Putnam
Tax Exempt
Money Market
Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
3-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The past six months have been a positive, though fairly volatile, time for
most U.S. financial markets. Investors grappled with recurring instability
in the emerging markets, an apparent stall in U.S. economic growth, three
short-term interest-rate cuts by the Federal Reserve Board, and finally
the economy's resilient return to strength. Relatively speaking, the
tax-exempt money market has been one of the calmest sectors, although
risk-averse investors continued to pour assets into funds such as Putnam
Tax Exempt Money Market Fund.
Your fund's recent performance reflects this relatively favorable
environment. For the six months ended March 31, 1999, the fund returned
1.25% at net asset value. You can find additional performance information
on page 5.
* DURATION ADJUSTMENTS KEEP PACE WITH INTEREST RATES
As the economic winds appeared to be in danger of stalling during the
fall, the Federal Reserve Board, over a period of just seven weeks,
stepped in three times to lower short-term interest rates. Once the
economy's growth rate appeared more secure, the Fed adopted a more neutral
monetary stance. During the first quarter of calendar 1999, market
participants actually saw some potential for the Fed to raise rates as
inflation expectations rose, commodity prices began to rise, wage growth
stopped declining, and money and credit continued to grow. These
expectations were never realized, of course, although Fed Chairman Alan
Greenspan did give some spirited anti-inflation rhetoric in his semiannual
Humphrey-Hawkins testimony before the Senate on February 23.
Amid declining interest rates and changing economic expectations,
successfully managing Putnam Tax Exempt Money Market Fund during the
semiannual period required flexibility. Once again, managing portfolio
duration has been one of the most important elements of Fund Manager Brian
S. Torpey's strategy. Going into the fourth quarter of 1998, Brian had
extended portfolio duration in order to lock in the highest available
municipal money market rates. Following the heavy securities issuance
period of June and July, supply of tax-exempt money market securities was
low. At the same time, the Fed began to lower interest rates.
The beginning of the calendar year brought a huge increase in demand as a
large volume of coupon interest payments made investors flush with cash to
reinvest. By keeping the portfolio duration extended during this time, the
fund was able to maintain its income stream and avoid competing for
securities offering lower yields. Toward the end of the year as it became
clear that the Fed's easing bias was over, Brian brought duration back to
a more neutral position.
* SUPPLY DECLINES BUT QUALITY EMPHASIS REMAINS
Along with falling interest rates and strong investor demand, the
semiannual period was also characterized by a dwindling supply of
tax-exempt money market securities. The expanding economy has continued to
raise tax revenues and decrease municipalities' borrowing needs. In fact,
1998 experienced the lowest issuance of short-term tax-exempt securities
since 1990. Amid these challenging conditions, your fund's manager
redoubled efforts to maintain current income while preserving capital and
staying focused on investments of superior quality. The fund has always
made capital preservation and credit quality top priorities, investing in
a wide spectrum of superior quality tax-exempt money market securities. In
the current portfolio, over 75% of holdings are either insured or backed
by letters of credit.
In the months ahead, Brian will continue to seek out opportunities to
extend portfolio duration in anticipation of the cyclical supply swell
that regularly occurs in June and July. At the same time, he will remain
watchful of credit quality and focused on preserving capital, continuing
to implement the conservative strategies that have served shareholders
well thus far.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
May 19, 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 3/31/99, 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 money by investing
in the fund.
PERFORMANCE COMPARISONS (3/31/99)
Current After-tax
return* return
- -----------------------------------------------------------
Passbook savings account 1.50% 0.91%
- -----------------------------------------------------------
Taxable money market fund 7-day yield 4.44 2.68
- -----------------------------------------------------------
3-month certificate of deposit 3.73 2.25
- -----------------------------------------------------------
Putnam Tax Exempt
Money Market Fund (7-day yield) 2.43 2.43
- -----------------------------------------------------------
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 3/31/99
Lipper
Tax Exempt Consumer
Fund shares Money Market price
at NAV Fund Average index
- --------------------------------------------------------------------------
6 months 1.25% 1.27% 0.98%
- --------------------------------------------------------------------------
1 year 2.76 2.80 1.73
- --------------------------------------------------------------------------
5 years 15.57 15.72 12.09
Annual average 2.94 2.96 2.31
- --------------------------------------------------------------------------
10 years 39.30 37.70 34.91
Annual average 3.37 3.04 3.04
- --------------------------------------------------------------------------
Life of fund (10/26/87) 49.43 47.08 43.10
Annual average 3.58 3.21 3.19
- --------------------------------------------------------------------------
Current return (end of period)
- --------------------------------------------------------------------------
Current 7-day yield1 2.43%
- --------------------------------------------------------------------------
Taxable equivalent2 4.02
- --------------------------------------------------------------------------
Current 30-day yield1 2.38
- --------------------------------------------------------------------------
Taxable equivalent2 3.94
- --------------------------------------------------------------------------
1 The 7-day and 30-day yields are the two most common gauges for measuring
money market mutual fund performance.
2 Assumes 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.
DISTRIBUTION INFORMATION
6 months ended 3/31/99
- --------------------------------------------------------------------------
Distributions (number) 6
- --------------------------------------------------------------------------
Income $0.012439
- --------------------------------------------------------------------------
Total $0.012439
- --------------------------------------------------------------------------
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.
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.
<TABLE>
<CAPTION>
Portfolio of investments owned
March 31, 1999 (Unaudited)
Key to Abbreviations
AMBAC -- AMBAC Indemnity Corporation
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
G.O. Bonds -- General Obligation Bonds
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (97.2%) (a)
PRINCIPAL AMOUNT RATING(RAT) VALUE
<S> <C> <C> <C>
Arizona (4.6%)
- --------------------------------------------------------------------------------------------------------------------------
$ 3,800,000 Pima Cnty., Indl. Dev. Auth. VRDN (Tucson Elec.
Pwr. Co.-Irvington), Ser. A, 3.05s, 10/1/22 VMIG1 $ 3,800,000
Arkansas (4.8%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 AR State Hosp. Equip. Fin. Auth. VRDN
(Baptist Hlth.), MBIA, 3.1s, 11/1/10
(Credit Suisse (LOC)) VMIG1 4,000,000
California (4.9%)
- --------------------------------------------------------------------------------------------------------------------------
3,500,000 CA Pub. Cap. Impt. Fin. Auth. Rev. Bonds VRDN
(Pooled Project), Ser. C, 2.95s, 6/1/28
(National Westminster Bank (LOC)) VMIG1 3,500,000
500,000 CA State G.O. Bond, 5.4s, 9/1/99 Aa3 504,862
--------------
4,004,862
Florida (9.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 FL Hsg. Fin. Agcy. VRDN (Woodlands), 3.2s,
12/1/17 (Northern Trust (LOC)) A-1+ 4,000,000
4,000,000 Orange Cnty., Hsg. Fin. Auth. VRDN
(Sundown Assoc. II), Ser. B, 3.2s, 6/1/04
(Fleet Bank (LOC)) A-1 4,000,000
--------------
8,000,000
Georgia (15.7%)
- --------------------------------------------------------------------------------------------------------------------------
4,000,000 Atlanta, Fin. Hsg. Auth. Multi-Fam. Hsg. VRDN,
3.25s, 12/1/08 A-1+ 4,000,000
1,200,000 De Kalb Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Wood Hills Apt.), 3.15s, 12/1/07 A-1+ 1,200,000
3,700,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 3.2s, 8/1/26
(First Union National Bank (LOC)) A-1 3,700,000
4,000,000 Marietta, Hsg. Auth. Multi-Fam. VRDN
(Wood Pointe Apts.), 3.2s, 10/1/07 A-1 4,000,000
--------------
12,900,000
Illinois (5.9%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Du Page & Will Cntys., Comm. School Dist.
G.O. Bonds FGIC, 4.8s, 12/30/99 Aaa 505,851
500,000 Hoffman Estates, Tax Alloc. AMBAC , 5s, 11/15/99 Aaa 505,647
3,290,000 IL Dev. Fin. Auth. Indl. Dev. VRDN
(Cook Composites & Polymers), 3.5s, 2/1/09
(Societe Generale (LOC)) A-1+ 3,290,000
500,000 IL State Univ. Rev. Bonds, 7.4s, 4/1/13 Aaa 519,534
--------------
4,821,032
Indiana (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
750,000 Indianapolis, IN Arpt. Auth. Rev. Bonds,
FGIC, 5s, 7/1/99 Aaa 752,388
Kentucky (8.1%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Carrollton, KY Pub. Energy Auth. FSA
Ser. A, 4 1/2s, 1/1/00 Aaa 3,028,665
3,600,000 Mayfield, KY Multi-City Lease VRDN, 3.1s, 7/1/26
(PNC Bk. (LOC)) VMIG1 3,600,000
--------------
6,628,665
Massachusetts (4.5%)
- --------------------------------------------------------------------------------------------------------------------------
1,000,000 MA State Indl. Fin. Auth. Rev. Bonds, FSA,
5 1/4s, 7/1/99 Aaa 1,003,802
1,000,000 MA State G.O.Bonds AMBAC Ser. B, 6.1s, 8/1/99 Aaa 1,009,146
MA State Tpke. Auth G.O. Bonds
1,125,000 Ser. A, 5s, 6/1/99 A1 1,128,622
530,000 Ser. A, 5s, 6/1/99 (Prerefunded) Aaa 531,721
--------------
3,673,291
Michigan (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,500,000 MI Muni Bond Auth Rev. Notes, 4 1/4s, 8/27/99
(Bank of Nova Scotia (LOC)) SP-1 2,506,593
1,005,000 MI Pub. Pwr. Agcy. Rev. Bonds AMBAC, 5s, 1/1/00 Aaa 1,018,205
--------------
3,524,798
Minnesota (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Golden Valley, MN Indl. Dev. Auth. VRDN
(Graco, Inc. Project), 3.2s, 12/1/02 VMIG1 3,000,000
Mississippi (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
3,000,000 Lee Cnty., Indl. VRDN (Hunter Douglas, Inc.),
3.488s, 10/1/00 (ABN AMRO Bank N.V. (LOC)) Aa2 3,000,000
Missouri (5.0%)
- --------------------------------------------------------------------------------------------------------------------------
400,000 MO State Dev. Fin. Auth. Rev. Bond, 4.1s, 12/1/99
(Imperial Bk. (LOC)) Aa3 402,314
3,700,000 MO State Hlth. & Ed. Auth. Rev. Bond
(Drury College), 3.05s, 8/15/21
(Chase Manhattan Bk. (LOC)) VMIG1 3,700,000
--------------
4,102,314
New Jersey (6.1%)
- --------------------------------------------------------------------------------------------------------------------------
NJ Econ. Dev. Auth. (Credit Suisse First Boston (LOC))
2,500,000 (Eastman) VRDN, 3.19s, 3/28/10 A-1+ 2,500,000
2,500,000 (Webro) VRDN, 3.19s, 1/15/10 A-1+ 2,500,000
--------------
5,000,000
North Dakota (5.6%)
- --------------------------------------------------------------------------------------------------------------------------
520,000 Fargo, ND Wtr. Auth. Rev. Bond MBIA,
3.2s, 1/1/00 Aaa 525,328
4,100,000 Grand Forks, Hsg. Facs. Rev. Bonds VRDN
(Grand Forks Homes, Inc.), 3.1s, 12/1/99
(US Bank N.A. (LOC)) A-1 4,100,000
--------------
4,625,328
Pennsylvania (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
2,200,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. VRDN
(Philadelphia Presbytery), 3.15s, 7/1/25
(PNC Bk. (LOC)) MIG1 2,200,000
2,000,000 Philadelphia, Sch Dist. , 4 1/4s, 6/30/99
(PNC Bk. (LOC)) MIG1 2,002,983
--------------
4,202,983
South Dakota (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
2,700,000 Rapid City Econ. Dev. VRDN (Civic Ctr.
Assoc. Partnership), 3.44s, 12/1/16 (Bayerische
Vereinsbank (LOC)) P-1 2,700,000
Tennessee (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
500,000 Johnson City, TN G.O. Bonds MBIA, 4.3s, 12/1/99 Aaa 503,667
Texas (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
600,000 Harris Cnty., G.O. Bonds, 3 1/2s, 7/15/99 Aa2 600,511
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $79,839,839) (b) $ 79,839,839
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $82,137,657.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to be the most recent ratings available at
March 31, 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 March 31, 1999. Securities rated
by Putnam are indicated by "/P" and are not publicly rated.
Moody's Investor Service, Inc. and Standard & Poor's Corp. are the leading independent rating agencies for debt
securities. Moody's uses the designation "Moody's Investment Grade", or "MIG", for most short-term municipal
obligations, adding a "V" ("VMIG") for bonds with a demand or variable feature; the designation "P" is used for tax
exempt commercial paper. Standard & Poor's uses "SP" for notes maturing in three years or less, "A" for bonds with a
demand or variable feature.
Moody's Investor 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.
The rates shown on VRDN are the current interest rates at March 31, 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
March 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $79,839,839
- -----------------------------------------------------------------------------------------------
Cash 235,451
- -----------------------------------------------------------------------------------------------
Interest and other receivables 519,253
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,863,731
- -----------------------------------------------------------------------------------------------
Total assets 82,458,274
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 8,668
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 199,438
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 87,966
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 1,614
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 4,756
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 856
- -----------------------------------------------------------------------------------------------
Other accrued expenses 17,319
- -----------------------------------------------------------------------------------------------
Total liabilities 320,617
- -----------------------------------------------------------------------------------------------
Net assets $82,137,657
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $82,137,657
- -----------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per share
($82,137,657 divided by 82,137,657 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, 1999 (Unaudited)
<S> <C>
Tax exempt interest income: $1,216,686
- -----------------------------------------------------------------------------------------------
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 178,707
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 57,893
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 1,885
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 1,717
- -----------------------------------------------------------------------------------------------
Reports to shareholders 5,525
- -----------------------------------------------------------------------------------------------
Registration fees 17,464
- -----------------------------------------------------------------------------------------------
Auditing 7,508
- -----------------------------------------------------------------------------------------------
Legal 2,805
- -----------------------------------------------------------------------------------------------
Postage 3,938
- -----------------------------------------------------------------------------------------------
Other 399
- -----------------------------------------------------------------------------------------------
Total expenses 277,841
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (43,520)
- -----------------------------------------------------------------------------------------------
Net expenses 234,321
- -----------------------------------------------------------------------------------------------
Net investment income 982,365
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 982,365
- -----------------------------------------------------------------------------------------------
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
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 982,365 $ 2,573,048
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 982,365 2,573,048
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income (982,365) (2,573,048)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 89,010 (23,393,489)
- ---------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 89,010 (23,393,489)
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 82,048,647 105,442,136
- ---------------------------------------------------------------------------------------------------------------
End of period $82,137,657 $ 82,048,647
- ---------------------------------------------------------------------------------------------------------------
* 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
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $.0124 $.0299 $.0304 $.0298 $.0312 $.0191
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .0124 .0299 .0304 .0298 .0312 .0191
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.0124) (.0299) (.0304) (.0298) (.0312) (.0191)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 1.25* 3.03 3.09 3.02 3.16 1.93
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $82,138 $82,049 $105,442 $100,814 $73,066 $98,397
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .75 .80 .90 .81 .71
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.23* 3.12 3.02 2.86 3.10 1.97
- -----------------------------------------------------------------------------------------------------------------------------------
* Not annualized
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended September 30, 1995 and thereafter, includes amounts paid
through expense offset arrangements. Prior period ratios exclude these amounts. (Note 2).
</TABLE>
Notes to financial statements
March 31, 1999 (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 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 valuation The valuation of the fund's portfolio instruments is
determined by means of the amortized cost method as set forth in Rule 2a-7
under the Investment Company Act of 1940. The amortized cost of an
instrument is determined by valuing it at cost originally and thereafter
amortizing any discount or premium from its face value at a constant rate
until maturity.
B) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed).
C) Federal taxes It is the policy of the fund to distribute all of its
income within the prescribed time and otherwise comply with the provisions
of the Internal Revenue Code applicable to regulated investment companies.
It is also the intention of the fund to distribute an amount sufficient to
avoid imposition of any excise tax under Section 4982 of the Internal
Revenue Code of 1986, as amended. Therefore, no provision has been made
for federal taxes on income, capital gains or unrealized appreciation on
securities held nor for excise tax on income and capital gains.
D) Interest income and distributions to shareholders Interest is recorded
on the accrual basis. Income dividends (and distributions of realized
gains, if any) are recorded daily by the fund and are distributed monthly
to the shareholders.
E) Amortization of bond premium and accretion of bond discount Premiums
and discounts 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 six months ended March 31, 1999, fund expenses were reduced by
$43,520 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 $170 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 the fund and are invested in certain Putnam funds until distribution in
accordance with the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as Trustee for at least five years. Benefits under the Pension Plan
are equal to 50% of the Trustee's average total retainer and meeting fees
for the three years preceding retirement. Pension expense for the fund is
included in Compensation of trustees in the Statement of operations.
Accrued pension liability is included in Payable for compensation of
Trustees in the Statement of assets and liabilities.
The fund has adopted a distribution plan (the "Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940. The purpose of the Plan is
to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of
Putnam Investments, Inc., for services provided and expenses incurred by
it in distributing shares of the fund. The Plan provides for payment by
the fund to Putnam Mutual Funds Corp. at an annual rate of up to 0.35% of
the fund's average net assets. Currently, no payments are being made to
the plan.
For the six months ended March 31, 1999, 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
Purchases and sales of securities
During the six months ended March 31, 1999, purchases and sales (including
maturities) of investment securities (all short-term obligations)
aggregated $165,627,660 and $164,982,400, 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, 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:
Six months ended Year ended
March 31 September 30
1999 1998
- -----------------------------------------------------------------------------
Shares sold 64,576,915 128,984,954
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 939,345 2,311,184
- -----------------------------------------------------------------------------
65,516,260 131,296,138
Shares
repurchased (65,427,250) (154,689,627)
- -----------------------------------------------------------------------------
Net increase
(decrease) 89,010 (23,393,489)
- -----------------------------------------------------------------------------
PUTNAM GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
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
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
Utilities Growth and Income Fund
PUTNAM INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Quality Bond Fund +
High Yield Advantage Fund [DBL. DAGGER]
High Yield Total Return Fund
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government Income Fund
Money Market Fund **
Preferred Income Fund
Srategic Income Fund *
U.S. Government Income Trust
PUTNAM TAX-FREE
INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund **
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts,
Michigan, Minnesota, New Jersey, New York,
Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK]
California, New York
LIFESTAGE SM 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
+ Formerly Putnam Federal Income Trust
[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 neither
insured nor guaranteed by the U.S. government.
These funds are managed to maintain a price
of $1.00 per share, although there is no
assurance that this price will be maintained
in the future.
Please call your financial advisor or Putnam
at 1-800-225-1581 to obtain a prospectus for
any Putnam fund. It contains more complete
information, including charges and expenses.
Please read it carefully before you invest or
send money.
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
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
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
Stephen Oristaglio
Vice President
Jerome J. Jacobs
Vice President
Brian S. Torpey
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
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' Web site:
http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
www.putnaminv.com
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
SA057 51857 062 5/99
