Putnam
Tax Exempt
Money Market
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
9-30-00
[SCALE LOGO OMITTED]
FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years during
which the global securities markets, the mutual fund industry, and
Putnam itself have experienced tremendous growth and change.
As we look to the future, we are certain that the changes will be
breathtaking in their scope. What will not change is the Trustees'
dedication to serving the best interests of our shareholders.
We welcome the challenges that lie ahead and are confident that Putnam
and your Board will continue to face those challenges successfully as
they have for more than 60 years. We look forward to helping you meet
your financial objectives for many years to come.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
November 15, 2000
REPORT FROM FUND MANAGEMENT
Brian S. Torpey
For most of the 12 months ended September 30, 2000, the tax-exempt money
market sustained positive momentum. The economy remained strong,
inflation was subdued, and interest rates trended upward. Among other
U.S. financial markets, the equity market experienced growing volatility
amid uneven corporate earnings reports, while the bond market generally
declined in response to rising interest rates. Overall, the environment
for money market funds was favorable and your fund's recent performance
reflects this.
Total return for 12 months ended 9/30/00
NAV
---------------------------------------------------
3.38%
---------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 5.
* ECONOMIC STRENGTH BEGINS TO WANE; FED POLICY ON HOLD
The annual period began with the U.S. economic engine in full gear.
Plentiful jobs, rising incomes, tame inflation, and stock market gains
put consumers in a buying mood. Indeed, one key indicator of the
economy's positive momentum has been home sales, which have remained
strong over the past six months. In August, existing home sales rose
9.3%. This was the largest gain since June 1999, when this indicator
reached 10.9%. It surprised many analysts, who had expected a rise
closer to 4%.
As the third quarter progressed, clearer evidence of economic slowing
began to emerge. A punishing string of corporate earnings warnings
relentlessly pushed down stock prices, especially among the much-watched
high-flying technology stocks. Rising oil prices also began to concern
investors, analysts, and consumers. President Clinton took the unusual
step of releasing oil from the nation's petroleum reserves to help
reduce oil prices. (However, just after the period closed, the
unemployment rate dipped to 3.9% -- its lowest in 30 years and a
surprise to analysts who had been expecting a slight rise and further
evidence of an economic slowdown.)
During the first five months of 2000, the Federal Reserve Board,
concerned that the strong economy would bring about a rise in inflation,
raised its federal funds rate (the interest rate charged by banks when
they lend money to each other) by a full percentage point. By May, the
tightening cycle appeared to be ending, and the Fed left rates alone for
the rest of the period. Several reasons account for this shift. First,
the Fed saw evidence that the economy was weakening -- which was the
intended effect of its earlier interest-rate increase. Second, the euro
has been extremely weak against the dollar, and if the Fed was to push
rates high, the euro's weakness could be exacerbated. Third, oil prices
are rising, another potential drag on the economy. Finally, with the
presidential election approaching, the Fed may be reluctant to act for
fear of appearing biased toward either candidate.
* GROWING DEMAND AND LOW SUPPLY KEEP TAX-EXEMPT MARKET STRONG
Yields on tax-exempt money market securities remained attractive over
the period, especially relative to yields on longer-term tax-exempt
bonds. Although the municipal market has not experienced the inverted
yield curve of the Treasury market (where yields on short-term
securities rose above those on longer-term issues), its yield curve has
remained relatively flat. Since intermediate-term and longer-term bonds
are not offering significantly higher yields than short-term securities,
investors see less potential reward in assuming the greater
interest-rate risks associated with these longer issues.
Partly as a result of their yield advantage, tax-exempt money market
securities have been in high demand over the period. In fact, tax-exempt
money market assets grew by 13.7% over the 12 months ended September 30,
2000. Demand has been particularly strong in states that have a high
proportion of wealthy individuals. In addition to investing in
tax-exempt mutual funds like this one, these investors also are
purchasing money market securities on their own. Besides higher yields,
investors also appreciate the attractive relative stability of
tax-exempt money market issues.
With the economy continuing to generate strong tax revenues for many
municipalities, the supply of tax-exempt money market securities has
been lighter than in previous years. Some states did not even issue
tax-exempt notes at all. This supply shortfall, combined with increased
demand, has reduced buying opportunities for your fund.
* FUND MAINTAINS QUALITY FOCUS
Superior quality and capital preservation remain the hallmarks of your
fund's portfolio strategy, and we continue to invest in a wide spectrum
of traditional tax-exempt money market securities. Although the low
supply of tax-exempt securities has increased the challenge of finding
the higher-grade notes we target, we have not compromised our quality
standards. In the current portfolio, all holdings are insured, backed by
letters of credit, or carry the highest available rating from at least
one major rating agency.
Because higher quality securities carry a lower level of risk, they
typically offer slightly lower yields. Consequently, to keep the fund's
yield competitive, we try to keep the fund's dollar-weighted average
maturity (DWAM) at or slightly above the market average. This typically
means a focus on longer-term money market securities, which generally
offer slightly higher yields. The fund's actual DWAM has fluctuated
around the market average for most of the past year, as lack of supply
has limited our buying opportunities. Supply generally improves in the
2nd and 4th quarter of each calendar year. So, over the near term, we
will be looking to lengthen maturities as overall demand wanes, yields
become more attractive, and we work to avoid a difficult reinvestment
period in the first quarter of 2001.
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 9/30/00, 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 (9/30/00)
Current After-tax
return* return
----------------------------------------------------------------------------
Passbook savings account 2.96% 1.79%
----------------------------------------------------------------------------
Taxable money market fund 7-day yield 6.00 3.62
----------------------------------------------------------------------------
3-month certificate of deposit 4.55 2.75
----------------------------------------------------------------------------
Putnam Tax Exempt Money Market Fund (7-day yield) 3.97 3.97
----------------------------------------------------------------------------
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: Fleet National Bank (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 9/30/00
Lipper Tax Consumer
Fund shares Exempt Money price
at NAV Market Average index
------------------------------------------------------------------------------
1 year 3.38% 3.33% 3.46%
------------------------------------------------------------------------------
5 years 16.02 16.11 13.32
Annual average 3.02 3.03 2.53
------------------------------------------------------------------------------
10 years 34.08 34.53 30.82
Annual average 2.98 3.01 2.72
------------------------------------------------------------------------------
Annual average
(life of fund, since 10/26/87) 3.52 3.53 3.22
------------------------------------------------------------------------------
Current return
(end of period) Fund shares at NAV
------------------------------------------------------------------------------
Current 7-day yield1 3.97%
------------------------------------------------------------------------------
Taxable
equivalent2 6.57
------------------------------------------------------------------------------
Current 30-day yield1 3.68
------------------------------------------------------------------------------
Taxable
equivalent2 6.09
------------------------------------------------------------------------------
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 12 MONTHS ENDED 9/30/00
-------------------------------------------------------------------------------
Distributions
(number) 12
-------------------------------------------------------------------------------
Income $0.033256
-------------------------------------------------------------------------------
Total $0.033256
-------------------------------------------------------------------------------
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, not including
any initial or contingent deferred sales charge.
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 noninvestment 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-end funds, a
separate table is provided for each share class.
REPORT OF INDEPENDENT ACCOUNTANTS
For the fiscal year ended September 30, 2000
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 (except for bond ratings), 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, 2000, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United
States of America. 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 auditing standards
generally accepted in the United States of America, 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, 2000 by correspondence with the custodian provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 3, 2000
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
September 30, 2000
KEY TO ABBREVIATIONS
AMBAC -- AMBAC Indemnity Corporation
COP -- Certificate of Participation
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
PSFG -- Permanent School Fund Guaranteed
SPA -- Stand-by Put Agreement
VRDN -- Variable Rate Demand Notes
MUNICIPAL BONDS AND NOTES (98.2%) (a)
PRINCIPAL AMOUNT RATING (RAT) VALUE
<S> <C> <C> <C>
Alabama (1.1%)
-------------------------------------------------------------------------------------------------------------------
$ 1,035,000 Jefferson Cnty., Board of Ed. Warrants,
Ser. A, FSA, 4 1/2s, 2/15/01 AAA $ 1,035,874
Alaska (1.3%)
-------------------------------------------------------------------------------------------------------------------
1,270,000 AK State COP (AK Courthouse),
AMBAC, 5s, 1/1/01 AAA 1,271,948
Delaware (0.5%)
-------------------------------------------------------------------------------------------------------------------
465,000 Delaware Trans. Auth. Syst. Rev. Bonds,
6s, 7/1/14 (PRE) AAA 470,424
Florida (12.5%)
-------------------------------------------------------------------------------------------------------------------
1,935,000 Broward Cnty. COP, Ser. A, MBIA, 4.95s, 6/1/01 AAA 1,942,731
4,000,000 FL Hsg. Fin. Agcy. VRDN (Multifam. Hsg-Kings D),
5.5s, 8/1/06 (Credit Suisse (LOC)) VMIGI 4,000,000
1,000,000 FL State Board of Ed. G.O. Bonds (Pub. Ed.),
Ser. A, 6 3/4s, 6/1/21 (PRE) Aaa 1,022,999
245,000 Kissimmee, Wtr. & Swr. Rev. Bonds, AMBAC,
5.1s, 10/1/00 AAA 245,004
4,100,000 Orange Cnty., Hsg. Fin. Auth. VRDN
(Sundown Assoc. II), Ser. B, 4.44s, 6/1/04
(Northern Trust Co. (LOC)) A-1+ 4,100,000
500,000 Seminole Cnty., Local Option Gas Tax Rev. Bonds,
FGIC, 4 3/4s, 10/1/00 Aaa 500,012
-------------
11,810,746
Georgia (18.1%)
-------------------------------------------------------------------------------------------------------------------
1,000,000 Burke Cnty., Poll. Control Dev. Auth. Rev. Bonds
(GA Pwr. Co.), Ser. 6, AMBAC, 4 3/8s, 11/1/00 Aaa 1,000,387
3,700,000 Fulton Cnty., Hsg. Auth. Multi-Fam. Hsg. VRDN
(Holcombs Landing Apts), 5.9s, 8/1/26
(First Union National Bank (LOC)) A-1 3,700,000
4,000,000 Fulton Cnty., Hsg. Auth. VRDN (Spring Creek
Crossing), 5.55s, 10/1/24 (Wachovia Bank
of Georgia (LOC)) A-1+ 4,000,000
1,000,000 GA Muni. Elec. Auth. Rev. Bonds, Ser. U,
7 1/8s, 1/1/19 (PRE) Aaa 1,026,514
3,000,000 GA State G.O. Bonds, Ser. B, 5.6s, 3/1/01 Aaa 3,016,737
4,400,000 Marietta, Hsg. Auth. Multi-Fam. VRDN
(Wood Pointe Apts.), 5.8s, 10/1/07
(First Union National Bank (LOC)) A-1 4,400,000
-------------
17,143,638
Illinois (5.4%)
-------------------------------------------------------------------------------------------------------------------
3,290,000 IL Dev. Fin. Auth. Indl. Dev. VRDN (Cook
Composites & Polymers), 5.92s, 2/1/09
(Societe Generale (LOC)) A-1 3,290,000
1,825,000 IL State Toll Hwy. Auth. Rev. Bonds, Ser. A,
FGIC, 4.7s, 1/1/01 AAA 1,827,027
-------------
5,117,027
Kentucky (3.3%)
-------------------------------------------------------------------------------------------------------------------
600,000 KY State Property & Bldg. Comm. Rev. Bond
(Project No 52), 6 1/2s, 8/1/11 (PRE) AAA 621,774
2,495,000 Mayfield, KY Multi-City Lease VRDN, 5.6s, 7/1/26
(PNC Bank (LOC)) VMIGI 2,495,000
-------------
3,116,774
Maryland (2.1%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Washington Cnty., Econ. Dev. Rev. Bonds
(St. James School), 4 3/8s, 11/1/29
(PNC Bank (LOC)) (PRE) VMIGI 2,002,531
Massachusetts (0.8%)
-------------------------------------------------------------------------------------------------------------------
500,000 MA State G.O. Bonds, Ser. C, 7s, 12/1/10 (PRE) Aaa 502,449
225,000 MA State Hlth. & Edl. Facs. Auth. Rev. Bonds,
MBIA, 6.85s, 10/1/00 Aaa 225,025
-------------
727,474
Minnesota (4.2%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Golden Valley, Indl. Dev. VRDN (Graco Inc.),
5.7s, 12/1/02 (U.S. Bank N.A. (LOC)) VMIGI 2,000,000
2,000,000 Rosemount, MN Indpt. School Dist. G.O. Bonds,
Ser. C, FGIC, 5.3s, 2/1/01 Aaa 2,007,249
-------------
4,007,249
New Jersey (5.3%)
-------------------------------------------------------------------------------------------------------------------
NJ Econ. Dev. Auth. VRDN
2,500,000 (Eastman), 5.62s, 3/28/10 (Credit Suisse
First Boston (LOC)) A-1+ 2,500,000
2,500,000 (Webro), 5.62s, 1/15/10 (Credit Suisse
First Boston (LOC)) A-1+ 2,500,000
-------------
5,000,000
Ohio (0.4%)
-------------------------------------------------------------------------------------------------------------------
400,000 OH State Bldg. Auth. Rev. Bonds (State Juvenile
Correctional Facs.), Ser. A, AMBAC, 5.6s, 10/1/00 Aaa 400,015
Oklahoma (2.1%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 Claremore Indl. & Redev. Auth. Rev. Bonds VRDN
(Worthington Cylinder), 5 3/4s, 1/1/11
(Bank of America (LOC)) Aa1 2,000,000
Pennsylvania (14.2%)
-------------------------------------------------------------------------------------------------------------------
4,400,000 Dauphin Cnty., Gen. Auth. Rev. Bonds VRDN
(School Dist. Pooled Fin. Project II), AMBAC,
5.7s, 9/1/32 (Bank of Nova Scotia (SPA)) VMIGI 4,400,000
4,600,000 Montgomery Cnty., Higher Ed. & Hlth. Auth. VRDN
(Philadelphia Presbytery), 5 1/2s, 7/1/25
(PNC Bank (LOC)) VMIGI 4,600,000
4,500,000 New Garden, PA Gen. Auth. Rev. Bonds VRDN
(Pooled Fin. Project I), AMBAC, 5.7s, 11/1/29
(Bank of Nova Scotia (SPA)) VMIGI 4,500,000
-------------
13,500,000
South Carolina (3.0%)
-------------------------------------------------------------------------------------------------------------------
2,800,000 SC State Pub. Svcs. Auth. Rev. Bonds, Ser. A,
AMBAC, 6 1/4s, 1/1/01 AAA 2,813,662
South Dakota (2.8%)
-------------------------------------------------------------------------------------------------------------------
2,635,000 Rapid City Econ. Dev. VRDN (Civic Ctr. Assoc.
Partnership), 5.82s, 12/1/16 (Bayerische
Vereinsbank (LOC)) P-1 2,635,000
Tennessee (2.1%)
-------------------------------------------------------------------------------------------------------------------
2,000,000 TN State G.O. Bonds, 5 1/4s, 5/1/01 Aa1 2,007,652
Texas (14.2%)
-------------------------------------------------------------------------------------------------------------------
900,000 Beaumont Ind. Sch. Dist. G.O. Bonds, 6.6s, 2/15/01 AAA 907,237
3,500,000 Bowie Ctny., Ind. Dev. Corp. Rev. Bonds, PSFG,
VRDN (Texarkana Newspapers, Inc.), 5.6s,
11/1/25 (Bank of NY (LOC)) A-1+ 3,500,000
500,000 Dallas G.O. Bonds, 5.9s, 2/15/01 Aaa 502,004
1,000,000 Goose Creek Consolidated Ind. School Dist. G.O.
Bonds, PSFG, 8s, 2/15/01 Aaa 1,013,228
1,900,000 Humble G.O. Bonds, MBIA, 6s, 3/1/01 AAA 1,908,369
1,075,000 Round Rock, Ind. School Dist., G.O. Bonds, Ser. B,
PSFG, 7s, 8/1/01 Aaa 1,097,619
650,000 TX State G.O. Bonds, Ser. A, 5 3/8s, 10/1/00 Aa1 650,027
3,800,000 TX State Tax & Rev. notes, 5 1/4s, 8/31/01 MIGI 3,832,435
-------------
13,410,919
Washington (4.3%)
-------------------------------------------------------------------------------------------------------------------
3,600,000 Port Vancouver, Rev. Bonds VRDN (United Grain
Corp), 4.3s, 12/1/09 (Bank of America (LOC)) A-1+ 3,600,000
500,000 Tacoma Sewer Rev. Bonds, Ser. B,
FGIC, 5.2s, 12/1/00 Aaa 500,746
-------------
4,100,746
West Virginia (0.5%)
-------------------------------------------------------------------------------------------------------------------
435,000 West Virginia Wtr. Dev. Rev. Bonds (LN Prong II),
Ser. A, 7.7s, 11/1/29 (PRE) Aaa 445,042
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $93,016,721) (b) $ 93,016,721
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $94,710,400.
(RAT) The Moody's or Standard & Poor's ratings indicated are believed to
be the most recent ratings available at September 30, 2000 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, 2000. 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 VRDN's are the current interest rates shown at
September 30, 2000, which are subject to change based on the terms of
the security.
The fund had the following insurance concentration greater than
10% at September 30, 2000 (as a percentage of net assets):
AMBAC 15.5%
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2000
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at amortized cost (Note 1) $93,016,721
-------------------------------------------------------------------------------------------
Cash 240,986
-------------------------------------------------------------------------------------------
Interest and other receivables 693,944
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 1,006,915
-------------------------------------------------------------------------------------------
Total assets 94,958,566
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 37,150
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 68,158
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 105,014
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 17,620
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 6,759
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 820
-------------------------------------------------------------------------------------------
Other accrued expenses 12,645
-------------------------------------------------------------------------------------------
Total liabilities 248,166
-------------------------------------------------------------------------------------------
Net assets $94,710,400
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $94,710,400
-------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per
share ($94,710,400 divided by 94,710,400 shares) $1.00
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended September 30, 2000
<S> <C>
Tax exempt interest income: $3,716,585
-------------------------------------------------------------------------------------------
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 422,118
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 158,226
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 6,590
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 4,074
-------------------------------------------------------------------------------------------
Registration fees 31,053
-------------------------------------------------------------------------------------------
Other 62,848
-------------------------------------------------------------------------------------------
Total expenses 684,909
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (95,278)
-------------------------------------------------------------------------------------------
Net expenses 589,631
-------------------------------------------------------------------------------------------
Net investment income 3,126,954
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $3,126,954
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
Year ended September 30
---------------------------------
2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $3,126,954 $2,032,243
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 3,126,954 2,032,243
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income (3,126,954) (2,032,243)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital share transactions (Note 4) 14,002,410 (1,340,657)
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 14,002,410 (1,340,657)
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 80,707,990 82,048,647
--------------------------------------------------------------------------------------------------
End of period $94,710,400 $80,707,990
--------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
-----------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended September 30
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New asset value,
beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
-----------------------------------------------------------------------------------------------------
Investment operations
-----------------------------------------------------------------------------------------------------
Net investment income .0333 .0254 .0299 .0304 .0298
-----------------------------------------------------------------------------------------------------
Total from
investment operations .0333 .0254 .0299 .0304 .0298
-----------------------------------------------------------------------------------------------------
Total distributions (.0333) (.0254) (.0299) (.0304) (.0298)
-----------------------------------------------------------------------------------------------------
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) 3.38 2.57 3.03 3.09 3.02
-----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $94,710 $80,708 $82,049 $105,442 $100,814
-----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73 .73 .75 .80 .90
-----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.33 2.57 3.12 3.02 2.86
-----------------------------------------------------------------------------------------------------
(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, 2000
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 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 valuation The valuation of the funds' 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 are recorded daily by
the fund and are paid 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 at a constant rate until maturity.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Investment Management Inc. ("Putnam Management"),
the fund's manager, a wholly-owned subsidiary of Putnam Investments,
Inc., for management and investment advisory services is paid quarterly
based on the average net assets of the fund. Such fee is based on the
following annual rates: 0.45% of the first $500 million of average net
assets, 0.35% of the next $500 million, 0.30% of the next $500 million,
0.25% of the next $5 billion, 0.225% of the next $5 billion, 0.205% of
the next $5 billion, 0.190% of the next $5 billion, and 0.180%
thereafter.
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, 2000, fund expenses were reduced by
$95,278 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 $293
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter receives proceeds from contingent deferred sales
charges that apply to certain shares that have been exchanged from other
Putnam funds. Putnam Retail Management, Inc., received no monies in
contingent deferred sales charges from such redemptions.
Note 3
Purchases and sales of securities
During the year ended September 30, 2000, cost of purchases and proceeds
from sales (including maturities) of investment securities (all
short-term obligations) aggregated $231,537,664 and $217,188,401,
respectively.
Note 4
Capital shares
At September 30, 2000, 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
---------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------
Shares sold 159,030,670 116,573,885
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,931,200 1,903,471
---------------------------------------------------------------------------
161,961,870 118,477,356
Shares
repurchased (147,959,460) (119,818,013)
---------------------------------------------------------------------------
Net increase
(decrease) 14,002,410 (1,340,657)
---------------------------------------------------------------------------
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 2001 will show the tax status of
all distributions paid to your account in calendar 2000.
FUND INFORMATION
WEB SITE
www.putnaminvestments.com
INVESTMENT MANAGER
Putnam Investment Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
John A. Hill, 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, III
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
Richard G. Leibovitch
Vice President
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 and
Putnam's Quarterly Ranking 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.putnaminvestments.com.
Not FDIC Insured, May Lose Value, No Bank Guarantee
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
---------------------
PRST STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
AN057-65464 062 11/00
