Question

They said that they had been taking exercise

Answer 1

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They said, "We were taking exercise."

Explanation ↴

There are some major rules to change the narration from Indirect to direct. We need to consider the tense, pronoun, words that describe time, place, distance, types of sentences, etc. According to the rule, we have to change the past perfect continuous tense into past continuous tense when we are going to change the speech into direct.

Answer 2

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They said that they had been taking exercise

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They said "We were taking exercise".