N-CSR 1 a_putfndstst.htm PUTNAM FUNDS TRUST

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: (811- 07513 )

Exact name of registrant as specified in charter: Putnam Funds Trust

Address of principal executive offices: One Post Office Square, Boston, Massachusetts 02109

Name and address of agent for service:  Beth S. Mazor, Vice President 
  One Post Office Square 
  Boston, Massachusetts 02109 
 
Copy to:  John W. Gerstmayr, Esq. 
  Ropes & Gray LLP 
  One International Place 
  Boston, Massachusetts 02110 
 
Registrant’s telephone number, including area code:  (617) 292-1000 

Date of fiscal year end: September 30, 2006
Date of reporting period: October 1, 2005—March 31, 2006

Item 1. Report to Stockholders:
The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:


What makes Putnam different?


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

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


A time-honored tradition
in money management
Since 1937, our values have been rooted
in a profound sense of responsibility for the
money entrusted to us.

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

Funds for every investment goal
We offer a broad range of mutual funds and other
financial products so investors and their financial
representatives can build diversified portfolios.

A commitment to doing
what’s right for investors
We have below-average expenses and stringent
investor protections, and provide a wealth of
information about the Putnam funds.

Industry-leading service
We help investors, along with their financial
representatives, make informed investment
decisions with confidence.

Putnam
Prime Money
Market Fund
3| 31| 06
Semiannual Report

Message from the Trustees  2 
Report from the fund managers  5 
Performance  10 
Expenses  12 
Your fund’s management  14 
Terms and definitions  15 
Trustee approval of management contract  17 
Other information for shareholders  21 
Financial statements  22 

Cover photograph: © Richard H. Johnson

Message from the Trustees

Dear Fellow Shareholder

In the early months of 2006, we have seen a continuation of generally benign economic conditions in the United States. The expansion that began in late 2001 is continuing, fueled by gains in worker productivity. The stock market has advanced, driven largely by corporate profit levels that, by some measures, are near all-time highs. Inflation, which can cause problems for stock and bond markets, has remained fairly steady in recent months even as energy prices have resumed their ascent. Investors can be encouraged by these conditions, but should also be mindful of risks. Bond prices have fallen recently in response to stronger job creation. As mortgage rates have risen to higher levels, activity in the housing market has slowed. Our nation’s large trade deficit is also dampening prosperity and could cause the U.S. dollar to weaken, which might make it more difficult for U.S. stocks and bonds to attract investment from abroad.

We consider it fortunate that the Federal Reserve’s (the Fed’s) new Chairman, Ben Bernanke, like his predecessor, Alan Greenspan, regards the Fed’s role in pursuing both price stability and economic growth as essential to maintaining a healthy financial system. In its first months under the leadership of Mr. Bernanke, the Fed has continued Mr. Greenspan’s program of interest-rate increases, while offering some signals that the end of the current tightening cycle might not be far away.

The economy’s significant strengths and notable weaknesses remind us once again that a well-diversified financial program under the guidance of a professional financial representative can help many investors pursue their goals. And in our view, the professional research, diversification, and active management that mutual funds provide continue to make them an intelligent choice for investors.

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We want you to know that Putnam Investments, under the leadership of Chief Executive Officer Ed Haldeman, continues to focus on delivering consistent, dependable, superior investment performance over time. In the following pages, members of your fund’s management team discuss the fund’s performance and strategies, and their outlook for the months ahead. We thank you for your support of the Putnam funds.


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

Highlights 
* For the six months ended March 31, 2006, Putnam Prime Money Market Fund’s class I shares 
returned 2.10%. 
* The fund’s benchmark, the Merrill Lynch 91-day Treasury Bill Index, returned 1.95%. 
* The average return for the fund’s Lipper category, Institutional Money Market Funds, was 1.92%. 
* Additional fund performance, comparative performance, and Lipper data can be found in the 
   performance section beginning on page 10. 

Performance

Total return for class I shares for periods ended 3/31/06

Current 7-day yield (at 3/31/06) is 4.59% (with expense limitation).
Current 7-day yield (at 3/31/06) is 4.44% (without expense limitation).

  Average annual return  Cumulative return 
  NAV  NAV 
 
Life of fund (inception: 5/6/04)  2.74%  5.27% 
1 year  3.69  3.69 
6 months  —  2.10 

Data is historical. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return will fluctuate. Performance assumes reinvestment of distributions. Class I shares do not bear an initial sales charge. For the most recent month-end performance, visit www.putnam.com. For a portion of the period, this fund limited expenses, without which returns and yields would have been lower. The 7-day yield is one of the most common gauges for measuring money market mutual fund performance. Yield reflects current performance more closely than total return.

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Report from the fund managers

The period in review

The Fed’s resolve to contain inflationary pressures in the U.S. economy by consistently raising short-term interest rates since June 2004 has generated some of the most attractive yields offered by money market securities in recent memory. To capture these higher yields, we used two strategies: purchasing 30-day commercial paper and increasing the fund’s allocation to floating-rate securities. By February, however, we began to anticipate that the Fed might be nearing the end of its tightening cycle. Consequently, we started to increase the fund’s exposure to longer-term fixed-rate money-market securities, seeking to lock in attractive rates for a longer period of time. These strategies enabled the fund to deliver a total return at net asset value (NAV) for the six months ended March 31, 2006, that was in line with the performance of its Lipper peer group average and its benchmark index.

Market overview

Signs of solid economic growth, and the desire to curb the potential inflation that frequently accompanies such growth, prompted the Fed to increase short-term interest rates from 3.75% to 4.75% in four 0.25% increments during the first six months of the fund’s fiscal year. Despite a significant increase in short-term rates, long-term bond yields ended the period slightly lower. Potential forces constraining the rise of long-term rates include the strength of global demand for longer-term bonds from pension plans and other investors as well as a widespread belief that inflation will remain in check as the Fed achieves its objectives through monetary policy. As shorter- and longer-term interest rates converged significantly, the yield curve — a graphical representation of yields for bonds of comparable quality plotted from the shortest to the longest maturity — flattened.

Given the Fed’s steady rate increases since June 2004, money market securities are currently offering some of the highest yields we have seen in this sector

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in five years. Yields on money-market-eligible certificates of deposit (CDs) and commercial paper were yielding as high as 5.25% at the end of the reporting period. As a result, money market investments are drawing increased attention from investors and the financial press alike for their attractive combination of relative safety, liquidity, and yield. By the end of the reporting period, assets of all money market mutual funds — taxable, institutional, and tax free — had climbed over $2 trillion (from $1.9 trillion as of the start of the period).* This asset growth has been driven primarily by the increased cash flows into taxable institutional money market funds, as well as by the rising number of institutional money market funds available to institutional investors. Higher yields and greater acceptance of money market funds as a cash management tool for institutional investors have also influenced the sector’s growth.

Strategy overview

During the early months of the reporting period, when short-term interest rates were on the rise, we maintained the fund’s exposure to floating-rate money market securities and commercial paper. These investments helped the portfolio capture the higher rates then coming to market, since the yields on these securities are reset in accordance with changes in

*Source: iMoneyNet, September 30, 2005 and April 7, 2006.

Market sector performance

These indexes provide an overview of performance in different market sectors for the
six months ended 3/31/06.

Bonds   
 
Lipper Institutional Money Market Funds category average  1.92% 
Merrill Lynch 91-day Treasury Bill Index (short-maturity U.S. Treasury bills)  1.95% 
Lehman Aggregate Bond Index (broad bond market)  –0.06% 
Citigroup World Government Bond Index (global government bonds)  –2.32% 

Equities   
 
S&P 500 Index (broad stock market)  6.38% 
Russell 1000 Index (large-company stocks)  6.71% 
Russell 2000 Index (small-company stocks)  15.23% 

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short-term interest rates. As a result of this positioning, the fund’s 7-day yield rose from 3.55% at the start of the reporting period on September 30, 2005, to 4.34% by January 31, 2006.

In February, investors began to contemplate the possibility that the Fed might be approaching the end of this tightening cycle. With the yield curve still relatively steep, we became less inclined to add to the fund’s floating-rate securities. Accordingly, as securities matured, we reallocated the proceeds to investments in money-market-eligible fixed-rate securities from the longer end of the fund’s maturity range. The majority of these new holdings had maturities of 90 days or less, but we also selectively added six-month, nine-month, and one-year certificates of deposit. These strategies had the intended effect of pushing the portfolio’s average days to maturity to as high as 56 days on March 2, 2006. However, by the end of the semi-annual period on March 31, 2006, the fund’s average days to maturity rolled down to 44 days, as we reinvested maturing holdings into shorter-term fixed-rate securities in preparation for the Fed’s widely anticipated March 28 increase in the federal funds rate.

Your fund’s holdings

Midway through the reporting period, we selectively increased the fund’s investments in fixed-rate securities with maturities of three, six, nine, and twelve months to preserve attractive yields for

Portfolio composition comparison

This chart shows how the fund’s weightings have changed over the last six months. Weightings
are shown as a percentage of portfolio value. Holdings will vary over time.


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longer periods of time. Several of these new holdings were certificates of deposit issued by European banks. 

Societe Generale, one of the portfolio’s largest issuers, is one of the 10-largest banks in Europe and the third-largest bank in France. A strong domestic and international banking franchise, Societe Generale has solid market share and consistently shows healthy profitability and a strong balance sheet. We believe this French bank will continue to profit from its diverse mix of products while limiting its risk profile. Barclays Bank, another issuer of euro CDs held by the fund, is a highly profitable bank based in the United Kingdom. The bank’s diversified mix of income sources, including its domestic and international banking operations and a large European credit card business, as well as its broad asset management expertise, make it a highly creditworthy component of the portfolio.

The nearly one-trillion-dollar asset-backed commercial paper market continues to show growth in issuance as corporations and banks use it as a low-cost, alternative source of funding for their financing and lending operations. The diversification of the supporting assets combined with additional structural protection — such as funding

Performance comparisons
As of 3/31/06

  Current yield*   
Regular savings account  0.50%   
Average taxable money market fund compound 7-day yield  4.17   
3-month certificate of deposit  4.88   
 
  Current yield (with  Current yield (without 
Putnam Prime Money Market Fund (7-day yield)  expense limitation)  expense limitation) 
Class I  4.59%  4.44% 
Class S  4.49  4.34 
Class A  4.34  4.19 
Class R  4.09  3.94 

The net asset value of money market mutual funds is uninsured and designed to be fixed, while distributions vary daily. Investment returns will fluctuate.The principal value on regular savings and on bank certificates of deposit (CDs) is generally insured up to certain limits by state and federal agencies. Unlike stocks, which incur more risk, CDs offer a fixed rate of return. Unlike money market funds, bank CDs may be subject to substantial penalties for early withdrawals.

During the period, the fund limited expenses, without which yields would have been lower.

* Sources: Bank of America (regular savings account), iMoneyNet Money Fund Report (average taxable money market fund compound 7-day yield), and Federal Reserve Board of Governors (3-month certificates of deposit).

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and credit support from highly rated banks — makes these securities, in our opinion, attractive, high-quality investments. The fund’s holdings in this sector — both domestic and foreign — stood at 40% of total net assets as of the last day of the period.

Klio II Funding Corporation and Amstel Funding Corporation are two asset-backed commercial paper issuers that exemplify the fund’s involvement in this product market. Amstel and Klio are backed by highly diverse and highly rated financial assets. Similarly, MBNA Credit Card Master Trust (Emerald) and Citibank Credit Card Issuance Trust (Dakota) use credit card receivables to back their commercial paper issuance. The highly liquid nature of these companies’ underlying assets, coupled with the back-up lending facilities earmarked for these programs, makes these holdings, in our estimation, very attractive investments.

We continue to underweight investments in the U.S. government obligations market because we believe that the corporate market currently represents a better value.

Please note that the holdings discussed in this report may not have been held by the fund for the entire period. Portfolio composition is subject to review in accordance with the fund’s investment strategy and may vary in the future.

The outlook for your fund

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

The U.S. economy has remained strong despite steady tightening by the Fed. By mid-2005, the Fed’s program of tightening had been in place for a year, the point at which past Fed tightening cycles have begun to slow economic growth. This time, despite additional rate increases, the economy has continued to strengthen. With corporate profits remaining strong, companies have defied predictions of slower earnings growth, supported by a still vibrant consumer and a revival in business spending. It certainly appears that something is making the U.S. economy impressively resilient. We believe that the main source of that resilience is advances in productivity and output.

We think the focus of the debate about the Fed’s monetary policy has shifted from a question of if the Fed will stop raising short-term rates to when it will stop. We would anticipate that the Fed’s tightening cycle will be nearing an end this summer. At some point, as rates stabilize, we think the short end of the yield curve will become less steep and that further flattening will occur. We will continue to look for opportunities to extend the portfolio and lock in attractive income by adding fixed-rate money market securities while taking advantage of pricing inefficiencies in the market.

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

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

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Your fund’s performance

This section shows your fund’s performance for periods ended March 31, 2006, the end of the first half of its current fiscal year. Performance should always be considered in light of a fund’s investment strategy. Data represents past performance. Past performance does not guarantee future results. More recent returns may be less or more than those shown. Investment return will fluctuate, and you may have a gain or a loss when you sell your shares. For the most recent month-end performance, please visit www.putnam.com.

Fund performance
Total return for periods ended 3/31/06

  Class I                    Class S                     Class A  Class R 
(inception dates)  (5/6/04)  (5/6/04)  (5/6/04)  (5/6/04) 
  NAV  NAV  NAV  NAV 
 
Life of fund  5.27%  5.07%  4.78%  4.28% 
Annual average  2.74  2.63  2.48  2.23 
1 year  3.69  3.59  3.43  3.17 
6 months  2.10  2.05  1.98  1.85 
 
Current yield (end of period)*         
Current 7-day yield         
(with expense limitation)  4.59  4.49  4.34  4.09 
Current 7-day yield         
(without expense limitation)  4.44  4.34  4.19  3.94 
Current 30-day yield         
(with expense limitation)  4.54  4.44  4.29  4.05 
Current 30-day yield         
(without expense limitation)  4.40  4.30  4.15  3.90 

Performance assumes reinvestment of distributions and does not account for taxes. None of the share classes carry an initial sales charge or a contingent deferred sales charge.

For a portion of the period, the fund limited expenses, without which returns and yields would have been lower.

* The 7-day and 30-day yields are the two most common gauges for measuring money market mutual fund performance. Yield reflects current performance more closely than total return.

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Comparative index returns     
For periods ended 3/31/06     
    Lipper Institutional 
  Merrill Lynch 91-day  Money Market Funds 
  Treasury Bill Index  category average* 
 
Life of fund (since 5/6/04)  5.15%  4.67% 
Annual average  2.67  2.43 
1 year  3.53  3.35 
6 months  1.95  1.92 

Index and Lipper results should be compared to fund performance at net asset value.

* Over the 6-month, 1-year, and life-of-fund periods ending 3/31/06, there were 321, 319, and 296 funds, respectively, in this Lipper category.

Fund distribution information

For the 6-month period ended 3/31/06

Distributions*  Class I  Class S  Class A  Class R 
Number  6  6  6  6 
Income  $0.020793  $0.020304  $0.019559  $0.018316 
Total  $0.020793  $0.020304  $0.019559  $0.018316 

* Dividend sources are estimated and may vary based on final tax calculations after the fund’s fiscal year-end

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Your fund’s expenses

As a mutual fund investor, you pay ongoing expenses, such as management fees, distribution fees (12b-1 fees), and other expenses. In the most recent six-month period, your fund limited these expenses; had it not done so, expenses would have been higher. Using the information below, you can estimate how these expenses affect your investment and compare them with the expenses of other funds. You may also pay one-time transaction expenses, including sales charges (loads) and redemption fees, which are not shown in this section and would have resulted in higher total expenses. For more information, see your fund’s prospectus or talk to your financial advisor.

Review your fund’s expenses

The table below shows the expenses you would have paid on a $1,000 investment in Putnam Prime Money Market Fund from October 1, 2005, to March 31, 2006. It also shows how much a $1,000 investment would be worth at the close of the period, assuming actual returns and expenses.

  Class I  Class S  Class A  Class R 
Expenses paid per $1,000*  $ 0.76  $ 1.26  $ 2.01  $ 3.27 
Ending value (after expenses)  $1,021.00  $1,020.50  $1,019.80  $1,018.50 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 3/31/06. The expense ratio may differ for each share class (see the table at the bottom of the next page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Estimate the expenses you paid

To estimate the ongoing expenses you paid for the six months ended March 31, 2006, use the calculation method below. To find the value of your investment on October 1, 2005, go to www.putnam.com and log on to your account. Click on the “Transaction History” tab in your Daily Statement and enter 10/01/2005 in both the “from” and “to” fields. Alternatively, call Putnam at 1-800-225-1581.


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Compare expenses using the SEC’s method

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

  Class I  Class S  Class A  Class R 
 
Expenses paid per $1,000*  $ 0.76  $ 1.26  $ 2.02  $ 3.28 
Ending value (after expenses)  $1,024.18  $1,023.68  $1,022.94  $1,021.69 

* Expenses for each share class are calculated using the fund’s annualized expense ratio for each class, which represents the ongoing expenses as a percentage of net assets for the six months ended 3/31/06. The expense ratio may differ for each share class (see the table at the bottom of this page). Expenses are calculated by multiplying the expense ratio by the average account value for the period; then multiplying the result by the number of days in the period; and then dividing that result by the number of days in the year.

Compare expenses using industry averages

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

  Class I  Class S  Class A  Class R 
 
Your fund’s annualized expense ratio  0.15%  0.25%  0.40%  0.65% 
Average annualized expense ratio for         
Lipper peer group*  0.37%  0.47%  0.62%  0.87% 

* Simple average of the expenses of all funds in the fund’s Lipper peer group, calculated in accordance with Lipper’s standard method for comparing fund expenses (excluding 12b-1 fees and without giving effect to any expense offset and brokerage service arrangements that may reduce fund expenses). This average reflects each fund’s expenses for its most recent fiscal year available to Lipper as of 3/31/06. To facilitate comparison, Putnam has adjusted this average to reflect the 12b-1 fees carried by each class of shares, other than class I shares, which do not incur 12b-1 fees. The peer group may include funds that are significantly smaller or larger than the fund, which may limit the comparability of the fund’s expenses to the simple average, which typically is higher than the asset-weighted average.

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Your fund’s management

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

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

Fund manager compensation

The total 2005 fund manager compensation that is attributable to your fund is approximately $680,000. This amount includes a portion of 2005 compensation paid by Putnam Management to the fund managers listed in this section for their portfolio management responsibilities, calculated based on the fund assets they manage taken as a percentage of the total assets they manage. The compensation amount also includes a portion of the 2005 compensation paid to the Chief Investment Officer of the team and the Group Chief Investment Officer of the fund’s broader investment category for their oversight responsibilities, calculated based on the fund assets they oversee taken as a percentage of the total assets they oversee. This amount does not include compensation of other personnel involved in research, trading, administration, systems, compliance, or fund operations; nor does it include non-compensation costs. These percentages are determined as of the fund’s fiscal period-end. For personnel who joined Putnam Management during or after 2005, the calculation reflects annualized 2005 compensation or an estimate of 2006 compensation, as applicable.

Other Putnam funds managed by the Portfolio Leader and Portfolio Member

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

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

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

Changes in your fund’s Portfolio Leader and Portfolio Member

Your fund’s Portfolio Leader and Portfolio Member did not change during the year ended March 31, 2006.

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Terms and definitions

Important terms

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.

Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. NAV is calculated by dividing the net assets of each class of shares by the number of outstanding shares in the class.

Share classes

Class I shares are not subject to an initial sales charge or sales charge on redemption, and do not carry a 12b-1 fee.

Class S shares are not subject to an initial sales charge or sales charge on redemption, but carry a 12b-1 fee.

Class A shares are not subject to an initial sales charge or sales charge on redemption, but carry a higher 12b-1 fee than class S shares.

Class R shares are not subject to an initial sales charge or sales charge on redemption, but carry a higher 12b-1 fee than class A and class S shares.

Shares of this fund, regardless of class, are not exchangeable into shares of any other Putnam fund.

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Comparative indexes

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

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

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

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

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

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

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

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

Lipper is a third-party industry-ranking entity that ranks mutual funds. Its rankings do not reflect sales charges. Lipper rankings are based on total return at net asset value relative to other funds that have similar current investment styles or objectives as determined by Lipper. Lipper may change a fund’s category assignment at its discretion. Lipper category averages reflect performance trends for funds within a category.

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Trustee approval of
management contract

General conclusions

The Board of Trustees of the Putnam funds oversees the management of each fund and, as required by law, determines annually whether to approve the continuance of your fund’s management contract and administrative services contract with Putnam Management. In this regard, the Board of Trustees, with the assistance of its Contract Committee consisting solely of Trustees who are not “interested persons” (as such term is defined in the Investment Company Act of 1940, as amended) of the Putnam funds (the “Independent Trustees”), requests and evaluates all information it deems reasonably necessary under the circumstances. Over the course of several months beginning in March and ending in June 2005, the Contract Committee met five times to consider the information provided by Putnam Management and other information developed with the assistance of the Board’s independent counsel and independent staff. The Contract Committee reviewed and discussed key aspects of this information with all of the Independent Trustees. Upon completion of this review, the Contract Committee recommended and the Independent Trustees approved the continuance of your fund’s management contract and administrative services contract, effective July 1, 2005.

This approval was based on the following conclusions:

* That the fee schedule currently in effect for your fund (which includes fees paid under the administrative services contract) represents reasonable compensation in light of the nature and quality of the services being provided to the fund, the fees paid by competitive funds and the costs incurred by Putnam Management in providing such services, and

* That such fee schedule represents an appropriate sharing between fund shareholders and Putnam Management of such economies of scale as may exist in the management of the fund at current asset levels.

These conclusions were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some of the factors that figured particularly in the Trustees’ deliberations and how the Trustees considered these factors are described below, although individual Trustees may have evaluated the information presented differently, giving different weights to various factors. It is also important to recognize that the fee arrangements for your fund and the other Putnam funds are the result of many years of review and discussion between the Independent Trustees and Putnam Management, that certain aspects of such arrangements may receive greater scrutiny in some years than others, and that the Trustees’ conclusions may be based, in part, on their consideration of these same arrangements in prior years.

Model fee schedules and categories; total expenses

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

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* Consistency. The Trustees, working in cooperation with Putnam Management, have developed and implemented a series of model fee schedules for the Putnam funds designed to ensure that each fund’s management fee is consistent with the fees for similar funds in the Putnam family of funds and compares favorably with fees paid by competitive funds sponsored by other investment advisors. Under this approach, each Putnam fund is assigned to one of several fee categories based on a combination of factors, including competitive fees and perceived difficulty of management, and a common fee schedule is implemented for all funds in a given fee category. The Trustees reviewed the model fee schedules currently in effect for the Putnam funds, including fee levels and breakpoints, and the assignment of your fund to a particular fee category under this structure. (“Breakpoints” refer to reductions in fee rates that apply to additional assets once specified asset levels are reached.) The Trustees concluded that no changes should be made in the fund’s current fee schedule at this time.

* Competitiveness. The Trustees also reviewed comparative fee and expense information for competitive funds, which indicated that, in a custom peer group of competitive funds selected by Lipper Inc., your fund ranked in the 31st percentile in management fees as of December 31, 2005 (the first percentile being the least expensive funds and the 100th percentile being the most expensive funds). As a general matter, the Trustees noted that expense ratios for a number of Putnam funds, which show the percentage of fund assets used to pay for management and administrative services, distribution (12b-1) fees and other expenses, had been increasing recently as a result of declining net assets and the natural operation of fee breakpoints. They noted that such expense ratio increases were currently being controlled by expense limitations implemented in January 2004 and which Putnam Management, in consultation with the Contract Committee, has committed to maintain at least through 2006. The Trustees expressed their intention to monitor this information closely to ensure that fees and expenses of the Putnam funds continue to meet evolving competitive standards.

* Economies of scale. The Trustees concluded that the fee schedule currently in effect for your fund represents an appropriate sharing of economies of scale at current asset levels. The Trustees examined the existing breakpoint structure of the Putnam funds’ management fees in light of competitive industry practices. The Trustees considered various possible modifications to the Putnam funds’ current breakpoint structure, but ultimately concluded that the current breakpoint structure continues to serve the interests of fund shareholders. Accordingly, the Trustees continue to believe that the fee schedules currently in effect for the funds represent an appropriate sharing of economies of scale at current asset levels. The Trustees noted that significant redemptions in many Putnam funds, together with significant changes in the cost structure of Putnam Management, have altered the economics of Putnam Management’s business in significant ways. In view of these changes, the Trustees intend to consider whether a greater sharing of the economies of scale by fund shareholders would be appropriate if and when aggregate assets in the Putnam funds begin to experience meaningful growth.

18

In connection with their review of the management fees and total expenses of the Putnam funds, the Trustees also reviewed the costs of the services to be provided and profits to be realized by Putnam Management and its affiliates from the relationship with the funds. This information included trends in revenues, expenses and profitability of Putnam Management and its affiliates relating to the investment management and distribution services provided to the funds. In this regard, the Trustees also reviewed an analysis of Putnam Management’s revenues, expenses and profitability with respect to the funds’ management contracts, allocated on a fund-by-fund basis.

Investment performance

The quality of the investment process provided by Putnam Management represented a major factor in the Trustees’ evaluation of the quality of services provided by Putnam Management under your fund’s management contract. The Trustees were assisted in their review of the funds’ investment process and performance by the work of the Investment Oversight Committees of the Trustees, which meet on a regular monthly basis with the funds’ portfolio teams throughout the year. The Trustees concluded that Putnam Management generally provides a high-quality investment process — as measured by the experience and skills of the individuals assigned to the management of fund portfolios, the resources made available to such personnel, and in general the ability of Putnam Management to attract and retain high-quality personnel — but also recognize that this does not guarantee favorable investment results for every fund in every time period. The Trustees considered the investment performance of each fund over multiple time periods and considered information comparing the fund’s performance with various benchmarks and with the performance of competitive funds. The Trustees noted the satisfactory investment performance of many Putnam funds. They also noted the disappointing investment performance of certain funds in recent years and continued to discuss with senior management of Putnam Management the factors contributing to such underperformance and actions being taken to improve performance. The Trustees recognized that, in recent years, Putnam Management has made significant changes in its investment personnel and processes and in the fund product line to address areas of underperformance. The Trustees indicated their intention to continue to monitor performance trends to assess the effectiveness of these changes and to evaluate whether additional remedial changes are warranted.

As a general matter, the Trustees believe that cooperative efforts between the Trustees and Putnam Management represent the most effective way to address investment performance problems. The Trustees believe that investors in the Putnam funds have, in effect, placed their trust in the Putnam organization, under the oversight of the funds’ Trustees, to make appropriate decisions regarding the management of the funds. Based on the responsiveness of Putnam Management in the recent past to Trustee concerns about investment performance, the Trustees believe that it is preferable to seek change within Putnam Management to address performance shortcomings. In the Trustees’ view, the alternative of terminating a management contract and engaging a new investment advisor for an underperforming fund would entail significant disruptions and would not provide any greater assurance of improved investment performance.

19

Brokerage and soft-dollar allocations; other benefits

The Trustees considered various potential benefits that Putnam Management may receive in connection with the services it provides under the management contract with your fund. These include principally benefits related to brokerage and soft-dollar allocations, whereby a portion of the commissions paid by a fund for brokerage is earmarked to pay for research services that may be utilized by a fund’s investment advisor. The Trustees believe that soft-dollar credits and other potential benefits associated with the allocation of fund brokerage, which pertains mainly to funds investing in equity securities, represent assets of the funds that should be used for the benefit of fund shareholders. This area has been marked by significant change in recent years. In July 2003, acting upon the Contract Committee’s recommendation, the Trustees directed that allocations of brokerage to reward firms that sell fund shares be discontinued no later than December 31, 2003. In addition, commencing in 2004, the allocation of brokerage commissions by Putnam Management to acquire research services from third-party service providers has been significantly reduced, and continues at a modest level only to acquire research that is customarily not available for cash. The Trustees will continue to monitor the allocation of the funds’ brokerage to ensure that the principle of “best price and execution” remains paramount in the portfolio trading process.

The Trustees’ annual review of your fund’s management contract also included the review of its distributor’s contract and distribution plan with Putnam Retail Management Limited Partnership and the custodian agreement and investor servicing agreement with Putnam Fiduciary Trust Company, all of which provide benefits to affiliates of Putnam Management.

Comparison of retail and institutional fee schedules

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

20

Other information
for shareholders

Important notice regarding delivery of shareholder documents

In accordance with SEC regulations, Putnam sends a single copy of annual and semiannual shareholder reports, prospectuses, and proxy statements to Putnam shareholders who share the same address. If you prefer to receive your own copy of these documents, please call Putnam at 1-800-225-1581, and Putnam will begin sending individual copies within 30 days.

Proxy voting

Putnam is committed to managing our mutual funds in the best interests of our shareholders. The Putnam funds’ proxy voting guidelines and procedures, as well as information regarding how your fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2005, are available on the Putnam Individual Investor Web site, www.putnam.com/individual, and on the SEC’s Web site, www.sec.gov. If you have questions about finding forms on the SEC’s Web site, you may call the SEC at 1-800-SEC-0330. You may also obtain the Putnam funds’ proxy voting guidelines and procedures at no charge by calling Putnam’s Shareholder Services at 1-800-225-1581.

Fund portfolio holdings

The fund will file a complete schedule of its portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain the fund’s Forms N-Q on the SEC’s Web site at www.sec.gov. In addition, the fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC’s Web site or the operation of the Public Reference Room.

21

Financial statements

A guide to 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 liquidation preference of 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 the fund’s net investment gain or loss, 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year.

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.

22

The fund’s portfolio 3/31/06 (Unaudited)         
 
 
 
COMMERCIAL PAPER (69.9%)*             
  Yield (%)             Maturity date         Principal amount    Value 
 
Domestic (57.5%)             
Amstel Funding Corp.  4.809  5/15/06  $  43,418,000  $  43,164,871 
Amstel Funding Corp.  4.797  5/31/06    27,000,000    26,786,700 
Amstel Funding Corp.  4.750  5/23/06    25,000,000    24,830,458 
Amstel Funding Corp.  4.666  4/28/06    7,688,000    7,661,361 
Amstel Funding Corp.  4.652  6/20/06    31,000,000    30,686,556 
Amstel Funding Corp.  4.618  4/6/06    7,000,000    6,995,528 
Atlantic Asset Securitization, LLC  4.838  5/22/06    13,530,000    13,437,996 
Atlantic Asset Securitization, LLC  4.823  4/4/06    27,041,000    27,030,139 
Atlantic Asset Securitization, LLC  4.654  4/6/06    20,000,000    19,987,111 
Bank of America Corp.  4.899  6/21/06    19,850,000    19,633,834 
Bank of America Corp.  4.869  6/14/06    30,000,000    29,703,383 
Bank of America Corp.  4.799  8/3/06    38,800,000    38,173,876 
Bank of America Corp.  4.776  5/10/06    37,000,000    36,810,005 
Barton Capital, LLC  4.545  4/10/06    64,410,000    64,336,324 
Bear Stearns Cos.  4.807  5/11/06    25,000,000    24,867,222 
Bear Stearns Cos.  4.780  5/8/06    18,600,000    18,509,196 
Bryant Park Funding, LLC  4.804  5/4/06    13,710,000    13,649,927 
Bryant Park Funding, LLC  4.798  5/31/06    18,000,000    17,857,800 
Bryant Park Funding, LLC  4.644  4/20/06    20,000,000    19,951,339 
Bryant Park Funding, LLC  4.643  4/12/06    35,358,000    35,308,194 
CAFCO, LLC.  4.950  8/28/06    30,000,000    29,400,275 
CAFCO, LLC.  4.705  5/17/06    20,000,000    19,881,167 
CHARTA, LLC  4.704  5/15/06    42,000,000    41,761,300 
CHARTA, LLC  4.691  5/3/06    30,000,000    29,876,000 
CHARTA, LLC  4.685  4/21/06    19,000,000    18,950,811 
CHARTA, LLC  4.643  4/26/06    40,000,000    39,872,222 
CHARTA, LLC  4.634  4/25/06    20,000,000    19,938,800 
CIT Group, Inc.  4.715  5/24/06    21,500,000    21,352,815 
Citibank Credit Card Issuance Trust (Dakota)  4.760  5/3/06    33,000,000    32,861,253 
Citibank Credit Card Issuance Trust (Dakota)  4.635  4/13/06    30,000,000    29,954,000 
Citibank Credit Card Issuance Trust (Dakota)  4.624  4/6/06    29,000,000    28,981,472 
Citibank Credit Card Issuance Trust (Dakota)  4.622  4/5/06    37,000,000    36,981,089 
Citibank Credit Card Issuance Trust (Dakota)  4.621  4/4/06    28,000,000    27,989,267 
Countrywide Financial Corp.  4.850  4/3/06    31,000,000    30,991,647 
Countrywide Financial Corp.  4.815  4/20/06    10,000,000    9,974,667 
CRC Funding, LLC  4.887  6/1/06    25,000,000    24,794,760 
CRC Funding, LLC  4.615  4/11/06    38,000,000    37,951,656 
Curzon Funding, LLC  4.807  5/9/06    19,900,000    19,799,593 
Curzon Funding, LLC  4.708  4/12/06    20,000,000    19,971,339 
Curzon Funding, LLC  4.623  4/10/06    10,000,000    9,988,525 
Curzon Funding, LLC  4.594  4/7/06    24,000,000    23,981,760 
Curzon Funding, LLC  4.556  4/18/06    30,000,000    29,936,179 
Curzon Funding, LLC 144A FRN  4.349  4/28/06    18,000,000    17,999,731 
Falcon Asset Securitization Corp.  4.717  4/13/06    15,428,000    15,403,829 

23

COMMERCIAL PAPER (69.9%)* continued             
  Yield (%)  Maturity date    Principal amount    Value 
 
Domestic continued             
Goldman Sachs Group, Inc. (The)  4.837  10/24/06  $  25,000,000  $  24,331,931 
Goldman Sachs Group, Inc. (The)  4.784  4/3/06    25,000,000    24,993,361 
Goldman Sachs Group, Inc. (The)  4.552  5/23/06    19,000,000    18,877,872 
Govco, Inc.  4.723  5/18/06    20,000,000    19,878,061 
Govco, Inc.  4.647  6/23/06    35,000,000    34,633,348 
Grampian Funding, LLC  5.081  9/26/06    25,000,000    24,387,507 
Jupiter Securitization Corp.  4.802  5/3/06    15,810,000    15,742,825 
Jupiter Securitization Corp.  4.641  4/10/06    25,000,000    24,971,125 
Klio II Funding Corp.  4.899  6/14/06    21,005,000    20,796,024 
Klio II Funding Corp.  4.889  6/13/06    31,500,000    31,191,484 
Klio II Funding Corp.  4.875  6/6/06    18,340,000    18,177,936 
Klio II Funding Corp.  4.795  5/26/06    20,000,000    19,855,167 
Klio II Funding Corp.  4.643  4/27/06    39,000,000    38,870,654 
Master Funding, LLC Ser. B  4.841  5/31/06    37,000,000    36,704,617 
Master Funding, LLC Ser. B  4.802  5/9/06    30,000,000    29,848,950 
MBNA Credit Card Master Note Trust             
(Emerald)  4.862  5/16/06    20,000,000    19,879,250 
MBNA Credit Card Master Note Trust             
(Emerald)  4.838  5/11/06    20,000,000    19,893,111 
MBNA Credit Card Master Note Trust             
(Emerald)  4.770  4/7/06    21,252,000    21,235,140 
MBNA Credit Card Master Note Trust             
(Emerald)  4.707  4/10/06    13,300,000    13,284,406 
MBNA Credit Card Master Note Trust             
(Emerald)  4.667  4/25/06    30,750,000    30,655,085 
MBNA Credit Card Master Note Trust             
(Emerald)  4.635  4/19/06    35,000,000    34,919,675 
MBNA Credit Card Master Note Trust             
(Emerald)  4.620  4/5/06    4,277,000    4,274,814 
NATC California, LLC (SunTrust Bank             
(Letter of Credit (LOC)))  4.551  4/13/06    28,000,000    27,958,000 
Old Line Funding Corp.  4.685  4/20/06    36,317,000    36,227,680 
Old Line Funding Corp.  4.671  4/13/06    15,564,000    15,539,876 
Park Avenue Receivables Corp.  4.628  4/5/06    33,064,000    33,047,064 
Park Avenue Receivables Corp.  4.627  4/4/06    25,000,000    24,990,396 
Park Granada, LLC  4.735  5/1/06    19,000,000    18,925,583 
Park Granada, LLC  4.717  5/1/06    35,749,000    35,609,579 
Park Granada, LLC  4.686  4/28/06    25,000,000    24,912,813 
Park Granada, LLC  4.628  4/6/06    53,214,000    53,179,928 
Preferred Receivables Funding Corp.  4.660  4/11/06    27,259,000    27,223,866 
Sheffield Receivables Corp.  4.881  6/19/06    26,000,000    25,724,992 
Thunder Bay Funding, Inc.  4.912  6/2/06    25,218,000    25,006,491 
Thunder Bay Funding, Inc.  4.671  4/13/06    20,961,000    20,928,510 
Thunder Bay Funding, Inc.  4.663  4/3/06    25,440,000    25,433,428 
Thunder Bay Funding, Inc.  4.560  4/17/06    40,000,000    39,919,822 
Yorktown Capital, LLC  4.786  4/5/06    10,251,000    10,245,556 
            2,110,251,904 

24

COMMERCIAL PAPER (69.9%)* continued             
  Yield (%)  Maturity date    Principal amount    Value 
 
Foreign (12.4%)             
ANZ (Delaware), Inc. (Australia)  4.673  5/8/06  $  17,400,000  $  17,317,379 
Atlantis One Funding Corp. (Netherlands)  4.755  5/23/06    42,500,000    42,211,472 
Atlantis One Funding Corp. (Netherlands)  4.521  4/12/06    27,000,000    26,963,123 
Banco Continental de Panama, S.A.             
(Calyon (LOC)) (France)  4.526  4/27/06    27,000,000    26,913,030 
CBA Delaware Finance (Australia)  4.676  4/28/06    30,000,000    29,895,600 
Danske Corp. (Denmark)  4.796  10/30/06    24,300,000    23,638,162 
Danske Corp. (Denmark)  4.621  4/10/06    20,000,000    19,977,000 
Dexia Delaware, LLC (Belgium)  4.707  4/3/06    24,000,000    23,993,733 
ED & F Man Treasury Management (Societe             
Generale (LOC)) (France)  4.803  4/3/06    20,000,000    19,994,667 
HBOS Treasury Services PLC             
(United Kingdom)  4.690  5/8/06    25,000,000    24,880,778 
Spintab AB (Sweden)  4.653  4/19/06    30,000,000    29,930,700 
Toronto Dominion Holdings (USA)             
(Canada)  4.790  4/13/06    20,000,000    19,968,133 
Toyota Motor Credit Corp. (Japan)  4.611  4/7/06    35,000,000    34,973,225 
Tulip Funding Corp. (Netherlands)  4.655  4/24/06    57,363,000    57,195,615 
Westpac Banking Corp. (Australia)  4.753  5/15/06    13,900,000    13,819,982 
Westpac Banking Corp. (Australia)  4.673  5/9/06    15,000,000    14,926,850 
Westpac Banking Corp. (Australia)  4.673  5/8/06    27,000,000    26,871,795 
            453,471,244 
Total commercial paper (cost $2,563,723,148)        $  2,563,723,148 
 
CERTIFICATES OF DEPOSIT (16.0%)*             
  Yield (%)  Maturity date    Principal amount    Value 
 
Domestic (3.4%)             
Citibank, N.A. Ser. CD  4.700  5/16/06  $  24,000,000  $  24,000,000 
SunTrust Bank FRN, Ser. CD  4.691  5/12/06    30,000,000    30,000,000 
SunTrust Bank FRN, Ser. CD  4.641  2/9/07    30,000,000    29,997,463 
Wachovia Bank, N.A. FRN, Ser. CD  4.920  3/30/07    40,000,000    39,993,600 
            123,991,063 
 
Foreign (12.6%)             
Barclays Bank PLC FRN, Ser. YCD             
(United Kingdom)  4.774  4/4/07    35,000,000    34,993,091 
Barclays Bank PLC FRN, Ser. YCD             
(United Kingdom)  4.575  6/1/06    34,700,000    34,699,422 
BNP Paribas FRN, Ser. YCD (France)  4.690  6/19/06    17,000,000    16,996,172 
Canadian Imperial Bank of Commerce             
FRN, Ser. YCD (Canada)  4.980  9/15/06    17,000,000    17,005,477 
Canadian Imperial Bank of Commerce             
FRN, Ser. YCD1 (Canada)  4.780  4/23/07    15,000,000    15,000,000 
Credit Suisse New York FRN, Ser. YCD             
(Switzerland)  4.796  7/18/06    22,000,000    22,003,036 

25

CERTIFICATES OF DEPOSIT (16.0%)* continued           
  Yield (%)  Maturity date    Principal amount    Value 
 
Foreign continued             
DEPFA Bank PLC NY Ser. YCD (Ireland)  4.600  4/3/06  $  40,000,000  $  40,000,000 
Deutsche Bank AG Ser. ECD (Germany)  4.900  2/5/07    28,000,000    27,986,413 
Deutsche Bank AG Ser. ECD (Germany)  4.900  2/5/07    16,500,000    16,483,601 
Deutsche Bank AG Ser. ECD (Germany)  4.860  1/31/07    29,000,000    28,992,977 
Deutsche Bank AG Ser. ECD (Germany)  4.760  11/8/06    22,000,000    21,995,996 
Dexia Credit Local FRN, Ser. YCD (Belgium)  4.580  10/3/06    15,000,000    14,998,487 
Fortis Bank NY Ser. YCD (Belgium)  3.950  4/21/06    22,800,000    22,800,000 
Societe Generale Ser. ECD (France)  4.800  12/6/06    9,000,000    8,994,207 
Societe Generale Ser. ECD (France)  4.760  5/2/06    34,000,000    34,000,000 
Societe Generale Ser. ECD (France)  4.750  8/30/06    29,000,000    29,000,000 
Societe Generale Ser. ECD (France)  3.900  4/18/06    51,000,000    50,999,801 
Svenska Handelsbanken Ser. YCD (Sweden)  4.783  12/5/06    24,000,000    23,979,339 
            460,928,019 
Total Certificates of Deposit (cost $584,919,082)        $  584,919,082 
 
CORPORATE BONDS AND NOTES (9.5%)*             
  Yield (%)  Maturity date    Principal amount    Value 
 
Domestic (4.8%)             
Bank of New York Co., Inc. (The)             
144A sr. notes FRN, Ser. XMTN  4.688  5/10/07  $  18,000,000  $  18,000,000 
Citigroup, Inc. notes  5.750  5/10/06    20,000,000    20,025,629 
Lehman Brothers Holdings, Inc. FRN, Ser. G  4.590  6/2/06    68,000,000    68,010,931 
Merrill Lynch & Co., Inc. FRN, Ser. C  4.729  4/16/07    9,000,000    9,000,000 
Morgan Stanley Dean Witter & Co. FRN  4.930  11/24/06    22,000,000    22,023,835 
National City Bank FRN, Ser. BKNT  4.818  7/26/06    20,000,000    20,002,352 
National City Bank FRN, Ser. BKNT  4.783  6/2/06    20,000,000    19,998,000 
            177,060,747 
Foreign (4.7%)             
Bank of Ireland 144A unsec. notes FRN,             
Ser. XMTN (Ireland)  4.746  4/20/07    25,000,000    25,000,397 
Commonwealth Bank of Australia             
144A FRN (Australia)  4.779  4/24/07    20,000,000    20,000,000 
HBOS Treasury Services PLC 144A FRN,             
Ser. MTN(United Kingdom)  4.661  5/9/07    22,000,000    22,000,000 
HSBC USA, Inc. sr. notes FRN, Ser. EXT             
(United Kingdom)  4.729  4/16/07    19,000,000    19,000,000 
National Australia Bank 144A FRB (Australia)  4.640  4/6/07    29,000,000    29,000,000 
Nordea Bank AB 144A FRN (Sweden)  4.700  5/11/07    18,000,000    18,000,000 
Nordea Bank AB 144A unsec. notes FRN             
(Sweden)  4.730  5/9/07    15,000,000    15,000,000 
Westpac Banking Corp. 144A FRN (Australia)  4.721  4/16/07    24,000,000    24,000,000 
            172,000,397 
 
Total corporate bonds and notes (cost $349,061,144)        $  349,061,144 

26

U.S. GOVERNMENT AGENCY OBLIGATIONS (1.3%)*           
  Yield (%)  Maturity date    Principal amount    Value 
 
Fannie Mae FRN  4.550  9/7/06  $  25,000,000  $  24,977,860 
Federal Farm Credit Bank FRB  4.686  7/20/06    23,000,000    22,991,352 
Total U.S. government agency obligations (cost $47,969,212)      $  47,969,212 
 
 
ASSET BACKED SECURITIES (0.8%) * (cost $28,912,105)         
  Yield (%)  Maturity date    Principal amount    Value 
 
TIAA Real Estate CDO, Ltd. 144A FRN             
Ser. 03-1A,Class A1MM (Cayman Islands)  4.851  12/28/18  $  28,912,105  $  28,912,105 
 
SHORT-TERM INVESTMENTS (3.7%)*             
        Principal amount    Value 
 
Interest in $564,000,000 joint tri-party repurchase           
agreement dated March 31, 2006 with Bank of America           
Securities, LLC due April 3, 2006 with respect             
to various U.S. Government obligations — maturity           
value of $58,023,297 for an effective yield of 4.82%           
(collateralized by Fannie Mae securities with a yield of           
5.00% and a due date of March 1, 2035, valued at           
$575,280,000)      $  58,000,000  $  58,000,000 

Interest in $582,000,000 joint tri-party repurchase  		         
agreement dated March 31, 2006 with UBS             
Securities, LLC due April 3, 2006 with respect             
to various U.S. Government obligations — maturity           
value of $75,960,562 for an effective yield of 4.83%           
(collateralized by Fannie Mae and Freddie Mac securities           
with yields ranging from 3.50% to 12.00% and due           
dates ranging from July 1, 2006 to April 1, 2036,           
valued at $593,642,766)        75,930,000    75,930,000 
 
Total short-term investments (cost $133,930,000)        $  133,930,000 
 
TOTAL INVESTMENTS             

Total investments (cost $3,708,514,691)  		        $  3,708,514,691 

27

* Percentages indicated are based on net assets of $3,666,915,835.

144A after the name of an issuer represents securities 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.

The rates shown on Floating Rate Bonds (FRB) and Floating Rate Notes (FRN) are the current interest rates at March 31, 2006.

DIVERSIFICATION BY COUNTRY

Distribution of investments by country of issue at March 31, 2006: (as a percentage of Portfolio Value)

Australia                                                                  4.7% 
Belgium  1.7 
Canada  1.4 
Cayman Islands  0.8 
Denmark  1.2 
France  5.0 
Germany  2.6 
Ireland  1.8 
Japan  0.9 
Netherlands  3.4 
Sweden  2.3 
Switzerland  0.6 
United Kingdom  3.7 
United States  69.9 
Total  100.0% 

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

28

Statement of assets and liabilities 3/31/06 (Unaudited)   
 
ASSETS   
 
Investments in securities, at value (Note 1):   
Unaffiliated issuers (at amortized cost)  $3,708,514,691
Cash  857,090 
Interest and other receivables  6,825,527 
Total assets  3,716,197,308 
 
LIABILITIES   
 
Distributions payable to shareholders  13,367,535 
Payable for securities purchased  34,993,091 
Payable for compensation of Manager (Note 2)  700,422 
Payable for investor servicing and custodian fees (Note 2)  53,293 
Payable for Trustee compensation and expenses (Note 2)  42,878 
Payable for administrative services (Note 2)  4,085 
Payable for distribution fees (Note 2)  2 
Other accrued expenses  120,167 
Total liabilities  49,281,473 
Net assets  $3,666,915,835 
 
REPRESENTED BY   
 
Paid-in capital (Unlimited shares authorized) (Notes 1 and 4)  $3,666,976,824 
Distributions in excess of net investment income (Note 1)  (138) 
Accumulated net realized loss on investments (Note 1)  (60,851) 
Total — Representing net assets applicable to capital shares outstanding  $3,666,915,835 
 
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE*   
 
Net asset value, offering price and redemption price per class I share   
($282,635,670 divided by 282,649,466 shares)  $1.00 
Net asset value, offering price and redemption price per class S share   
($1,051 divided by 1,051 shares)  $1.00 
Net asset value, offering price and redemption price per class A share   
($1,048 divided by 1,048 shares)  $1.00 
Net asset value, offering price and redemption price per class R share   
($1,043 divided by 1,043 shares)  $1.00 
Net asset value, offering price and redemption price per class P share   
($3,384,277,023 divided by 3,384,324,216 shares)  $1.00 

* Offered at net asset value.

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

29

Statement of operations Six months ended 3/31/06 (Unaudited)   
 
INTEREST INCOME  $64,466,558 
 
EXPENSES   
 
Compensation of Manager (Note 2)  3,680,572 
Investor servicing fees (Note 2)  151,934 
Custodian fees (Note 2)  27,184 
Trustee compensation and expenses (Note 2)  43,800 
Administrative services (Note 2)  35,147 
Distribution fees — Class S (Note 2)  1 
Distribution fees — Class A (Note 2)  1 
Distribution fees — Class R (Note 2)  3 
Other  222,535 
Fees waived and reimbursed by Manager (Note 2)  (1,949,360) 
Total expenses  2,211,817 
Expense reduction (Note 2)  (31,399) 
Net expenses  2,180,418 
Net investment income  62,286,140 
Net realized loss on investments (Notes 1 and 3)  (13,286) 
Net loss on investments  (13,286) 
Net increase in net assets resulting from operations  $62,272,854 

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

30

Statement of changes in net assets   
 
INCREASE (DECREASE) IN NET ASSETS     
  Six months ended  Year ended 
  3/31/06*  9/30/05 
Operations:     
Net investment income  $ 62,286,140  $ 80,814,542 
Net realized loss on investments  (13,286)  (42,918) 
Net increase in net assets resulting from operations  62,272,854  80,771,624 
Distributions to shareholders: (Note 1)     
From net investment income     
Class I  (7,999,552)  (35,197) 
Class S  (21)  (25) 
Class A  (21)  (24) 
Class R  (19)  (21) 
Class P  (54,395,728)  (80,674,859) 
Increase (decrease) from capital share transactions (Note 4)  1,236,772,725  (1,254,461,120) 
Total increase (decrease) in net assets  1,236,650,238  (1,254,399,622) 
 
NET ASSETS     
Beginning of period  2,430,265,597  3,684,665,219 
End of period (including distributions in excess     
of net investment income of $138 and undistributed     
net investment income of $109,063, respectively)  $3,666,915,835  $ 2,430,265,597 

* Unaudited.  		   

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

31

Financial highlights (For a common share outstanding throughout the period)

INVESTMENT OPERATIONS:        LESS DISTRIBUTIONS:      RATIOS AND SUPPLEMENTAL DATA: 
      Net          Total      Ratio of net 
  Net asset    realized and  Total  From    Net asset  return  Net  Ratio of  investment 
     value,  Net  unrealized  from  net    value,  at net  assets,  expenses to  income (loss) 
  beginning  investment  gain (loss) on  investment  investment  Total  end  asset  end of period  average net  to average 
Period ended  of period  income (loss)(a)  investments(b) operations  income  distributions  of period  value (%)(c)   (in thousands)  assets(%)(a,d)  net assets(%)(a) 
CLASS I                       
March 31, 2006**  $1.00  .0208  —  .0208  (.0208)  (.0208)  $1.00  2.10*  $282,636  .07*  2.15* 
September 30, 2005  1.00  .0258  —  .0258  (.0258)  (.0258)  1.00  2.61  1  .18  3.08 
September 30, 2004†  1.00  .0048  —  .0048  (.0048)  (.0048)  1.00  .48*  1  .08*  .48* 
 
CLASS S                       
March 31, 2006**  $1.00  .0203  —  .0203  (.0203)  (.0203)  $1.00  2.05*  $1  .12*  2.03* 
September 30, 2005  1.00  .0248  —  .0248  (.0248)  (.0248)  1.00  2.51  1  .28  2.50 
September 30, 2004†  1.00  .0044  —  .0044  (.0044)  (.0044)  1.00  .44*  1  .12*  .44* 
 
CLASS A                       
March 31, 2006**  $1.00  .0196  —  .0196  (.0196)  (.0196)  $1.00  1.98*  $1  .20*  1.96* 
September 30, 2005  1.00  .0233  —  .0233  (.0233)  (.0233)  1.00  2.36  1  .43  2.34 
September 30, 2004†  1.00  .0038  —  .0038  (.0038)  (.0038)  1.00  .38*  1  .18*  .38* 
 
CLASS R                       
March 31, 2006**  $1.00  .0183  —  .0183  (.0183)  (.0183)  $1.00  1.85*  $1  .32*  1.83* 
September 30, 2005  1.00  .0209  —  .0209  (.0209)  (.0209)  1.00  2.11  1  .68  2.10 
September 30, 2004†  1.00  .0027  —  .0027  (.0027)  (.0027)  1.00  .27*  1  .28*  .28* 
 
CLASS P                       
March 31, 2006**  $1.00  .0208  —  .0208  (.0208)  (.0208)  $1.00  2.10*  $3,384,277  .07*  2.10* 
September 30, 2005  1.00  .0258  —  .0258  (.0258)  (.0258)  1.00  2.61  2,430,261  .18  2.53 
September 30, 2004†  1.00  .0048  —  .0048  (.0048)  (.0048)  1.00  .48*  3,684,661  .08*  .49* 

* Not annualized.

** Unaudited.

† For the period May 6, 2004 (commencement of operations) to September 30, 2004.

(a) Reflects an involuntary contractual expense limitation in effect during the period. As a result of such limitation, the expenses of each class, as a percentage of its net assets, reflect a reduction of the following amounts (Note 2):

  3/31/06  9/30/05  9/30/04 
Class I  0.07%  0.10%  0.05% 
Class S  0.07  0.10  0.05 
Class A  0.07  0.10  0.05 
Class R  0.07  0.10  0.05 
Class P  0.07  0.10  0.05 

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

(c) Total return assumes dividend reinvestment.

(d) Includes amounts paid through expense offset arrangements (Note 2).

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

32  33 

Notes to financial statements 3/31/06 (Unaudited)

Note 1: Significant accounting policies

Putnam Prime Money Market Fund (the “fund”), is a series of Putnam Funds Trust (the “trust”), a Massachusetts business trust, which is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks to provide as high a rate of current income as Putnam Investment Management, LLC (“Putnam Management”), the fund’s manager, an indirect wholly-owned subsidiary of Putnam, LLC, believes is consistent with preservation of capital and maintenance of liquidity by investing in a diversified portfolio of high-quality short-term obligations.

The fund offers class I, class S, class A, class R and class P shares. Each class of shares is sold at net asset value without a front-end or deferred sales charge. The expenses for class I, class S, class A, class R and class P shares may differ based on each class’ distribution fee, which is identified in Note 2. The minimum order size for class I, class S, class A and class R shares is $10 million, subject to a temporary waiver by Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for financial institutions that confirm their intent to invest at least $10 million within 90 days. Orders placed by a financial institution for more than one client may be aggregated for purposes of the minimum initial order size. Class P shares are only available to other Putnam mutual funds.

Investment income, realized gains and losses and expenses of the fund are borne pro-rata based on the relative net assets of each class to the total net assets of the fund, except that each class bears expenses unique to that class (including the distribution fees applicable to such classes). 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 the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares.

In the normal course of business, the fund enters into contracts that may include agreements to indemnify another party under given circumstances. The fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be, but have not yet been, made against the fund. However, the fund expects the risk of material loss to be remote.

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 The valuation of the fund’s portfolio instruments is determined by means of the amortized cost method (which approximates market value) as set forth in Rule 2a-7 under the Investment Company Act of 1940. The amortized cost of an instrument is determined by valuing it at its original cost and thereafter amortizing any discount or premium from its face value at a constant rate until maturity.

B) Joint trading account Pursuant to an exemptive order from 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 issues of high-grade short-term investments having maturities of up to 90 days.

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

34

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 coun-terparty. 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 recorded on the trade date (the date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Premiums and discounts from purchases of short-term investments are amortized/accreted at a constant rate until maturity. Gains or losses on securities sold are determined on the identified cost basis.

E) 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 of 1986 (the “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 Code, 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 September 30, 2005, the fund had a capital loss carryover of $7,169 available to the extent allowed by the Code to offset future net capital gain, if any. The amount of the carryover and the expiration dates are:

Loss Carryover  Expiration 
 
$4,647  September 30, 2012 
2,522  September 30, 2013 

The aggregate identified cost on a financial reporting and tax basis is the same.

F) Distributions to shareholders Income dividends are recorded daily by the fund and are paid monthly. Distributions from capital gains, if any, are 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. Dividend sources are estimated at the time of declaration. Actual results may vary. Any non-taxable return of capital cannot be determined until final tax calculations are completed after the end of the fund’s fiscal year. 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.

G) 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

Putnam Management is paid for management and investment advisory services monthly based on the average net assets of the fund. Such fee is based on the annual rate of 0.20% of the average net assets of the fund. The fund also compensates Putnam Management monthly for certain administrative services provided based on the average net assets of the fund. Such administrative fees are based on an annual rate of 0.05% of the average net assets of the fund and totaled $736,451 for the period ended March 31, 2006. These amounts are included in Compensation of Manager in the statement of operations.

Putnam Management has agreed to limit its compensation (and, to the extent necessary, bear other expenses) through September 30, 2006, to the extent that expenses of the fund (exclusive of brokerage commissions, interest, taxes and extraordinary expenses, credits from Putnam

35

Fiduciary Trust Company (“PFTC”), a subsidiary of Putnam, LLC, and payments under the fund’s distribution plan) would exceed an annual rate as low as 0.15% of the fund’s average net assets and in any event no greater than 0.20% of the fund’s average net assets. For the period ended March 31, 2006, Putnam Management waived $1,949,360 of its management fee from the fund.

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. PFTC receives fees for custody services based on the fund’s asset level, the number of its security holdings and transaction volumes. Putnam Investor Services, a division of PFTC, provides investor servicing agent functions to the fund. Putnam Investor Services is paid a monthly fee for investor servicing at an annual rate of 0.01% of the fund’s average net assets. During the period ended March 31, 2006, the fund incurred $179,118 for these services.

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. For the six months ended March 31, 2006, the fund’s expenses were reduced by $31,399 under these arrangements.

Each independent Trustee of the fund receives an annual Trustee fee, of which $838, as a quarterly retainer, 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, industry seminars and for certain compliance-related matters. Trustees also are reimbursed for expenses they incur relating to their services as Trustees. George Putnam, III, who is not an independent Trustee, also receives the foregoing fees for his services as Trustee.

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 noncontribu-tory defined benefit pension plan (the “Pension Plan”) covering all Trustees of the fund who have served as a Trustee for at least five years and were first elected prior to 2004. Benefits under the Pension Plan are equal to 50% of the Trustee’s average annual attendance and retainer fees for the three years ended December 31, 2005. Pension expense for the fund is included in Trustee compensation and expenses in the statement of operations. Accrued pension liability is included in Payable for Trustee compensation and expenses in the statement of assets and liabilities. The Trustees have terminated the Pension Plan with respect to any Trustee first elected after 2003.

The fund has adopted distribution plans (the “Plans”) with respect to its class S, class A and class R shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management for services provided and expenses incurred in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate of up to 0.25%, 0.35% and 1.00% of the average net assets attributable to class S, class A and class R shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.10%, 0.25%, and 0.50% of the average net assets attributable to class S, class A and class R shares, respectively.

Note 3: Purchases and sales of securities

During the six months ended March 31, 2006, cost of purchases and proceeds from sales (including maturities) of investment securities (all short-term obligations) aggregated $26,392,125,485 and $25,175,874,847, respectively.

36

Note 4: Capital shares

At March 31, 2006, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares at a constant net asset value of $1.00 per share were as follows:

CLASS I  Shares    Amount 
 
Six months ended 3/31/06:     
Shares sold  3,551,627,119  $ 3,551,627,119 
Shares issued       
in connection       
with reinvestment     
of distributions  5,427,510    5,427,510 
  3,557,054,629    3,557,054,629 
Shares       
repurchased  (3,274,406,194)  (3,274,406,194) 
Net increase  282,648,435  $  282,648,435 
 
Year ended 9/30/05:     
Shares sold  71,990,760  $  71,990,760 
Shares issued       
in connection       
with reinvestment     
of distributions  31    31 
  71,990,791    71,990,791 
Shares       
repurchased  (71,990,760)    (71,990,760) 
Net increase  31  $  31 

CLASS S                                               Shares                                                                            Amount                                                              
Six months ended 3/31/06:     
Shares sold  —  $ — 
Shares issued     
in connection     
with reinvestment     
of distributions  21  21 
  21  21 
Shares     
repurchased  —  — 
Net increase  21  $ 21 
 
Year ended 9/30/05:     
Shares sold  —  $ — 
Shares issued     
in connection     
with reinvestment     
of distributions  30  30 
  30  30 
Shares     
repurchased  —  — 
Net increase  30  $ 30 
 
CLASS A  Shares  Amount 
 
Six months ended 3/31/06:     
Shares sold  —  $ — 
 
Shares issued     
in connection     
with reinvestment     
of distributions  21  21 
  21  21 
Shares     
repurchased  —  — 
Net increase  21  $ 21 
 
Year ended 9/30/05:     
Shares sold  —  $ — 
Shares issued     
in connection     
with reinvestment     
of distributions  27  27 
  27  27 
Shares     
repurchased  —  — 
Net increase  27  $ 27 

37

CLASS R                                                               Shares  Amount 
 
Six months ended 3/31/06:   
Shares sold  —  $ —                       
Shares issued   
in connection   
with reinvestment   
of distributions  19  19 
  19  19 
Shares   
repurchased  —  — 
Net increase  19  $ 19 
 
Year ended 9/30/05:   
Shares sold  —  $ — 
Shares issued   
in connection   
with reinvestment   
of distributions  24  24 
  24  24 
Shares   
repurchased  —  — 
Net increase  24  $ 24 
 
CLASS P  Shares  Amount 
Six months ended 3/31/06:   
Shares sold                                               11,733,925,831  $ 11,733,925,831 
Shares issued                                                     
in connection   
with reinvestment   
of distributions  —  — 
  11,733,925,831  11,733,925,831 
Shares   
repurchased  (10,779,801,602)  (10,779,801,602) 
Net increase  954,124,229  $ 954,124,229 
 
Year ended 9/30/05:   
Shares sold  27,898,576,706  $          27,898,576,706 
Shares issued   
in connection   
with reinvestment   
of distributions  —  — 
  27,898,576,706  27,898,576,706 
Shares   
repurchased  (29,153,037,938)                                    (29,153,037,938) 
Net decrease  (1,254,461,232)  $ (1,254,461,232) 

At March 31, 2006, Putnam, LLC owned the following class shares:

    Percent of   
  Shares  Ownership  Value 
 
Class S  1,051  100%  $1,051 
Class A  1,048  100%  $1,048 
Class R  1,043  100%  $1,043 

At March 31, 2006, other Putnam mutual funds, and not Putnam, LLC, owned 3,384,324,216 class P shares of the fund (100% of class P shares outstanding), valued at $3,384,277,023.

Note 5: Regulatory matters and litigation

Putnam Management has entered into agreements with the Securities and Exchange Commission and the Massachusetts Securities Division settling charges connected with excessive short-term trading by Putnam employees and, in the case of the charges brought by the Massachusetts Securities Division, by participants in some Putnam-administered 401(k) plans. Pursuant to these settlement agreements, Putnam Management will pay a total of $193.5 million in penalties and restitution, with $153.5 million being paid to certain open-end funds and their shareholders. The amount will be allocated to shareholders and funds pursuant to a plan developed by an independent consultant, and will be paid following approval of the plan by the SEC and the Massachusetts Securities Division.

The Securities and Exchange Commission’s and Massachusetts Securities Division’s allegations and related matters also serve as the general basis for numerous lawsuits, including purported class action lawsuits filed against Putnam Management and certain related parties, including certain Putnam funds. Putnam Management will bear any costs incurred by Putnam funds in connection with these lawsuits. Putnam Management believes that the likelihood that the pending private lawsuits and purported class action lawsuits will have a material adverse financial impact on the fund is remote, and the pending actions are not

38

likely to materially affect its ability to provide investment management services to its clients, including the Putnam funds.

Putnam Management and Putnam Retail Management are named as defendants in a civil suit in which the plaintiffs allege that the management and distribution fees paid by certain Putnam funds were excessive and seek recovery under the Investment Company Act of 1940. Putnam Management and Putnam Retail Management have contested the plaintiffs’ claims and the matter is currently pending in the U.S. District Court for the District of Massachusetts. Based on currently available information, Putnam Management believes that this action is without merit and that it is unlikely to have a material effect on Putnam Management’s and Putnam Retail Management’s ability to provide services to their clients, including the fund.

39

Fund information

Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We manage over 100 mutual funds in growth, value, blend, fixed income, and international.

Investment Manager  Officers  Francis J. McNamara, III 
Putnam Investment  George Putnam, III  Vice President and 
Management, LLC  President  Chief Legal Officer 
One Post Office Square 
Boston, MA 02109  Charles E. Porter  Charles A. Ruys de Perez 
Executive Vice President,  Vice President and 
Marketing Services  Associate Treasurer and  Chief Compliance Officer 
Putnam Retail Management  Principal Executive Officer 
One Post Office Square  Mark C. Trenchard 
Boston, MA 02109  Jonathan S. Horwitz  Vice President and 
Senior Vice President  BSA Compliance Officer 
Custodian  and Treasurer 
Putnam Fiduciary  Judith Cohen 
Trust Company  Steven D. Krichmar  Vice President, Clerk and 
Vice President and  Assistant Treasurer 
Legal Counsel  Principal Financial Officer 
Ropes & Gray LLP  Wanda M. McManus 
Michael T. Healy  Vice President, Senior Associate 
Trustees  Assistant Treasurer and  Treasurer and Assistant Clerk 
John A. Hill, Chairman  Principal Accounting Officer 
Jameson Adkins Baxter,  Nancy E. Florek 
Vice Chairman  Daniel T. Gallagher  Vice President, Assistant Clerk, 
Charles B. Curtis  Senior Vice President, Staff  Assistant Treasurer 
Myra R. Drucker  Counsel and Compliance Liaison  and Proxy Manager 
Charles E. Haldeman, Jr.     
Paul L. Joskow  Beth S. Mazor   
Elizabeth T. Kennan  Vice President   
John H. Mullin, III 
Robert E. Patterson  James P. Pappas   
George Putnam, III  Vice President   
W. Thomas Stephens     
Richard B. Worley  Richard S. Robie, III   
Vice President   
   

This report is for the information of shareholders of Putnam Prime Money Market Fund. It may also be used as sales literature when preceded or accompanied by the current prospectus, the most recent copy of Putnam’s Quarterly Performance Summary, and Putnam’s Quarterly Ranking Summary. For more recent performance, please visit www.putnam.com. Investors should carefully consider the investment objective, risks, charges, and expenses of a fund, which are described in its prospectus. For this and other information or to request a prospectus, call 1-800-225-1581 toll free. Please read the prospectus carefully before investing. The fund’s Statement of Additional Information contains additional information about the fund’s Trustees and is available without charge upon request by calling 1-800-225-1581.

40



Putnam Prime Money Market Fund
Supplement to the Semiannual Report dated 3/31/06

The following information has been prepared to provide class P shareholders with a performance overview specific to their holdings. Class P shares are offered exclusively to other Putnam mutual funds. Performance of class P shares, which do not incur a front-end load, a distribution fee, or a contingent deferred sales charge, will differ from the performance of class I, S, A and R shares, which are discussed more extensively in the annual report.

RESULTS AT A GLANCE

Total return for periods ended 3/31/06   
 
  NAV 
 
Life of fund (since inception, 5/6/04)  5.27% 
Annual average  2.74 
1 year  3.69 
6 months  2.10 
 
Current yield (end of period)   
 
7-day yield (with expense limitations)  4.59% 
7-day yield (without expense limitations)  4.44 
30-day yield (with expense limitations)  4.54 
30-day yield (without expense limitations)  4.40 
 
Share value:  NAV 
 
9/30/05  $1.00 
3/31/06  $1.00 

Distributions:  No.  Income  Capital gains  Total 
  6  $0.020793  —  $0.020793 

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

Data is historical. Past performance does not guarantee future results. More recent returns

may be less or more than those shown. Investment return will fluctuate and you may have a gain or loss when you sell your shares. For the most recent month-end performance please visit www.putnaminvestments.com.

Performance assumes reinvestment of distributions and does not account for taxes. Class P shares do not carry an initial sales charge or contingent deferred sales charge. Yield reflects current performance more closely than total return. See full report for information on comparative benchmarks. If you have questions, please consult your fund’s prospectus or call Putnam toll free at 1-800-752-9894.

For a portion of the period, the fund limited expenses, without which returns and yields would have been lower.

A discussion of the information appearing in the tables below can be found in the “Your Fund’s Expenses” section of the accompanying shareholder report:

   
EXPENSES AND VALUE OF A $1,000 INVESTMENT   
assuming actual returns for the 6 months ended 3/31/06   
  
  Class P   
Expenses paid per $1,000  $0.76   
Ending value (after expenses)  $1,021.00   
   
EXPENSES AND VALUE OF A $1,000 INVESTMENT   
assuming a hypothetical 5% annualized return for the 6 months ended 3/31/06 
   
  Class P   
Expenses paid per $1,000  $0.76   
Ending value (after expenses)  $1,024.18   
  
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA   
  
Your fund's annualized expense ratio  0.15% 
Average annualized expense ratio for Lipper peer group †  0.37% 
  
‡ For class P shares, Putnam has adjusted the Lipper total expense average to reflect that class 
P shares do not incur 12b-1 fees.     

Item 2. Code of Ethics:

Not applicable

Item 3. Audit Committee Financial Expert:

Not applicable

Item 4. Principal Accountant Fees and Services:

Not applicable

Item 5. Audit Committee of Listed Registrants

Not applicable

Item 6. Schedule of Investments:

The registrant’s schedule of investments in unaffiliated issuers is included in the report to shareholders in Item 1 above.

Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End Management Investment Companies:

Not applicable

Item 8. Portfolio Managers of Closed-End Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers:

Not applicable

Item 10. Submission of Matters to a Vote of Security Holders:

Not applicable

Item 11. Controls and Procedures:

(a) The registrant's principal executive officer and principal financial officer have concluded, based on their evaluation of the effectiveness of the design and operation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the design and operation of such procedures are generally effective to provide reasonable assurance that information required to be disclosed by the registrant in this report is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.

(b) Changes in internal control over financial reporting: Not applicable

Item 12. Exhibits:
(a)(1) Not applicable

(a)(2) Separate certifications for the principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are filed herewith.

(b) The certifications required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended, are filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Putnam Funds Trust

By (Signature and Title):

/s/Michael T. Healy
Michael T. Healy
Principal Accounting Officer

Date: May 26, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title):

/s/Charles E. Porter
Charles E. Porter
Principal Executive Officer

Date: May 26, 2006

By (Signature and Title):

/s/Steven D. Krichmar
Steven D. Krichmar
Principal Financial Officer

Date: May 26, 2006