentration
and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and non-investment assets are
added together. Any unpaid expenses and other liabilities are subtracted
from this total. The result is divided by the number of shares to
determine the net asset value per share, which is calculated separately
for each class of shares. (For funds with preferred shares, the amount
subtracted from total assets includes the net assets allocated to
remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for
the reporting period. This is determined by adding up all the fund's
earnings -- from dividends and interest income -- and subtracting its
operating expenses. This statement also lists any net gain or loss the
fund realized on the sales of its holdings and -- for holdings that remain
in the portfolio -- any change in unrealized gains or losses over the
period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of
the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed here
may not match the sources listed in the Statement of operations because
the distributions are determined on a tax basis and may be paid in a
different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also
includes the current reporting period. For open-ended funds, a separate
table is provided for each share class.
Report of independent accountants
For the fiscal year ended September 30, 1999
To the Trustees and Shareholders of
Putnam Tax Exempt Money Market Fund
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Tax Exempt
Money Market Fund at September 30, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at September 30, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 9, 1999
<TABLE>
<CAPTION>
The fund's portfolio
September 30, 1999
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FRB -- Floating Rate Bonds
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
PSFG -- Permanent School Fund Guaranteed
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Arizona (7.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 1,000,000 Maricopa Cnty., School Dist. G.O. Bonds
(Phoenix Elementary), FSA, 4 3/4s, 7/1/00 Aaa $ 1,008,025
4,000,000 Pima Cnty., Indl. Dev. Auth. VRDN
(Tucson Elec. Pwr. Co.-Irvington), Ser. A, 3.85s,
10/1/22 (Societe Generale (LOC)) VMIG1 4,000,000
1,100,000 Scottsdale, G.O. Bonds, 6.9s, 7/1/07 (PRE) AAA 1,148,471
--------------
6,156,496
Delaware (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 DE State G.O. Bonds, Ser. C, 5s, 7/1/00 Aa1 1,010,633
Florida (11.4%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 FL Hsg. Fin. Agcy. VRDN (Woodlands),
3.85s, 12/1/17 (Northern Trust (LOC)) A-1+ 4,000,000
555,000 FL State Board of Ed. G.O. Bonds,
Ser. A, 7 1/4s, 6/1/23 (PRE) AAA 580,016
4,100,000 Orange Cnty., Hsg. Fin. Auth. VRDN
(Sundown Assoc. II), Ser. B, 3.85s, 6/1/04
(Northern Trust (LOC)) A-1+ 4,100,000
500,000 Seminole Cnty., Local Option Gas Tax Rev. Bonds,
FGIC, 4 3/4s, 10/1/00 Aaa 504,530
--------------
9,184,546
Georgia (8.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,700,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 3.8s, 8/1/26
(First Union National Bank (LOC)) A-1 2,700,000
4,000,000 Marietta, Hsg. Auth. Multi-Fam. VRDN
(Wood Pointe Apts.), 3.8s, 10/1/07
(First Union National Bank (LOC)) A-1 4,000,000
--------------
6,700,000
Illinois (10.3%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Chicago, O'Hare Intl. Arpt. VRDN
(American Airlines), 4s, 12/1/17
(Royal Bank of Canada (LOC)) P-1 4,000,000
500,000 Du Page and Will Cntys., Cmnty. School Dist.
G.O. Bonds, FGIC, 4.8s, 12/30/99 Aaa 501,943
500,000 Hoffman Estates, Tax Allocation Rev. Bonds,
AMBAC, 5s, 11/15/99 Aaa 501,134
3,290,000 IL Dev. Fin. Auth. Indl. Dev. VRDN
(Cook Composites & Polymers), 4.2s, 2/1/09
(Societe Generale (LOC)) A-1+ 3,290,000
--------------
8,293,077
Kentucky (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Carrollton and Henderson, Pub. Energy Auth.
Rev. Bonds, Ser. A, FSA, 4 1/2s, 1/1/00 Aaa 3,009,659
Maryland (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Prince Georges Cnty., Solid Waste Mgt. Syst.
Rev. Bonds, 7s, 6/30/08 (PRE) AAA 1,043,760
Massachusetts (2.6%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 MA State Wtr. Resources Auth. Rev. Bonds,
Ser. A., 7 1/2s, 4/1/09 (FWC/WIS)(SEG) AAA 2,081,650
Michigan (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
2,000,000 MI Muni. Bond Auth. Rev. Notes, Ser. B-2, 4 1/4s,
8/25/00 (Morgan Guaranty Trust (LOC)) SP-1+ 2,011,822
1,005,000 MI Pub. Pwr. Agcy. Rev. Bonds (Campbell), Ser. A,
AMBAC, 5s, 1/1/00 Aaa 1,009,449
--------------
3,021,271
Minnesota (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Golden Valley, Indl. Dev. VRDN (Graco Inc.),
3.95s, 12/1/02 (U.S. Bank N.A. (LOC)) VMIG1 3,000,000
1,100,000 Minneapolis & St. Paul, Hsg. & Redev. Auth.
Hlthcare Syst. Rev. Bonds (Healthspan),
Ser. A, AMBAC, 4 1/4s, 11/15/99 Aaa 1,101,323
450,000 St. Louis Park, Hosp. Rev. Bonds (Methodist Hosp.),
Ser. C, AMBAC, 7 1/4s, 7/1/18 (PRE) AAA 470,810
--------------
4,572,133
Mississippi (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Lee Cnty., Indl. FRB (Hunter Douglas, Inc.),
3.85s, 10/1/00 (ABN AMRO Bank N.V. (LOC)) Aa2 3,000,000
Missouri (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 MS State Dev. Fin. Board Infrastructure Facs.
Rev. Bonds (Science City Union Station), Ser. A,
4.1s, 12/1/99 (Canadian Imperial Bank (LOC)) Aa3 400,586
Nebraska (4.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 American Pub. Energy Agcy. Rev. Bonds (NE Public
Gas Agency), Ser. A, AMBAC, 4s, 6/1/00 Aaa 3,513,175
New Jersey (6.2%)
- --------------------------------------------------------------------------------------------------------------------------
NJ Econ. Dev. Auth. VRDN
2,500,000 (Eastman), 3.87s, 3/28/10
(Credit Suisse First Boston (LOC)) A-1+ 2,500,000
2,500,000 (Webro), 3.87s, 1/15/10
(Credit Suisse First Boston (LOC)) A-1+ 2,500,000
--------------
5,000,000
North Dakota (5.7%)
- --------------------------------------------------------------------------------------------------------------------------
520,000 Fargo, Wtr. Rev. Bonds, MBIA, 4 3/4s, 1/1/00 Aaa 521,795
4,100,000 Grand Forks, Hsg. Facs. Rev. Bonds VRDN
(Grand Forks Homes, Inc.), 3.85s, 12/1/99
(US Bank N.A. (LOC)) A-1 4,100,000
--------------
4,621,795
Pennsylvania (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
3,900,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. VRDN
(Philadelphia Presbytery), 3.85s, 7/1/25
(PNC Bank (LOC)) VMIG1 3,900,000
South Dakota (3.4%)
- --------------------------------------------------------------------------------------------------------------------------
2,700,000 Rapid City Econ. Dev. VRDN
(Civic Ctr. Assoc. Partnership), 4.12s, 12/1/16
(Bayerische Vereinsbank (LOC)) P-1 2,700,000
Tennessee (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Johnson City, G. O. Bonds, MBIA, 4.3s, 12/1/99 Aaa 500,928
Texas (8.6%)
- --------------------------------------------------------------------------------------------------------------------------
3,800,000 Hays, Memorial Hlth. Facs. Dev. Corp. VRDN
(Central TX Med. Ctr.), Ser. B, 3.85s, 11/15/14
(Bank of America (LOC)) A-1+ 3,800,000
745,000 Northside, Indpt. School Distr. G.O. Bonds,
Ser. A, PSFG, 6 3/8s, 8/15/00 Aaa 761,654
1,125,000 Plano, G.O. Bonds, 6 1/4s, 7/15/00 AAA 1,142,994
600,000 Trinity River, Regional Wastewater Syst. Auth.
Rev. Bonds, Ser. B, FSA, 4 1/2s, 8/1/00 Aaa 603,156
650,000 TX State G.O. Bonds, Ser. A, 5 3/8s, 10/1/00 Aa1 659,915
--------------
6,967,719
Washington (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 Washington State Healthcare Facs. Auth. Rev. Bonds
(Kadlec Med. Ctr.), AMBAC, 4.4s, 12/1/99 Aaa 1,001,653
1,000,000 Washington State Pub. Pwr. Supply Syst. Rev. Bonds
(Nuclear No. 2), Ser. A, 7 3/8s, 7/1/12 AAA 1,048,356
--------------
2,050,009
Wisconsin (1.9%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Janesville, G.O. Bonds, Ser. A, AMBAC, 4.9s, 2/1/00 Aaa 501,781
1,000,000 Milwaukee Cnty. G. O. Bonds, Ser. A,
MBIA, 5 1/4s, 10/1/99 Aaa 1,000,049
--------------
1,501,830
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $79,229,267) (b) $ 79,229,267
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $80,707,990.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
September 30, 1999 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, 1999. 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
(b) The aggregate identified cost on a tax basis is the same.
(PRE) These securities are prerefunded with callable dates within a year.
The rates shown on FRB's and VRDN's are the current interest rates at September 30, 1999, 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, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $79,229,267
- -----------------------------------------------------------------------------------------------
Cash 132,637
- -----------------------------------------------------------------------------------------------
Interest and other receivables 627,760
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 603,394
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 510,000
- -----------------------------------------------------------------------------------------------
Total assets 81,103,058
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 10,133
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 271,230
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 89,737
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,839
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,355
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 890
- -----------------------------------------------------------------------------------------------
Other accrued expenses 14,884
- -----------------------------------------------------------------------------------------------
Total liabilities 395,068
- -----------------------------------------------------------------------------------------------
Net assets $80,707,990
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $80,707,990
- -----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($80,707,990 divided by 80,707,990 shares) $1.00
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Year ended September 30, 1999
<S> <C>
Tax exempt interest income: $2,529,821
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 356,318
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 121,378
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,648
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,557
- -----------------------------------------------------------------------------------------------
Reports to shareholders 15,205
- -----------------------------------------------------------------------------------------------
Registration fees 33,783
- -----------------------------------------------------------------------------------------------
Auditing 25,866
- -----------------------------------------------------------------------------------------------
Legal 6,151
- -----------------------------------------------------------------------------------------------
Postage 6,537
- -----------------------------------------------------------------------------------------------
Other 790
- -----------------------------------------------------------------------------------------------
Total expenses 574,233
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (76,655)
- -----------------------------------------------------------------------------------------------
Net expenses 497,578
- -----------------------------------------------------------------------------------------------
Net investment income 2,032,243
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,032,243
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended September 30
-------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Decrease in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 2,032,243 $ 2,573,048
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,032,243 2,573,048
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (2,032,243) (2,573,048)
- ---------------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (1,340,657) (23,393,489)
- ---------------------------------------------------------------------------------------------------------------
Total decrease in net assets (1,340,657) (23,393,489)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of year 82,048,647 105,442,136
- ---------------------------------------------------------------------------------------------------------------
End of year $80,707,990 $82,048,647
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .0254 .0299 .0304 .0298 .0312
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .0254 .0299 .0304 .0298 .0312
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.0254) (.0299) (.0304) (.0298) (.0312)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 2.57 3.03 3.09 3.02 3.16
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $80,708 $82,049 $105,442 $100,814 $73,066
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73 .75 .80 .90 .81
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.57 3.12 3.02 2.86 3.10
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Includes amounts paid through expense offset arrangements. (Note 2)
</TABLE>
Notes to financial statements
September 30, 1999
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
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. 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. Distributions of realized gains, if any, are paid at
least annually.
E) Amortization of bond premium and accretion of bond discount Premiums
and discounts from purchases of 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, 0.180% thereafter.
The fund reimburses Putnam Management an allocated amount 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 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, 1999, fund expenses were reduced by
$76,655 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.
Each Trustee of the fund receives an annual Trustee fee, of which $305 has
been allocated to the fund, 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 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, the Trustees have authorized no
payments to be made under the plan.
For the year ended September 30, 1999, Putnam Mutual Funds Corp., acting
as underwriter receives proceeds from contingent deferred sales charges
that 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, 1999, cost of purchases and proceeds
from sales (including maturities) of investment securities (all short-term
obligations) aggregated $265,974,832 and $266,070,800, respectively.
Note 4
Capital shares
At September 30, 1999, 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
- -----------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------
Shares sold 116,573,885 128,984,954
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,903,471 2,311,184
- -----------------------------------------------------------------------------
118,477,356 131,296,138
Shares
repurchased (119,818,013) (154,689,627)
- -----------------------------------------------------------------------------
Net decrease (1,340,657) (23,393,489)
- -----------------------------------------------------------------------------
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 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
Our commitment to quality service
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past 9
years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS 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
Within the same class of shares, you can move money from one account to
another 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 learn more about Putnam, visit our Web site.
www.putnaminv.com
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
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. 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.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity 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 [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
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
ASSET ALLOCATION 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 Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Edward H. D'Alelio
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
Vice President and Fund Manager
John R. Verani
Vice President
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' Web site: 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.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN057 56144 062 11/99
