Putnam
Tax Smart
Equity
Fund
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
With a scant four months of operation under its belt, Putnam Tax-Smart
Equity Fund has little in the way of performance to show in its initial
report to shareholders. The new fund, however, does bring an investment
opportunity that should be of interest to a great many investors. It is
designed for those who wish to minimize the impact of federal income taxes
on their investments.
Quite naturally, the new fund's managers also seek to deliver the highest
possible after-tax investment returns. As they have built the portfolio,
they have focused on such areas of technology as cable television,
telecommunications, and semiconductor companies. The financial sector is
also well represented.
As the fund's managers write in the following report, they are optimistic
about prospects for the new fund not only in its first full year of
operation but over the long term as well.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 15, 1999
Report from the Fund Managers
Robert R. Beck
Paul Marrkand
Matthew Halperin
Michael K. Arends
We are pleased to present our first report to shareholders of Putnam Tax
Smart Equity Fund, which began operations on July 1, 1999. Your fund got
its start during a volatile period and its brief performance history
reflects the overall market conditions. From July 1, 1999 through October
31, 1999, the fund's class A share return of -0.23% is in line with its
benchmark, the S&P 500 Index, which returned -0.31% for the same period.
Investor nervousness about Federal Reserve Board interest-rate increases,
which occurred in June and August, caused some turmoil in the U.S. stock
market. After surging past the 11,000 barrier earlier in the year, the Dow
Jones Industrial Average plummeted back below 10,000 just before the close
of your fund's fiscal year. It had fallen 11.5% below its all-time high,
which signaled an official market correction. Despite market conditions
and the abbreviated time frame, a number of fund holdings performed quite
well during the period.
Total return for period ended 10/31/99*
Class A Class B Class C
NAV POP NAV CDSC NAV CDSC
- -----------------------------------------------------------------------
-0.23% -5.97% -0.46% -5.44% -0.46% -1.45%
- -----------------------------------------------------------------------
*Since inception on 7/1/99.
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* FUND SEEKS HIGHER AFTER-TAX RETURNS
In discussing the fund's performance for the first time, it is important
to outline our investment approach. The fund is designed for investors who
wish to minimize the impact of federal income taxes on their investment
returns. Therefore, we use a disciplined process to maximize the
portfolio's tax efficiency. We seek stocks of large and midsize companies
that we believe offer reasonably dependable earnings growth and stocks
that are priced significantly lower than their absolute and relative
long-term worth. Of course, before investing in any stock, we carefully
consider the potential tax consequences of our investment decision. We
also invest with a long-term perspective, seeking to trade less frequently
in order to limit capital gains distributions and deliver higher after-tax
returns.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Electronics and
electrical equipment 16.3%
Broadcasting 16.2%
Telecommunications 10.5%
Insurance and
finance 10.4%
Computer services
and software 9.2%
Footnote reads:
*Based on net assets as of 10/31/99. Holdings will vary over time.
* CABLE AND TECHNOLOGY STOCKS BOOST PERFORMANCE
During the period, the fund benefited from holdings in the booming
technology sector, which began an impressive rally late in the period.
Three days after the close of the period, the Nasdaq Composite Index, a
common measure for technology stock performance, closed above 3,000 for
the first time in its history, followed by seven consecutive record
closes. The fund's technology holdings included software companies such as
Computer Associates and Oracle Corp. While these holdings and others
discussed in this report were viewed favorably at the end of the fiscal
period, all are subject to review and adjustment in accordance with the
fund's investment strategy and may well vary in the future.
"The stock market was good to a lot of investors last year. It was even better
to the government, as some chastened taxpayers are finding out. Across the
country millions of investors have been filling out Schedule D, plugging in
numbers from their bountiful capital gains and finding they owe a lot of tax."
- -- The Washington Post, April 11, 1999
Many companies outside the technology sector have also taken advantage of
skyrocketing demands for complex computer data. One example is cable
television, an industry that has changed dramatically since its beginnings
as a service to improve TV reception. Today cable companies are providing
technologically advanced networks that combine high-speed Internet access,
telecommunications, and digital services. To respond to complex demands of
businesses and consumers, the cable industry has undergone a revolution
that has included intense competition and rapid consolidation as companies
try to grab a larger share of this lucrative market.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
AT&T Corp.-Liberty Media Group
Broadcasting
Motorola, Inc.
Electronics and electrical equipment
General Electric Co.
Electronics and electrical equipment
Microsoft Corp.
Computer services and software
MediaOne Group, Inc.
Broadcasting
Citigroup, Inc.
Insurance and finance
Lucent Technologies, Inc.
Telecommunications
Firstar Corp.
Banking
CBS Corp.
Broadcasting
Tyco International Ltd.
Conglomerate
Footnote reads:
These holdings represent 44.4% of the fund's net assets as of 10/31/99.
Portfolio holdings will vary over time.
AT&T-Liberty Media is a fund holding that has reaped the rewards of the
cable and technology revolution. A subsidiary of AT&T Corp., this company
is involved in some of the world's fastest-growing market segments. It
provides programming services through all media formats, including
electronic retailing and direct marketing, wireless communications
services, and high-speed Internet services. Liberty holds equity positions
in nearly 100 cable channels, including BET, Discovery Channel, E!,
Encore, QVC, and USA Networks. Liberty also has numerous positions in
overseas cable systems, many of which are in their infancy and are
expected to experience incredibly rapid growth. The company has 95%
ownership of Liberty Digital, which includes music and online properties.
* SEIZING GROWTH POTENTIAL IN TELECOM AND SEMICONDUCTORS
In the telecommunications sector, the stock of Sprint FON Group was
another top contributor to the fund's performance. In the final month of
the period, Sprint, which operates the third largest wireless
telecommunications network in the nation, agreed to merge with MCI
WorldCom in a $129 billion transaction -- the largest corporate merger in
history. MCI is the second-largest long-distance phone company in the
United States, providing telecommunications services to businesses,
governments, and consumers from a network of fiber-optic cables and
digital microwave and satellite stations. The merger will give MCI access
to the booming wireless market, which will be used increasingly for
Internet access and data services. We believe this stock is attractively
valued, as the combined company will be positioned as one of the world's
premier full-scale telecommunications providers.
The fund is also positioned to take advantage of the semiconductor sector,
which is expected to grow rapidly after an extended period of weakness.
Fund holding Motorola, the third largest maker of semiconductors, should
benefit as demand explodes for semiconductor-powered wireless phones,
cars, televisions, and other devices. Motorola's communications businesses
also offer outstanding growth potential. Cellular devices make up nearly
40% of Motorola's sales and other products include two-way radios, pagers,
computers, and networking equipment. Motorola is keeping pace with the
industry's astounding advances by expanding its software operations to add
Internet access to its phones and other electronic devices. It is also
working on third-generation cell phones that can send video transmissions.
* FOCUS ON MEDIA SECTOR CONTINUES
At the close of the period, our outlook was positive for stocks in the
media sector, as many of these companies were reaping the rewards of
Internet growth. Internet companies continue to advertise through
traditional methods and those looking to build brand recognition are
turning to broadcasting and media outlets such as fund holding CBS Corp.
This media giant consists of radio and TV broadcasting businesses as well
as cable programming operations. The company also owns part of Internet
financial news service MarketWatch.com and CBSHealthWatch, a consumer
health-care Web site created Medscape, Inc.
In the fund's financial sector, the stock of Citigroup was a highlight.
Citigroup is the world's largest financial services company, formed by the
merger of Citicorp and Travelers Group in 1998. Its businesses include
insurance giant Travelers, banking leader Citibank, and the Wall Street
firm Salomon Smith Barney. In addition to being the world leader in
financial services, the company has initiated cost-cutting programs, is
diversifying its product lines, and is focusing on building a strong
Internet presence.
* CAUTIOUS OPTIMISM FOR NEW FISCAL YEAR
As we begin the fund's first full fiscal year, we recognize that more
market volatility is likely, especially as we approach the year 2000.
However, we are pleased with the performance and positioning of the
portfolio thus far and we're optimistic about the opportunities available
from reasonably priced large and midsize growth stocks. We believe our
disciplined investment process and our research-driven stock selection
will allow the fund to deliver attractive after-tax returns in the years
to come.
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 10/31/99, there is no guarantee the fund will
continue to hold these securities in the future.
Performance summary
This section provides information about your fund's performance, which should
always be considered in light of its investment strategy. Putnam Tax Smart
Equity Fund, designed for investors seeking long-term growth of capital on an
after-tax basis, invests primarily in common stocks of U.S. companies.
TOTAL RETURN FOR PERIOD ENDED 10/31/99
Class A Class B Class C
(inception dates) (7/1/99) (10/1/99) (10/1/99)
NAV POP NAV CDSC NAV CDSC
- ----------------------------------------------------------------------------
Life of fund -0.23% -5.97% -0.46% -5.44% -0.46% -1.45%
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIOD ENDED 10/31/99
S&P Consumer
500 Index price index
- ----------------------------------------------------------------------------
Life of fund -0.31% 1.20%
- ----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A shares reflect
the current maximum initial sales charges of 5.75%. Class B share returns
for the 1-, 5-, and 10-year (where available) and life-of-fund periods
reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year, declines to 1% in the sixth year, and is eliminated
thereafter. Returns shown for class B shares for periods prior to their
inception are derived from the historical performance of class A shares,
adjusted to reflect both the initial sales charge or CDSC, if any,
currently applicable to each class and in the case of class B shares the
higher operating expenses applicable to such shares. For class C shares,
returns for periods prior to their inception are derived from the
historical performance of class A shares, adjusted to reflect both the
CDSC currently applicable to class C shares, which is 1% for the first
year and is eliminated thereafter, and the higher operating expenses
applicable to class C shares. All returns assume reinvestment of
distributions at NAV. Investment return and principal value will fluctuate
so that an investor's shares when redeemed may be worth more or less than
their original cost. For a portion of this period, the fund was offered on
a limited basis and had limited assets.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 7/1/99
Fund's class A S&P 500 Consumer price
Date shares at POP Index index
7/1/99 9,425 10,000 10,000
7/31/99 9,079 9,688 10,030
8/31/99 8,844 9,640 10,054
9/30/99 8,940 9,376 10,102
10/31/99 $9,403 $9,969 $10,120
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have
been valued at $9,954 ($9,456 with the contingent deferred sales charge)
and the fund's class C shares would have been valued at $9,954 ($9,855
with the contingent deferred sales charge). See first page of performance
section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION PERIOD ENDED 10/31/99
Class A Class B Class C
NAV POP NAV NAV
- ---------------------------------------------------------------------------
Distributions (number)* -- -- -- --
- ---------------------------------------------------------------------------
Share value: NAV POP NAV NAV
- ---------------------------------------------------------------------------
7/1/99 $8.69 $9.22 -- --
- ---------------------------------------------------------------------------
10/1/99+ -- -- $8.35 $8.35
- ---------------------------------------------------------------------------
10/31/99 8.67 9.20 8.67 8.67
- ---------------------------------------------------------------------------
*The fund did not make any distributions during the period.
+Inception of class B and class C shares.
TOTAL RETURN FOR PERIODS ENDED 9/30/99 (most recent calendar quarter)
Class A Class B* Class C*
(inception dates) (7/1/99) (10/1/99) (10/1/99)
NAV POP NAV CDSC NAV CDSC
- ---------------------------------------------------------------------------
Life of fund -3.91% -9.44% -4.13% -8.93% -4.13% -5.09%
- ---------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. Investment
returns and principal value will fluctuate so that an investor's shares
when sold may be worth more or less than their original cost. See first
page of performance section for performance calculation method.
*Derived from historical performance of class A shares; see explanation on
page 6.
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.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
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.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or C shares and assumes redemption at the end of
the period. Your fund's 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.
Comparative benchmarks
Standard & Poor's 500 Composite Stock Price Index is an index of common
stocks frequently used as a general measure of stock market performance.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take into account brokerage fees or taxes. Securities
in the fund do not match those in the indexes and performance of the fund
will differ. 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.
Welcome to www.putnaminv.com
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news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
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New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
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 period July 1, 1999 through October 31, 1999
To the Trustees of Putnam Tax Managed Funds Trust and
Shareholders of Putnam Tax Smart Equity Fund
(a series of Putnam Tax Managed Funds Trust)
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Putnam Tax Smart
Equity Fund (the "fund") at October 31, 1999, and the results of its
operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included
confirmation of investments owned at October 31, 1999 by correspondence
with the custodian, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 1999
<TABLE>
<CAPTION>
The fund's portfolio
October 31, 1999
COMMON STOCKS (98.0%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Banks (3.7%)
- --------------------------------------------------------------------------------------------------------------------------
63,594 Firstar Corp. $ 1,868,074
Biotechnology (0.2%)
- --------------------------------------------------------------------------------------------------------------------------
600 Genentech, Inc. 87,450
Broadcasting (16.2%)
- --------------------------------------------------------------------------------------------------------------------------
3,900 AMFM, Inc. (NON) 273,000
88,895 AT&T Corp. -- Liberty Media Group Class A (NON) 3,528,020
34,830 CBS Corp. (NON) 1,700,139
14,000 Infinity Broadcasting Corp. Class A (NON) 483,875
30,500 MediaOne Group, Inc. (NON) 2,167,406
--------------
8,152,440
Business Equipment and Services (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
38,575 Cendant Corp. (NON) 636,488
7,160 Convergys Corp. (NON) 140,068
2,808 EMC Corp. (NON) 204,984
--------------
981,540
Chemicals (1.8%)
- --------------------------------------------------------------------------------------------------------------------------
7,161 Minnesota Mining & Manufacturing Co. 680,743
4,635 Praxair, Inc. 216,686
--------------
897,429
Computer Equipment (1.3%)
- --------------------------------------------------------------------------------------------------------------------------
6,030 Sun Microsystems, Inc. (NON) 638,049
Computer Services and Software (9.2%)
- --------------------------------------------------------------------------------------------------------------------------
8,180 BMC Software, Inc. (NON) 525,054
11,800 Computer Associates International, Inc. 666,700
6,600 Electronic Data Systems Corp. 386,100
25,475 Microsoft Corp. (NON) 2,358,029
14,735 Oracle Corp. (NON) 700,833
--------------
4,636,716
Conglomerates (3.2%)
- --------------------------------------------------------------------------------------------------------------------------
40,100 Tyco International Ltd. 1,601,494
Consumer Non Durables (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
7,160 Kimberly-Clark Corp. 451,975
Electronics and Electrical Equipment (16.3%)
- --------------------------------------------------------------------------------------------------------------------------
3,890 Applied Materials, Inc. (NON) 349,370
18,450 General Electric Co. 2,501,128
18,990 Intel Corp. 1,470,538
3,850 KLA Tencor Corp. (NON) 304,871
2,700 LSI Logic Corp. (NON) 143,606
25,825 Motorola, Inc. 2,516,323
12,475 Rockwell International Corp. 604,258
3,335 STMicroelectronics N.V. ADR (France) 303,068
--------------
8,193,162
Entertainment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
8,275 Viacom, Inc. Class B (NON) 370,306
Insurance and Finance (10.4%)
- --------------------------------------------------------------------------------------------------------------------------
5,615 American Express Co. 864,710
2,200 American General Corp. 163,213
7,343 American International Group, Inc. 755,870
4,670 Capital One Financial Corp. 247,510
39,125 Citigroup, Inc. 2,117,641
1,900 Fannie Mae 134,425
3,300 Merrill Lynch & Co., Inc. 259,050
6,360 Providian Financial Corp. 693,240
--------------
5,235,659
Oil and Gas (7.6%)
- --------------------------------------------------------------------------------------------------------------------------
7,160 Chevron, Inc. 653,798
28,850 Conoco, Inc. 791,572
21,320 Halliburton Co. 803,498
4,660 Mobil Corp. 449,690
8,290 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 496,882
4,611 Schlumberger Ltd. 279,254
10,155 Unocal Corp. 350,348
--------------
3,825,042
Packaging and Containers (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
10,005 Sealed Air Corp. (NON) 554,027
Paper and Forest Products (1.4%)
- --------------------------------------------------------------------------------------------------------------------------
3,365 Weyerhaeuser Co. 200,848
11,800 Willamette Industries, Inc. 490,438
--------------
691,286
Pharmaceuticals (7.2%)
- --------------------------------------------------------------------------------------------------------------------------
4,630 Amgen Inc. 369,243
9,400 Johnson & Johnson 984,650
11,605 Merck & Co., Inc. 923,322
11,700 Pfizer, Inc. 462,150
9,179 Pharmacia & Upjohn, Inc. 495,092
5,090 Warner-Lambert Co. 406,245
--------------
3,640,702
Retail (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
21,300 TJX Cos., Inc. (The) 577,763
8,775 Tandy Corp. 552,277
--------------
1,130,040
Telecommunications (10.5%)
- --------------------------------------------------------------------------------------------------------------------------
7,270 ADC Telecommunications Inc. (NON) 346,688
3,900 Adelphia Communications Corp. (NON) 213,038
8,265 Corning Inc. 649,835
30,810 Lucent Technologies, Inc. 1,979,543
1,351 Nokia Corp. ADR (Finland) 156,125
3,275 QUALCOMM, Inc. (NON) 729,506
3,600 Sprint Corp. (FON Group) (NON) 267,525
11,595 Sprint Corp. (PCS Group) 961,660
--------------
5,303,920
Utilities (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
15,255 Bell Atlantic Corp. 990,622
--------------
Total Common Stocks (cost $46,684,129) $ 49,249,933
SHORT-TERM INVESTMENTS (3.2%) (cost $1,586,000) (a)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$1,586,000 Interest in $462,305,000 joint repurchase agreement
dated October 29, 1999 with S. B. C. Warburg Inc.
due November 1, 1999 with respect to various
U.S. Treasury obligations -- maturity value of
$1,586,690 for an effective yield of 5.22% $ 1,586,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $48,270,129) (b) $ 50,835,933
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $50,273,479.
(b) The aggregate identified cost on a tax basis is $48,272,160, resulting in gross unrealized appreciation and
depreciation of $3,098,658 and $534,885, respectively, or net unrealized appreciation of $2,563,773.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign
securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1999
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $48,270,129) (Note 1) $50,835,933
- -----------------------------------------------------------------------------------------------
Cash 260
- -----------------------------------------------------------------------------------------------
Dividends and interest receivable 9,298
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 7,515,707
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 862,328
- -----------------------------------------------------------------------------------------------
Unamortized offering costs (Note 1) 10,245
- -----------------------------------------------------------------------------------------------
Receivable from Manager (Note 2) 30,848
- -----------------------------------------------------------------------------------------------
Total assets 59,264,619
Liabilities
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 8,912,633
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 39,000
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,349
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 19
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 12,367
- -----------------------------------------------------------------------------------------------
Payable for organization fees and offering costs (Note 1) 4,273
- -----------------------------------------------------------------------------------------------
Other accrued expenses 20,496
- -----------------------------------------------------------------------------------------------
Total liabilities 8,991,140
- -----------------------------------------------------------------------------------------------
Net assets $50,273,479
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $48,128,979
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (421,304)
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,565,804
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $50,273,479
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($23,856,630 divided by 2,751,699 shares) $8.67
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $8.67)* $9.20
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($22,535,292 divided by 2,598,803 shares) ** $8.67
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($3,881,557 divided by 447,614 shares) ** $8.67
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
For the period July 1, 1999 to October 31, 1999
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $44) $ 14,146
- -----------------------------------------------------------------------------------------------
Interest 7,091
- -----------------------------------------------------------------------------------------------
Total investment income 21,237
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 19,171
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 3,729
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 160
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 5
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 2,594
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 8,481
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,291
- -----------------------------------------------------------------------------------------------
Amortization of offering costs (Note 1) 5,819
- -----------------------------------------------------------------------------------------------
Reports to shareholders 10,507
- -----------------------------------------------------------------------------------------------
Registration fees 12,508
- -----------------------------------------------------------------------------------------------
Auditing 32,220
- -----------------------------------------------------------------------------------------------
Legal 1,787
- -----------------------------------------------------------------------------------------------
Postage 481
- -----------------------------------------------------------------------------------------------
Other 603
- -----------------------------------------------------------------------------------------------
Fees waived and reimbursed by manager (Note 2) (52,756)
- -----------------------------------------------------------------------------------------------
Total expenses 46,600
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (1,697)
- -----------------------------------------------------------------------------------------------
Net expenses 44,903
- -----------------------------------------------------------------------------------------------
Net investment loss (23,666)
- -----------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (350,509)
- -----------------------------------------------------------------------------------------------
Net realized gain on swap contracts during the period (Note 1) 4,225
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 2,419,708
- -----------------------------------------------------------------------------------------------
Net gain on investments 2,073,424
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,049,758
- -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
For the period
July 1, 1999
to October 31
1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment loss $ (23,666)
- ---------------------------------------------------------------------------------------------------------------
Net realized loss on investments (346,284)
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,419,708
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,049,758
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 45,156,270
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 47,206,028
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 3,067,451
- ---------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $--) $50,273,479
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Class A
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share July 1, 1999
operating performance to October 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.69
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (b)(d) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.67
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (0.23)*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $23,857
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .44*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) (.16)*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.65*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during
the period.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
a reduction of $0.05, $0.02 and $0.02 per class A, B, and C share, respectively. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Class B
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share October 1, 1999+
operating performance to October 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.35
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (b)(d) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .33
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.67
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.83*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $22,535
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .19*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) (.12)*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.65*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during
the period.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
a reduction of $0.05, $0.02 and $0.02 per class A, B, and C share, respectively. (Note 2)
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
Class C
- ---------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share October 1, 1999+
operating performance to October 31
- ---------------------------------------------------------------------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $8.35
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (a)(c) (.01)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .33
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .32
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $8.67
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 3.83*
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,882
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .19*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(d) (.12)*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.65*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Per share net investment loss has been determined on the basis of the weighted average number of shares outstanding during
the period.
(c) Includes amounts paid through expense offset arrangements (Note 2).
(d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund reflect
a reduction of $0.05, $0.02 and $0.02 per class A, B, and C share, respectively. (Note 2)
</TABLE>
Notes to financial statements
October 31, 1999
Note 1
Significant accounting policies
Putnam Tax Smart Equity Fund (the "fund") is a series of Putnam Tax
Managed Funds Trust (the "trust") which is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The fund seeks long-term growth of capital on an
after-tax basis by investing mainly in common stocks of U.S. companies,
including both growth and value stocks that Putnam Investment Management,
Inc. ("Putnam Management"), the fund's manager, a wholly-owned subsidiary
of Putnam Investments, Inc. believes have potential for long-term growth.
The financial statements present information for the period July 1, 1999
(the effective date of registration of the fund with the Securities and
Exchange Commission) through October 31, 1999. Financial information for
the period prior to July 1, 1999 is discussed in Note 5.
The fund offers class A, class B and class C shares. The fund began
offering class A shares on July 1, 1999 and class B and C shares on
October 1, 1999. Class A shares are sold with a maximum front-end sales
charge of 5.75%. Class B shares, which convert to class A shares after
approximately eight years, do not pay a front-end sales charge but pay a
higher ongoing distribution fee than class A shares, and are subject to a
contingent deferred sales charge, if those shares are redeemed within six
years of purchase. Class C shares are subject to the same fees and
expenses as class B shares, except that class C shares have a one-year
1.00% contingent deferred sales charge and do not convert to class A
shares.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if that fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally
accepted accounting principles and requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sales price on its principal exchange, or if no sales are
reported -- as in the case of some securities traded over-the-counter --
the last reported bid price. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost, which
approximates market value. Other investments, including restricted
securities, are stated at fair value following procedures approved by the
Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Management. These balances may be invested in one or more
repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the market
value of which at the time of purchase is required to be in an amount at
least equal to the resale price, including accrued interest. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis. Interest income is recorded on the accrual
basis. Dividend income is recorded on the ex-dividend date except that
certain dividends from foreign securities are recorded as soon as the fund
is informed of the ex-dividend date.
E) Swap contracts The fund may engage in swap agreements, which are
agreements to exchange the return generated by one instrument for the
return generated by another instrument. The fund may enter into equity
swap agreements, to manage its exposure to equity markets, which involve a
commitment by one party to pay interest in exchange for a market-linked
return based on a notional amount. To the extent that the total return of
the security or index underlying the transaction exceeds or falls short of
the offsetting interest rate obligation, the fund will receive a payment
from or make a payment to the counterparty, respectively. Equity swaps are
marked to market daily based upon quotations from market makers and the
change, if any, is recorded as unrealized gain or loss. Payments received
or made at the end of the measurement period are recorded as realized
gains or losses. The fund could be exposed to credit or market risk due to
unfavorable changes in the fluctuation of interest rates or in the price
of the underlying security or index, the possibility that there is no
liquid market for these agreements or that the counterparty may default on
its obligation to perform.
F) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and
borrowings must not exceed prospectus limitations. For the period ended
October 31, 1999, the fund had no borrowings against the line of credit.
G) Federal taxes It is the policy of the fund to distribute all of its
taxable 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.
At October 31, 1999, the fund had a capital loss carryover of
approximately $420,000 available to offset future net capital gain, if
any, which will expire on October 31, 2007.
H) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Capital gain distributions, if any, are recorded on the ex-dividend date
and paid at least annually. The amount and character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences include temporary and permanent differences of losses on wash
sale transactions, foreign currency gains and losses, net operating loss,
swap income and organizational costs. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for
distribution (or available capital loss carryovers) under income tax
regulations. For the period ended October 31, 1999, the fund reclassified
$22,076 to decrease net investment loss and $27,291 to decrease
paid-in-capital, with a decrease to accumulated net realized losses of
$5,215. The calculation of net investment income per share in the
financial highlights table excludes these adjustments.
I) Expenses of the trust Expenses directly charged or attributable to any
fund will be paid from the assets of that fund. Generally, expenses of the
trust will be allocated among and charged to the assets of each fund on a
basis that the Trustees deem fair and equitable, which may be based on the
relative assets of each fund or the nature of the services performed and
relative applicability to each fund.
J) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $29,801. The offering costs of $22,801 are
being amortized on a straight line basis over a twelve month period. The
organization costs of $7,000 were expensed as incurred. The fund will
reimburse Putnam Management for the payment of these expenses.
Note 2
Management fee, administrative
services, and other transactions
Compensation of Putnam Management, 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: 0.70% of the first $500
million of average net assets, 0.60% of the next $500 million, 0.55% of
the next $500 million, 0.50% of the next $5 billion 0.475% of the next $5
billion, 0.455% of the next $5 billion, 0.44% of the next $5 billion, and
0.43% thereafter.
Putnam Management has agreed to limit its compensation (and, to the extent
necessary, bear other expenses) through October 31, 2000, to the extent
that expenses of the fund (exclusive of brokerage commissions, interest,
taxes, organizational and extraordinary expense, credits from Putnam
Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, Inc.,
and payments under the Trust's distribution plan) would exceed an annual
rate of 1.25% of the fund's average net assets.
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 PFTC. Investor
servicing agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the period July 1, 1999 through October 31, 1999, fund expenses were
reduced by $1,697 under expense offset arrangements with PFTC and
brokerage service arrangements. 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 $100 has
been allocated to the fund, and an additional fee for each Trustee's
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 distribution plans (the "Plans") with respect to its
class A, class B, and class C shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services provided and expenses incurred by it in distributing
shares of the fund. The Plans provide for payments by the fund to Putnam
Mutual Funds Corp. at an annual rate up to 0.35%, 1.00% and 1.00% of the
average net assets attributable to class A, class B and class C shares,
respectively. The Trustees have approved payment by the fund at an annual
rate of 0.25%, 1.00% and 1.00% of the average net assets attributable to
class A, class B and class C shares respectively.
For the period July 1, 1999 through October 31, 1999, Putnam Mutual Funds
Corp., acting as underwriter received net commissions of $64,053 from the
sale of class A shares, and received $566 and no monies in contingent
deferred sales charges from redemptions of class B and class C shares,
respectively. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For the period ended October 31, 1999,
Putnam Mutual Funds Corp., acting as underwriter received $20 on class A
redemptions.
Note 3
Purchases and sales of securities
During the period ended October 31, 1999, cost of purchases and proceeds
from sales of investment securities, other than short-term investments,
aggregated $47,824,437 and $3,600,675, respectively. There were no
purchases and sales of U.S. government obligations.
Note 4
Capital shares
At October 31, 1999, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
For the period July 1, 1999
to October 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,456,870 $20,396,153
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
2,456,870 20,396,153
Shares
repurchased (58,112) (487,918)
- -----------------------------------------------------------------------------
Net increase 2,398,758 $19,908,235
- -----------------------------------------------------------------------------
For the period October 1, 1999
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,600,221 $21,537,910
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
2,600,221 21,537,910
Shares repurchased (1,418) (11,319)
- -----------------------------------------------------------------------------
Net increase 2,598,803 $21,526,591
- -----------------------------------------------------------------------------
For the period October 1, 1999
(commencement of operations)
to October 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 447,614 $3,721,444
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
- -----------------------------------------------------------------------------
447,614 3,721,444
Shares repurchased -- --
- -----------------------------------------------------------------------------
Net increase 447,614 $3,721,444
- -----------------------------------------------------------------------------
Note 5
Initial capitalization and
offering of shares
The fund was established as a Massachusetts business trust on April 6,
1999. During the period April 6, 1999 to April 14, 1999, the fund had no
operations other than those related to organizational matters, including
the initial capital contribution of $3,000,000 and the issuance of 352,941
class A shares to Putnam Investments, Inc. on April 14, 1999.
From April 15, 1999 (commencement of operations) to June 30, 1999, the
fund began carrying out its investment objective with the initial capital
contribution. During this period the fund had $1,590 of net investment
income, $80,235 of net realized losses, and $146,096 of net unrealized
appreciation on investments. The net assets at June 30, 1999 were
$3,067,451.
Effective July 1, 1999 the fund was registered under the Securities Act
of 1933.
At October 31, 1999, Putnam Investments, Inc. owned 352,941 of class A
shares of the fund (12.8% of class A shares outstanding), valued at
$3,059,998.
Federal tax information
(Unaudited)
The Form 1099 you receive in January 2000 will show the tax status of all
distributions paid to your account in calendar 1999.
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Small Cap Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota, New Jersey,
New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds-three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share,
it is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Brett C. Browchuk
Vice President
John J. Morgan, Jr.
Vice President
Justin Scott
Vice President
Robert R. Beck
Vice President and Fund Manager
Paul Marrkand
Vice President and Fund Manager
Matthew Halperin
Vice President and Fund Manager
Michael K. Arends
Vice President and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Tax Smart
Equity Fund. It may also be used as sales literature when preceded or
accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary. For more
information or to request a prospectus, call toll free: 1-800-225-1581.
You can also learn more at Putnam Investments' Web site: www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed
or endorsed by, any financial institution; are not insured by the Federal
Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any
other agency; and involve risk, including the possible loss of the
principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
BULK RATE
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
AN070-56826 2MI 12/99
