N-30D 1 pif.txt PUTNAM INVESTMENT FUNDS Putnam U.S. Core Fund SEMIANNUAL REPORT ON PERFORMANCE AND PORTFOLIO 10-31-01 [SCALE LOGO OMITTED] The following report contains a list of your fund's portfolio holdings and complete financial statements for the six months ended 10/31/01. Additional details, including fund strategy, performance, and managers' outlook, will be provided in the annual report, which will cover the 12 months ended 4/30/02. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, 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. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal 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.
THE FUND'S PORTFOLIO October 31, 2001 (Unaudited) COMMON STOCKS (93.7%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (2.5%) ------------------------------------------------------------------------------------------------------------------- 5,050 Raytheon Co. $ 162,863 Banking (7.1%) ------------------------------------------------------------------------------------------------------------------- 5,900 Comerica, Inc. 271,931 10,650 U.S. Bancorp 189,357 ------------- 461,288 Broadcasting (2.5%) ------------------------------------------------------------------------------------------------------------------- 4,300 Clear Channel Communications, Inc. (NON) 163,916 Computers (1.6%) ------------------------------------------------------------------------------------------------------------------- 11,550 Compaq Computer Corp. 101,063 Conglomerates (8.8%) ------------------------------------------------------------------------------------------------------------------- 11,610 Tyco International, Ltd. (Bermuda) 570,512 Consumer Goods (2.4%) ------------------------------------------------------------------------------------------------------------------- 2,750 Colgate-Palmolive Co. 158,180 Electric Utilities (3.6%) ------------------------------------------------------------------------------------------------------------------- 6,000 Duke Energy Corp. 230,460 Electronics (9.1%) ------------------------------------------------------------------------------------------------------------------- 5,750 Celestica, Inc. (Canada) (NON) 197,340 5,500 Flextronics International, Ltd. (Singapore) (NON) 109,450 17,200 Motorola, Inc. 281,564 ------------- 588,354 Financial (5.4%) ------------------------------------------------------------------------------------------------------------------- 7,600 Citigroup, Inc. 345,952 Food (0.5%) ------------------------------------------------------------------------------------------------------------------- 900 Kraft Foods, Inc. Class A 30,375 Health Care Services (1.5%) ------------------------------------------------------------------------------------------------------------------- 2,500 HCA, Inc. 99,150 Insurance (6.7%) ------------------------------------------------------------------------------------------------------------------- 3,700 American International Group, Inc. 290,820 1,607 XL Capital, Ltd. Class A (Bermuda) 139,584 ------------- 430,404 Oil & Gas (4.9%) ------------------------------------------------------------------------------------------------------------------- 5,800 Exxon Mobil Corp. 228,810 1,750 Royal Dutch Petroleum Co. ADR (Netherlands) 88,393 ------------- 317,203 Pharmaceuticals (9.3%) ------------------------------------------------------------------------------------------------------------------- 3,050 American Home Products Corp. 170,282 3,950 Johnson & Johnson 228,745 4,900 Pfizer, Inc. 205,310 ------------- 604,337 Regional Bells (4.0%) ------------------------------------------------------------------------------------------------------------------- 4,170 SBC Communications, Inc. 158,919 2,000 Verizon Communications, Inc. 99,620 ------------- 258,539 Retail (13.3%) ------------------------------------------------------------------------------------------------------------------- 50 CVS Corp. 1,195 4,200 Home Depot, Inc. (The) 160,566 8,600 Kroger Co. (NON) 210,356 4,800 Lowe's Companies, Inc. 163,680 18,200 Rite Aid Corp. (NON) 100,464 6,700 TJX Companies, Inc. (The) 226,460 ------------- 862,721 Software (2.4%) ------------------------------------------------------------------------------------------------------------------- 2,700 Microsoft Corp. (NON) 157,005 Telecommunications (3.7%) ------------------------------------------------------------------------------------------------------------------- 13,500 Nextel Communications, Inc. Class A (NON) 107,325 5,800 Sprint Corp. (PCS Group) (NON) 129,340 ------------- 236,665 Tobacco (4.4%) ------------------------------------------------------------------------------------------------------------------- 6,100 Philip Morris Companies, Inc. 285,480 ------------- Total Common Stocks (cost $6,375,291) $ 6,064,467 UNITS (4.7%) (a) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 3,000 Celestica, Inc. 144A Structured Call Warrants (issued by UBS AG), expiration 11/16/01 $ 96,990 5,900 Flextronics International, Ltd. Structured Call Warrants (issued by UBS AG), expiration 11/26/01 114,313 11,000 Rite Aid, Ltd. 144A Structured Call Warrants (issued by UBS AG), expiration 11/23/01 59,620 9,800 Royal Caribbean Cruises, Ltd. 144A Structured Call Warrants (issued by UBS AG), expiration 1/17/03 35,280 ------------- Total Units (cost $311,732) $ 306,203 SHORT-TERM INVESTMENTS (1.9%) (a) (cost $124,704) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 124,954 Short-term investments held as collateral for loaned securities with yields ranging from 2.19% to 3.93% and due dates ranging from November 2, 2001 to December 26, 2001 (d) $ 124,704 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $6,811,727) (b) $ 6,495,374 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $6,473,103. (b) The aggregate identified cost on a tax basis is $6,908,839, resulting in gross unrealized appreciation and depreciation of $45,517 and $458,982, respectively, or net unrealized depreciation of $413,465. (NON) Non-income-producing security. (d) See footnote E to the financial statements. The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES October 31, 2001 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value, including $117,949 of securities on loan (identified cost $6,811,727) (Note 1) $ 6,495,374 ------------------------------------------------------------------------------------------- Dividends receivable 3,904 ------------------------------------------------------------------------------------------- Receivable for securities sold 363,795 ------------------------------------------------------------------------------------------- Total assets 6,863,073 Liabilities ------------------------------------------------------------------------------------------- Payable to subcustodian (Note 2) 135,212 ------------------------------------------------------------------------------------------- Payable for securities purchased 105,869 ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 6,035 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 3,009 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,465 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 3 ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 124,704 ------------------------------------------------------------------------------------------- Other accrued expenses 13,673 ------------------------------------------------------------------------------------------- Total liabilities 389,970 ------------------------------------------------------------------------------------------- Net assets $ 6,473,103 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $ 8,808,409 ------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 8,246 ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (2,027,199) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (316,353) ------------------------------------------------------------------------------------------- Total - Representing net assets applicable to capital shares outstanding $ 6,473,103 Computation of net asset value and offering price ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($6,473,103 divided by 842,820 shares) $7.68 ------------------------------------------------------------------------------------------- Offering price per share (100/94.25 of $7.68)* $8.15 ------------------------------------------------------------------------------------------- * 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. The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS Six months ended October 31, 2001 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $626) $ 38,189 ------------------------------------------------------------------------------------------- Interest 2,973 ------------------------------------------------------------------------------------------- Securities lending 241 ------------------------------------------------------------------------------------------- Total investment income 41,403 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 23,723 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 5,182 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 956 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 20 ------------------------------------------------------------------------------------------- Auditing 10,453 ------------------------------------------------------------------------------------------- Other 4,091 ------------------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 2) (10,538) ------------------------------------------------------------------------------------------- Total expenses 33,887 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (730) ------------------------------------------------------------------------------------------- Net expenses 33,157 ------------------------------------------------------------------------------------------- Net investment income 8,246 ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (729,989) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (536,945) ------------------------------------------------------------------------------------------- Net loss on investments (1,266,934) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(1,258,688) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended October 31 April 30 2001* 2001 -------------------------------------------------------------------------------------------------- Increase (decrease) in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment income $ 8,246 $ 4,749 -------------------------------------------------------------------------------------------------- Net realized loss on investments (729,989) (1,170,185) -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (536,945) (399,791) -------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (1,258,688) (1,565,227) -------------------------------------------------------------------------------------------------- Distributions to shareholders (Note 1) -------------------------------------------------------------------------------------------------- From net investment income -- (4,749) -------------------------------------------------------------------------------------------------- From net realized gain on investments -- (578,632) -------------------------------------------------------------------------------------------------- In excess of realized gain on investments -- (44,623) -------------------------------------------------------------------------------------------------- From return of capital -- (9,551) -------------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 892,565 2,792,823 -------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (366,123) 590,041 Net assets -------------------------------------------------------------------------------------------------- Beginning of period $ 6,839,226 $ 6,249,185 -------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $8,246 and $--, respectively) $ 6,473,103 $ 6,839,226 -------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A ---------------------------------------------------------------------------------------- Six months ended For the period Per-share October 31 May 4, 1998+ operating performance (Unaudited) Year ended April 30 to April 30 ---------------------------------------------------------------------------------------- 2001 2001 2000 1999 ---------------------------------------------------------------------------------------- Net asset value, beginning of period $9.43 $12.34 $10.73 $8.50 ---------------------------------------------------------------------------------------- Investment operations ---------------------------------------------------------------------------------------- Net investment income (loss)(a)(d) .01 .01 (.04) (.01) ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.76) (2.01) 3.16 2.29 ---------------------------------------------------------------------------------------- Total from investment operations (1.75) (2.00) 3.12 2.28 ---------------------------------------------------------------------------------------- Less distributions: ---------------------------------------------------------------------------------------- From net investment income -- (.01) -- -- ---------------------------------------------------------------------------------------- From net realized gains on investments -- (.83) (1.51) (.05) ---------------------------------------------------------------------------------------- In excess of net realized gains on investments -- (.06) -- -- ---------------------------------------------------------------------------------------- From return of capital -- (.01) -- -- ---------------------------------------------------------------------------------------- Total distributions -- (.91) (1.51) (.05) ---------------------------------------------------------------------------------------- Net asset value, end of period $7.68 $9.43 $12.34 $10.73 ---------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (18.56)* (17.60) 31.12 26.96* ---------------------------------------------------------------------------------------- Ratios and supplemental data ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $6,473 $6,839 $6,249 $3,251 ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c)(d) .50* 1.00 1.00 .99* ---------------------------------------------------------------------------------------- Ratio of net investment income (loss) to average net assets (%)(d) .12* .06 (.31) (.06)* ---------------------------------------------------------------------------------------- Portfolio turnover (%) 184.17* 344.39 256.50 267.29* ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment income and 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 and brokerage service 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 $0.01, $0.04, $0.06 and $0.07 per share for the periods ended October 31, 2001, April 30, 2001, April 30, 2000 and April 30, 1999, respectively (Note 2).
NOTES TO FINANCIAL STATEMENTS October 31, 2001 (Unaudited) Note 1 Significant accounting policies Putnam U.S. Core Fund (the "fund") is one of a series of Putnam Funds Trust (the "trust") which is registered under the Investment Company Act of 1940, as amended, as a non-diversified, open-end management investment company. The fund invests primarily in common stocks of U.S. companies that Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC believes offer long-term growth potential in excess of market averages or are undervalued in relation to underlying asset values or earnings potential and have the potential for long-term growth. The fund offers class A shares which are sold with a maximum front-end sales charge of 5.75%. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. 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 The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. E) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At October 31, 2001, the value of securities loaned amounted to $117,949. The fund received cash collateral of $124,704 which is pooled with collateral of other Putnam funds into 48 issuers of high grade short-term investments. 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 maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended October 31, 2001, 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. H) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, 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) 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. 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 April 30, 2002 to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC, and payments under the Trust's distribution plan would exceed an annual rate of 1.00% 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. Under the subcustodian contract between the subcustodian bank and PFTC, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At October 31, 2001, the payable to the subcustodian bank represents the amount due for cash advance for the settlement of a security purchased. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended October 31, 2001, the fund's expenses were reduced by $730 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $100 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc. for services provided and expenses incurred by it in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Retail Management, at an annual rate up to 0.35% of the average net assets attributable to class A shares. The Trustees currently have not approved payments under the Plan. For the six months ended October 31, 2001, Putnam Retail Management, acting as underwriter, received no net commissions from the sale of shares of the fund. Note 3 Purchases and sales of securities During the six months ended October 31, 2001, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $13,098,381 and $12,055,070, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At October 31, 2001, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended October 31, 2001 --------------------------------------------------------------------------- Shares Amount --------------------------------------------------------------------------- Shares sold 183,665 $1,408,520 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 183,665 1,408,520 Shares repurchased (66,491) (515,955) --------------------------------------------------------------------------- Net increase 117,174 $892,565 --------------------------------------------------------------------------- Year ended April 30, 2001 --------------------------------------------------------------------------- Shares Amount --------------------------------------------------------------------------- Shares sold 364,081 $4,439,406 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 54,820 637,555 --------------------------------------------------------------------------- 418,901 5,076,961 Shares repurchased (199,600) (2,284,138) --------------------------------------------------------------------------- Net increase 219,301 $2,792,823 --------------------------------------------------------------------------- At October 31, 2001, Putnam Investments, LLC owned 290,925 shares of the fund (34.5% of shares outstanding), valued at $2,234,304. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President Justin Scott Vice President Michael Nance Vice President and Fund Manager Michael P. Stack Vice President and Fund Manager Paul E. Marrkand Vice President and Fund Manager Paul C. Warren 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 U.S. Core 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.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE 76268 21F 12/01 Putnam Growth Fund SEMIANNUAL REPORT ON PERFORMANCE AND PORTFOLIO 10-31-01 [SCALE LOGO OMITTED] The following report contains a list of your fund's portfolio holdings and complete financial statements for the six months ended 10/31/01. Additional details, including fund strategy, performance, and managers' outlook, will be provided in the annual report, which will cover the 12 months ended 4/30/02. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, 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. This is done by first adding up all the fund's earnings -- from dividends and interest income -- and subtracting its operating expenses to determine net investment income (or loss). Then, any net gain or loss the fund realized on the sales of its holdings -- as well as any unrealized gains or losses over the period -- is added to or subtracted from the net investment result to determine the fund's net gain or loss for the fiscal 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.
THE FUND'S PORTFOLIO October 31, 2001 (Unaudited) COMMON STOCKS (97.3%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (2.6%) ------------------------------------------------------------------------------------------------------------------- 520 Lockheed Martin Corp. $ 25,360 220 Newport News Shipbuilding, Inc. 15,224 180 United Technologies Corp. 9,700 ------------- 50,284 Banking (1.9%) ------------------------------------------------------------------------------------------------------------------- 290 Bank of New York Company, Inc. (The) 9,863 297 Fifth Third Bancorp 16,757 257 State Street Corp. 11,704 ------------- 38,324 Beverage (2.7%) ------------------------------------------------------------------------------------------------------------------- 150 Anheuser-Busch Companies, Inc. 6,249 340 Pepsi Bottling Group, Inc. (The) 15,803 655 PepsiCo, Inc. 31,905 ------------- 53,957 Biotechnology (3.4%) ------------------------------------------------------------------------------------------------------------------- 635 Amgen, Inc. (NON) 36,081 300 Applera Corp.-Applied Biosystems Group 8,754 125 Invitrogen Corp. (NON) 7,668 370 MedImmune, Inc. (NON) 14,519 ------------- 67,022 Broadcasting (2.3%) ------------------------------------------------------------------------------------------------------------------- 558 Clear Channel Communications, Inc. (NON) 21,271 1,000 Echostar Communications Corp. Class A (NON) 23,190 ------------- 44,461 Commercial and Consumer Services (0.7%) ------------------------------------------------------------------------------------------------------------------- 175 eBay, Inc. (NON) 9,184 160 Macrovision Corp. (NON) 3,938 ------------- 13,122 Communications Equipment (3.8%) ------------------------------------------------------------------------------------------------------------------- 2,700 Cisco Systems, Inc. (NON) 45,684 590 QUALCOMM, Inc. (NON) 28,981 ------------- 74,665 Computers (3.6%) ------------------------------------------------------------------------------------------------------------------- 1,015 Dell Computer Corp. (NON) 24,340 364 Emulex Corp. (NON) 8,620 690 McDATA Corp. Class A (NON) 10,150 100 Network Appliance, Inc. (NON) 1,330 1,050 Sun Microsystems, Inc. (NON) 10,658 400 VeriSign, Inc. (NON) 15,484 ------------- 70,582 Conglomerates (6.2%) ------------------------------------------------------------------------------------------------------------------- 2,049 General Electric Co. 74,604 961 Tyco International, Ltd. (Bermuda) 47,224 ------------- 121,828 Consumer Goods (1.1%) ------------------------------------------------------------------------------------------------------------------- 250 Colgate-Palmolive Co. 14,380 200 Estee Lauder Companies, Inc. (The) Class A 6,450 ------------- 20,830 Consumer Services (0.7%) ------------------------------------------------------------------------------------------------------------------- 463 TMP Worldwide, Inc. (NON) 13,821 Electronics (10.4%) ------------------------------------------------------------------------------------------------------------------- 300 Alpha Industries, Inc. (NON) 6,984 180 Broadcom Corp. Class A (NON) 6,194 340 Celestica, Inc. (Canada) (NON) 11,669 560 GlobeSpan, Inc. (NON) 6,698 375 Integrated Device Technology, Inc. (NON) 10,444 2,282 Intel Corp. 55,726 280 Intersil Corp. Class A (NON) 9,170 550 Linear Technology Corp. 21,340 545 Marvell Technology Group, Ltd. (Bermuda) (NON) 13,265 395 Maxim Integrated Products, Inc. (NON) 18,071 650 Micron Technology, Inc. (NON) 14,794 600 Motorola, Inc. 9,822 500 RF Micro Devices, Inc. (NON) 10,220 230 W.W. Grainger, Inc. 9,959 ------------- 204,356 Energy (0.1%) ------------------------------------------------------------------------------------------------------------------- 110 Rowan Companies, Inc. (NON) 1,858 Entertainment (1.4%) ------------------------------------------------------------------------------------------------------------------- 727 Viacom, Inc. Class B (NON) 26,543 Financial (2.4%) ------------------------------------------------------------------------------------------------------------------- 620 Citigroup, Inc. 28,222 235 Fannie Mae 19,026 ------------- 47,248 Food (0.8%) ------------------------------------------------------------------------------------------------------------------- 450 Kraft Foods, Inc. Class A 15,188 Health Care Services (2.2%) ------------------------------------------------------------------------------------------------------------------- 388 HCA, Inc. 15,388 260 McKesson Corp. 9,617 130 Trigon Healthcare, Inc. (NON) 7,981 100 Wellpoint Health Networks, Inc. (NON) 11,159 ------------- 44,145 Insurance (2.2%) ------------------------------------------------------------------------------------------------------------------- 555 American International Group, Inc. 43,623 Investment Banking/Brokerage (1.5%) ------------------------------------------------------------------------------------------------------------------- 276 Goldman Sachs Group, Inc. (The) 21,572 135 Lehman Brothers Holdings, Inc. 8,432 ------------- 30,004 Leisure (0.6%) ------------------------------------------------------------------------------------------------------------------- 280 Harley-Davidson, Inc. 12,673 Media (3.4%) ------------------------------------------------------------------------------------------------------------------- 1,649 AOL Time Warner, Inc. (NON) 51,465 670 Fox Entertainment Group, Inc. Class A (NON) 14,747 ------------- 66,212 Medical Technology (2.0%) ------------------------------------------------------------------------------------------------------------------- 765 Medtronic, Inc. 30,830 300 Zimmer Holdings, Inc. (NON) 9,273 ------------- 40,103 Oil & Gas (0.1%) ------------------------------------------------------------------------------------------------------------------- 50 EOG Resources, Inc. 1,769 Pharmaceuticals (20.1%) ------------------------------------------------------------------------------------------------------------------- 150 Allergan, Inc. 10,769 670 American Home Products Corp. 37,406 191 Andrx Group (NON) 12,402 190 Enzon, Inc. (NON) 11,752 1,215 Johnson & Johnson 70,361 360 King Pharmaceuticals, Inc. (NON) 14,036 610 Lilly (Eli) & Co. 46,665 320 Merck & Co., Inc. 20,419 2,554 Pfizer, Inc. 107,003 1,725 Schering-Plough Corp. 64,136 ------------- 394,949 Regional Bells (0.6%) ------------------------------------------------------------------------------------------------------------------- 330 SBC Communications, Inc. 12,576 Restaurants (0.6%) ------------------------------------------------------------------------------------------------------------------- 650 Starbucks Corp. (NON) 11,128 Retail (8.5%) ------------------------------------------------------------------------------------------------------------------- 290 99 Cents Only Stores (NON) 10,310 195 AutoZone, Inc. (NON) 11,413 525 Bed Bath & Beyond, Inc. (NON) 13,157 425 Kohls Corp. (NON) 23,634 410 Lowe's Companies, Inc. 13,981 850 Office Depot, Inc. (NON) 11,560 1,661 Rite Aid Corp. (NON) 9,169 575 Talbots, Inc. (The) 16,388 620 Venator Group, Inc. (NON) 8,990 959 Wal-Mart Stores, Inc. 49,293 ------------- 167,895 Semiconductor (0.7%) ------------------------------------------------------------------------------------------------------------------- 345 KLA-Tencor Corp. (NON) 14,097 Software (6.8%) ------------------------------------------------------------------------------------------------------------------- 270 Activision, Inc. (NON) 9,761 385 Check Point Software Technologies, Ltd. (Israel) (NON) 11,365 1,760 Microsoft Corp. (NON) 102,344 100 PeopleSoft, Inc. (NON) 2,977 232 VERITAS Software Corp. (NON) 6,584 ------------- 133,031 Technology Services (1.8%) ------------------------------------------------------------------------------------------------------------------- 600 Accenture, Ltd. Class A (Bermuda) (NON) 10,542 260 Automatic Data Processing, Inc. 13,432 890 KPMG Consulting, Inc. (NON) 10,965 ------------- 34,939 Telecommunications (0.6%) ------------------------------------------------------------------------------------------------------------------- 555 Sprint Corp. (PCS Group) (NON) 12,377 Tobacco (1.5%) ------------------------------------------------------------------------------------------------------------------- 630 Philip Morris Companies, Inc. 29,484 ------------- Total Common Stocks (cost $1,899,529) $ 1,913,094 UNITS (0.1%) (a) (cost $1,992) NUMBER OF UNITS VALUE ------------------------------------------------------------------------------------------------------------------- 30 Lehman Brothers Holdings, Inc. 144A Structured Warrants (issued by Lehman Brothers Finance S.A.), expiration 9/2/02 $ 1,874 SHORT-TERM INVESTMENTS (3.9%) (a) PRINCIPAL AMOUNT VALUE ------------------------------------------------------------------------------------------------------------------- $ 48,681 Short-term investments held as collateral for loaned securities with yields ranging from 2.19% to 3.93% and due dates from November 2, 2001 to December 26, 2001 (d) $ 48,584 29,000 Interest in $500,000,000 joint tri-party repurchase agreement dated October 31, 2001 with Credit Suisse First Boston due November 1, 2001 with respect to various U.S. Government obligations -- maturity value of $29,002 for an effective yield of 2.62% 29,000 ------------- Total Short-Term Investments (cost $77,584) $ 77,584 ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $1,979,105) (b) $ 1,992,552 ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $1,966,964. (b) The aggregate identified cost on a tax basis is $1,971,381 resulting in gross unrealized appreciation and depreciation of $167,176 and $146,005, respectively, or net unrealized appreciation of $21,171. (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. (d) See footnote E to the financial statements. The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES October 31, 2001 (Unaudited) Assets ------------------------------------------------------------------------------------------- Investments in securities, at value, including $46,808 of securities on loan (identified cost $1,979,105 (Note 1) $ 1,992,552 ------------------------------------------------------------------------------------------- Cash 591 ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 69,275 ------------------------------------------------------------------------------------------- Receivable for securities sold 7,747 ------------------------------------------------------------------------------------------- Receivable from manager (Note 2) 3,862 ------------------------------------------------------------------------------------------- Total assets 2,074,027 Liabilities ------------------------------------------------------------------------------------------- Payable for securities purchased 41,584 ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 487 ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 1,465 ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 3 ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 48,584 ------------------------------------------------------------------------------------------- Other accrued expenses 14,940 ------------------------------------------------------------------------------------------- Total liabilities 107,063 ------------------------------------------------------------------------------------------- Net assets $ 1,966,964 Represented by ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $ 3,069,771 ------------------------------------------------------------------------------------------- Accumulated net investment loss (Note 1) (3,755) ------------------------------------------------------------------------------------------- Accumulated net realized loss on investment (Note 1) (1,112,499) ------------------------------------------------------------------------------------------- Net unrealized appreciation of investments 13,447 ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $ 1,966,964 Computation of net asset value and offering price ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($1,966,964 divided by 314,459 shares) $6.26 ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $6.26)* $6.64 ------------------------------------------------------------------------------------------- * 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. The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS Six months ended October 31, 2001 (Unaudited) Investment income: ------------------------------------------------------------------------------------------- Dividends $ 5,792 ------------------------------------------------------------------------------------------- Interest 430 ------------------------------------------------------------------------------------------- Securities lending 88 ------------------------------------------------------------------------------------------- Total investment income 6,310 Expenses: ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 8,071 ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 1,767 ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 955 ------------------------------------------------------------------------------------------- Administrative services (Note 2) 20 ------------------------------------------------------------------------------------------- Reports to shareholders 3,001 ------------------------------------------------------------------------------------------- Auditing 11,102 ------------------------------------------------------------------------------------------- Legal 1,671 ------------------------------------------------------------------------------------------- Other 72 ------------------------------------------------------------------------------------------- Fees waived and reimbursed by Manager (Note 2) (15,129) ------------------------------------------------------------------------------------------- Total expenses 11,530 ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (1,465) ------------------------------------------------------------------------------------------- Net expenses 10,065 ------------------------------------------------------------------------------------------- Net investment loss (3,755) ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (287,799) ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments during the period (301,009) ------------------------------------------------------------------------------------------- Net loss on investments (588,808) ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(592,563) ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Six months ended Year ended October 31 April 30 2001* 2001 -------------------------------------------------------------------------------------------------- Increase (decrease) in net assets -------------------------------------------------------------------------------------------------- Operations: -------------------------------------------------------------------------------------------------- Net investment loss $ (3,755) $ (24,361) -------------------------------------------------------------------------------------------------- Net realized loss on investments (287,799) (712,284) -------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (301,009) (993,035) -------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (592,563) (1,729,680) -------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) -------------------------------------------------------------------------------------------------- From net realized gain on investments -- (201,534) -------------------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (107,151) -------------------------------------------------------------------------------------------------- From return of capital -- (2,815) -------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 4) (9,888) 157,068 -------------------------------------------------------------------------------------------------- Total decrease in net assets (602,451) (1,884,112) Net assets -------------------------------------------------------------------------------------------------- Beginning of period 2,569,415 4,453,527 -------------------------------------------------------------------------------------------------- End of period (including accumulated net investment loss of $3,755 and $--, respectively) $1,966,964 $ 2,569,415 -------------------------------------------------------------------------------------------------- * Unaudited The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS A ---------------------------------------------------------------------------------------- Six months ended For the period Per-share October 31 May 4, 1998+ operating performance (Unaudited) Year ended April 30 to April 30 ---------------------------------------------------------------------------------------- 2001 2001 2000 1999 ---------------------------------------------------------------------------------------- Net asset value, beginning of period $8.13 $14.51 $10.42 $8.50 ---------------------------------------------------------------------------------------- Investment operations ---------------------------------------------------------------------------------------- Net investment loss (a)(d) (.01) (.08) (.07) (.02) ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (1.86) (5.27) 4.16 1.94 ---------------------------------------------------------------------------------------- Total from investment operations (1.87) (5.35) 4.09 1.92 ---------------------------------------------------------------------------------------- Less distributions ---------------------------------------------------------------------------------------- From net realized gain on investments -- (0.67) -- -- ---------------------------------------------------------------------------------------- In excess of net realized gain on investments -- (.35) -- -- ---------------------------------------------------------------------------------------- From return of capital -- (.01) -- -- ---------------------------------------------------------------------------------------- Total distributions -- (1.03) -- -- ---------------------------------------------------------------------------------------- Net asset value, end of period $6.26 $8.13 $14.51 $10.42 ---------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (23.00)* (38.90) 39.25 22.59* ---------------------------------------------------------------------------------------- Ratios and supplemental data ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,967 $2,569 $4,454 $2,563 ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c)(d) .50* 1.00 1.00 .99* ---------------------------------------------------------------------------------------- Ratio of net investment loss to average net assets (%)(d) (.16)* (.64) (.55) (.20)* ---------------------------------------------------------------------------------------- Portfolio turnover (%) 59.55* 123.30 89.57 108.03* ---------------------------------------------------------------------------------------- + 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 and brokerage service arrangements (Note 2). (d) Reflects an expense limitation in effect during the period. As a result of such limitation, expenses for the fund for the periods ending October 31, 2001, April 30, 2001, April 30, 2000 and April 30, 1999 reflect a reduction of $0.05, $0.09, $0.14 and $0.08 per share, respectively (Note 2).
NOTES TO FINANCIAL STATEMENTS October 31, 2001 (Unaudited) Note 1 Significant accounting policies Putnam Growth Fund (the "fund") is a series of Putnam 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 will invest primarily in common stocks of U.S. companies that Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, a wholly-owned subsidiary of Putnam Investments, LLC, believes offer long-term growth potential in excess of market averages. The fund offers class A shares which are sold with a maximum front-end sales charge of 5.75%. 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 accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in 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 The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, 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. Non-cash dividends, if any, are recorded at the fair market value of the securities received. E) Security lending The fund may lend securities, through its agent Citibank N.A., to qualified borrowers in order to earn additional income. The loans are collateralized by cash and/or securities in an amount at least equal to the market value of the securities loaned. The market value of securities loaned is determined daily and any additional required collateral is allocated to the fund on the next business day. The risk of borrower default will be borne by Citibank N.A., the fund will bear the risk of loss with respect to the investment of the cash collateral. Income from securities lending is included in investment income on the Statement of operations. At October 31, 2001, the value of securities loaned amounted to $46,808. The fund received cash collateral of $48,584 which is pooled with collateral of other Putnam funds into 48 issuers of high grade short-term investments. 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 maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the six months ended October 31, 2001, 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. H) Distributions to shareholders Distributions to shareholders from net investment income are recorded by the fund on the ex-dividend date. Distributions from capital gains, 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) 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. 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 April 30, 2002, to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes, deferred organizational and extraordinary expense, credits from Putnam Fiduciary Trust Company (PFTC), a subsidiary of Putnam Investments, LLC, and payments under the Trust's distribution plan) would exceed an annual rate of 1.00% 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. The fund has entered into an arrangement with PFTC whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's expenses. The fund also reduced expenses through brokerage service arrangements. For the six months ended October 31, 2001, the fund's expenses were reduced by $1,465 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $100 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plan is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam Investments, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plan provides for payment by the fund to Putnam Retail Management, at an annual rate up to 0.35% of the average net assets attributable to class A shares. The Trustees currently have not approved payments under the Plan. Note 3 Purchases and sales of securities During the six months ended October 31, 2001, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $1,321,220 and $1,313,865, respectively. There were no purchases and sales of U.S. government obligations. Note 4 Capital shares At October 31, 2001, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Six months ended October 31, 2001 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 3,576 $ 25,789 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions -- -- --------------------------------------------------------------------------- 3,576 25,789 Shares repurchased (5,083) (35,677) --------------------------------------------------------------------------- Net decrease (1,507) $ (9,888) --------------------------------------------------------------------------- Year ended April 30, 2001 --------------------------------------------------------------------------- Class A Shares Amount --------------------------------------------------------------------------- Shares sold 25,057 $ 330,161 --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 27,349 311,500 --------------------------------------------------------------------------- 52,406 641,661 Shares repurchased (43,378) (484,593) --------------------------------------------------------------------------- Net increase 9,028 $ 157,068 --------------------------------------------------------------------------- At October 31, 2001, Putnam Investments, LLC owned 256,572 shares of the fund (81.6% of shares outstanding), valued at $1,606,141. FUND INFORMATION WEB SITE www.putnaminvestments.com INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President and Treasurer Patricia C. Flaherty Senior Vice President Lawrence J. Lasser Vice President Gordon H. Silver Vice President Ian C. Ferguson Vice President Brett C. Browchuk Vice President Stephen Oristaglio Vice President C. Beth Cotner Vice President Jeffrey R. Lindsey Vice President and Fund Manager David J. Santos Vice President and Fund Manager Anthony R. Sellito, III 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 Growth 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.putnaminvestments.com. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE 76254 21E 12/01