Putnam
Tax Smart
Equity Fund
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-00
[SCALE LOGO OMITTED]
FROM THE CHAIRMAN
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[COPYRIGHT] Karsh, Ottawa
Dear Shareholder:
The markets continued to provide their share of challenges and
opportunities as your fund closed its books on the first half of fiscal
year 2000. In the following report, the fund's managers discuss
performance for the period and prospects for the months ahead.
This is the last letter to you and the other shareholders of Putnam Tax
Smart Equity Fund that I will be signing. After more than 30 years as
Chairman of the Trustees and President of the Putnam Funds, the time has
come for me to step aside. As of July 1, 2000, John Hill will become
Chairman. John is currently an independent Trustee and has served on the
board for the past 14 years. In addition, my son, George Putnam, III,
will take on the role of President. I am confident that the leadership
of the funds will be in exceptionally strong hands.
I will become Chairman Emeritus, remain a Putnam shareholder, and stay
in close touch with the funds. It has been my privilege to serve you.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 21, 2000
REPORT FROM THE FUND MANAGERS
Robert R. Beck
Paul Marrkand
Matthew Halperin
Michael K. Arends
For the six months ended April 30, 2000, Putnam Tax Smart Equity Fund's
focus on solid companies in growing sectors proved beneficial despite
the challenges of a volatile stock market. For most of the period, U.S.
financial markets were delivering robust -- and in many cases
record-breaking -- returns. Although this momentum reversed sharply in
the final weeks of the period, your fund delivered solid returns and
handily outperformed its benchmark, the S&P 500 Index.
Total return for 6 months ended 4/30/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
-------------------------------------------------------------------------
19.84% 12.94% 19.38% 14.38% 19.38% 18.38% 19.56% 15.44%
-------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* VOLATILITY CONTINUES TO PLAGUE MARKETS
Beginning in mid March, a number of factors combined to create weakness
in the stock market. This eventually led to sharp volatility, with the
major indexes experiencing some of their largest point drops on record
during April. Perhaps most alarming to investors was an April 14 report
on the consumer price index that indicated inflation may be on the rise.
This report was a catalyst for investors who had been sorting through
other potentially negative news, including the Microsoft antitrust
verdict, some disappointing earnings announcements, and press reports
that many stocks, especially in the technology sector, were overvalued.
By the end of April, the Dow had lost more than 12% since its peak in
January, the S&P had dropped more than 11% since its March 24 peak, and
the Nasdaq had declined more than 32% since its high on March 10.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Communications
equipment 14.4%
Semiconductors 12.1%
Pharmaceuticals 9.1%
Cable television 7.9%
Broadcasting 5.3%
Footnote reads:
*Based on net assets as of 4/30/00. Holdings will vary over time.
The performance of many portfolio holdings was dampened in the April
market downturn. However, it is important to note that such volatility
is a natural part of stock market investing and we believe the market,
the economy, and the fund's holdings remain fundamentally strong. In
fact, the recent market activity has given us an unusual opportunity to
purchase shares of solid companies at attractively low prices. This was
especially beneficial for your fund, as its strategy is to target stocks
that may be priced below their long-term worth.
* TECH STOCKS PLAY MAJOR ROLE IN FISCAL 2000
During the semiannual period, the pervasive influence of technology,
especially the Internet, touched almost every growth sector. The
inclusion of Microsoft and Intel in the Dow and the addition of Internet
stocks Yahoo! and America Online to the S&P 500 Index illustrated the
growing influence of technology in today's economy. In the past year,
approximately 150,000 new users worldwide went online each day and more
than 61 million U.S. homes are now connected to the Internet. We are
pleased to report that your fund took full advantage of opportunities in
the technology sector, seeking stocks of companies that we believe
offered a combination of growth potential and attractive prices.
An important term that has entered the vocabulary of the technology
marketplace is "bandwidth," and it is key to understanding future growth
trends. Bandwidth refers to the amount of data that can be sent through
a computer network; the higher the bandwidth, the higher the network
speed. With the explosive growth in Internet usage comes a huge demand
for more bandwidth.
Among the companies profiting from this demand are those that provide
the equipment to increase bandwidth, such as makers of fiber-optic
equipment. Fund holding Corning, Inc. is one example. The originator of
fiber-optic cable more than 20 years ago, Corning has capitalized on the
increased demand for faster, higher-capacity Internet connections, cable
modems, and high-speed phone lines. Corning's long-term growth potential
is evident in innovative products such as its LEAF fiber, which gives
networks the flexibility to handle increasing amounts of data and to
respond to growing bandwidth demands.
"In addition to selecting stocks with strong long-term growth potential,
we must carefully monitor portfolio holdings to determine the potential
tax consequences of our investment decisions."
-- Paul Marrkand, portfolio manager
Another standout in the fund's technology sector was the stock of
Juniper Networks. Juniper develops high-speed routers, which send
information across computer networks and are specifically designed to
accommodate the size and scope of the Internet. Juniper's leading
product, the M-40, is among the fastest Internet backbone routers
available. Juniper's stock was one of Wall Street's best success stories
of 1999, as the company rapidly gained market share in the extremely
competitive networking industry. While these holdings and others
discussed in this report were viewed favorably at the end of the period,
all are subject to review and adjustment in accordance with the fund's
investment strategy and may vary in the future.
* WIRELESS, MEDIA BENEFIT FROM GROWING DEMAND
While the number of cell-phone users continues to skyrocket around the
world, another new trend has begun to benefit wireless companies --
accessing the Internet through mobile phones. According to a new report
from IDC Research, 61.5 million people in the United States will be
using wireless devices to access the Internet by 2003, a 728% increase
over February 2000. Although wireless Internet service is in its
infancy, it has already boosted a number of stocks, including Motorola,
Inc., a holding that contributed positively to the fund's performance
during the period. Motorola produces wireless telephones and two-way
radio, messaging, and satellite communications products. While we
believe Motorola is a fundamentally strong company, we sold the fund's
position in April as part of our disciplined valuation process.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
AT&T Corp.-Liberty Media Group
Cable television
CBS Corp.
Broadcasting
Warner-Lambert Co.
Pharmaceuticals
Cisco Systems, Inc.
Communications equipment
MediaOne Group, Inc.
Cable television
Citigroup, Inc.
Financial
EMC Corp.
Computers
Nokia Corp. ADR
Communications equipment
LSI Logic Corp.
Semiconductors
General Electric Co.
Conglomerate
Footnote reads:
These holdings represent 27.3% of the fund's net assets as of 4/30/00.
Portfolio holdings will vary over time.
Another fund holding that has since been sold is QUALCOMM, Inc., a stock
that boosted performance during the semiannual period. The company
pioneered CDMA (code-division multiple access) technology, which has
become the high-quality standard for the next generation of cell phones
and wireless telecom equipment.
The media sector of the fund's portfolio also reaped the rewards of
Internet growth. Building brand recognition is vital to many Internet
companies and one of the most effective methods for doing this is to
advertise through traditional outlets such as TV, radio, and billboards.
This has boosted fund holdings such as AT&T-Liberty Media, which holds
equity positions in nearly 100 cable channels, including BET, Discovery
Channel, E!, Encore, QVC, and USA Networks. The company also has
numerous positions in overseas cable systems, many of which are in their
infancy and are expected to experience rapid growth.
* POSITIONED FOR VOLATILITY IN FISCAL YEAR'S SECOND HALF
As the period came to a close, our commitment to a disciplined
investment process became more significant as U.S. financial markets
continued to experience sharp volatility. We remain focused on
maximizing the portfolio's tax efficiency by investing with a long-term
perspective. This focus, combined with our intensive research and stock
selection process, should enable the fund to deliver solid long-term
returns over time.
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 4/30/00, 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.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 4/30/00
Class A Class B Class C Class M
(inception dates) (7/1/99) (10/1/99) (10/1/99) (3/28/00)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 19.84% 12.94% 19.38% 14.38% 19.38% 18.38% 19.56% 15.44%
----------------------------------------------------------------------------------------
Life of fund 19.56 12.69 18.83 13.83 18.83 17.83 19.15 14.93
----------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/00
Standard &
Poor's 500 Consumer
Index price index
-------------------------------------------------------------------------
6 months 7.19% 1.84%
-------------------------------------------------------------------------
Life of fund 6.86 3.01
-------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. Returns for class A and class M
shares reflect the current maximum initial sales charges of 5.75% and
3.50%, respectively. 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 and class M 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 and class
M 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. Performance data
reflect an expense limitation currently or previously in effect. Without
the limitation, total returns would have been lower.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/00
Class A Class B Class C Class M
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Distributions (number)* -- -- -- --
-------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
-------------------------------------------------------------------------------------
10/31/99 $8.67 $9.20 $8.67 $8.67 -- --
-------------------------------------------------------------------------------------
3/28/00+ -- -- -- -- $12.08 $12.52
-------------------------------------------------------------------------------------
4/30/00 10.39 11.02 10.35 10.35 10.39 10.77
-------------------------------------------------------------------------------------
*The fund did not make any distributions during the period.
+Inception of class M shares.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 3/31/00 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (7/1/99) (10/1/99) (10/1/99) (3/28/00)
NAV POP NAV CDSC NAV CDSC NAV POP
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months 38.20% 30.25% 37.72% 32.72% 37.72% 36.72% 37.87% 33.10%
----------------------------------------------------------------------------------------
Life of fund 32.80 25.16 32.03 27.03 32.03 31.03 32.34 27.65
----------------------------------------------------------------------------------------
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.
Performance data reflect an expense limitation currently or previously
in effect. Without the limitation, total returns would have been lower.
</TABLE>
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.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 and 3.50% for class M 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.
The index assumes reinvestment of all distributions and interest
payments and does not take into account brokerage fees or taxes.
Securities in the fund do not match those in the index 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.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report 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.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
April 30, 2000 (Unaudited)
COMMON STOCKS (94.9%) (a)
NUMBER OF SHARES VALUE
<S> <C>
Banking (3.7%)
-------------------------------------------------------------------------------------------------------------------
43,000 Bank of America Corp. $ 2,107,000
58,500 Bank of New York Company, Inc. 2,402,156
82,100 Bank One Corp. 2,504,050
119,400 Firstar Corp. 2,970,075
48,800 Freddie Mac 2,241,750
----------------
12,225,031
Biotechnology (1.1%)
-------------------------------------------------------------------------------------------------------------------
13,000 Genentech, Inc. (NON) 1,521,000
16,900 IDEC Pharmaceuticals Corp. (NON) 1,081,600
30,000 Immunex Corp. (NON) 1,181,250
----------------
3,783,850
Broadcasting (5.3%)
-------------------------------------------------------------------------------------------------------------------
75,100 AMFM, Inc. (NON) 4,984,763
162,630 CBS Corp. (NON) 9,554,513
83,600 Infinity Broadcasting Corp. Class A (NON) 2,837,175
----------------
17,376,451
Cable Television (7.9%)
-------------------------------------------------------------------------------------------------------------------
61,300 Adelphia Communications Corp. (NON) 3,038,181
287,995 AT&T Corp.-Liberty Media Group (NON) 14,381,739
111,700 MediaOne Group, Inc. (NON) 8,447,313
----------------
25,867,233
Communications Equipment (14.4%)
-------------------------------------------------------------------------------------------------------------------
50,340 ADC Telecommunications, Inc. (NON) 3,058,155
15,000 Brocade Communications Systems (NON) 1,860,000
134,300 Cisco Systems, Inc. (NON) 9,310,767
19,265 Corning, Inc. 3,804,838
39,300 Extreme Networks, Inc. (NON) 2,264,663
55,000 F5 Networks, Inc. (NON) 2,567,813
25,200 Foundry Networks, Inc. (NON) 2,293,200
23,700 Juniper Networks, Inc. (NON) 5,040,694
138,204 Nokia Corp. ADR (Finland) 7,860,353
24,400 Nortel Networks Corp. (Canada) 2,763,300
116,100 Tellabs, Inc. (NON) 6,363,731
----------------
47,187,514
Computers (5.1%)
-------------------------------------------------------------------------------------------------------------------
25,000 Apple Computer, Inc. (NON) 3,101,563
56,700 EMC Corp. (NON) 7,877,756
8,600 Lexmark International Group, Inc. Class A (NON) 1,014,800
50,460 Sun Microsystems, Inc. (NON) 4,639,166
----------------
16,633,285
Conglomerates (2.1%)
-------------------------------------------------------------------------------------------------------------------
44,650 General Electric Co. 7,021,213
Consumer Finance (1.1%)
-------------------------------------------------------------------------------------------------------------------
59,400 MBNA Corp. 1,577,813
23,860 Providian Financial Corp. 2,101,171
----------------
3,678,984
Electronics (3.2%)
-------------------------------------------------------------------------------------------------------------------
199,500 ARM Holdings Plc (United Kingdom) (NON) 2,028,037
10,000 JDS Uniphase Corp. (NON) 1,036,875
95,100 LAM Research Corp. (NON) 4,362,713
15,300 SDL, Inc. (NON) 2,983,500
----------------
10,411,125
Energy (4.4%)
-------------------------------------------------------------------------------------------------------------------
75,900 Diamond Offshore Drilling, Inc. 3,059,719
74,520 Halliburton Co. 3,292,853
44,200 Schlumberger ,Ltd. 3,384,063
96,600 Transocean Sedco Forex, Inc. 4,540,200
----------------
14,276,835
Entertainment (0.7%)
-------------------------------------------------------------------------------------------------------------------
41,275 Viacom, Inc. Class B (NON) 2,244,328
Financial (3.0%)
-------------------------------------------------------------------------------------------------------------------
138,625 Citigroup, Inc. 8,239,523
24,100 Fannie Mae 1,453,531
----------------
9,693,054
Food (1.0%)
-------------------------------------------------------------------------------------------------------------------
50,900 The Quaker Oats Co. 3,318,044
Health Care Services (0.5%)
-------------------------------------------------------------------------------------------------------------------
26,600 Baxter International, Inc. 1,732,325
Insurance (0.8%)
-------------------------------------------------------------------------------------------------------------------
54,600 AFLAC, Inc. 2,665,163
Investment Banking/Brokerage (1.4%)
-------------------------------------------------------------------------------------------------------------------
26,600 Merrill Lynch & Co., Inc. 2,711,538
22,900 Morgan Stanley, Dean Witter, Discover and Co. 1,757,575
----------------
4,469,113
Medical Technology (1.3%)
-------------------------------------------------------------------------------------------------------------------
25,100 Bausch & Lomb, Inc. 1,515,413
47,200 PE Corp.-PE Biosystems Group 2,832,000
----------------
4,347,413
Oil & Gas (2.8%)
-------------------------------------------------------------------------------------------------------------------
19,884 Exxon Mobil Corp. 1,544,738
49,390 Royal Dutch Petroleum Co. Plc ADR (Netherlands) 2,833,751
63,600 Total S.A. ADR (France) 4,809,750
----------------
9,188,239
Paper & Forest Products (0.1%)
-------------------------------------------------------------------------------------------------------------------
12,000 Willamette Industries, Inc. 458,250
Pharmaceuticals (9.1%)
-------------------------------------------------------------------------------------------------------------------
76,400 American Home Products Corp. 4,292,725
43,900 Bristol-Myers Squibb Co. 2,302,006
38,100 Johnson & Johnson 3,143,250
39,500 Lilly Eli & Co. 3,053,844
86,343 Pharmacia Corp. 4,311,754
80,300 Schering-Plough Corp. 3,237,094
82,590 Warner-Lambert Co. 9,399,774
----------------
29,740,447
Regional Bells (1.6%)
-------------------------------------------------------------------------------------------------------------------
116,700 SBC Communications, Inc. 5,112,919
Retail (3.7%)
-------------------------------------------------------------------------------------------------------------------
34,900 CVS Corp. 1,518,150
50,100 Safeway, Inc. (NON) 2,210,663
93,500 Sears, Roebuck & Co. 3,424,438
33,900 Target Corp. 2,256,469
136,200 TJX Cos., Inc. (The) 2,613,338
----------------
12,023,058
Semiconductors (12.1%)
-------------------------------------------------------------------------------------------------------------------
42,500 Altera Corp. (NON) 4,345,625
24,980 Applied Materials, Inc. (NON) 2,543,276
27,300 Applied Micro Circuits Corp. (NON) 3,518,288
79,500 Chartered Semiconductor Manufacturing,
Ltd ADR (Singapore) (NON) 6,946,313
37,390 Intel Corp. 4,741,519
11,700 KLA Tencor Corp. (NON) 876,038
121,200 LSI Logic Corp. (NON) 7,575,000
10,400 PMC-Sierra, Inc. (NON) 1,995,500
2,435 STMicroelectronics N.V. ADR (France) 461,889
15,000 Vitesse Semiconductor Corp. (NON) 1,020,938
78,700 Xilinx, Inc. (NON) 5,764,775
----------------
39,789,161
Software (4.5%)
-------------------------------------------------------------------------------------------------------------------
48,600 Amdocs, Ltd. (NON) 3,289,613
92,800 Microsoft Corp. (NON) 6,472,800
39,190 Oracle Corp. (NON) 3,132,751
16,450 VERITAS Software Corp. (NON) 1,764,520
----------------
14,659,684
Technology Services (1.4%)
-------------------------------------------------------------------------------------------------------------------
50,860 Convergys Corp. (NON) 2,237,840
24,500 Electronic Data Systems Corp. 1,684,375
16,600 Lycos, Inc. (NON) 771,900
----------------
4,694,115
Telecommunications (2.6%)
-------------------------------------------------------------------------------------------------------------------
90,000 Covad Communications Group 144A (NON) 2,497,500
50,190 Sprint PCS (NON) 2,760,450
71,800 Vodafone AirTouch Plc (United Kingdom) 3,374,600
----------------
8,632,550
----------------
Total Common Stocks (cost $284,766,420) $ 311,229,384
SHORT-TERM INVESTMENTS (3.6%) (a) (cost $11,948,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$ 11,948,000 Interest in $434,310,000 joint repurchase agreement
dated April 28, 2000 with Salomon, Smith Barney, Inc.
due May 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $11,953,685 for an
effective yield of 5.71% $ 11,948,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $296,714,420) (b) $ 323,177,384
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $328,103,332.
(b) The aggregate identified cost on a tax basis is $296,716,450,
resulting in gross unrealized appreciation and depreciation of
$41,271,461 and $14,810,527, respectively, or net unrealized
appreciation of $26,460,934.
(NON) Non-income-producing security.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
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.
-------------------------------------------------------------------------------
Swap Contracts outstanding at April 30, 2000 (Unaudited)
Notional Termination Unrealized
Amount Date Appreciation
-------------------------------------------------------------------------------
Agreement with Lehman Brothers Finance
S.A. dated January 20, 2000 to receive
(pay) monthly the notionaly amount
multiplied by the return of Tyco
International LTD and pay the notional
amount multiplied by one month LIBOR
adjusted by a specified
spread. $5,146,961 Dec-00 $2,857,041
-------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $296,714,420) (Note 1) $323,177,384
-------------------------------------------------------------------------------------------
Cash 719
-------------------------------------------------------------------------------------------
Dividends and interest receivable 103,016
-------------------------------------------------------------------------------------------
Receivable for open swap contract (Note 1) 2,857,041
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 3,695,493
-------------------------------------------------------------------------------------------
Receivable for securities sold 3,597,824
-------------------------------------------------------------------------------------------
Total assets 333,431,477
Liabilities
-------------------------------------------------------------------------------------------
Payable for securities purchased 4,167,699
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 322,059
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 504,438
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 59,199
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 1,132
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 509
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 175,718
-------------------------------------------------------------------------------------------
Payable for organization fees and offering costs (Note 1) 2,000
-------------------------------------------------------------------------------------------
Other accrued expenses 95,391
-------------------------------------------------------------------------------------------
Total liabilities 5,328,145
-------------------------------------------------------------------------------------------
Net assets $328,103,332
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1, 4 and 5) $306,182,211
-------------------------------------------------------------------------------------------
Accumulated net investment loss (Note 1) (1,183,516)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (6,215,368)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 29,320,005
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $328,103,332
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($137,833,446 divided by 13,266,185 shares) $10.39
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $10.39)* $11.02
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($146,516,721 divided by 14,162,547 shares) ** $10.35
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($43,609,009 divided by 4,214,088 shares) ** $10.35
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($144,156 divided by 13,868 shares) $10.39
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $10.39)* $10.77
-------------------------------------------------------------------------------------------
* 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
Six months ended April 30, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $3,507) $ 448,254
-------------------------------------------------------------------------------------------
Interest 210,677
-------------------------------------------------------------------------------------------
Total investment income 658,931
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 761,852
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 178,467
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 4,940
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 3,538
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 116,936
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 496,305
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 131,502
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 48
-------------------------------------------------------------------------------------------
Amortization of offering costs (Note 1) 10,245
-------------------------------------------------------------------------------------------
Reports to shareholders 22,852
-------------------------------------------------------------------------------------------
Registration fees 68,480
-------------------------------------------------------------------------------------------
Auditing 16,100
-------------------------------------------------------------------------------------------
Legal 2,745
-------------------------------------------------------------------------------------------
Postage 4,313
-------------------------------------------------------------------------------------------
Other 37,061
-------------------------------------------------------------------------------------------
Total expenses 1,855,384
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (12,937)
-------------------------------------------------------------------------------------------
Net expenses 1,842,447
-------------------------------------------------------------------------------------------
Net investment loss (1,183,516)
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (5,794,064)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
swap contracts during the period 26,754,201
-------------------------------------------------------------------------------------------
Net gain on investments 20,960,137
-------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $19,776,621
-------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the period
Six months ended July 1, 1999
April 30 to October 31
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment loss $ (1,183,516) $ (23,666)
--------------------------------------------------------------------------------------------------
Net realized loss on investments (5,794,064) (346,284)
--------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 26,754,201 2,419,708
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,776,621 2,049,758
--------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 258,053,232 45,156,270
--------------------------------------------------------------------------------------------------
Total increase in net assets 277,829,853 47,206,028
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period (Note 5) 50,273,479 3,067,451
--------------------------------------------------------------------------------------------------
End of period (including accumulated net investment
loss of $1,183,516 and $--, respectively) $328,103,332 $50,273,479
--------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS A
----------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 1, 1999
operating performance (Unaudited) to October 31
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
Net asset value,
beginning of period $8.67 $8.69
----------------------------------------------------------------------
Investment operations
----------------------------------------------------------------------
Net investment loss (a)(d) (.03) (.01)
----------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.75 (.01)
----------------------------------------------------------------------
Total from
investment operations 1.72 (.02)
----------------------------------------------------------------------
Net asset value,
end of period $10.39 $8.67
----------------------------------------------------------------------
Ratios and supplemental data
----------------------------------------------------------------------
Total return at
net asset value (%)(b) 19.84* (.23)*
----------------------------------------------------------------------
Net assets, end of period
(in thousands) $137,833 $23,857
----------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .63* .44*
----------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.32)* (.16)*
----------------------------------------------------------------------
Portfolio turnover (%) 82.03* 30.65*
----------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(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, for
the period ended October 31, 1999 (Note 2).
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS B
------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 October 1, 1999+
operating performance (Unaudited) to October 31
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
Net asset value,
beginning of period $8.67 $8.35
------------------------------------------------------------------
Investment operations
------------------------------------------------------------------
Net investment loss (a)(d) (.07) (.01)
------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.75 .33
------------------------------------------------------------------
Total from
investment operations 1.68 .32
------------------------------------------------------------------
Net asset value,
end of period $10.35 $8.67
------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------
Total return at
net asset value (%)(b) 19.38* 3.83*
------------------------------------------------------------------
Net assets, end of period
(in thousands) $146,517 $22,535
------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.01* .19*
------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.70)* (.12)*
------------------------------------------------------------------
Portfolio turnover (%) 82.03* 30.65*
------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(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, for
the period ended October 31, 1999 (Note 2).
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS C
------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 October 1, 1999+
operating performance (Unaudited) to October 31
------------------------------------------------------------------
2000 1999
------------------------------------------------------------------
Net asset value,
beginning of period $8.67 $8.35
------------------------------------------------------------------
Investment operations
------------------------------------------------------------------
Net investment loss (a)(d) (.07) (.01)
------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.75 .33
------------------------------------------------------------------
Total from
investment operations 1.68 .32
------------------------------------------------------------------
Net asset value,
end of period $10.35 $8.67
------------------------------------------------------------------
Ratios and supplemental data
------------------------------------------------------------------
Total return at
net asset value (%)(b) 19.38* 3.83*
------------------------------------------------------------------
Net assets, end of period
(in thousands) $43,609 $3,882
------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) 1.01* .19*
------------------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.70)* (.12)*
------------------------------------------------------------------
Portfolio turnover (%) 82.03* 30.65*
------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(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, for
the period ended October 31, 1999 (Note 2).
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
CLASS M
---------------------------------------------------------
For the period
March 28, 2000+
Per-share to April 30
operating performance (Unaudited)
---------------------------------------------------------
2000
---------------------------------------------------------
Net asset value,
beginning of period $12.08
---------------------------------------------------------
Investment operations
---------------------------------------------------------
Net investment loss (a)(d) (.01)
---------------------------------------------------------
Net realized and unrealized
loss on investments (1.68)
---------------------------------------------------------
Total from
investment operations (1.69)
---------------------------------------------------------
Net asset value,
end of period $10.39
---------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------
Total return at
net asset value (%)(b) (13.99)*
---------------------------------------------------------
Net assets, end of period
(in thousands) $144
---------------------------------------------------------
Ratio of expenses to
average net assets (%)(c)(d) .16*
---------------------------------------------------------
Ratio of net investment loss
to average net assets (%)(d) (.10)*
---------------------------------------------------------
Portfolio turnover (%) 82.03*
---------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment loss has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(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, for
the period ended October 31, 1999 (Note 2).
NOTES TO FINANCIAL STATEMENTS
April 30, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Tax Smart Equity Fund (the "fund") is a series of Putnam Tax
Smart 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 mid and large
capitalization U.S. issuers, 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 fund offers class A, class B, class C and class M shares. The fund
began offering class M shares on March 28, 2000. 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. Class M shares are
sold with a maximum front end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A shares but lower than class
B and class C 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 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 six months
ended April 30, 2000, 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 gains, 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. 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.
I) 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 have
been full amortized on a straight-line basis as of April 30, 2000.
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, deferred organizational and extraordinary expenses,
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 six months ended April 30, 2000, fund expenses were reduced by
$12,937 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 $592
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, class C and class M 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%, 1.00% and 1.00% of the average net assets attributable to class
A, class B, class C and class M shares, respectively. The Trustees have
approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%
and 0.75% of the average net assets attributable to class A, class B,
class C and class M shares, respectively.
For the six months ended April 30, 2000, Putnam Mutual Funds Corp.,
acting as underwriter received net commissions of $398,588 and $415 from
the sale of class A and class M shares, respectively, and received
$49,337 and $3,652 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
six months ended April 30, 2000, Putnam Mutual Funds Corp., acting as
underwriter received no monies on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2000, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $413,236,512 and $169,360,157, respectively.
There were no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At April 30, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 11,832,397 $118,602,247
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
11,832,397 118,602,247
Shares
repurchased (1,317,911) (13,530,767)
---------------------------------------------------------------------------
Net increase 10,514,486 $105,071,480
---------------------------------------------------------------------------
For the period July 1, 1999
(commencement of operations) 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
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 12,556,569 $125,027,825
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
12,556,569 125,027,825
Shares
repurchased (992,825) (10,079,170)
---------------------------------------------------------------------------
Net increase 11,563,744 $114,948,655
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
Six months ended April 30, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 3,945,485 $39,670,305
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
3,945,485 39,670,305
Shares
repurchased (179,011) (1,785,399)
---------------------------------------------------------------------------
Net increase 3,766,474 $37,884,906
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
For the period March 28, 2000
(commencement of operations) to
April 30, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 13,868 $148,191
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions -- --
---------------------------------------------------------------------------
13,868 148,191
Shares
repurchased -- --
---------------------------------------------------------------------------
Net increase 13,868 $148,191
---------------------------------------------------------------------------
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.
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
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 Century Growth Fund
New Opportunities Fund
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
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
Richard G. Leibovitch
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.
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PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
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PUTNAM
INVESTMENTS
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For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA070-61453 2MI 6/00
