MoneyMarket_NCSR.htm - SEC.gov | HOME... Trustees approved the adoption of a new fee schedule that...

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0000928816-05-001505.txt : 200511290000928816-05-001505.hdr.sgml : 2005112920051129084952ACCESSION NUMBER:0000928816-05-001505CONFORMED SUBMISSION TYPE:N-CSRPUBLIC DOCUMENT COUNT:17CONFORMED PERIOD OF REPORT:20050930FILED AS OF DATE:20051129DATE AS OF CHANGE:20051129EFFECTIVENESS DATE:20051129

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:PUTNAM MONEY MARKET FUNDCENTRAL INDEX KEY:0000081248IRS NUMBER:046386436STATE OF INCORPORATION:MAFISCAL YEAR END:0930

FILING VALUES:FORM TYPE:N-CSRSEC ACT:1940 ActSEC FILE NUMBER:811-02608FILM NUMBER:051229835

BUSINESS ADDRESS:STREET 1:ONE POST OFFICE SQSTREET 2:MAILSTOP A-14 LEGAL DEPARTMENTCITY:BOSTONSTATE:MAZIP:02109BUSINESS PHONE:6172921471

MAIL ADDRESS:STREET 1:MAILSTOP A-14 LEGAL DEPARTMENTSTREET 2:ONE POST OFFICE SQUARECITY:BOSTONSTATE:MAZIP:02109

FORMER COMPANY:FORMER CONFORMED NAME:PUTNAM DAILY DIVIDEND TRUSTDATE OF NAME CHANGE:19920703

N-CSR1a_mmf1.htmPUTNAM MONEY MARKET FUND

MoneyMarket_NCSR.htm

Item 1. Report toStockholders:
-------------------------------------------
The following isa copy of the report transmitted to stockholders pursuant
to Rule 30e-1 underthe Investment Company Act of 1940:

What makes Putnam different?

In 1830, Massachusetts Supreme Judicial Court Justice Samuel Putnam established The Prudent Man Rule, a legal foundation for responsible moneymanagement.

THE PRUDENT MAN RULE

All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how menof prudence, discretion, and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to beinvested.

A time-honored tradition in money management

Since 1937, our values have been rooted in a profound sense of responsibility for the money entrusted to us.

A prudent approach to investing

We use a research-driven team approach to seek consistent, dependable, superior investment results over time, although there is no guarantee a fund will meetits objectives.

Funds for every investment goal

We offer a broad range of mutual funds and other financial products so investors and their advisors can build diversified portfolios.

A commitment to doing whats right for investors

We have below-average expenses and stringent investor protections, and provide a wealth of information about the Putnam funds.

Industry-leading service

We help investors, along with their financial advisors, make informed investment decisions with confidence.

Putnam
Money Market
Fund
9| 30| 05
Annual Report

Message from the Trustees 2 About the fund 4 Report from the fund managers 7 Performance 12 Expenses 14 Your funds management 16 Terms and definitions 17 Trustee approval of management contract 19 Other information for shareholders 24 Financial statements 25 Federal tax information 48 About the Trustees 49 Officers 55 Cover photograph: Richard H. Johnson

Message from the Trustees

Dear FellowShareholder

During the period ended September 30, 2005, domestic stockand bond markets advanced modestly while major markets outside the United Statesshowed far greater strength. The Federal Reserve Boards program ofinterest-rate increases and higher energy prices put pressure on U.S. consumerspending, and the impact of an unusually active hurricane season on the U.S.economy introduced a new cause of concern for financial markets. We believe thatamid the uncertainties of this economic and market environment, the professionalresearch, diversifi-cation, and active management that mutual funds providecontinue to make them an intelligent choice for investors.

We also want you to know that Putnam Investments managementteam, under the leadership of Chief Executive Officer Ed Haldeman, continues tofocus on investment performance and remains committed to putting the interestsof shareholders first. In keeping with these goals, we have redesigned andexpanded our shareholder reports to make it easier for you to learn more aboutyour fund. Furthermore, on page 19 we provide information about the 2005approval by the Trustees of your funds management contract withPutnam.

We would also like to take this opportunity to announce theretirement of one of your funds Trustees, Ronald J. Jackson, who has been anindependent Trustee of the Putnam funds since 1996. We thank him for hisservice.

In the following pages, members of your funds management team discuss the funds performance and strategies, and their outlook for the months ahead. As always, wethank you for your support of the Putnam funds.

Putnam Money Market Fund: seeking to offer accessibility andcurrent income with relatively low risk

For most people, keeping part of their savingsin a low-risk, easily accessible place is an essential part of their overallinvestment strategy. Putnam Money Market Fund can play a valuable role in manyinvestors portfolios because it seeks toprovide stability of principal and liquidity to meet short-term needs. Inaddition, the fund aims to provide investors with current income at short-termrates.

By investing in high-quality short-term moneymarket instruments for which there are deep and liquid markets, the funds riskof losing principal is very low. Putnam Money Market Fund invests in securitiesthat are rated by at least one nationally recognized rating service in itshighest or second-highest categories, or in unrated investments that we assessas equivalent in quality to such securities.

The fund seeks as high a rate of current incomeas Putnam believes is consistent with liquidity and preservation of principal.As illustrated below, money market fund yields typically rise and fall alongwith short-term interest rates. Money market funds may not

track rates exactly, however, as securities inthese funds mature and are replaced with newer instruments earning the mostcurrent interest rates.

Whether you want to earmark money for plannednear-term expenses or future investment opportunities, or just stow away cashfor an unforeseen rainy day, Putnam Money Market Fund can be an attractivechoice.

An investment in thisfund is not insured or guaranteed by the Federal Deposit Insurance Corporationor any other government agency. Although the fund seeks to preserve yourinvestment at $1.00 per share, it is possible to lose money by investing in thefund.

Types of money market securities

Money market securities are issued bygovernments, government agencies, financial institutions, and establishednon-financial companies. Typically, such instruments have a remaining maturityof one year or less. Securities your fund invests in include:

Government securitiesDirect short-term obligations of governments orgovernment agencies; for example, U.S. Treasury bills

Commercial paperUnsecured loans issued by large corporations,typically for financing accounts receivable and inventories

Bank certificates ofdeposit Direct obligations of theissuing bank

Repurchase agreements(repos) Contracts in which one party sells a security to anotherparty and agrees to buy it back later at a specified price; acts in economicterms as a secured loan

The Federal Reserve Board (the Fed) controlsU.S. monetary policy by influencing the demand for and supply of balances thatdepository institutions hold on reserve. The Fed exercises this influence bychanging the federal funds rate. This rate is the interest banks charge eachother for overnight loans needed to maintain reserve levels. Changes in thefederal funds rate trigger events that affect other short-term interest rates,such as money market rates, foreign exchange rates, long-term interest rates, aswell as many other economic variables.

5

Putnam Money Market Fundemphasizes high-quality, short-term,fixed-income securities. The fund seeks as high a level of current income asPutnam believes is consistent with preservation of capital and maintenance ofliquidity. The fund may be appropriate for investors who seek stability ofprincipal and to maintain easy access to their money.

Highlights

For the 12 months ended September 30, 2005, Putnam Money Market Funds class A shares returned 2.29%.

The funds benchmark, the Merrill Lynch 91-Day Treasury Bill Index, returned 2.62%.

The average return for the funds Lipper category, Money Market Funds, was 1.85%.

Additional fund performance, comparative performance, and Lipper data can be found in the performance section beginning on page 12.

Performance

Total return for class A shares for periodsended 9/30/05

Since the fund's inception (10/1/76), averageannual return is 6.32% . Current 7-day yield (at 9/30/05) is 3.26% .

Average annual return Cumulative return NAV NAV 10 years 3.67% 43.41% 5 years 2.10 10.94 1 year 2.29 2.29

Data is historical. Pastperformance does not guarantee future results. More recent returns may be lessor more than those shown. Investment return will fluctuate. Performance assumesreinvestment of distributions. Class A shares do not bear an initial salescharge. For the most recent month-end performance, visit www.putnam.com. The7-day yield is one of the most common gauges for measuring money market mutualfund performance. Yield reflects current performance more closely than totalreturn.

Report from the fund managers

The year inreview

Economic growth remained relatively strong during the courseof your funds fiscal year. Consequently, the Federal Reserve Board (the Fed)continued increasing the federal funds rate in its efforts to restraininflation. Yields across the entire spectrum of money market securities rose asa result. By shifting our focus from fixed-rate to floating-rate money marketsecurities early in the year, we were able to take greater advantage of thesehigher yields. We also reduced the portfolios average days to maturity. Thanksto these strategies, the funds total return at net asset value (NAV) was aheadof its Lipper peer group average. However, the fund slightly lagged itsbenchmark index, which is composed of short-maturity U.S. Treasurybills.

Market overview

In September, the Fed implemented its 11thincrease in the federal funds rate since June 2004. In a typical cycle, the Fedtightens monetary conditions in an attempt to reduce rising inflationarypressures generated by an overheating economy, a condition that may causelong-term rates to rise. But these increases in short-term rates, according tothe Fed, have not been intended to forestall a major inflationary threat or cooleconomic overheating. Instead, the Fed is gradually removing the extra stimulusit applied to support a recessionary, post-bubble economy. The continued rateincreases indicate the Feds belief that the economyis strong enough to withstand the long-term effects and higher energy costsassociated with Hurricane Katrina. Unless a disruptive event jars the U.S.economy, we do not anticipate that the Fed will stop lifting interest rates forthe foreseeable future. We do, however, expect the impact of the Fedstightenings to become more pronounced in the first half of 2006.

Assets of money market funds have been growingconsistently this year for the first time in three years.* We attribute therenewed investor interest to the higher yields currently offered by

*Source: iMoneyNet, September 16,2005.

money market securities. Given thisenvironment, we expect money fund assets to continue to rise.

Strategyoverview

Barring any disruptive event, we expect the Fedto continue increasing short-term interest rates until they reach a level thatthe Fed believes is neutral for growth. In this rising-rate environment, we havemaintained the funds exposure to floating-rate money market securities andsought opportunities in the commercial paper market. Floating-rate notes allowthe fund to capture higher yields since these securities are tied to marketindexes that reset on a periodic basis. During the period, we purchasedcommercial paper primarily in the 90-day maturity range, whichallowed the fund to lock in expected increases in the federal funds rate.

These strategies had the intended effect oflowering the average days to maturity, a measure of the funds sensitivity tochanges in interest rates, from 51 days on September 30, 2004, to 44 days onSeptember 30, 2005. The funds 7-day yield rose from 1.27% at the beginning ofthe fiscal year to 3.26% by September 30. Given the rise in short-term rates,cash has become increasingly competitive with other investments. Under theseconditions, investors typically reduce their holdings of longer-term debt asthey feel they are not being compensated for the extra risk it carries. As aresult, the yield curve flattened during the fiscal

Market sectorperformance

These indexes provide an overview ofperformance in different market sectors for the 12 months ended9/30/05.

Bonds Lipper Money Market Funds category average 1.85% Merrill Lynch 91-Day Treasury Bill Index (short-maturity U.S. Treasury bills) 2.62% Lehman Aggregate Bond Index (broad bond market) 2.80% Citigroup World Government Bond Index (global government bonds) 3.02% Equities S&P 500 Index (broad stock market)

12.25% Russell 1000 Index (large-company stocks) 14.26% Russell 2000 Index (small-company stocks) 17.95%

year, which means that the spread betweenyields offered by short-term and longer-term fixed-income investments narrowed.This development, which is illustrated by the fact that the yield on medium-term10-year Treasury bonds was just over 4% as of September 30, should continue toentice investors to move cash from longer-term bonds and certificates of depositto money market funds as interest rates move higher.

Your fundsholdings

In todays rising interest-rate environment, webelieve many investors are so focused on the Feds next action that they aremaking investment decisions based on a short-term view. Our preferred approachis to take a longer-term strategy based on careful analysis,because we think that it lends greater stability to the portfolio.

We have found many attractive investmentopportunities in the multi-billion-dollar commercial paper market, whichis a substantial source of short-term funding for corporations. Steady economicgrowth and relatively low interest rates have created greater financialstability and improving credit quality for corporate issuers. This has spurredincreased issuance as businesses expand capacity to meet the demands of agrowing economy. During the funds fiscal year, the commercial paper market grewfrom $1.3 trillion to $1.6 trillion levels not seen since late 2000.

Portfoliocomposition comparison

This chart shows how the funds weightings havechanged over the last six months. Weightings are shown as a percentage ofportfolio value. Holdings will vary over time.

The funds position in AIG subsidiaryInternational Lease, as well as itsposition in Curzon issuesthat are backed by AIG, exemplify the kind of commercial paper we favor for yourfund. AIG is one of the nations largest commercial underwriters and issuers oflife insurance. AIG also has a growing global asset management and retirementservices business, which serves both individual and institutional markets.

Govco Incorporated is anasset-backed commercial paper issuer managed by Citigroup. All of the assetsheld by Govco are fully guaranteed by the full faith and credit of the U.S. orU.K. governments. Therefore, we consider our protection from anycredit risk associated with the program to be among the strongest in themarket.

The funds foreignholdings continue to add valuable diversity to theportfolio. These investments include commercial paper and certificates ofdeposit issued by large banking entities, primarily European and Canadian banks,that we consider financially sound. One such bank, Fortis, is a diversified insuranceand banking franchise in the stable Benelux region. The companys consumerbanking and asset management business is anchored by its retail operations.Insurance operations are diversified with significant revenue coming fromBelgium and the

Performance comparisons As of 9/30/05 Current yield* Regular savings account 0.50% Average taxable money market fund compound 7-day yield 3.10 3-month certificate of deposit 3.87 Putnam Money Market Fund (7-day yield)

Class A 3.26 Class B 2.77 Class C 2.77 Class M 3.10 Class R 2.77 Class T 3.02 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 regular savings and on bank certificates of deposit (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. * Sources: Bank of America (regular savings account), iMoneyNet Money Fund Report (average taxable money market fund 10 compound 7-day yield), and the Federal Reserve Board of Governors (3-month CDs).

Netherlands and from both life and non-life insurance products.

The funds investments in U.S. government-sponsoredenterprises (GSEs), which include the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (FreddieMac), were reduced over the course of the fiscal year, because we do not think they represent the best value at this time relative to the corporate market. GSEs are in the process of undergoing some regulatory reform, which we think will strengthenthe sector and refocus efforts on core business initiatives.

Please note that all holdings discussed in this report are subject to review in accordance with the funds investment strategy and may varyin the future.

Of special interest

Among the funds in its Money Market Funds category, Lipper ranked Putnam Money Market Funds class A shares 42 out of 361, 41 out of 302, and 32 out of188 funds for the 1-, 5-, and 10-year periods ended September 30, 2005. These rankings put the fund in the 12th, 14th, and 17th percentile for the same respective periods. The lower the percentile ranking according to Lipper, the better thefunds performance relative to its Lipper peers.

Lipper rankings do not reflect sales charges and are based on total return of funds with similar investment styles or objectives as determined by Lipper. Pastperformance does not guarantee future results.

The outlook for your fund

The following commentary reflects anticipated developments that could affect your fund over the next six months, as well as your managementteams plans for responding to them.

With our expectations of continued moderate economic growth and gradual Fed tightening, our investment decisions will continue to revolve aroundstrategies designed to keep the portfolio responsive to rising interest rates. We think that maintaining an allocation to floating-rate notes such as those held by your fund will serve investors well. Additionally, we will continue to search forfixed-rate opportunities in the market whose pricing incorporates our view of higher interest rates. Independent credit analysis and our commitment to the highest-quality portfolio will continue to shape our investment decisions.

As short-term rates continue to increase, it is possible that they will exceed long-term rates, causing the yield curve to invert and slope downwardrather than tracing its usual upward arc. Though there is debate about whether this will actually occur in the current cycle, historically a downward-sloping yield curve has fueled market volatility.

The views expressed in this report are exclusively those of Putnam Management. They are not meant as investment advice.

Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. Althoughthe fund seeks to maintain a constant share price of $1.00, it is possible to lose money by investing in this fund.

Your fundsperformance

This section shows your funds performanceduring its fiscal year, which ended September 30, 2005. Performance shouldalways be considered in light of a funds investment strategy. Data representspast performance. Past performance does not guarantee future results. Morerecent returns may be less or more than those shown. Investment return willfluctuate, and you may have a gain or a loss when you sell your shares. For themost recent month-end performance, please visit www.putnam.com.

Fund performance Total return for periods ended 9/30/05

Class A Class B Class C Class M Class R Class T (inception dates) (10/1/76) (4/27/92) (2/1/99) (12/8/94) (1/21/03) (12/31/01) NAV NAVCDSCNAV CDSC NAV NAV NAV Annual average (life of fund) 6.32% 5.80% 5.80% 5.80% 5.80% 6.16% 5.79% 6.06% 10 years 43.41 36.43 36.43 36.54 36.54 41.28 36.67 39.97 Annual average 3.67 3.15 3.15 3.16 3.16 3.52 3.17 3.42 5 years 10.94 8.21 6.21 8.22 8.22 10.12 8.40 9.59 Annual average 2.10 1.59 1.21 1.59 1.59 1.95 1.63 1.85 1 year 2.29 1.78 3.22 1.78 0.78 2.13 1.78 2.03 Current yield (end of period) Current 7-day yield* 3.26 2.77 2.77 3.10 2.77 3.02 Current 30-day yield* 3.16 2.67 2.67 3.01 2.67 2.92

Performance assumes reinvestment of distributions and does not account for taxes. None of the share classes carry an initial sales charge. Class B shares reflect the applicable contingent deferred sales changes (CDSC), which is 5% in the first year, declines to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC for the first year that is eliminated thereafter. Class A, M, R, and T shares generally have no CDSC. Performance for class B, C, M, R, and T shares before their inception is derived from the historical performance of class A shares, adjusted for the applicable CDSC and higher operating expenses for such shares. * The 7-day and 30-day yields are the two most common gauges for measuring money market mutual fund performance. Yield reflects current performance more closely than total return.

Comparative index returns For periods ended 9/30/05 Merrill Lynch 91-Day Lipper Money Market Treasury Bill Index Funds category average* Annual average (life of fund) -- 6.31% 10 years 46.69% 39.29 Annual average 3.91 3.36 5 years 13.05 8.90 Annual average 2.48 1.72 1 year 2.62 1.85 Index and Lipper results should be compared to fund performance at net asset value. * Over the 1-, 5-, and 10-year periods ended 9/30/05, there were 361, 302, and 188 funds, respectively, in this Lipper category. Inception date of index was 12/31/77, after the fund's inception. Fund distribution information For the 12-month period ended 9/30/05 Class A Class B Class C Class M Class R Class T Distributions (number) 12 12 12 12 12 12 Income $0.022615 $0.017631 $0.017633 $0.021115 $0.017609 $0.020113 Total $0.022615 $0.017631 $0.017633 $0.021115 $0.017609 $0.020113

Your funds expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. Using theinformation below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shownin this section and would have resulted in higher total expenses. For more information, see your funds prospectus or talk to your financial advisor.

Review your funds expenses

The table below shows the expenses you would have paid on a $1,000 investment in Putnam Money Market Fund from April 1, 2005, to September 30,2005. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

Class AClass BClass CClass MClass RClass T

Expenses paid per $1,000*$ 2.68$ 5.19$ 5.19$ 3.43$ 5.19$ 3.94

Ending value (after expenses)$1,014.00$1,011.50$1,011.50$1,013.20$1,011.50$1,012.70

* Expenses for each share class are calculated using the funds annualized expense ratio for each class, which represents the ongoingexpenses as a percentage of net assets for the six months ended 9/30/05. The expense ratio may differ for each share class (see the table at the bottom of the next page). Expenses are calculated by multiplying the expense ratio by the averageaccount value for the period then multiplying the result by the number of days in the period and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended September 30, 2005, use the calculation method below. To find the value of yourinvestment on April 1, 2005, go to www.putnam.com and log on to your account. Click on the Transaction History tab in your Daily Statement and enter 04/01/2005 in both the from and to fields. Alternatively, callPutnam at 1-800-225-1581.

Compare expenses using the SECs method

The Securities and Exchange Commission (SEC) has established guidelines to help investors assess fund expenses. Per these guidelines, the table belowshows your funds expenses based on a $1,000 investment, assuming a hypothetical 5% annualized return. You can use this information to compare the ongoing expenses (but not transaction expenses or total costs) of investing in the fund with those of otherfunds. All mutual fund shareholder reports will provide this information to help you make this comparison. Please note that you cannot use this information to estimate your actual ending account balance and expenses paid during theperiod.

Expenses paid per $1,000*$ 2.69$ 5.22$ 5.22$ 3.45$ 5.22$ 3.95

Ending value (after expenses)$1,022.41$1,019.90$1,019.90$1,021.66$1,019.90$1,021.16

* Expenses for each share class are calculated using the funds annualized expense ratio for each class, which represents the ongoingexpenses as a percentage of net assets for the six months ended 9/30/05. The expense ratio may differ for each share class (see the table at the bottom of this page). Expenses are calculated by multiplying the expense ratio by the average accountvalue for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Compare expenses using industry averages

You can also compare your funds expenses with the average of its peer group, as defined by Lipper, an independent fund-rating agency that ranksfunds relative to others that Lipper considers to have similar investment styles or objectives. The expense ratio for each share class shown below indicates how much of your funds net assets have been used to pay ongoing expenses during theperiod.

Your fund's annualized

expense ratio0.53%1.03%1.03%0.68%1.03%0.78%

Average annualized expense

ratio for Lipper peer group0.60%1.10%1.10%0.75%1.10%0.85%

For the funds most recent fiscal half year; may differ from expense ratios based on one-year data in the financialhighlights.

Simple average of the expenses of all funds in the funds Lipper peer group, calculated in accordance with Lippers standardmethod for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each funds expenses for its most recent fiscalyear available to Lipper as of 9/30/05. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares other than class A shares, which do not incur 12b-1 fees. The peer group may include fundsthat are significantly smaller or larger than the fund, which may limit the comparability of the funds expenses to the simple average, which typically is higher than the asset-weighted average.

Your funds management

Your fund is managed by the members of the Putnam Fixed-Income Money Market Team. Joanne Driscoll is the Portfolio Leader and Jonathan Topper is aPortfolio Member of the fund. The Portfolio Leader and Portfolio Member coordinate the teams management of the fund.

For a complete listing of the members of the Putnam Fixed-Income Money Market Team, including those who are not Portfolio Leaders or PortfolioMembers of your fund, visit Putnams Individual Investor Web site at www.putnam.com.

Fund manager compensation

The total 2004 fund manager compensation that is attributable to your fund is approximately $460,000. This amount includes a portion of 2004compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. Thecompensation amount also includes a portion of the 2004 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the funds broader investment category for their oversight responsibilities,calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fundoperations; nor does it include non-compensation costs. These percentages are determined as of the funds fiscal period-end. For personnel who joined Putnam Management during or after 2004, the calculation reflects annualized 2004 compensationor an estimate of 2005 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Member

Joanne Driscoll is also a Portfolio Leader of Putnam Prime Money Market Fund and Putnam Tax Exempt Money Market Fund.

Jonathan Topper is also a Portfolio Member of Putnam Prime Money Market Fund and Putnam Tax Exempt Money Market Fund.

Joanne Driscoll and Jonathan Topper may also manage other accounts and variable trust funds advised by Putnam Management or an affiliate.

Changes in your funds Portfolio Leader and Portfolio Member

Your funds Portfolio Leader and Portfolio Member did not change during the year ended September 30, 2005.

Terms and definitions

Important terms

Total return shows how the value of thefunds 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 price, orvalue, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

Contingent deferred sales charge (CDSC) isa charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your funds class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year,the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase.

Share classes

Class A shares generally are fund sharespurchased with an initial sales charge. In the case of your fund, which has no sales charge, the reference is to shares purchased or acquired through the exchange of class A shares from another Putnam fund. Exchange of your funds class Ashares into another fund may involve a sales charge.

Class B shares may be subject to a salescharge upon redemption.

Class C shares are not subject to aninitial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year.

Class M shares generally have a lowerinitial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. In the case of your fund, which has no sales charge, the reference is to shares purchased or acquired through the exchange of class M shares fromanother Putnam fund. Exchange of your funds class M shares into another fund may involve a sales charge.

Class R shares are not subject to aninitial sales charge or CDSC and are available only to certain defined contribution plans.

Class T shares are not subject to aninitial sales charge or sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge); however, they are subject to a 12b-1 fee.

Comparative indexes

Citigroup World Government Bond Index isan unmanaged index of global investment-grade fixed-income securities.

Lehman Aggregate Bond Index is anunmanaged index of U.S. investment-grade fixed-income securities.

Lipper Money Market Funds category average is an arithmetic average of the total return of all Lipper Money Market Funds.

Merrill Lynch 91-Day Treasury Bill Index is an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace.

Russell 1000 Index is an unmanaged indexof the 1,000 largest companies in the Russell 3000 Index.

Russell 2000 Index is an unmanaged indexof the 2,000 smallest companies in the Russell 3000 Index.

S&P 500 Index is an unmanaged index ofcommon stock performance.

Indexes assume reinvestment of all distributions and do not account for fees. Securities and performance of a fund and an index will differ. Youcannot invest directly in an index.

Lipper is a third-party industry rankingentity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. Lipper category averages reflect performance trends for funds within a category and are based on total return at net assetvalue.

Trustee approval of
management contract

General conclusions

The Board of Trustees of the Putnam fundsoversees the management of each fund and, as required by law, determinesannually whether to approve the continuance of your funds management contractwith Putnam Management. In this regard, the Board of Trustees, with theassistance of its Contract Committee consisting solely of Trustees who are notinterested persons (as such term is defined in the Investment Company Act of1940, as amended) of the Putnam funds (the Independent Trustees), requests andevaluates all information it deems reasonably necessary under the circumstances.Over the course of several months beginning in March and ending in June 2005,the Contract Committee met five times to consider the information provided byPutnam Management and other information developed with the assistance of theBoards independent counsel and independent staff. The Contract Committeereviewed and discussed key aspects of this information with all of theIndependent Trustees. Upon completion of this review, the Contract Committeerecommended and the Independent Trustees approved the continuance of your fundsmanagement contract, effective July 1, 2005.

This approval was based onthe following conclusions:

*That the fee schedulecurrently in effect for your fund, subject to certain changes noted below,represents reasonable compensation in light of the nature and quality of theservices being provided to the fund, the fees paid by competitive funds and thecosts incurred by Putnam Management in providing such services, and

*That such fee schedulerepresents an appropriate sharing between fund shareholders and PutnamManagement of such economies of scale as may exist in the management of the fundat current asset levels.

These conclusions were based on a comprehensiveconsideration of all information provided to the Trustees and were not theresult of any single factor. Some of the factors that figured particularly inthe Trustees deliberations and how the Trustees considered these factors aredescribed below, although individual Trustees may have evaluated the informationpresented differently, giving different weights to various factors. It is alsoimportant to recognize that the fee arrangements for your fund and the otherPutnam funds are the result of many years of review and discussion between theIndependent Trustees and Putnam Management, that certain aspects of sucharrangements may receive greater scrutiny in some years than others, and thatthe Trustees conclusions may be based, in part, on their consideration of thesesame arrangements in prior years.

Model fee schedulesand categories; total expenses

The Trustees review of the management fees andtotal expenses of the Putnam funds focused on three major themes:

*Consistency. TheTrustees, working in cooperation with Putnam Management, have developed andimplemented a series of model fee schedules for the Putnam funds designed toensure that

each funds management fee is consistent withthe fees for similar funds in the Putnam family of funds and compares favorablywith fees paid by competitive funds sponsored by other investment advisors.Under this approach, each Putnam fund is assigned to one of several feecategories based on a combination of factors, including competitive fees andperceived difficulty of management, and a common fee schedule is implemented forall funds in a given fee category. The Trustees reviewed the model fee schedulecurrently in effect for your fund, including fee levels and breakpoints, and theassignment of the fund to a particular fee category under this structure.(Breakpoints refer to reductions in fee rates that apply to additional assetsonce specified asset levels are reached.) During the course of their review, theTrustees observed that the fee schedule for your fund should be conformed to themodel fee schedule in effect for other Putnam money market funds. As a result,the Trustees approved the adoption of a new fee schedule that conforms moreclosely with the model fee schedule. Under the new fee schedule, the fund pay aquarterly fee to Putnam Management at the following rates:

0.50% of the first $100 million of the funds average net assets;
0.40% of the next $100 million;
0.275% of the next $2.5 billion;
0.25% of the next $2.5 billion;
0.225% of the next $5 billion;
0.205% of the next $5 billion;
0.19% of the next $5 billion; and
0.18% thereafter.

The new fee schedule for your fund will result in lowermanagement fees paid by fund shareholders. The Trustees approved the new feeschedule for your fund effective as of January 1, 2006, in order to providePutnam Management an opportunity to accommodate the impact on revenues in itsbudget process for the coming year.

*Competitiveness.The Trustees also reviewed comparative fee andexpense information for competitive funds, which indicated that, in a custompeer group of competitive funds selected by Lipper Inc., your fund ranked in the31st percentile in management fees and in the 34th percentile in total expenses(less any applicable 12b-1 fees) as of December 31, 2004 (the first percentilebeing the least expensive funds and the 100th percentile being the mostexpensive funds). (Because the funds custom peer group is smaller than thefunds broad Lipper Inc. peer group, this expense comparison may differ from theLipper peer expense information found elsewhere in this report.) The Trusteesnoted that expense ratios for a number of Putnam funds, which show thepercentage of fund assets used to pay for management and administrativeservices, distribution (12b-1) fees and other expenses, had been increasingrecently as a result of declining net assets and the natural operation of feebreakpoints. They

noted that such expense ratio increases werecurrently being controlled by expense limitations implemented in January 2004and which Putnam Management, in consultation with the Contract Committee, hascommitted to maintain at least through 2006. The Trustees expressed theirintention to monitor this information closely to ensure that fees and expensesof the Putnam funds continue to meet evolving competitive standards.

*Economies of scale.The Trustees concluded that the fee schedulecurrently in effect for your fund, subject to the changes noted above,represents an appropriate sharing of economies of scale at current asset levels.Your fund currently has the benefit of breakpoints in its management fee thatprovide shareholders with significant economies of scale, which means that theeffective management fee rate of a fund (as a percentage of fund assets)declines as a fund grows in size and crosses specified asset thresholds. TheTrustees examined the existing breakpoint structure of the Putnam fundsmanagement fees in light of competitive industry practices. The Trusteesconsidered various possible modifications to the Putnam funds currentbreakpoint structure, but ultimately concluded that the current breakpointstructure continues to serve the interests of fund shareholders. Accordingly,the Trustees continue to believe that the fee schedules currently in effect forthe funds, subject to the changes noted above, represent an appropriate sharingof economies of scale at current asset levels. The Trustees noted thatsignificant redemptions in many Putnam funds, together with significant changesin the cost structure of Putnam Management, have altered the economics of PutnamManagements business in significant ways. In view of these changes, theTrustees intend to consider whether a greater sharing of the economies of scaleby fund shareholders would be appropriate if and when aggregate assets in thePutnam funds begin to experience meaningful growth.

In connection with their review of themanagement fees and total expenses of the Putnam funds, the Trustees alsoreviewed the costs of the services to be provided and profits to be realized byPutnam Management and its affiliates from the relationship with the funds. Thisinformation included trends in revenues, expenses and profitability of PutnamManagement and its affiliates relating to the investment management anddistribution services provided to the funds. In this regard, the Trustees alsoreviewed an analysis of Putnam Managements revenues, expenses and profitabilitywith respect to the funds management contracts, allocated on a fund-by-fundbasis.

Investment performance

The quality of the investment process providedby Putnam Management represented a major factor in the Trustees evaluation ofthe quality of services provided by Putnam Management under your fundsmanagement contract. The Trustees were assisted in their review of the fundsinvestment process and performance by the work of the Investment OversightCommittees of the Trustees, which meet on a regular monthly basis with thefunds portfolio teams throughout the year. The Trustees concluded that PutnamManagement generally provides a high-quality investment process -- as measuredby the experience and skills of the individuals assigned to the

management of fund portfolios, the resourcesmade available to such personnel, and in general the ability of PutnamManagement to attract and retain high-quality personnel -- but also recognizethat this does not guarantee favorable investment results for every fund inevery time period. The Trustees considered the investment performance of eachfund over multiple time periods and considered information comparing the fundsperformance with various benchmarks and with the performance of competitivefunds. The Trustees noted the satisfactory investment performance of many Putnamfunds. They also noted the disappointing investment performance of certain fundsin recent years and continued to discuss with senior management of PutnamManagement the factors contributing to such underperformance and actions beingtaken to improve performance. The Trustees recognized that, in recent years,Putnam Management has made significant changes in its investment personnel andprocesses and in the fund product line to address areas of underperformance. TheTrustees indicated their intention to continue to monitor performance trends toassess the effectiveness of these changes and to evaluate whether additionalremedial changes are warranted.

In the case of your fund, the Trusteesconsidered that your funds class A share performance at net asset value was inthe following percentiles of its Lipper Inc. peer group for the one-, three-andfive-year periods ended December 31, 2004 (the first percentile being thebest-performing funds and the 100th percentile being the worst-performingfunds):

One-year period Three-year period Five-year period 17th 17th 14th

(Because of the passage of time, theseperformance results may differ from the performance results for more recentperiods shown elsewhere in this report.)

As a general matter, theTrustees believe that cooperative efforts between the Trustees and PutnamManagement represent the most effective way to address investment performanceproblems. The Trustees believe that investors in the Putnam funds have, ineffect, placed their trust in the Putnam organization, under the oversight ofthe funds Trustees, to make appropriate decisions regarding the management ofthe funds. Based on the responsiveness of Putnam Management in the recent pastto Trustee concerns about investment performance, the Trustees believe that itis preferable to seek change within Putnam Management to address performanceshortcomings. In the Trustees view, the alternative of terminating a managementcontract and engaging a new investment advisor for an underperforming fund wouldentail significant disruptions and would not provide any greater assurance ofimproved investment performance.

Brokerage andsoft-dollar allocations; other benefits

The Trustees considered various potentialbenefits that Putnam Management may receive in connection with the services itprovides under the management contract with your fund. These include principallybenefits related to brokerage and soft-dollar allocations, whereby a portion ofthe commissions paid by a fund for brokerage is earmarked to pay for researchservices that

may be utilized by a funds investment advisor. The Trustees believe that soft-dollar credits and other potential benefits associated with theallocation of fund brokerage, which pertains mainly to funds investing in equity securities, represent assets of the funds that should be used for the benefit of fund shareholders. This area has been marked by significant change in recent years. InJuly 2003, acting upon the Contract Committees recommendation, the Trustees directed that allocations of brokerage to reward firms that sell fund shares be discontinued no later than December 31, 2003. In addition, commencing in 2004, theallocation of brokerage commissions by Putnam Management to acquire research services from third-party service providers has been significantly reduced, and continues at a modest level only to acquire research that is customarily not available forcash. The Trustees will continue to monitor the allocation of the funds brokerage to ensure that the principle of best price and execution remains paramount in the portfolio trading process.

The Trustees annual review of your funds management contract also included the review of its distributors contract and distributionplan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.

Comparison of retail and institutional fee schedules

The information examined by the Trustees as part of their annual contract review has included for many years information regarding fees charged byPutnam Management and its affiliates to institutional clients such as defined benefit pension plans, college endowments, etc. This information included comparison of such fees with fees charged to the funds, as well as a detailed assessment of thedifferences in the services provided to these two types of clients. The Trustees observed, in this regard, that the differences in fee rates between institutional clients and the mutual funds are by no means uniform when examined by individual assetsectors, suggesting that differences in the pricing of investment management services to these types of clients reflect to a substantial degree historical competitive forces operating in separate market places. The Trustees considered the fact thatfee rates across all asset sectors are higher on average for mutual funds than for institutional clients, as well as the differences between the services that Putnam Management provides to the Putnam funds and those that it provides to institutionalclients of the firm, but have not relied on such comparisons to any significant extent in concluding that the management fees paid by your fund are reasonable.

Other information
for shareholders

Putnams policy on confidentiality
Inorder to conduct business with our shareholders, we must obtain certain personalinformation such as account holders addresses, telephone numbers, SocialSecurity numbers, and the names of their financial advisors. We use thisinformation to assign an account number and to help us maintain accurate recordsof transactions and account balances. It is our policy to protect theconfidentiality of your information, whether or not you currently own shares ofour funds, and in particular, not to sell information about you or your accountsto outside marketing firms. We have safeguards in place designed to preventunauthorized access to our computer systems and procedures to protect personalinformation from unauthorized use. Under certain circumstances, we share thisinformation with outside vendors who provide services to us, such as mailing andproxy solicitation. In those cases, the service providers enter intoconfidentiality agreements with us, and we provide only the informationnecessary to process transactions and perform other services related to youraccount. We may also share this information with our Putnam affiliates toservice your account or provide you with information about other Putnam productsor services. It is also our policy to share account information with yourfinancial advisor, if youve listed one on your Putnam account. If you wouldlike clarification about our confidentiality policies or have any questions orconcerns, please dont hesitate to contact us at 1-800-225-1581, Monday throughFriday, 8:30 a.m. to 7:00 p.m., or Saturdays from 9:00 a.m. to 5:00 p.m. EasternTime.

Proxy voting
Putnam is committed to managing our mutual funds in the bestinterests of our shareholders. The Putnam funds proxy voting guidelines andprocedures, as well as information regarding how your fund voted proxiesrelating to portfolio securities during the 12-month period ended June 30, 2005,are available on the Putnam Individual Investor Web site,www.putnam.com/individual, and on the SECs Web site, www.sec.gov. If you havequestions about finding forms on the SECs Web site, you may call the SEC at1-800-SEC-0330. You may also obtain the Putnam funds proxy voting guidelinesand procedures at no charge by calling Putnams Shareholder Services at1-800-225-1581.

Fund portfolio holdings
Thefund will file a complete schedule of its portfolio holdings with the SEC forthe first and third quarters of each fiscal year on Form N-Q. Shareholders mayobtain the funds Forms N-Q on the SECs Web site at www.sec.gov. In addition,the funds Forms N-Q may be reviewed and copied at the SECs public referenceroom in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for informationabout the SECs Web site or the operation of the public referenceroom.

Financialstatements

A guide to financial statements

These sections of the report, as wellas the accompanying Notes, preceded by the Report of Independent RegisteredPublic Accounting Firm, constitute the funds financial statements.

Thefunds portfolio lists all the fund's investments andtheir values as of the last day of the reporting period. Holdings are organizedby asset type and industry sector, country, or state to show areas ofconcentration and diversification.

Statement of assets and liabilitiesshows how the funds net assets andshare price are determined. All investment and noninvestment assets are addedtogether. Any unpaid expenses and other liabilities are subtracted from thistotal. The result is divided by the number of shares to determine the net assetvalue per share, which is calculated separately for each class of shares. (Forfunds with preferred shares, the amount subtracted from total assets includesthe net assets allocated to remarketed preferred shares.)

Statement of operations shows the funds net investment gain or loss. This is doneby first adding up all the funds earnings -- from dividends and interest income- -- and subtracting its operating expenses to determine net investment income (orloss). Then, any net gain or loss the fund realized on the sales of its holdings- -- as well as any unrealized gains or losses over the period -- is added to orsubtracted from the net investment result to determine the funds net gain orloss for the fiscal year.

Statement of changes in net assetsshows how the funds net assets wereaffected by the funds net investment gain or loss, by distributions toshareholders, and by changes in the number of the funds shares. It listsdistributions and their sources (net investment income or realized capitalgains) over the current reporting period and the most recent fiscal year-end.The distributions listed here may not match the sources listed in the Statementof operations because the distributions are determined on a tax basis and may bepaid in a different period from the one in which they were earned.

Financial highlights provide an overview of the funds investment results,per-share distributions, expense ratios, net investment income ratios, andportfolio turnover in one summary table, reflecting the five most recentreporting periods. In a semiannual report, the highlight table also includes thecurrent reporting period. For open-end funds, a separate table is provided foreach share class.

Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of
Putnam Money Market Fund:

In our opinion, the accompanying statement of assets and liabilities, including the funds portfolio, and the related statements of operationsand of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Putnam Money Market Fund (thefund) at September 30, 2005, and the results of its operations, the changes in itsnet assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred toasfinancial statements) are the responsibility of the funds management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements inaccordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. 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 theoverall financial statement presentation. We believe that our audits, which included confirmation of investments owned at September 30, 2005, by correspondence with the custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
November 7, 2005

The funds portfolio 9/30/05 COMMERCIAL PAPER (64.2%)* Yield Maturity date Principal amount Value Commercial Paper -- Domestic (46.4%) Amstel Funding Corp. 3.965% 12/20/05 $ 40,000,000 $ 39,650,667 Amstel Funding Corp. 3.866 12/27/05 23,000,000 22,788,228 Amstel Funding Corp. 3.827 11/7/05 15,000,000 14,941,263 Amstel Funding Corp. 3.776 11/22/05 36,000,000 35,805,520 Atlantic Asset Securitization, LLC 3.836 12/12/05 21,000,000 20,840,400 Atlantic Asset Securitization, LLC 3.818 11/28/05 40,000,000 39,756,400 Bank of America Corp. 3.572 10/18/05 14,000,000 13,976,597 Barton Capital, LLC 3.619 10/7/05 31,537,000 31,518,078 Bear Stearns Cos. 3.541 10/13/05 17,700,000 17,679,291 Bryant Park Funding, LLC 3.987 12/22/05 30,329,000 30,056,123 Bryant Park Funding, LLC 3.929 12/23/05 7,071,000 7,007,583 Bryant Park Funding, LLC 3.746 11/15/05 45,000,000 44,791,312 Bryant Park Funding, LLC 3.632 10/25/05 20,183,000 20,134,561 Bryant Park Funding, LLC 3.622 10/4/05 10,458,000 10,454,854 Bryant Park Funding, LLC 3.572 10/18/05 28,000,000 27,953,193 CAFCO, LLC 3.602 10/24/05 45,000,000 44,897,363 CIT Group, Inc. 3.709 10/24/05 22,290,000 22,237,594 CIT Group, Inc. 3.681 10/27/05 14,750,000 14,711,117 CIT Group, Inc. 3.652 10/26/05 38,775,000 38,677,524 CIT Group, Inc. 3.582 10/17/05 18,620,000 18,590,622 Citibank Credit Card Issuance Trust (Dakota) 3.906 11/29/05 25,000,000 24,841,028 Citibank Credit Card Issuance Trust (Dakota) 3.744 11/3/05 30,000,000 29,897,700 Citibank Credit Card Issuance Trust (Dakota) 3.723 10/28/05 25,000,000 24,930,625 Citibank Credit Card Issuance Trust (Dakota) 3.723 10/27/05 35,000,000 34,906,472 Citibank Credit Card Issuance Trust (Dakota) 3.680 10/5/05 27,000,000 26,988,990 Citigroup Funding, Inc. 3.714 11/8/05 28,000,000 27,890,940 Countrywide Financial Corp. 3.844 11/1/05 23,000,000 22,924,145 Countrywide Financial Corp. 3.812 10/21/05 25,000,000 24,947,222 Countrywide Financial Corp. 3.743 10/31/05 25,000,000 24,922,500 CRC Funding, LLC 3.819 11/9/05 39,000,000 38,839,450 CRC Funding, LLC 3.719 10/31/05 15,000,000 14,953,750 CRC Funding, LLC 3.620 10/6/05 20,000,000 19,990,000 CRC Funding, LLC 3.609 10/4/05 30,000,000 29,991,025 Curzon Funding, LLC 4.135 3/27/06 40,000,000 39,203,500 Curzon Funding, LLC 3.572 10/18/05 20,000,000 19,966,567 Curzon Funding, LLC 3.511 10/3/05 25,000,000 24,995,167 Govco, Inc. 3.767 11/21/05 25,000,000 24,867,896 International Lease Finance Corp. 3.618 10/5/05 28,100,000 28,088,760 Jupiter Securitization Corp. 3.811 11/4/05 45,500,000 45,336,920 Jupiter Securitization Corp. 3.667 10/18/05 17,129,000 17,099,476 Klio II Funding Corp. 3.915 12/15/05 46,868,000 46,491,639 Klio II Funding Corp. 3.855 12/9/05 17,763,000 17,632,945

COMMERCIAL PAPER (64.2%)* continued Yield Maturity date Principal amount Value Commercial Paper -- Domestic continued Klio II Funding Corp. 3.802% 10/24/05 $ 20,000,000 $ 19,951,572 Klio II Funding Corp. 3.792 10/20/05 44,000,000 43,912,220 Klio II Funding Corp. 3.773 11/10/05 19,179,000 19,099,088 Master Funding, LLC Ser. B 3.843 11/17/05 30,000,000 29,850,383 Master Funding, LLC Ser. B 3.834 11/15/05 30,000,000 29,857,125 Master Funding, LLC Ser. B 3.734 10/20/05 30,000,000 29,941,100 Master Funding, LLC Ser. B 3.714 11/2/05 20,000,000 19,934,578 Master Funding, LLC Ser. B 3.701 10/6/05 25,000,000 24,987,188 Master Funding, LLC Ser. B 3.693 10/18/05 9,000,000 8,984,403 Morgan Stanley Dean Witter & Co.

3.910 10/3/05 15,000,000 14,996,742 Morgan Stanley Dean Witter & Co.

3.764 10/21/05 25,000,000 24,947,917 NATC California, LLC (Chase Manhattan Bank (Letter Of Credit (LOC))) 3.582 10/19/05 31,750,000 31,693,644 Old Line Funding Corp. 3.787 11/2/05 23,130,000 23,052,489 Old Line Funding Corp. 3.626 10/6/05 24,000,000 23,987,967 Old Line Funding Corp. 3.617 10/4/05 26,122,000 26,114,163 Park Granada, LLC 3.926 11/28/05 45,000,000 44,717,250 Park Granada, LLC 3.744 11/1/05 32,500,000 32,395,892 Park Granada, LLC 3.620 10/3/05 20,494,000 20,489,901 Thunder Bay Funding, Inc. 3.918 12/22/05 45,000,000 44,602,300 Thunder Bay Funding, Inc. 3.636 10/7/05 18,636,000 18,624,756 Thunder Bay Funding, Inc. 3.621 10/3/05 30,000,000 29,993,983 1,688,309,668 Commercial Paper -- Foreign (17.8%) Atlantis One Funding Corp. (Netherlands) 4.136 3/31/06 20,000,000 19,592,750 Atlantis One Funding Corp. (Netherlands) 3.714 11/7/05 33,000,000 32,875,187 Banco Continental de Panama, S.A. (Calyon (LOC)) (France) 3.720 3/10/06 20,000,000 19,678,222 Banco Continental de Panama, S.A. (Calyon (LOC)) (France) 3.677 3/3/06 33,000,000 32,497,905 Banco Continental de Panama, S.A. (Calyon (LOC)) (France) 3.499 11/29/05 25,000,000 24,859,056 Barclays U.S. Funding Corp. (United Kingdom) 3.808 11/28/05 29,000,000 28,823,857 Barclays U.S. Funding Corp. (United Kingdom) 3.756 11/17/05 30,000,000 29,854,300 Barclays U.S. Funding Corp. (United Kingdom) 3.648 10/31/05 30,000,000 29,909,625 Danske Corp. (Denmark) 3.502 12/12/05 26,000,000 25,821,120 Deutsche Bank Financial, LLC (Germany) 3.510 10/11/05 30,000,000 29,971,024 Dexia Delaware, LLC (Belgium) 3.537 10/14/05 30,000,000 29,962,029 Fortis Funding, LLC (Belgium) 3.910 10/3/05 128,000,000 127,972,193 Greenwich Capital Holdings, Inc. FRN

(United Kingdom) 3.749 12/19/05 40,000,000 40,000,000 ING America Insurance Holdings (Netherlands) 3.764 11/14/05 45,000,000 44,794,850 ING America Insurance Holdings (Netherlands) 3.501 10/6/05 15,000,000 14,992,771

COMMERCIAL PAPER (64.2%)* continued Yield Maturity date Principal amount Value Commercial Paper -- Foreign continued Santander Central Hispano Finance (Delaware), Inc. (Spain) 4.000% 12/30/05 $ 30,000,000 $ 29,703,000 Spintab AB (Sweden) 3.633 10/28/05 27,000,000 26,927,100 Tulip Funding Corp. (Netherlands) 3.945 12/1/05 9,552,000 9,490,634 Tulip Funding Corp. (Netherlands) 3.613 10/24/05 40,000,000 39,908,511 UBS Finance (Delaware), LLC (Switzerland) 3.946 11/28/05 8,100,000 8,048,844 645,682,978 Total commercial paper (cost $2,333,992,646) $ 2,333,992,646 CERTIFICATES OF DEPOSIT (18.4%)* Yield Maturity date Principal amount Value Certificates of Deposit -- Domestic (4.2%) Citibank, N.A. Ser. CD 3.780% 11/23/05 $ 26,000,000 $ 26,000,000 Citibank, N.A. Ser. CD 3.725 11/10/05 36,000,000 36,000,000 SunTrust Bank FRN, Ser. CD 3.775 9/26/06 36,000,000 35,997,130 SunTrust Bank FRN, Ser. CD 3.730 5/12/06 31,000,000 31,000,000 SunTrust Bank Ser. CD 3.330 10/12/05 25,500,000 25,500,053 154,497,183 Certificates of Deposit -- Foreign (14.2%) Bank of Nova Scotia FRN, Ser. YCD (Canada) 3.630 1/3/06 17,000,000 16,998,646 Barclays Bank PLC FRN, Ser. YCD (United Kingdom) 3.638 6/1/06 15,000,000 14,999,004 Barclays Bank PLC Ser. ECD (United Kingdom) 3.515 10/11/05 41,000,000 41,000,056 BNP Paribas FRN, Ser. YCD (France) 3.727 6/19/06 30,000,000 29,993,244 BNP Paribas Ser. YCD (France) 3.585 12/27/05 36,000,000 35,991,536 Calyon Ser. YCD (France) 3.400 11/10/05 30,000,000 30,000,164 Deutsche Bank AG Ser. ECD (Germany) 3.880 12/21/05 40,000,000 39,996,245 Deutsche Bank AG Ser. ECD (Germany) 3.660 10/17/05 30,000,000 29,999,914 Deutsche Bank AG Ser. ECD (Germany) 3.525 10/13/05 17,000,000 16,999,972 Dexia Credit Local FRN, Ser. YCD (Belgium) 3.800 10/3/06 32,000,000 31,993,632 Fortis Bank NY Ser. YCD (Belgium) 3.950 4/21/06 24,000,000 24,000,000 HSBC Bank USA Ser. CD (United Kingdom) 3.725 11/10/05 31,000,000 31,000,171 Societe Generale Ser. ECD (France) 3.900 4/18/06 63,000,000 62,997,321 Svenska Handelsbanken FRN (Sweden) 3.736 9/20/06 36,000,000 35,993,066 Svenska Handelsbanken FRN, Ser. YCD1 (Sweden) 3.623 4/3/06 45,000,000 44,986,455 Swedbank FRN, Ser. YCD (Sweden) 3.726 3/20/06 27,750,000 27,740,265 514,689,691
Total certificates of deposit (cost $669,186,874) $ 669,186,874

CORPORATE BONDS AND NOTES (11.5%)* Yield Maturity date Principal amount Value Bank of New York Co., Inc. (The) sr. notes FRN, Ser. XMTN 3.668% 11/9/06 $ 20,000,000 $ 20,000,000 Citigroup, Inc. sr. notes FRN, Ser. MTN 4.010 3/29/06 20,000,000 20,004,491 Lehman Brothers Holdings, Inc. FRN, Ser. G 4.140 2/13/06 20,428,000 20,461,129 Lehman Brothers Holdings, Inc. FRN, Ser. G 3.589 6/2/06 73,400,000 73,446,433 Merrill Lynch & Co., Inc. FRN, Ser. C 3.748 10/13/06 14,500,000 14,500,000 Morgan Stanley Dean Witter & Co.

sr. notes FRN 4.250 3/27/06 104,000,000 104,148,893 National City Bank FRN, Ser. BKNT 3.830 7/26/06 72,000,000 72,022,343 National City Bank FRN, Ser. BKNT 3.830 6/2/06 35,000,000 34,996,500 Nordea Bank AB 144A FRN (Sweden) 3.708 10/11/06 20,000,000 20,000,000 U. S. Bank N.A. FRN, Ser. BKNT 3.761 12/5/05 40,000,000 40,002,807 Total corporate bonds and notes (cost $419,582,596) $ 419,582,596 U.S. GOVERNMENT AGENCY OBLIGATIONS (1.3%)* Yield Maturity date Principal amount Value Fannie Mae FRN 3.569% 9/7/06 $ 23,000,000 $ 22,977,097 Federal Farm Credit Bank FRB 3.706 7/20/06 25,000,000 24,990,600 Total U.S. government agency obligations (cost $47,967,697) $ 47,967,697 PROMISSORY NOTES (1.0%)* (cost $36,000,000) Yield Maturity date Principal amount Value Goldman Sachs Group, Inc. (The) FRN (acquired 6/22/05, cost $36,000,000) 3.850% 1/19/06 $ 36,000,000 $ 36,000,000 ASSET BACKED SECURITIES (1.0%)* (cost $34,694,526) Yield Maturity date Principal amount Value TIAA Real Estate CDO, Ltd. 144A FRN,

Ser. 03-1A, Class A1MM (Cayman Islands) 3.868% 12/28/18 $ 34,694,526 $ 34,694,526

SHORT-TERM INVESTMENTS (4.2%)* (cost $153,712,000) Principal amount Value Interest in $336,000,000 joint tri-party repurchase agreement dated September 30, 2005 with UBS Securities, LLC due October 3, 2005 with respect to various U.S. Government obligations -- maturity value of $153,762,597 for an effective yield of 3.95% (collateralized by Freddie Mac and Fannie Mae with yields ranging from 3.50% to 11.00% and due dates ranging from August 1, 2006 to October 1, 2035, valued at $342,724,967) $ 153,712,000 $ 153,712,000 TOTAL INVESTMENTS Total investments (cost $3,695,136,339) $ 3,695,136,339 * Percentages indicated are based on net assets of $3,637,784,003.

Restricted, excluding144A securities, as to public resale. The total market value of restrictedsecurities held at September 30, 2005 was $36,000,000 or 1.0% of netassets.

The rates shown onFloating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interestrates at September 30, 2005.

DIVERSIFICATION BYCOUNTRY

Distribution ofinvestments by country of issue at September 30, 2005: (as a percentage ofPortfolio Value)

Belgium 5.8% Canada 0.5 Cayman Islands 0.9 Denmark 0.7 France 6.4 Germany 3.2 Netherlands 4.4 Spain 0.8 Sweden 4.2 Switzerland 0.2 United Kingdom 5.8 United States 67.1 Total 100.0%

The accompanying notesare an integral part of these financial statements.

Statement of assets and liabilities 9/30/05

ASSETS

Investments in securities (Unaffiliated issuers), at amortized cost (Note 1)$3,695,136,339

Cash55,069

Interest and other receivables4,954,508

Receivable for shares of the fund sold9,107,532

Total assets3,709,253,448

LIABILITIES

Distributions payable to shareholders63,267

Payable for securities purchased41,483,840

Payable for shares of the fund repurchased25,592,485

Payable for compensation of Manager (Notes 2 and 5)2,871,648

Payable for investor servicing and custodian fees (Note 2)847,529

Payable for Trustee compensation and expenses (Note 2)250,767

Payable for administrative services (Note 2)8,441

Payable for distribution fees (Note 2)247,946

Other accrued expenses103,522

Total liabilities71,469,445

Net assets$3,637,784,003

REPRESENTED BY

Paid-in capital (Unlimited shares authorized) (Note 4)$3,637,784,003

Total -- Representing net assets applicable to capital shares outstanding$3,637,784,003

(Continued on next page)

Statement of assets and liabilities (Continued)

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE

Net asset value, offering price and redemption price per class A share

($3,087,755,817 divided by 3,087,755,217 shares)*$1.00

Net asset value and offering price per class B share

($290,268,272 divided by 290,271,002 shares)**$1.00

Net asset value and offering price per class C share

($33,258,656 divided by 33,258,471 shares)**$1.00

Net asset value, offering price and redemption price per class M share

($44,682,161 divided by 44,681,829 shares)*$1.00

Net asset value, offering price and redemption price per class R share

Net asset value, offering price and redemption price per class T share

* Offered at net asset value.

** Class B and class C shares are available only by exchange of class B and class C shares from other Putnam funds and to certain systematicinvestment plan investors. Redemption price per share is equal to net asset value less an applicable contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.

Statement of operations Year ended 9/30/05

INVESTMENT INCOME

Interest (including interest income of $97,216 from investments

in affiliated issuers) (Note 5)$103,870,249

EXPENSES

Compensation of Manager (Note 2)12,058,920

Investor servicing fees (Note 2)7,474,517

Custodian fees (Note 2)31,908

Trustee compensation and expenses (Note 2)127,470

Administrative services (Note 2)84,789

Distribution fees -- Class B (Note 2)1,865,387

Distribution fees -- Class C (Note 2)119,442

Distribution fees -- Class M (Note 2)67,501

Distribution fees -- Class R (Note 2)4,747

Distribution fees -- Class T (Note 2)435,354

Other501,872

Non-recurring costs (Notes 2 and 6)46,841

Costs assumed by Manager (Notes 2 and 6)(46,841)

Fees waived and reimbursed by Manager (Note 5)(6,153)

Total expenses22,765,754

Expense reduction (Note 2)(781,311)

Net expenses21,984,443

Net investment income81,885,806

Net increase in net assets resulting from operations$ 81,885,806

Statement of changes in net assets

DECREASE IN NET ASSETS

Year endedYear ended

9/30/059/30/04

Operations:

Net investment income$ 81,885,806$ 30,723,990

Net increase in net assets resulting from operations81,885,80630,723,990

Distributions to shareholders: (Note 1)

From net investment income

Class A(70,960,190)(28,599,137)

Class B(6,086,041)(1,338,213)

Class C(389,646)(86,784)

Class M(922,024)(349,505)

Class R(18,991)(100)

Class T(3,532,342)(488,688)

Decrease from capital share transactions (Note 4)(640,404,935)(1,573,730,519)

Total decrease in net assets(640,428,363)(1,573,868,956)

NET ASSETS

Beginning of year4,278,212,3665,852,081,322

End of year (including undistributed netinvestment

income of $-- and $23,428, respectively)$3,637,784,003$ 4,278,212,366

Financial highlights (For a common share outstanding throughout theperiod)

CLASS A

PER-SHARE OPERATING PERFORMANCE

Year ended

9/30/059/30/049/30/039/30/029/30/01

Net asset value,

beginning of period$1.00$1.00$1.00$1.00$1.00

Investment operations:

Net investment income.0226(c).0068(c).0087.0166.0493

Net realized gain

on investments------(d)----

Total from

investment operations.0226.0068.0087.0166.0493

Less distributions:

From net investment income(.0226)(.0068)(.0087)(.0166)(.0493)

Total distributions(.0226)(.0068)(.0087)(.0166)(.0493)

Net asset value,

end of period$1.00$1.00$1.00$1.00$1.00

Total return

at net asset value (%)(a)2.29.68.871.675.04

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period

(in thousands)$3,087,756$3,537,907$4,745,555$5,512,532$5,215,127

Ratio of expenses to

average net assets (%)(b).53(c).53(c).52.50.50

Ratio of net investment income

to average net assets (%)2.21(c).70(c).881.684.77

(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).

(c) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of suchwaivers, the expenses of the fund for the periods ended September 30, 2005 and September 30, 2004 reflect a reduction of less than 0.01% of average net assets for class A shares (Note 5).

(d) Amount represents less than $0.0001 per share.

CLASS B

Year ended

9/30/059/30/049/30/039/30/029/30/01

Net asset value,

Net realized gain

Total from

Net asset value,

end of period$1.00$1.00$1.00$1.00$1.00

Total return

(in thousands)$290,268$520,456$874,069$1,193,459$1,162,039

average net assets (%)(b)1.03(c)1.03(c)1.021.001.00

(c) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of suchwaivers, the expenses of the fund for the periods ended September 30, 2005 and September 30, 2004 reflect a reduction of less than 0.01% of average net assets for class B shares (Note 5).

CLASS C

Year ended

9/30/059/30/049/30/039/30/029/30/01

Net asset value,

Net realized gain

Total from

Net asset value,

end of period$1.00$1.00$1.00$1.00$1.00

Total return

(in thousands)$33,259$40,935$61,755$79,227$90,226

average net assets (%)(b)1.03(c)1.03(c)1.021.001.00

(c) Reflects waivers of certain fund expenses in connection with investments in Putnam Prime Money Market Fund during the period. As a result of suchwaivers, the expenses of the fund for the periods ended September 30, 2005 and September 30, 2004 reflect a reduction of less than 0.01% of average net assets for class C shares (Note 5).

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